Mish, thanks. that is a good article.
Misconceptions About China
The idea that capitalism is stronger in the US than China is for the most part a myth or at least highly overrated.
I quite agree, and many Chinese do too. There is a popular saying in China now, Communism is in Europe, Socialism is in the US, and Capitalism is in China<g>.
Wealth inequality is excessive in China. While that might be true, it is worse in the US.
Mish, but Gini Index is higher in China (45.0) than in the US (40.8). It is true that there are some poor people in the US, but they are not as destitute as many in China.
Some people can become billionaire in very short time in China, while the possibility for that in the US is significantly lower<g>. The income tax rate for the super rich is significantly lower in China too comparing to that in the US. Considering merely 28 years ago, wealth inequality was virtually non-existent in China, the change is really shocking.
The idea that deflation would be 'bad' for China is misguided. There would be winners and losers in China but because of the high savings rate in China vs the negative savings rate in the US, because of serious overleverage to housing in the US, and because of enormous consumer debt levels in the US, a serious bout of deflation would be far worse for the US than China.
I quite agree that deflation will have far worse impact in the US than in China.
--To start with, one would have to have some wealth or a job in order to be “deflated”. Majority of Chinese are actually do NOT have much to deflate. So they would not suffer, and may even benefit from the deflation.
--The same is true for those who live on fixed income, including all the retired people, and there are tens of millions of them in urban China. In cities, now all females (except a few high ranking researchers/professionals who can work to age 60), have to retire at age 55, and males, at age of 60. A friend of mine who works in an university library told me she will have to retire at age 53, although the first two years until she is 55, she will get full pay, just like she has not retired.
--Another group of people, who will not be negatively affected and may even benefit from deflation, are those who get fixed minimum living stipend from the gov. (sort of like supplementary Social Security payment in the US). Before only cities have this welfare, and now some rural areas also start to have this.
--Deflation is not a new thing in China. Back in 1997, China had a very bad deflation, which lasted for a couple of years. And now looking back, it has not played a fatal role for China’s economic development.
I agree with you that deflation is a natural process, but I also think the gov. can do some very effective intervention in case of China. This is to print money and distribute it to the poor in forms of subsidies. And the resulted increasing consumption would help a lot for the over-capacity which is one major reason caused deflation in the first place.
This “printing money” thing has NOT worked well in Japan because, IMHO, they have NO enough needed population base to bring out the whole economy. It is China’s import from Japan that finally brought Japan out of their 20-year old deflation<g>
In developed countries, over-capacity tends to be the major reason to cause deflation. But in China, I think unemployment plays a more important role in deflation. There are now 11.5 million unemployed urban Chinese (many of them are young people in late 20s and early 30s), and an additional 150-250 million surplus labor from rural areas. They would like to consume more if they could.
As a matter of fact, many college students in China now already suffer from the wage deflation. A lot of them who can find a job, even if in big name foreign companies like Motorola, only get paid for $1000 Yuan /month, which is not nearly enough for food and shelter in cities, not to mention consume anything else.
Some would argue printing more money would cause inflation, I think that depends on where are those newly printed money is going. If they go to the needed, it would solve the over-capacity problem instead of causing inflation. This is what China is trying to do in its 11th Five-Year-Plan.
Message 22157247
”when is China coming up with its own brand names and kicking out the US from taking all the profits?”
With some exception, it will take at least 20 to 30 years for China to catch up. And that is if the Chinese gov. has the determination. China, under Mao Zedong, has realized basic modernization in one single generation. It is Deng’s stupid policy that sent China back to “washing dishes for the developed countries for pennies”.
And now with Hu Jintao at the helm, I think China has a lot of hope. The key is that Chinese officials have to stand up to the pressure from those established Western companies. Those companies, in order to protect their monopoly, they would try anything, including a lot of illegal means. China, until now, has NOT even had an anti-monopoly law in place yet. This is just ridiculous. Even if now, many industries in China are already monopolized by foreign companies.
For one thing, I would like to see the US Congress passes the law and put heavy tariff on China’s imports to the US. Because I am pretty sure China will suffer very little, 80% of the damage will go to the US companies themselves and companies from Japan, S. Korea….
Most of exports from China are actually the exports of Japan, the US, S. Korea, …. China is only the last stop of the assembly line. In order to secure maximum profit, many foreign companies require in the contract of using their own imported components (at inflated price), and then export at below market price, thus booked as loss on the ledger so they do not even pay any tax to the Chinese gov. By doing this, they transfer almost all the profit out of China without even leaving a trace.
So the only ones who benefit from this global economy are the elites all over the world, the CEOs, to some degree, share holders. No one else!
BTW, almost ALL the good Chinese companies are only listed on Foreign stock market, NOT on China’s domestic market, and people wonder why China’s domestic stock market is so depressing<g>. So ordinary Chinese cannot even benefit on that front! Those Chinese companies, including big monopoly SOEs like PTR…, make huge profit out of Chinese, while only foreign share holders can enjoy the profit! Chinese are being screwed twice!
Although I read that soon China will ask companies to consider listing domestically before they can go abroad listing. And PTR will soon to be listed in China A Share market too. |
