08 September 2010

China's Uncertain Economic Future

Conventional economic wisdom sees China as the economic powerhouse of the future -- driving world economic demand for energy and commodities through most of the 21st century. Persistent annual GDP growth rates near or above 10% have made financial analysts confident that China's economic future is secure -- even if no one else's is.

But if this confidence in the rosy future of China is misplaced, then everything we are being told about the future prices of energy and commodities -- and about the state of the global economy -- is very likely wrong. Which means that the medium term forecast will call for catastrophic storms of a global economic nature. If China's economic resources are being squandered on a construction bubble which skews the economic numbers, consumes a huge portion of the world's commodities for nothing, feeds corruption at the highest levels, and misleads the economic analysts of the world as to the true prospects of China's economy -- we have a big problem.
Recent statistics show that there are about 64 million apartments and houses that have remained empty during the past six months, according to Chinese media reports. On the assumption that each flat serves as a home to a typical Chinese family of three (parents and one child), the vacant properties could accommodate 200 million people, which account for more than 15% of the country’s 1.3 billion population. But instead, they remain empty. This is in part because many Chinese believe that a home is not a real home unless you own the flat.
And so people prefer buying to renting, and as a result, the rental yield is relatively low.

This has fuelled worries that China’s property market is bubbling. Yi Xianrong, a prominent economist, said the numbers are “shocking” and the country’s property market is dangerously overheated. “Many of them are bought by property speculators betting on a constantly rising property market,” he wrote in a commentary to the official newspaper, the People’s Daily. “This is a serious threat to the sustainability of China’s economy.” _FinanceAsia
China's political future rests upon its ability to offer a growing prosperity to its people. If China's economic numbers turn out to be mostly "smoke and mirrors," the people will grow restless. Already a growing number of Chinese within and without the government are calling for meaningful political freedoms to expand.
if the Hu-Wen leadership does not act soon, China is unlikely to see major political reforms for at least the next five years, despite everyone at senior levels agreeing on the desirability of such changes.

What is needed is action now, before pent-up frustrations result in an explosion that cannot be contained. _ChinaPost

China can easily explode in fury if its people were to suddenly wake up to the vast levels of corruption, mismanagement, and destruction of future potential which are manifested at every level of government in China. While everything looks fine on the outside, inside the bamboo prison, it is a cauldron of uncertainty and violent jostling for position.

US President Obama's plan for the US economy appears to be to borrow and spend $trillion dollar deficits into the indefinite future -- assuming the overseas borrowers of US debt will always be standing in line to purchase US securities at any old interest rate. The truth is more ominous than you will likely learn in the media or from most economic analysis in the mainstream. Unless the rest of the world begins to buy China's products as it did up till 2008, China cannot serve as the lender and commodities-buyer of last resort for long.

Artificial inflation of China's GDP numbers via a vast, corrupt construction bubble, can only work for so long. When the dominoes begin to fall, they will create more collateral damage than most people currently understand.


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Blogger gtg723y said...

It is my greatest hope that the people of China soon know the freedom that is enjoyed by those living in Hong Kong. It is also my hope that China becomes the shining example of how to move from Government owned Government Controlled
(communism) to Government Owned Privately Controlled (socialism)to Privately Owned Privately Controlled (capitalism). If they are able to do this then that means there is still hope for us to return to our former glory and freedom.

Wednesday, 08 September, 2010  
Blogger Max said...

China has its problems. There is a shift in demographics caused by one child policy - which is imho ultimately very good policy ,but its incompatible with current capitalism model which is based on permanent growth. Economy of japan is "stagnating" mostly because of this

Permanent growth is unsustainable long term , hence I am for population control. We dont neeed 10 billions dumb semi monkeys. just a hundred million will be enough

Now China has assets - it has large population (and it will be large for long time) of above average intelligence people. They have industrial base and Id argue and this point they got down the scientific base as well. In 10-20 years most of the major innovations will come from China

They already jump started several important programs. (one for example is search of intelligence foundation in genes) . They also know about their energy and resource problems -they expanding in Africa and do a massive build up of energy structure (massive nuclear power rollout in next 10 years)

Yes china future is not all rainbows and ponies, but they know about it . They are slow imho, but steady. They will get there

Now US and Europe perspective are not so good. Population is expanding but its mostly low IQ people. Industrial base is long gone. Economy is a consumerist bubble fueled by borrowing .Energy policies for most part are insane.

Crash will hard and looks inevitable , save maybe for some magical innovations (cant rule it out ) - Craig Venter fuel producing bacteria could be one , or such.

My only worry is that if crash happens you will have a bunch of angry desperate people in ruined economy. This situation usually gives rise to militant nationalist trying to solve all the problems by war. Akin to Germany in 1920-1930s.

Third world war would not be pretty. China has respectable strike back capacity , and so does Russia. Serious clash may result in escalation to al fin apocalypse

Thursday, 09 September, 2010  
Blogger al fin said...

gtg: The government of China is afraid of giving its people too much freedom -- and for good reason. The top-heavy CCP is a teetering balancing act as it is. Imagine how difficult the country will be to govern when the people begin to feel a little freedom and personal power.

Max: The Chinese government's one child policy has destroyed the extended family in China. The long term repercussions from that bit of radical social engineering has only just begun to be felt.

China's government is not steady. That is the superficial facade that is projected. Anything less would invite insurrection from the people.

Europe's industrial base was almost totally destroyed in WWII, but it came back. Why? The same with Japan. Why? How could such a resurgence happen again?

A final apocalypse (see McCarthy's "The Road") is unlikely, but several simultaneous regional collapses are likely. Not from peak oil, not from climate change, not from overpopulation -- from stupidity.

Humans cannot control truly complex systems, but they try. It is the attempt to control such complex systems which will lead to regional collapse. Hubris and greed for power.

Such greed for power motivates the global green environmental movement, although you will not read that in their press releases.

The incompetent and skill-less thinking behind the greens creates unsustainable misallocations of resources -- as we have seen in Europe and are seeing under the current US government.

They talk about "ecology" but have not the slightest idea of how systems actually operate.

Thursday, 09 September, 2010  
Blogger Kalashnikat said...

What prevents the owners of those empty apartments from selling them off as condominiums to those chinese who want to own them...overpricing due to the bubble? Corrupt government control of the real estate sales process?

Fold into the scenario a population bubble (one child per family), and a disproportionate preference for male children (to the tune of 20 million lifetime bachelors not looking for family housing) and you really do have a potential social nightmare with a dissatissfied Chinese nation. Unintended consequences of "centralized family planning"...

Thursday, 09 September, 2010  
Blogger gtg723y said...

Al: That is why I hope for a transition, too much too fast could cause unrest, and unrest with that many people will be heat breaking and terrible, and there will too many for us to help, provided we are in the position to help.

Max: You are forgetting China's biggest demographic problem caused by the one child policy. Boys are prized in China more than girls, so many girls have been aborted, China's official number is 50 50 but estimates from other sources say it is closer to 70 30. I went to a school that was 70 30, I have seen what that looks like, and I have seen the effect it has on men in such an environment. It isn't pretty, and will have far more reaching consequences than anything else.

Friday, 10 September, 2010  
Blogger al fin said...

Doug: A lot of developers are indeed left holding the bag due to inflated pricing -- and a lot of the money behind that development was funneled through state-owned enterprise accounts / banks, and stolen from various governmental social safety net accounts.

In other words, the rot goes all the way to the top, and when the bubble bursts -- when the people realise that their golden property holdings have turned to rusting debris -- a lot of people will be stood up against the wall to pay for all of this.

Saturday, 11 September, 2010  

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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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