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Chinese Carrier
- Thread starter tomcatfan
- Start date
Well for starters, China's economy tanked after 2008 just the same as everyone else's. China does not have enough domestic demand to drive their own economy, they are primarily dependent on exports. The government there I believe is terrified of an uprising occurring, as there is a lot of ethnic unrest in China and there are no social safety nets of any kind (note how they've been censoring regarding the Middle East uprisings). When their economy hits a recession, all hell may well break loose. In response to the crisis, China's government enacted a massive stimulus, which has been fueling a tremendous amount of infrastructure development in China. The problem is that much of the infrastructure is of very shoddy quality (Google "shanghai garbage bridge" for an example) and is the modern equivalent of building pyramids, as so much of it is empty; China actually has whole cities that they have built that are empty even). It really does look like China is facing a real-estate bubble that makes the U.S.'s pale by comparison.
All of this infrastructure growth, however, being fueled by the government, is used to give the illusion of economic growth in China (a lot of local Chinese governments use real-estate development as a way to meet economic growth targets as well). Building things like skyscrapers, malls, etc...counts as GDP, even if it is ultimately worthless GDP. This problem was encountered when trying to figure out what the true level of economic growth, and the economic strength, of the Soviet Union was. It produced a whole lot of "stuff," which on paper counted as GDP, but most all of it was worthless, so on paper it appeared a lot stronger economically than it really was. China I view as very similar in this sense with their infrastructure growth.
More evidence of the problem of their stimulus is that stimulus generally isn't workable, because it takes too long to get the money out as one must figure out how exactly to spend the money. A country like China "can" flood their economy with money, but that results in spending it very recklessly, which is what the Chinese are doing. This is not true economic growth though. There is actually quite a bit of talk out there about China being in a bubble, here are some links:
http://www.businessday.co.za/articles/Content.aspx?id=153813
http://www.property-report.com/site/china-braces-for-bubble-burst-as-property-sales-fall-16391
http://www.zerohedge.com/article/gm...ags-must-read-fresh-perspective-chinas-bubble
http://seekingalpha.com/article/259775-china-is-not-a-bubble-it-s-the-hindenburg
http://www.thedailybeast.com/articl...-about-to-burst-says-vikram-mansharamani.html (Japan had an art bubble right alongside their real-estate bubble too)
http://www.businessinsider.com/pictures-chinese-ghost-cities-2010-12?slop=1#
http://www.businessinsider.com/ther...in-china-to-house-over-half-of-america-2010-9
http://www.businessinsider.com/the-chinese-real-estate-bubble-is-the-most-obvious-bubble-ever-2010-1#
Skyscraper construction is historically also a great bubble indicator, here are some links on that regarding China:
http://www.forbes.com/2011/03/10/skyscrapers-burj-dubai-leadership-leaders-bubbles.html
http://finance.yahoo.com/tech-ticke...ers-are-classic-bubble-indicators-536048.html
China right now is going through what I nickname the “Economic Invincibility” stage, the period of all up-and-coming economies (and even economies that have been thriving for a long time), whereby they can give off the aura that they are invincible, and that their government has created a new “model” of economy that is superior. The laws of economics do not apply to them, supposedly. It happened with the Soviet Union. It happened with Japan. It happened with South Korea. It happened with Dubai. It happened even with the United States as the U.S. had been experiencing such a great economy with low inflation and low unemployment overall for such a long time. Actually, it happened twice. First in the late 1990s, with the Dot Com bubble, whereby we had supposedly reached a new era with a “New Economy,” whereby the old rules of running companies and investing supposedly did not apply anymore. Then in I think 2006, you had Ben Bernanke giving a speech discussing how we had reached a “new era” in macroeconomics, how our economy had advanced to the point of where major recessions were a thing of the past, and then BOOM! the housing bubble bursts, then the credit crunch and the financial crash.
Now it is China that everyone sees as the “new model,” with its “state capitalism” or “market socialism,” that is claimed to be (AGAIN) above the laws of economics. You will find in much of the talk of a Chinese bubble, people saying, "Well, THIS TIME, it's different!" (which has been said regarding every major bubble in history). The laws of economics say one thing, but the Chinese govenrment says something else, therefore, the Chinese government dictates how the economy will go, etc...they will have a blowup at some point just like everyone else. But China suffers from the problems of inefficiency (via its state-owned enterprises, which still make up about 2/3 of its economy), corruption (via its dictatorial system and state-owned enterprises—the Soviet economy for example was notoriously corrupt)), misallocation of capital (this due to the corruption), major demographic problems, major environmental problems, and problems such as considering only the short-term, and not the long-term (such as their local governments doing whatever is needed to meet economic growth targets).
Now if the Chinese government had not had to enact any massive stimulus, if their level of domestic demand was literally large enough to continue to drive the growth of their own economy AND drive the growth of many of the other economies in the world, then that would be a real mark of a truly strong economy, a true global economic anchor. But China has a ways to go to get to that point, and its questionable if it ever will right now. Due to all of the above, I do not believe the economic growth numbers coming out of China right now are really representative of their true level of growth. It also is just simple economic reasoning: how does an economy, one dependent on exports, continue growing when the export demand drops off? If the export demand is replaced by government demand via the government utilizing its reserves to gun up construction, how does that result in actual economic growth? The economist Nouriel Roubini believes China is in for a major slowdown soon:
http://www.project-syndicate.org/commentary/roubini37/English
Investor Jim Chanos, who foresaw both the Dot Com bubble and the real-estate bubble, thinks China is in a bubble as well: http://www.marketwatch.com/story/chanos-chinas-hard-landing-has-already-begun-2011-10-17
Well I figured I should explain my point of view is all, didn't mean to make a post too long for folks to read.
Don't get me wrong, it wasn't too terribly long. By internet forum standards however, that was like reading the unabridged version of The Count of Monte Cristo. It was actually nice to see a well thought out, formulated, and sourced response. Usually threads that tangent down a road like this end up in baseless name calling.
I'd like to deal in facts, not people's theories or predictions. I'm sure it makes all of us feel better about our own shitty economy when we assail one of the few countries who have managed to weather the storm. Everyone likes to predict all kinds of things, bubbles, statistical obfuscation, etc.
China's economy has grown between 8 and 14 percent over the last 10 years, according to the IMF. Quoting some interweb crackpots that claim China is cooking the statistics doesn't really measure up. OBTW, said crackpot has a book he wants to sell you.
The idea that China has a weak domestic market is a red herring. China is an exporter. Consequently, it has a ton of cash on hand to buy stuff and to loan to the US treasury.
Is China experiencing a bubble? Nobody knows and impossible to forecast with any accuracy. Anyone telling you different is trying to sell you something or they're just full of shit.
So, I'm interested in hearing your theory behind all this, not a bunch of links. If China is faking their GDP growth, where's all their money coming from? These guys have been engaged in a fit of conspicuous consumption the likes of which God has never seen. How do they pull this off if it's all a scam?
Brett
I'll own that title.
The problem is that much of what is "factual" in economics is also theoretical. Things like GDP, aggregate demand, etc...those are subjective terms (some economists have argued there is no such thing even as aggregate demand, for example) that can be difficult to measure.
But that's just the thing. They haven't. If they had, then there wouldn't have been a need for them to enact such a massive stimulus (which, as has happened in other countries when such stimulus has been done in the past, is causing them high levels of inflation at the moment as well). Any country that has large reserves can give off the illusion of economic growth by engaging in a whole lot of reckless spending. If the U.S. had a spare few trillion lying around, and decided to just go ahead and construct a couple of trillion worth of infrastructure, and do it very quickly (no problems regarding taking people's property from them or environmental concerns), then we could give the illusion of economic growth as well.
In order for a stimulus to create real economic growth, time must be taken to figure out just WHAT to spend the money on. That time makes it take too long to get the money into the economy, so that usually the result is the economy recovers on its own by the time the money starts to flow into the economy (this is one of the reasons why macroeconomists mostly gave up on fiscal stimulus back in the 1970s). Japan, for example, which spent half their GDP on stimulus, did not flood their economy with the money as they took the time to spend it on things they needed (infrastructure work), but even then, it still didn't really result in any real economic growth for them.
The Chinese flooded their economy with a massive sum of money which the state-owned banks were ordered to loan immediately and the state-owned construction companies were ordered to build, build, build immediately. There is simply no way the Chinese could have done the due diligence required to be spending that money properly.
The thing with China though is that there is a lot of evidence pointing to their being in a bubble. You can't just construct whole cities and somehow give this aura of defying the laws of economics. China is subject to the same laws of economics as is everybody else.
Two things:
1) Regarding the IMF, so what? The economic experts also thought the Soviet economy was a lot stronger than it originally was as well. You had the Nobel Prize-winning economist Paul Samuelson in the late 1980s talking about how much more efficient the Soviet economies were over the Western economies. During the 2000s, the Federal Reserve put out multiple studies concluding that there was NOT a housing bubble occuring.
Institutions like the IMF measure China's GDP growth via things like the infrastructure growth occuring there, which they count as GDP. But if the infrastructure is mostly going to go unused, or is of very shoddy quality (which considering China's notorious lack of quality control and high levels of corruption), it isn't real GDP, not of the kind that gives the country the economic might it needs to be influential in the world.
2) I am quoting a variety of sources. Nouriel Roubini is a very respected global economist, and Jim Chanos is a respected investor who has spotted some key bubbles before.
Exports are a major driver of its economy though. If said export demand drops off, what continues to drive its economy? It's economy cannot just keep growing at very high levels without something else replacing the export demand. That is the Chinese government. Without the government, the Chinese economy would go into a recession for awhile, just like everyone else.
You are correct that nobody knows anything for sure, but there are some major red flags occurring with regards to the Chinese economy.
Well I thought I had outlined my theory on it in my post with the "lots of words" that I wrote. Their money I'd venture is coming from the cash reserves that they have built up ($2 trillion or so). As for the fit of conspicuous consumption, again I say, "So what?" The U.S. population engaged in a fit of conspicuous consumption during the 2000s during the real-estate bubble. Some have pointed out that measuring the health of an economy via how much the people are consuming is inaccurate, because if the consumption is being fueled by debt, as it was in the case of the U.S., it isn't a true indicator of economic health or prosperity.
In the case of the Chinese, much of it is due to debt taken on by local and provincial Chinese governments to fuel construction to meet economic growth targets (China recently reported that their local governments have built up around $1.6 trillion in debt) and the government fueling the construction sector of the Chinese economy (which makes up a large portion of their economy right now). I believe this is because the Chinese government cannot afford an economic slowdown at the moment, as the degree of civil unrest that might occur might get out of their ability to control it. There are no social safety nets in China. If a person loses their job, there is no unemployment benefits, food stamps, welfare, HUD, wic, Medicare, Medicaid, Social Security, etc...they are screwed.
And with the recent uprisings in the Middle East, the Chinese government is being especially watchful right now.
Mmmmm......Monte Cristo sandwich.....