The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.China seems unable to switch gears from the mode of capital production which worked so well back in the 1990s and early 2000s. Despite the prolonged economic slowdowns bedeviling the US and Europe, China continues to pretend that it can produce and export its way out of any economic difficulty.
The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government — all part of an effort to prop up confidence in the economy among business managers and investors _NYT
Officially, though, most of the inventory problems are a nonissue for the government.
The Public Security Bureau, for example, has halted the release of data about slumping car registrations. Data on the steel sector has been repeatedly revised this year after a new method showed a steeper downturn than the government had acknowledged. And while rows of empty apartment buildings line highways outside major cities all over China, the government has not released information about the number of empty apartments since 2008.
Yet businesspeople in a wide range of industries have little doubt that the Chinese economy is in trouble _NYT
More underlying problems in China's economy
A problem that becomes ever more difficult to conceal
China's government cannot allow employment to fall too low, or it will have massive popular unrest on its hands. And yet there is a limit to how far China can coast on its capital reserves built up during the great bubble years.
China's leaders are lost at sea, just at a time when they are planning a crucial "change of watch" in top leadership. The new generation of leaders and princelings will be even less prepared to deal with China's mounting economic and social problems.
The pressure is building within the middle kingdom. The only certain thing is that most pundits' predictions for China are likely to be wrong.
I am not sure how good their capital reserves are as well. What are all those US Treasuries worth if China tries to sell them all at once? What if there are no buyers because everyone else is broke as well? What if in retaliation, the US Treasury decides to selectively 'default' on China held debt?
ReplyDeleteThe Chinese leadership tried to strike the Devil's bargain: bringing prosperity without liberty for the common man. In the end, they will end up with neither and find themselves engulfed in chaos.
China is definitely hitting its speed bump. This will go on for several years similar to that of the mid 90's when growth slowed the last time. They need more free market reform and to get rid of a lot of crony capitalism. I disagree with Brian Wang (NBF) that "state capitalism" can get them further down the development road. The massive misallocation of capital in the current bubble is a manifestation of state capitalism, and the Chinese are notoriously corrupt. Even if the Beijing leadership has their act together and is trying to resolve the problems, authorities in the various provinces and cities are doing their own corrupt things.
ReplyDeleteChina is a country that really needs to be a totally free market driven society. Chinese people are too corrupt and individualistically chaotic to do the state driven thing that Japan and South Korea did. I think Taiwan (which really is a true free market society) is a better model for Chinese economic development than Japan, South Korea, or even Singapore.
Singapore is a special case. It works because they have objective rule of law, which is mostly a hand down from the British common law tradition. Singapore is about the only Asian country (or city-state) that is free from corruption. Taiwan is also very corrupt (even though you do not hear about it from the MSM or even the internet). Taipei's subway system as well as the shinkansen were rife with corruption during their construction. However, the corruption is less of a problem simply because Taiwan is a genuinely free market driven society with a relatively small government.