Guest Post: China is Different

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Cross posted from MacroBusiness

We need a new framework for understanding and interpreting what is happening in China. As a friend recently commented to me, there should be three categories of economies: developed, developing and China. China may struggle, but it will struggle in a uniquely Chinese way, and inevitably pose deep questions about the future of capitalism. Pundits, especially of the bearish persuasion, are fond of deriding the comment that “this time it is different”. But are things always the same? Analytics should match the subject matter (methodology should match ontology), and what has happened in China already is very different to anything yet seen. It has been the most sustained wealth creation in history, largely unpredicted. Two recent comments reported on MacroBusiness, one by Michael Pettis and the other by Nouriel Roubini reveal the problem.

Both pundits focus on China’s extremely high levels of investment, which is about half GDP, instead of about a tenth in most developed economies. Viewing China through the lens of a developed economy, they argue there is trouble ahead. But Pettis also sees the frameworks used for developed economies start to fail:

So is credit growth tight? A lot of analysts are saying that it is, but I have a different view. It seems to me that credit expansion is so great that it isn´t really useful to think of credit conditions as being tight, even though so many borrowers in the economy are desperate to access credit.

Instead I would argue that investment – especially infrastructure, SOE and other official investment – is so great that it is managing to overwhelm what would otherwise be considered very loose credit conditions. If credit were in fact tight, growth would slow dramatically but at least we would be rebalancing the economy and limiting future demand on household wealth transfers. As it is, I don´t think we are rebalancing at all.

This is, to return to my hobby horse, a symptom of the lack of a cost of capital in China. Due to the immaturity of the capital markets, for the most part, but also the extremely heavy bias towards reinvestment, especially in housing, that is a function of not being able to park the money where it gets a decent return. Interest on savings deposits is negative in real terms, so you lose money if you bank your profits. The stock market is small in terms of the number of companies and mostly government owned — a nice, very big, casino, but not much more — there is almost no corporate bond market and other types of finance are only nascent. So the best option is reinvestment of earnings in capex or storing wealth in property.

What everyone should be watching is what China is doing in its finance system, and it is moving very fast (and the shadow banking system is moving even faster). It has reformed the four key banks, allowed foreign banks to come in a limited way, managed its SOEs, started to develop a securities industry, started to develop a corporate bond market. But it is quite a balancing act. It still lacks the micro-infrastructure, such as accounting law, securities law, governance structures and so on that are necessary to having a fully functioning cost of capital – that is, capitalism (of a twentieth century type, as opposed to the much sicker, twenty first century type appearing in the West). The aim needs to be to stop the heavy dependence on various forms of lending, by instigating a shift to a better balance between shares, bonds and bank deposits as the capital structure (in developed economies they are roughy in balance). Big equity and bond markets are much safer than a system that depends mostly on bank lending because equity markets and bond markets can reprice without the system breaking, whereas banks break. So it is an issue of national security for the Chinese leadership.

Roubini made a similar observation about over investment, drawing similar conclusions to Pettis:

The problem, of course, is that no country can be productive enough to reinvest 50 per cent of GDP in new capital stock without eventually facing immense overcapacity and a staggering non-performing loan problem.

He argued that to ease the constraints on household income, China needs more rapid exchange-rate appreciation, liberalisation of interest rates and a much sharper increase in wage growth. In other words, the usual prescriptions for developed economies. A revaluation of the yuan would require keeping it fixed. If the yuan was floated it would almost certainly go down, at least in the short to medium term, as money flooded out of China. That means keeping China from becoming like other developed economies.

As for liberalisation of interest rates, lending to private firms is already extremely “liberal”, running at very high rates from diverse sources (including offshore), as Macquarie recently noted. The SOE/state banks nexus could be “liberalised” but that is reducing in importance, as The Economist noted in its study of “bamboo capitalism” . It is a fast shrinking proportion of the Chinese economy. Banks only account for half of total financing according to the Financial Times.

Roubini need not worry about wages growth, either. It is forecast even in the Five Year Plan to increase at about 20% a year; in many parts of Eastern China it is running at about 30%.

He then said this:

More importantly, China needs either to privatise its SOEs, so that their profits become income for households, or to tax their profits at a far higher rate and transfer the fiscal gains to households.

China is already trying to link the SOEs to consumption, but not in the way Roubini advises. It is looking to develop 100 global corporations whose profits can be used to fund the health and education systems. That is why they had a tax break. In other words, there is a version of privatisation under way (not privatisation of ownership, but privatisation of profits). Given the dubious record of privatisation in the West, which has not exactly been a highly successful exercise in wealth distribution — it has accelerated more concentration of wealth — the Chinese strategy makes sense (which is not the same as saying it is achievable). The reason the Chinese save so heavily is that health and education have little or no government support (oddly for a former communist country). That has to be fixed before consumption will increase and the Chinese leadership knows it.

No country can escape the basic arithmetic of money and over investment will create problems. But some deep questions need to be posed about what kind of capitalism China will pursue. To say the least, that has repercussions for capitalism everywhere else, especially when Western capitalism is in a process of being destroyed by the uber capitalists with their $4 trillion daily trade in cross border capital, their $US600 trillion of derivatives, about twice the capital stock of the world, their algorithmic trading that accounts for about half of the turnover in the US stock exchange. All those, by the way, are “different this time”. They have never existed before, it is a new variant of “capitalism”.

China is essentially choosing what kind of capitalism it will pursue; what kind of rules it will adopt. Similar to what the Japanese did, who decided to keep most of their transactions within the country, “who cares about the cost of capital”? China’s official financial system is still closer to communist than capitalist. And it is making the choice at a time when Western capitalism, courtesy of a rampant and irresponsible finance industry, is fragile in the extreme. The Chinese leadership has stopped feeling triumphant about its version of “capitalism” after seeing the failures in the West from the GFC. But there is still a serious and deep debate going on within the leadership about what direction to take. On that debate depends a large part of the future of world capitalism; that is, what we mean by “capital” (which is just rules). It is not just the scale of China’s growth that is skewing the world economy.

It would be a fool who thinks the Chinese don’t understand the challenge; they do. Having your life on the line if you get it wrong does rather tend to concentrate politicians’ minds. To get to the top in China on your merits when there is a billion people ensures some serious quality; we can safely assume that some of the Chinese leadership has significant intellectual grunt. It would be worthwhile to listen very closely to what the Chinese say about their understanding of capitalism and what it is doing at the micro, institutional level with its financial system, not so much what it does with the macro-economic levers. That would include taking seriously their claims that they remain “communist”.

Perhaps it is not that we need a new framework for China, but that we need to listen a lot more closely and watch what the Chinese are doing.

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38 comments

  1. bill

    a surprising and refreshing post on naked capitalism. i totally agree, and repost below something i wrote a year ago on my blog:
    Are There More China Bears Than Panda Bears? | Sinocism http://bit.ly/chMIeM

    None of the bearish cases that I have read take into account politics, social stability and the overriding mission of the Communist Party to retain power. The bearish foreign fund managers, pundits and analysts may be making a classic mistake of viewing China through their financial models. But as we learned in the crash of 2008, most of those models are flawed, even when applied to “free markets”.

    China may very well have bubbles in many sectors, but bubbles can last for a very long period, especially when you have an authoritarian government, a non-market economy, and a ruling party that took as one of its lessons after the collapse of the Soviet Union the need to deliver fast economic growth at all costs. Maybe that growth is inefficient, maybe it is wasteful, but that doesn’t not mean it has to end anytime soon. The Chinese government still has a lot of ammunition left to keep growth afloat, they are just as adept at marking bad assets to fantasy as Western banks and governments are, and they may very well believe that making the “correct” economic choices risks stability and possibly their political lives.

    As Willy Lam wrote in a recent essay for the Jamestown Foundation:

    “With the 18th Party Congress little more than two years away, PBSC members and other senior cadres are preoccupied with sustaining socio-political stability—and paving the way for the elevation of faction affiliates into the new Central Committee and Politburo. These conditions seem to militate against liberalization, which is seen as disruptive and destabilizing…For the foreseeable future, what party ideologues call the “leitmotif of the times” will likely remain, boosting the socialist orthodoxy in conjunction with beefing up the security apparatus.”

    Readers likely remember that the stock market already crashed in 2007-08, from over 6000 to 1700, and that real estate prices in major cities dropped 20-30% in 2008 after the government took measures reduce liquidity and then the financial crisis hit. The world didn’t end here.

    Maybe this time is different and the China Bears are right, and have enough money to stay solvent. Or maybe China Bears will learn that most Western observers of China consistently underestimate the resilience and longevity of the government and this very hard-to-model, very messy creation officially known in China as Socialism with Chinese Characteristics.

    It is possible we will eventually see China Bears higher up on the endangered species list than Panda Bears.

    1. Yves Smith Post author

      Even though I ran this post because it is well argued, recall that “This time is different” are the four most expensive words in investing.

    2. Ming

      China is a big Keynsian/ MMT nation, but they use financial system debts and a huge stockpile of US treasury securities ( courtesy of their massive current account surplus) to give the government the needed legitimacy ( internationally and locally) to print renminbi to pay for local ‘ investment’. The government also has shadow authority; there are opaque links between governemnt and the banks, and when the government demands the financial system make Loans to fund projects and maintain demand and employment, the finance system will respond.

      The chinese leaders understand that they must boost the ‘effective demand’ of the people; this requires mass employment, Rising real wages, AND increasing China’s real internal productivity via new knowledge and technology( afterall real wages cannot rise unless it is matched by a greater ability to produce, or the capacity to trade local products for desired foreign products). So , to attract new knkwledge and technology Capitol, China has made itsel extremely friendly to foreign business. To boost local employment, China has instigated a massive Capitol goods investment boom; unfortunately, it has been done without much thought for what is actually wanted or needed, resulting in an oversupply of capacity in some industries and an oversupply of real estate related investments( hence the empty malls and cities)…. In a normal, reasonably free market, with clear information, those debts against much of the newly formed Capitol would go sour, because It is far in excess of the effective demand of the citizen/ worker/consummer, or it is not what is needed. But as long as the government is willing to underwrite the debts, print the currency to satisfy them, demand that it’s financial sector remain compliant to the deception, while being able to trick the bankers of the west, their will be no financial ‘blow up’ in china; much wasted resources and effort, and hence no real improvement in the living standards of ordinary citizens, much unnecessary and dangerous emitted pollution, but no financial system ‘blow up.’

      1. Ming

        I would like to address the following section of the main article; from the second last paragraph:

        “…Chinese don’t understand the challenge; they do. Having your life on the line if you get it wrong does rather tend to concentrate politicians’ minds. To get to the top in China on your merits when there is a billion people ensures some serious quality; we can safely assume that some of the Chinese leadership has significant intellectual grunt.”

        Unfortunatley for China, the ‘significant intellectual grunt’ might not be of the useful problem solving, Benign, or inspiritational leadership type intelligence; the mantle of leadership could be seized by the socially/intelligent sociopathic type, a man brilliant at eliminating his enemies, and enriching himself and his friends, but bad for the country.

        1. Cali

          That segment of population is not really that important. Consider it job program during high unemployment time. In large part, China has successfully transition to modern economy, albeit still has gaps. These so called “grunt” plays little role in real economy decision making. Just like county representatives largely has no meaning to county developments. Might as well call it clown theater house for public amusement.

          China big challenge now is to create more sustainable growth. The next phase involved more complicated institution buildings (technological development office, regulatory watch, policy, university, modern public health system, completing the currency internationalization, etc)

          The “let’s build more factories”, paved more roads, etc will soon give diminishing economic return without more competent institutions. The public will want more than shiny cars, tall buildings and pep talks.

          In a funny way, the revolution will have to answer a challenge from its own success. What happen after the people have enough to eat and cloth, driving shiny car, money in banks and bored?

  2. financial matters

    Similar to this time is different is you ain’t seen nothing yet. China certainly has the opportunity to learn from the West’s mistakes and not copy many of those flawed practices. But Roubini and Pettis are also not intellectual lightweights and are watching closely what China is doing. They are also far from being apologists to the current western financial philosophies…. (I actually thought Roubini got a bit awestruck with China maybe after shaking hands with Chinese Premier Wen Jiabao at the China Development Forum in Beijing in March 2010 but that Pettis helped to give him a reality check)

    http://seekingalpha.com/article/227167-china-s-bubble-you-ain-t-seen-nothing-yet

    You ain’t seen nothing yet? That’s at least twice in two days, and I think I sense a pattern here. From time to time I like to formulate what I call Pettis’ Immutable Laws of Finance and Economics, so here goes:

    Pettis Law #17: You have not entered into the final stages of a bubble until you hear repeated use of the phrase “You ain’t seen nothing yet!”

  3. RebelEconomist

    Alternatively, the US could stop complaining about China’s current account surplus and do China a favour by providing an outlet for Chinese savings, and themselves a favour by investing cheap capital in higher-returning projects in America. But that requires humility about the changing distribution of wealth in the world, the abstemiousness not to consume this capital inflow, and the political flexibility to agree that many of the best projects are public (like levees in New Orleans), and Americans don’t seem to do those things nowadays.

    1. financial matters

      I don’t think that idea has gotten the credit it deserves….

      http://seekingalpha.com/article/230030-xin-faan-a-modest-proposal-to-resolve-the-coming-trade-war

      Xin Fa’an: A Modest Proposal to Resolve the Coming Trade War

      Michael Pettis
      10/14/10

      Well I guess one way to get this balance (here comes my modest proposal) would be for China to engineer a New Deal in America, which we could call Xin Fa’an (“new deal” in Chinese). Beijing needs the US to continue running a rising trade deficit in order to absorb Chinese overcapacity while China slowly rebalances its economy towards domestic demand, which will take many years.

      the US is paradoxically in a very good position to increase investment because it has very poor infrastructure for its levels of development. The US has tons of room for a major expansion in infrastructure and, unlike in China, almost any infrastructure spending is likely to be value creating.

      Let China engage in a massive rebuilding of US infrastructure – it can build airports, highways, damns, and railways – which would raise investment levels enough keep the US trade deficit high in a way that benefits the US and China.

      Talk about win-win. China will get the eight to ten years it desperately needs to engineer what will otherwise be a brutally difficult rebalancing.

      So can we get China to fund the Xin Fa’an in America? Probably not. Muddled Chinese public opinion will be furious that desperately poor China is investing in rich America, even though the overall returns will be better and the cost of China’s adjustment will be much lower. Muddled American opinion will be furious that America is “selling out” to China. Bumptious politicians in both countries will completely fail to get the underlying economics of the trade, and they will never allow it to happen. But it is still a pretty good idea.

      1. Cedric Regula

        I’m a Pettis and Roubini fan, but until macro economists give some thought to the return on investment transmission channel, all this discussion is as hopeless as MMT’ers advocating a money supply side push into a liquidity trap.

        For instance, take the well founded concern that investment at 50% of GDP in China is grossly excessive for some reason. One case study would be those brand new, empty cities we see in the news. How does an empty city generate cash flow and return on investment so the bank-government loans perform?

        In the US, China, thru either the PBoC or SWF or individuals, can, do or did invest in Treasuries or MBS and rely on intermediation to “invest” funds and provide the return path for return on investment back to investors. This of course depends on performing home loans and functional products in the case of MBS, and taxation when the USG is the intermediary in infrastructure investment. We are proving to the world we don’t want to do that so well.

        Outside this transmission mechanism for investment, we provide a wide range of “used” assets to gamble on price moves, up or down.

        Am I the only one that thinks the whole system is broken?

      2. Ming

        So… The Chinese will finance the rebuilding of America… And america should use the money for ‘infrastructure’ instead of consumers goods….but how does building infrastructure in America actually create business conditions so that local American industries can come to a current account balance ( or perhaps current account surplus so that America can repay the debt)?

        The primary issue is China’s real wages for the ordinary citzen is too low,
        AND pollution controls in China are far too lax; unless Cjina massively raises the standards of both, no local American company could compete with a Chinese company within the same Industry.

        1. financial matters

          Even if China did clean up its act, other countries could fill that gap of high pollution and low wages. I don’t think that’s the point. The point is that China has a very large surplus that could get a better return on investment. The US has had a lot of capital inflow but has squandered it on nonproductive activity. By this squandering the US (aka the deficit machine) has run out of spending money. China can invest in US infrastructure thus creating US jobs thus creating more spending money to buy Chinese exports. This gives China some breathing room to work on its own internal problems…

        2. RebelEconomist

          To follow my example of levees around New Orleans. If these had been raised as originally planned, the city probably would not have been devastated by hurricane Katrina, meaning that the restoration costs levvied on US businesses and households in the form of higher taxes and insurance premiums could have been avoided. This would have made US inc marginally more competitive.

          If Chinese firms can hire labour at the wages they offer, those wages are not too low. In some cases, Chinese wages have been too low to recruit and retain workers, and this has driven some shifting to higher value-added enterprises. If Chinese people value material wealth more than a clean environment at this stage of their development, it is hard for us to object unless their pollution creates negative externalities beyond China’s borders.

          1. RebelEconomist

            OK PMF, perhaps the Chinese will cut their atmospheric pollution output if the Americans cut their per capita output of carbon dioxide. Developing countries are not likely to be persuaded to make what they see as sacrifices while they can argue that richer countries are not doing as much as they could to help – eg by increasing gasoline taxes.

  4. jake chase

    It is absurd to analyze China using Western financial metrics. China has limitless raw materials, limitless labor. It owns the US Treasury, operates a command economy in which investment decisions are made for political reasons. The only thing China lacks is advanced military technology, and there can be little doubt that its financial and economic muscle will find 1000 ways to acquire this from a decadent profit mad US oligarchy. Don’t waste time worrying about China; worry about what US dependence on China means for us.

    1. James

      Yes, yes Jake Chase. Pride cometh before the fall, and if China pulls off this massive investment of the aforementioned profits from 100 of its global corporations into education we can kiss our inefficient, imbalanced economic advantage goodbye. For with the overfed, healthcare consuming monster that is the baby boomer aging population being the only demographic of the American population that votes there is no way that we’ll have the political will to invest in the education, financial regulatory reform, and efficient R&D necessary to compete with a now wiser Chinese command economy.
      My money would be in finding out the proclivities of the average Chinese consumer and how to exploit that while staying under the strict, sometimes fickle regulatory radar of the Chinese government. Any ideas? :)

    2. curmudgeonly troll

      China has little oil, poor quality coal, needs to import iron, in a bad harvest year needs to import food.

      If China had limitless raw materials, they wouldn’t be spanning the globe looking for them.

  5. burnside

    “It has been the most sustained wealth creation in history, largely unpredicted.”

    Send yourselves back to the 90s, or even later. Seldom have I encountered such harbingers, such heralds, such trumpetings.

  6. Richard Kline

    I agree strongly with the logic of this post from MacroBusiness, and have expressed quite similar sentiments her in NC comments for several years. I’ll add emphasis to the contention that China’s present context is sui generis: there are no valid historical comparables for the scale and vectors of changes there. They don’t escape from basic economic relationships, but they are playing the game with a different mix of powers and pieces.

    ‘Course if the proles go all revolutionary on ’em, things could go sideways . . . —Naw, not gonna happen.

  7. curmudgeonly troll

    I respectfully dispute the suggestion that China is moving very fast in financial reform.

    In a nutshell, the public listings of banks and corporations are a very thin veneer. The government retains majority stakes, control is not for sale, and shareholder influence of management is not on the table. It is not even necessarily the CEO, but the party which calls the shots. The corporate bond market is a joke … free trading and credible credit analysis are non-existent. SOEs float bonds at politically set rates which banks hold to maturity. Similarly, politicians and corporate friends influence banks to lend for pet projects. Since they are backed by the state, credit quality cannot be questioned, yet the state backing doesn’t seem to count for much when the projects are unable to service the debt. The banks are riddled with bad loans which are not recognized or stuffed in the asset management companies which are glorified government-sanctioned SIVs.

    I propose this model to understand China:

    – The party’s categorical imperative is control at all costs. Reforms which are enacted are the minimum which will keep social stability or appease Westerners. Anything that threatens or reduces party control will be resisted by all means necessary.

    – The next priority is for the the princelings and the establishment to enrich themselves, and secure real estate abroad in case they need to flee

    – Economic development is pursued to the extent it is consistent with these priorities, and social and political reform is excluded when it is not, as is it is in most cases.

    So far, the authorities have the tiger by the tail and have been able to keep things going. Everything will remain stable, until it doesn’t.

  8. paper mac

    Any model of Chinese development that doesn’t account for the biophysical limits on the growth of that economy, or the massive, unprecedented distance between the geopolitical loci of economic and military power of the world system is worthless. You can talk about overinvestment or metrics until you’re blue in the face, but it won’t change a goddamn thing when the Huang He is a couple inches of corrosive sludge, you’re losing 2-3% of your arable land to desertification a year, and your energy supplies are in large part dependent on the military guarantees of a shaky, unpredictably violent declining hegemon.

  9. einem Luftschlag


    struggle in a uniquely Chinese way, and inevitably pose deep questions about the future of capitalism


    Dad, if gravity pulls heat to the center of the Earth, what is the quantitative relationship between depth and temperature? Additionally if India and China are in a race for Far East Prominence, who is now overtaking the other?


    Who knows? One thing for sure( for each generation China halves its hungry population, but doubles its industrial output. By contrast India doubles its number of airline strikes, but halves its farm acres per hungry farmer. )


    Double your pleasure and half your acres.


    How many foot-pounds per calorie?


    0.323832 gram calorie is one foot pound.


    You can crunch your own numbers but the upshot of the heat stratification from gravity would put the center of the Earth at about 7,000 K whereas the surface mean temperature is roughly 287.2 K, Kelvin. This is a gradient of almost one Kelvin degree per vertical mile. The main point here is not the stratification but the heat-sink-effect of the 5.97 x 10^24 Kilogram mass that will take quadrillions of years to complete its cooling, but much longer to warm up again from *green-house effect*.


    Before quadrillion years we should be out of jet-fuel.


    Don’t forget our bio-diesel-jet-fuel project!


    Dream on!

  10. walt

    “Sorry, the page your[sic] requested could not be found, or no longer exists.” The macrobusiness link is dead.

  11. Alex

    China’s economic development is remarkable only for its scale. The particular engines driving its growth – credit, investment, low-margin exports – are as old as economics itself. Moreover, there is no conceivable way in which China practices “capitalism”: the state sets prices for many commodities, including gas, it does not allow banks to fail, and it keeps a tight lid on its exchange rate.

    “China may struggle, but it will struggle in a uniquely Chinese way, and inevitably pose deep questions about the future of capitalism. ”

    This sentence is nonsense. You could replace “China” and “Chinese” with any other nation/descriptor, and it would make as much sense. 1960s Brazil, 1980s Japan, and 1860s England, to cite but a few examples, would be surprised that combating financial repression, the diversion of income from households to the state, and inflation is a uniquely Chinese problem. Again, the only distinguishing quality is the scale of “China,” which is ultimately more of a loss conglomerate of distinct regions than a coherent nation-state like Japan.

    “It would be a fool who thinks the Chinese don’t understand the challenge; they do. Having your life on the line if you get it wrong does rather tend to concentrate politicians’ minds. To get to the top in China on your merits when there is a billion people ensures some serious quality; we can safely assume that some of the Chinese leadership has significant intellectual grunt.”

    If you are going to make a “this time, it’s different” argument, you should not engage in such open moral hazard. Pettis in particular has ridiculed analysts who said the same thing about Japan’s leadership in the 1980s and how much “smarter” they were than their Western counterparts. Also, to rise to the top of the CCP leadership has as much to do with cronyism and networking as it does with raw intellectual heft.

    1. Qing

      I agree with everything you said. One question I have is whether the Chinese will suffer the same fate as the Japanese in the late 80s, or will the U.S. and EU be unable to slam their economy back down into the ground?

  12. Max424

    If China was football team, their Casino — which the bears and bulls of the Investor Class natter endlessly about — would be the equivalent of their back-up punter. That’s how important China’s Casino is to their future; to their ability to win…and survive.

    On the other hand, oil would be to China their entire offense, coal would be to China their entire defense, and other energy inputs — like the renewables wind and solar — would be the equivalent of China’s special teams (and would include Mr. Starting Punter).

    Now imagine, if all at once, all the local football reporters in my town decided: “This pre-season, we’re going to spend hots summer days in a lonely field watching a back-up punter drill balls into the high sky. We’re going to become like religious zealots; we’re going to witness and note every punt the back-up launches, and then we’re going to write deeply insightful pieces about his trajectory, his hang time, the tightness of his spiral, and the fatiguing of his kicking leg.”

    As a connoisseur of good punting, I for one would be fascinated — especially if the writing was good. But, if I used up all my “summer football reading” on the back-up punter series in my local paper, it stands to reason, I wouldn’t have one g+ddamn clue about my team’s chances come autumn.

  13. Three Wickets

    Thx. Interesting read overall. However, these two sentences are way wrong (strangely).

    “If the yuan was floated it would almost certainly go down, at least in the short to medium term, as money flooded out of China.”

    “The reason the Chinese save so heavily is that health and education have little or no government support (oddly for a former communist country).”

  14. AmericaninChina

    I look out the windows of our condo in central Chengdu and I see no less than two dozen major commercial and residential constuction projects underway. Earlier this week, my family and I took the bullit train from Chengdu to Chongqing, noting en-route how what was mostly impoverished farms just five years ago, transformed into “high-rise” suburbs interspersed with industrial and high-tech manufacturing centers that are the engine of China’s massive domestic economy. Central China, like much of China in general, is in the final phase of its transformation into one of the most urbanized and advanced countries in the world.

    China’s development plan has been designed to achieve two fundamental objectives: good jobs for its massive population and the requisite infrastructure for a modern, advanced economy. After achieving these objectives, China will begin modernizing its capital markets, a process that is now underway.

    The fact the China’s form of economic development violates many “principles” of western economic dogma does not invalidate the Chinese model, nor should it bring into question the sustainability of their economic growth. The success of China’s development approach is plain to see, notwithstanding some undesired consquences of its rapid development including pollution, “imbalances” and now inflation. Rather, economists in the West should be questioning their economic and financial models, especially in light of their inability to predict or resolve the economic and financial crises that currently plague the US and many other western countries.

    1. fajensen

      China will begin modernizing its capital markets, a process that is now underway.

      In the context of capital markets “Modernizing” simply means turning Fraud into a business model!

      It sounds so very 1990’ish that China’s economy should somehow not be limited by physics and follow a New Economy that nobody happens to understand so instead they must Belive. F.ex. believe that Cisco could still grow their business even though Cisco stock at projected growth rates would be priced at more that the entire GDP of the US in just five years from 1998 …

      The 7% growth means a doubling of ressource consumption every 10 years – assuming the growth figures are not just made up to meet the requirements from the latest 5-year plan – two or three doublings into the future and China will need to extract oil at the speed of sound and burn it even faster since the economy has grown while it was in the pibeline. Not likely to happen.

  15. fromchina

    China has its own cycles and intrinsic laws, explained in detail here:

    http://www.hturning.com/index.php?action=home&page=3

    These are easy to understand as they are political in nature. Economics serves politics. But they are hard to understand when you try to map them onto Western capitalist theories.

    Over investment isn’t the real issue. Empty houses can be force sold to peasants, who will pay with a lifetime of slave labor. The West has little knowledge of a slave economy, while China has two thousand years of experience, that’s why Chinese rulers appear so much smarter.

    It’s because the game has changed. This sick twenty first century capitalism is dominated by slave labor, therefore, China.

  16. Cadmium Right Here

    Polluted police state with a ruling, arrogant wealth class (called liberals here) who burn every resource in sight, develop the living shit out of everything by seizing land, crushing their workers, poisoning, killing, censoring, controlling information, “But hey! I’m an a ‘Murican mafia heiress who consults for TBTF Banksters, all I can feel is envy.” I wonder how they line em up in China to see whether they are viable for a HAMP mod? They have good theater too in Bejing, aside from the attack-the-US bot networks, corrupt despots occassionaly shoot some low level business idiot for the contaminated milk formula he shipped round the world. Setting examples like the US does with torture and incarceration.

  17. Xia Chua

    I can’t believe I am reading this shit laced with meaningless generalizations. “communist” or “capitalist”. These means nothing, this is just crap type, perhaps because it’s Sunday. Fuck the Casinos, no nation state is going to do it “better” then the “bad ways” of the West. The system is broken, out of date, ‘markets’ just mask tyranny. Markets are marginal improvements over pure violence, and dated, inferior scams must die.
    The recent past has conclusively shown this to be true, but the luddites just think tweaking or some childish bullshit about honesty will set it all right.

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