There's always either another miracle, or another meltdown, around the corner. I wonder if mankind hasn't just been chasing a monkey tail that's disappeared long ago?
3
Interesting if somewhat predictable article coming from an investment strategist. Yes, yes. We all know: Debt bad.
It would have been more interesting if the author could have avoided the standard line and focused on the obvious problem: corruption. It's there in many forms: local officials cyphoning off funds from investment projects; the wealthy illegally moving their money offshore to save themselves; lying to the general populace about the state of things to save their skin; and, of course, cooking the books and allowing what are essentially ponzi schemes to go un-prosecuted.
The solution to this is democracy only if that democracy enables transparency and the rule of law in both government and business. The US could easily grow at 6-8% for a few years if there were no rules, you were encouraged to hide the truth from your partners, and people saw that they couldn't be held accountable if something went bad. However, transparency and rule of law aren't quite as sexy or as easily accessible as "debt bad". (I mean "debt bad" clearly wins on the "that's a BIG number!!!" scale.) And, so, we are left with this: a discussion of a symptom of the true problem and a cure that won't fix anything.
It would have been more interesting if the author could have avoided the standard line and focused on the obvious problem: corruption. It's there in many forms: local officials cyphoning off funds from investment projects; the wealthy illegally moving their money offshore to save themselves; lying to the general populace about the state of things to save their skin; and, of course, cooking the books and allowing what are essentially ponzi schemes to go un-prosecuted.
The solution to this is democracy only if that democracy enables transparency and the rule of law in both government and business. The US could easily grow at 6-8% for a few years if there were no rules, you were encouraged to hide the truth from your partners, and people saw that they couldn't be held accountable if something went bad. However, transparency and rule of law aren't quite as sexy or as easily accessible as "debt bad". (I mean "debt bad" clearly wins on the "that's a BIG number!!!" scale.) And, so, we are left with this: a discussion of a symptom of the true problem and a cure that won't fix anything.
1
Keynesian-style stimulus has its limits, and is easily misused. China today is just the latest, biggest reminder. That debt mountain will have to be monetized, and the yuan is going to continue to fall, making trade relations even worse. China pooped in the global punch bowl with its over-capacity. This is gonna stink for a while.
this is why we have to have a president who actually knows what's going on, this and the crisis in europe.
2
During my PhD years at MSU in the 1970s my best economic professor was Anthony Koo. According to campus urban legend, he was the late son of the finance minister of China before Mao's revolution take over in 49.
Professor Koo's approach to economics reflected Chinese thinking and philosophy towards the dismal science. For example, he explained the economic rationale during the oil crisis of 74 as follows.
Saudi Arabia provided the American economy with an essential economic good, oil, while the US paid back in devalued dollar bills. The hundred of million petrodollars were then recycled back to the US economy via public debt buying, Treasury notes.
China is following a similar strategy to propel its economic growth in the 21st century. It is providing the world with economic and financial goods while recycling dollars, euros and yens back into R&D, education and upgrading of its domestic and exporting infrastructure.
When the macro economic re balancing under way is over, China will emerge as one of the most competitive economies in the world.
One thing for sure. China is not definitely Latin America or OECD countries where debt is used to propel (unsustainable) public and consumer led growth.
Professor Koo's approach to economics reflected Chinese thinking and philosophy towards the dismal science. For example, he explained the economic rationale during the oil crisis of 74 as follows.
Saudi Arabia provided the American economy with an essential economic good, oil, while the US paid back in devalued dollar bills. The hundred of million petrodollars were then recycled back to the US economy via public debt buying, Treasury notes.
China is following a similar strategy to propel its economic growth in the 21st century. It is providing the world with economic and financial goods while recycling dollars, euros and yens back into R&D, education and upgrading of its domestic and exporting infrastructure.
When the macro economic re balancing under way is over, China will emerge as one of the most competitive economies in the world.
One thing for sure. China is not definitely Latin America or OECD countries where debt is used to propel (unsustainable) public and consumer led growth.
29
I definitely don't believe - all things being equal - Chinese companies can compete with foreign ones without the help of its Government.
China's non performing debt is insane. China is using debt to propel growth but it's not even consumer led - it's government led.
Remove the manufacturing and the massive government spending and what you have left is frightening.
China's non performing debt is insane. China is using debt to propel growth but it's not even consumer led - it's government led.
Remove the manufacturing and the massive government spending and what you have left is frightening.
3
When this debt-fueled binge of building empty cities and propping up unprofitable factories plays out and still doesn't engineer sustainable growth, will China do the same as it predecessor in rapid modernization, Meiji Japan, and turn its focus to empire building? The Chinese have never been much for imperialism, having only one episode in their 2,000-plus-year history when they even bothered exploring what lay beyond their shores. But then, neither had the Japanese, not until they discovered capitalism.
In any event, when China collapses, as all debt-fueled economies eventually do, it will, as the author observes, decimate growth prospects for the rest of the world. Whether in coal or iron or oil or iPhones or Fords, demand growth depends almost exclusively on what happens in China.
In any event, when China collapses, as all debt-fueled economies eventually do, it will, as the author observes, decimate growth prospects for the rest of the world. Whether in coal or iron or oil or iPhones or Fords, demand growth depends almost exclusively on what happens in China.
2
I share Mark Thomason’s fatigue with our decades-old double standard for economic behavior; to mis-quote a New Yorker cartoon, “It’s not enough that dogs succeed. Cats also must fail.” Western schadenfreude requires that Asians replace diligence, frugality and scholarship with whatever we’re wallowing in. But can one know Professor Krugman’s thoughts about the Chinese economy simply by affixing a “minus” sign to his views on the US economy? For instance, if it bodes well for one’s economy that half of one’s population is available for economic expansion because it is underdeveloped, would Dr. Krugman commend our current progress toward that condition? Perhaps the therapy depends upon the patient.
3
A slowdown was inevitable for a number of reasons. 1. China will eventually run out of the masses of young people who have streamed out of the rural areas to work in factories. 2. After building so much infrastructure at the same time, maintenance costs will kick in as the roads, bridges, trains and buildings age. 3. China will have to create a social security system, since they will no longer be able to count on families to care for the old. 4. Pollution and other downsides of growth will require some kind of remedy. 5. China will spend money on the military -- money that does not go into productive investment.
No country can sustain double digit growth forever. Eventually they have to turn back & deal with all the problems that growth has created.
No country can sustain double digit growth forever. Eventually they have to turn back & deal with all the problems that growth has created.
1
OR "How China miraculously solved annual greed-inspired famines in a few short decades."
Sharma does not, and can not know:
1) the current state of China's economy.
2) how China arrived at it's current state.
3) will happen to China's economy in the future.
The "miracle path"? What on earth is that? Then China "Fell Off" of this path?
When did this path come into existence? When did China get onto this "path"?
I missed all of those articles somehow. No one had described any such "Path" until AFTER China had been on it for awhile.
I do not know Sharma, or have read anything else he has ever written.
The number of variables is vast, infinite for all practical purposes.
Economics is a field that does not have experts. Nearly every significant event in China was a complete surprise, completely unexpected by the experts of the day. No one saw the rise of China coming. No has any idea where it is going. This article is just another in a long succession of narratives.
1) the current state of China's economy.
2) how China arrived at it's current state.
3) will happen to China's economy in the future.
The "miracle path"? What on earth is that? Then China "Fell Off" of this path?
When did this path come into existence? When did China get onto this "path"?
I missed all of those articles somehow. No one had described any such "Path" until AFTER China had been on it for awhile.
I do not know Sharma, or have read anything else he has ever written.
The number of variables is vast, infinite for all practical purposes.
Economics is a field that does not have experts. Nearly every significant event in China was a complete surprise, completely unexpected by the experts of the day. No one saw the rise of China coming. No has any idea where it is going. This article is just another in a long succession of narratives.
3
More pieces like this, questioning the 'China Miracle', need to be published. It's interesting to see the many comments from people who still buy into the China mythos. Mr. Sharma could have raised other points, I believe. One is the veracity of economic statistics coming out of China (it had a vested interest in making sure it 'achieved' its high growth targets). Second is the widespread and pervasive corruption that distorts the flow of investment capital, record keeping and policy decisions. Third is another indicator of an uncertain future - the increase in the number of women wanting to have their babies born in the US to have citizenship and, therefore, a toehold here. And fourth is the concern that the Chinese government will do what too many governments (especially autocratic ones) do when things get worrisome domestically - direct attention to outside 'threats'. This is being reflected in the, literally, manufactured dispute over territorial waters resulting from the creation of 'islands' in the South China Sea.
1
China is a threat because we have invested so much in them, and so little in ourselves.
1
Your comment is illogical. Companies invested, to further their profits, which benefit American consumers. The relationship to them and us is misguided.
China is an indirect economic threat, but more so in other countries who have less balanced economy.
China is an indirect economic threat, but more so in other countries who have less balanced economy.
2
This article is written by a money manager whose perspective is shaped by his limited specialized knowledge and colored by an obsessive short term financial gains. The most serious flaw of this article is that it focuses on short terms and transitory growth issues and lack a historical perspective. China is in the midst of a transitioning to a different growth model, one that depends on consumption rather than on investment. It took the US and Western Europe more than 50 years to transition to a consumer-led economy and China is just starting and it is doing it in a much more competitive world economy and expected to transition in a much shorter period of time. Unlike the austerity fever in the West, China's new cities and infrastructure are engines of growth for the future and the accumulated debts are investment for the future. What the author did not point out is that much if not all of this debts is locally owned unlike debts by the US and European countries. The localized labor shortage is mostly caused by local government residency policies. China still has a massive rural population to mobilize if needed to fill labor shortage.
When studying China, before criticizing or judging, one needs to take a long terms view.
The one thing the author is right is that many Chinese ordinary investors do not have the basic knowledge of investing and market but the same can be said of most American and European ordinary investors.
When studying China, before criticizing or judging, one needs to take a long terms view.
The one thing the author is right is that many Chinese ordinary investors do not have the basic knowledge of investing and market but the same can be said of most American and European ordinary investors.
26
This article points out the extreme danger that Keynesian deficit spending can cause. Keynesian deficit spending is not always harmful, but in the long run it often is.
1
China will write off its debt and no one will notice. It doesn't fund its infrastructure with private, compound interest debt. It's all considered 'investment.' If it works fine. If it doesn't it is written off and if necessary liquidity willl be pumped directly into the productive economy elsewhere as needed. China is too smart of use the private banking system to fund government. Let the private sector use private funding. And when they inevitably do a 'face plant' because of compound interest, the Chinese government will let them fail.
2
Great article. Soaring debt can ruin an economy. Paul Krugman take note.
1
Today, no economy is an island. Whatever is happening in China is connected to what is happening in Europe, Middle East, and North and South Americas. If the EU sneezes, then the entire world catches a cold. Coming from an authoritarian basis, China may actually do better than either the EU or the U.S. in weathering a new bubble burst. The upcoming Brexit closely followed by the long-delayed Grexit just might be the pin prick that lets the steam out of the West's overheated economy. "A receding tide sinks all ships".
1
China is in dire straits. That the economy is slowing down is well known. That debt is piling up is also well know. No country can grow forever.
But to understand how much the economy is struggling, don't look to official figures. Look to iron fist with which Xi Jin Ping is leading the country. Look at the roaring nationalism on display.
Clearly, Xi wants to united his citizen in a struggle against a foreign enemy, lest they turn onto him. This is the real danger for him -- and for us.
But to understand how much the economy is struggling, don't look to official figures. Look to iron fist with which Xi Jin Ping is leading the country. Look at the roaring nationalism on display.
Clearly, Xi wants to united his citizen in a struggle against a foreign enemy, lest they turn onto him. This is the real danger for him -- and for us.
1
Before I read other comments, I'll first try to comment semi cogently.:
China is still "5 Japans."
That's reality and it's permanent.
There is seemingly a relatively gigantic/unlimited domestic capacity to produce and consume, but critics apparently are not sanguine.
I'm conceding they are in post miracle growth quandry time which is being critiqued by outsider economists (such as our op ed writer) very negatively.
I've read similar other negative impressions by outsiders for the past couple of years, predicting debacle.
If China gets a cold, does the rest of an increasingly inter-dependent world get bronchitis?
May be so: Europe and South America are allegedly suffering.
Meanwhile, money/wealth is being "exported" to buy-up U.S. properties, including Waldorf's and Smithfield's.
Am I to think that's bad for China and/or the USA?
I'll have to presume Chinese investors are buying valuable property throughout the world.
Is that bad for China?
I say it would seem good for China and countries in which they invest.
Now I'll read what some real brains think is good/bad/ugly.
China is still "5 Japans."
That's reality and it's permanent.
There is seemingly a relatively gigantic/unlimited domestic capacity to produce and consume, but critics apparently are not sanguine.
I'm conceding they are in post miracle growth quandry time which is being critiqued by outsider economists (such as our op ed writer) very negatively.
I've read similar other negative impressions by outsiders for the past couple of years, predicting debacle.
If China gets a cold, does the rest of an increasingly inter-dependent world get bronchitis?
May be so: Europe and South America are allegedly suffering.
Meanwhile, money/wealth is being "exported" to buy-up U.S. properties, including Waldorf's and Smithfield's.
Am I to think that's bad for China and/or the USA?
I'll have to presume Chinese investors are buying valuable property throughout the world.
Is that bad for China?
I say it would seem good for China and countries in which they invest.
Now I'll read what some real brains think is good/bad/ugly.
1
Hard to argue with his analysis and prognosis for China but whether or not a collapse will have the deep impact on the West he suggests is debatable.
I do not believe that a totalitarian government with zero tolerance for criticism,opposition or freedom of information can be economically successful very long.
Mark Tnomason has it exactly right, we are being sold a bill of goods by Krugman and the Fed. Talk about trying to keep the party going Mr. Sharma, what do you think Yellen, her predecessors Bernanke and the grandaddy of all enablers Greenspan have been doing since we went off the gold standard and began worshipping at the altar of Milton Friedmans voodoo economics. China is having problems because their former customers, America and Europes middle class, are broke as a result of their jobs being sent to China and China's middle class isn't interested in buying the junk they make, they intelligently make the decision to buy American Real Estate and educations as a hedge against the coming revolution. China's other problem is the same as ours, they have allowed the store to be run by crooks much as we have done since turning over the banks to the likes of Fuld, Blankfein and Dimon. There is a difference though they have the decency to execute their criminals when they can't make it to New York in time to lawyer up. Here we let them grandstand before congress and hop on the private jet back to the Hamptons. As if the nation needed any more reason for ridding ourselves of the status quo politicians just remind yourself once in awhile how the bankers and their buddies in commerce screwed the world.
3
The "miracle" of China's growth has been, at least partly, on the backs of Americans, European and other 1st world investors - leaving their own countries with fewer jobs or futures.
GREED is a MENTAL ILLNESS.
It's why people with a million times as much money as the poor still feel they don't have enough.
GREED is a MENTAL ILLNESS.
It's why people with a million times as much money as the poor still feel they don't have enough.
2
How can there be all these Chinese billionaires when China is a communist country?
While Ruchir makes many valid and cogent points, China as a threat to US prosperity is debatable. China is still a closed economy, and President XI is likely to tighten his autocratic grip more as things deteriorate. Incrementally, a Chinese implosion may hurt some exports, but considering the size of the trade deficit between us and them, such a deterioration would not have a significant impact. As usual, most of the threats to the US economy are domestic, and most come out of Washington. While we have come nowhere near China's debt run up, the current Administration had added nearly $10b to the nation's tab. And while we have not drifted towards authoritarianism, the massive increase in regulation and centralization of power in Washington is hardly a bellwhether of growth. At the end of the day, who knows? An implosion in China might end one of the more repressive regimes on the planet. After all, wasn't it Mao himself who said "a single spark can start a prairie fire".
Economies that have perpetual growth as their underlying foundation are destined to fail. Until we all realize that sustainability and balance are necessary to a resilient economic system the turmoil being witnessed in China will recur over and over again across the globe. Resources are finite and the level of population that this planet can optimally support has probably been surpassed.
10
And yet this single most important issue facing the planet gets little coverage by the MSM, including this paper.
2
Why does Mr. Sharma believe that his observations and "research" are more valid than those of banker/economists in the Chinese government? It is because of personal opinions of writers like Mr. Sharma passing off opinions as gospel but based on personal research that I have stopped reading publications that do not accept my ad blocker. (I have paid digital accounts with NYT and several other publications that I read online out of laziness.)
Not all print is news. That is why I also pay for printed publications like THE PROGRESSIVE POPULIST that support my point of of view. Get with it, NYT !
Not all print is news. That is why I also pay for printed publications like THE PROGRESSIVE POPULIST that support my point of of view. Get with it, NYT !
So what if China will have a future crisis?
Democratic US had massive collapses in 1929 and 2008, and it was not much more than a blip by historical perspective.
Maybe the author should plot the total debt growth in democratic Japan.
Is the author suggesting that multi-decade stagnation, like in democratic Japan, is better than a multi-decade boom, followed by a credit crisis?
Please!!!
There is no democratic government in the history of the world who has lifted 400,000,000 people from abject poverty into the middle/working class in 15 years, like China did.
Yes, China has problems. But in all likelihood their problems are about the same as the problems the US had in 2007. A plain vanilla debt bubble.
Chine is going into its crisis with 8% growth slowing to 6% growth. Everyone else (Europe, Japan, Brazil, Russia, India) is going into their crisis with flat or negative growth.
It doesn't take a genius to figure out that China has a better hand going in.
Democratic US had massive collapses in 1929 and 2008, and it was not much more than a blip by historical perspective.
Maybe the author should plot the total debt growth in democratic Japan.
Is the author suggesting that multi-decade stagnation, like in democratic Japan, is better than a multi-decade boom, followed by a credit crisis?
Please!!!
There is no democratic government in the history of the world who has lifted 400,000,000 people from abject poverty into the middle/working class in 15 years, like China did.
Yes, China has problems. But in all likelihood their problems are about the same as the problems the US had in 2007. A plain vanilla debt bubble.
Chine is going into its crisis with 8% growth slowing to 6% growth. Everyone else (Europe, Japan, Brazil, Russia, India) is going into their crisis with flat or negative growth.
It doesn't take a genius to figure out that China has a better hand going in.
1
If this article is true, which I suspect it is, it is a very worrisome development. China has too much debt and not enough economic growth. It also has an overabundance of bachelors. Thanks to the one child program per family program, most parents had boys. They will fill the ranks of the military and used for cannon fodder when China is finally forced to face the music of its burgeoning debt.
When is someone going to look at how much US real estate that is being purchased by Chinese investors is actually funded by loans taken out against Chinese real estate. People don't actually think that these all cash Chinese buyers are using their own money do they?
"The authoritarian form of government that helped guide China to those years of economic growth may now be undermining its economic stability. My research suggests that compared with democracies, autocracies generate far more unstable growth, and that’s the risk in China now......Because these governments face no check on their powers, they can force feed periods of strong growth. But they can also veer off in the wrong direction with no one to set them straight.
Very well observed and the statement validates the Churchill's famous dictum: "Democracy is the worst form of government, except for all those other forms that have been tried from time to time."
Very well observed and the statement validates the Churchill's famous dictum: "Democracy is the worst form of government, except for all those other forms that have been tried from time to time."
China need to float their currency and let the world decide how much it's really worth, not their unelected government. The demand of their Yuan and bonds is relatively low compare to develped nations globally. It's true that they can print as much money as they want, ofiicially at 4x the rate that of US, however, China went through this during their Nationalist Rule before 1949, end result was wheel barrow money for a roll of toliet paper.
The fact China censors information from outside world and only disclose none verifiable official figures doesn't really create credibility on the world stage. for example, China claims to have the world's largest middle class, but their standard of "middle class" is lower than those on welfare here in the States.
In other words, people compare China to the West as if they are a Free market economy when they are not. Everything is commanded and Fixed including their currency and price of all goods sold down to a fraction of a % point, which means they can create any illusions as they wish.
"War is art of deception"- Sun Tsu
The fact China censors information from outside world and only disclose none verifiable official figures doesn't really create credibility on the world stage. for example, China claims to have the world's largest middle class, but their standard of "middle class" is lower than those on welfare here in the States.
In other words, people compare China to the West as if they are a Free market economy when they are not. Everything is commanded and Fixed including their currency and price of all goods sold down to a fraction of a % point, which means they can create any illusions as they wish.
"War is art of deception"- Sun Tsu
China is also transitioning from manufacturing and exports oriented
economy to services and consumption led economy. The transition
is not expected to happen quickly to keep the economy growing
at the old fast rate of 8%. Consumption and services are growing
and some manufacturing capacity is being shutdown particularly
in steel. People have the money to buy goods and services.
Unemployment is not rising and that augurs well. Most of the debt
is domestic and people still save a hefty percentage of their income.
The government need to reduce debt, constrain state owned
enterprises and make some reforms. President Xi has made
the right pronouncements about markets playing greater role.
Would the action follow the words?
economy to services and consumption led economy. The transition
is not expected to happen quickly to keep the economy growing
at the old fast rate of 8%. Consumption and services are growing
and some manufacturing capacity is being shutdown particularly
in steel. People have the money to buy goods and services.
Unemployment is not rising and that augurs well. Most of the debt
is domestic and people still save a hefty percentage of their income.
The government need to reduce debt, constrain state owned
enterprises and make some reforms. President Xi has made
the right pronouncements about markets playing greater role.
Would the action follow the words?
As Herbert Stein said, "If something can't go on forever, it won't."
1
China's problem with labor is that the cost of that labor is rising, an inevitable result of a higher living standard. It is cheaper to manufacture elsewhere, which is why your clothing is coming from Vietnam and other countries more often.
China's government wiped away previous debt by shifting devalued assets to shadow companies, then closing the companies (mostly banks). Trouble is, doing that undermines their ability to promote the yuan as a stable world currency. It's a problem with no palatable solution to the Party.
China's water and ecology problems are vastly underestimated by most people in the West. They are building dozens of the world's biggest dams in earthquake-prone areas, and destroying entire ecosystems in SE Asia.
China imports a lot of food. Their farmers are not anywhere near as efficient as Western farmers, and the Chinese govmt has forcibly moved farmers off productive land in order to build highways that run nowhere and factories they don't need.
The increasing unrest of minorities is beginning to be troubling. China has 37 recognized ethnic minorities. When it needs the army to keep peace in more than three of the ethnic regions, that's an issue to recognize. Repression never ends well.
All the above points, along with Mr. Sharma's, have the potential for a catastrophic upheaval in China. As an authoritarian government, they can react faster than democracies....but not necessarily more wisely.
China's government wiped away previous debt by shifting devalued assets to shadow companies, then closing the companies (mostly banks). Trouble is, doing that undermines their ability to promote the yuan as a stable world currency. It's a problem with no palatable solution to the Party.
China's water and ecology problems are vastly underestimated by most people in the West. They are building dozens of the world's biggest dams in earthquake-prone areas, and destroying entire ecosystems in SE Asia.
China imports a lot of food. Their farmers are not anywhere near as efficient as Western farmers, and the Chinese govmt has forcibly moved farmers off productive land in order to build highways that run nowhere and factories they don't need.
The increasing unrest of minorities is beginning to be troubling. China has 37 recognized ethnic minorities. When it needs the army to keep peace in more than three of the ethnic regions, that's an issue to recognize. Repression never ends well.
All the above points, along with Mr. Sharma's, have the potential for a catastrophic upheaval in China. As an authoritarian government, they can react faster than democracies....but not necessarily more wisely.
12
This article adds to the litany of those calling a warning on China: A few weeks ago "The Economist" warned of a hard fall for China. Others has been warning of a serious problem with their labor force as the demographics go negative. The Chinese government has always been riding a tiger. As long as it kept the tiger fed and satisfied, this was possible. If there economy collapses, there could be serious problems.
This presents an opportunity for US business. It is time to get out, both for economic reasons and because China is not our friend. If they pull out the old 'foreign devil' scheme to distract the populous, our business in China could wind up confiscated. Shift our business home or to our friends around the world. Let's help friendly nations succeed, not empower our enemies. Leave them to their fate.
This presents an opportunity for US business. It is time to get out, both for economic reasons and because China is not our friend. If they pull out the old 'foreign devil' scheme to distract the populous, our business in China could wind up confiscated. Shift our business home or to our friends around the world. Let's help friendly nations succeed, not empower our enemies. Leave them to their fate.
The article is a collection of the last 40 years' predictions of China's imminent collapse. Uninformed, speculative nonsense like this has the the staple of Western writers, experts and senior experts for 40 years. They've written at least 100,000 such articles since 1975 and made at least 1 million such predictions.
Every one of them has been wrong. Not a little bit wrong. Totally, 100% wrong.
This astonishing record of decades of wrongness has not discouraged these fantasists in the least. Nor has it discouraged those who read this nonsense. Look at the number of educated, thoughtful, well-meaning people's comments in this thread, praising the writer for his useful insights. What is to be done? How can we break out of this shared fantasy?
Because while we've been writing and reading and praising this nonsense, China has raced past us. Its economy, contrary to what these writers insist, is growing exponentially, for example. That 6.9% figure you see? It's not a measure of growth, it's the rate of exponential growth. The faster it grows the faster it grows.
It'll be $21 trillion by this coming Xmas, while ours will be $18 trillion. And China's educating its kids better than ours, too (again, don't believe the 'rote learning' nonsense) and their best public school systems are much bigger, more socioeconomically diverse and three years ahead of our kids on graduation. I could go on...
Every one of them has been wrong. Not a little bit wrong. Totally, 100% wrong.
This astonishing record of decades of wrongness has not discouraged these fantasists in the least. Nor has it discouraged those who read this nonsense. Look at the number of educated, thoughtful, well-meaning people's comments in this thread, praising the writer for his useful insights. What is to be done? How can we break out of this shared fantasy?
Because while we've been writing and reading and praising this nonsense, China has raced past us. Its economy, contrary to what these writers insist, is growing exponentially, for example. That 6.9% figure you see? It's not a measure of growth, it's the rate of exponential growth. The faster it grows the faster it grows.
It'll be $21 trillion by this coming Xmas, while ours will be $18 trillion. And China's educating its kids better than ours, too (again, don't believe the 'rote learning' nonsense) and their best public school systems are much bigger, more socioeconomically diverse and three years ahead of our kids on graduation. I could go on...
1
I'll know that China is in trouble when I can go to Home Depot and buy something made anywhere else,
"... two weeks after I left, Lehman Brothers filed for bankruptcy in the United States, tipping the global economy into recession. Demand collapsed across the world, crushing export growth in China. The leadership in Beijing panicked, apparently fearing that if the recession reached its shores, social unrest would follow. Mr. Wen reversed course"
The world in more connected than ever before. But no country is seeing, not to say anticipating, any big problems in other countries. Clearly, Chuck Schumer never anticipated the need to strengthen the Yuan. Will Trump be better than other politicians in understanding the connected economies? Maybe.
The world in more connected than ever before. But no country is seeing, not to say anticipating, any big problems in other countries. Clearly, Chuck Schumer never anticipated the need to strengthen the Yuan. Will Trump be better than other politicians in understanding the connected economies? Maybe.
"My research suggests that compared with democracies, autocracies generate far more unstable growth, and that’s the risk in China now."
Mr. Sharma leaves out the most important flaw in his analysis, foreign direct investment. Unlike any other nation in modern history, autocratic or otherwise, China has received the lion's share of FDI from corporations based in the developed world. It has received ALL net FDI into developing nations since 1985 ("net" means other developing nations had FDI sucked away by China).
China has been an autocratic regime throughout this whole period but that didn't stop the money flow at all. As a matter of fact, our trillions in investment there was marketed to Americans and Western Europeans and Japanese as an agent of change toward political pluralism and human rights.
Nope, we didn't get positive change in China and we didn't even get access to that sweet, juicy, huge market. Just a bunch of IP stolen, belligerence in foreign policy, disruptive investment in our RE markets, etc.
Engagement policy, the single biggest failure in foreign policy in the last 50 years (yes, even bigger than the Iraq fiasco). Deal with it.
Mr. Sharma leaves out the most important flaw in his analysis, foreign direct investment. Unlike any other nation in modern history, autocratic or otherwise, China has received the lion's share of FDI from corporations based in the developed world. It has received ALL net FDI into developing nations since 1985 ("net" means other developing nations had FDI sucked away by China).
China has been an autocratic regime throughout this whole period but that didn't stop the money flow at all. As a matter of fact, our trillions in investment there was marketed to Americans and Western Europeans and Japanese as an agent of change toward political pluralism and human rights.
Nope, we didn't get positive change in China and we didn't even get access to that sweet, juicy, huge market. Just a bunch of IP stolen, belligerence in foreign policy, disruptive investment in our RE markets, etc.
Engagement policy, the single biggest failure in foreign policy in the last 50 years (yes, even bigger than the Iraq fiasco). Deal with it.
1
Any jurisdiction that aims to prop up its financial markets by prohibiting negative public comment on them is not headed toward financial recovery. As for the next shock, we may be feeling the consequences already. A robust Chinese economy props strong prices for fuel, natural resources and other commodities.
A collapse of these prices results in economic decline. Such decline is hardly limited within national boundaries, all of which supports the argument for ratifying the TPP. Let us hope that Hillary Clinton changes her mind, again, on this matter, the wisdom of Bernie and The Donald notwithstanding.
www.endthemadnessnow.org
A collapse of these prices results in economic decline. Such decline is hardly limited within national boundaries, all of which supports the argument for ratifying the TPP. Let us hope that Hillary Clinton changes her mind, again, on this matter, the wisdom of Bernie and The Donald notwithstanding.
www.endthemadnessnow.org
Too little attention is paid to the demographic transition that China forced on itself with the one child policy (now recently lifted). Perhaps a population biologist should provide some cogent analysis. I suggest the Times solicit an op-ed on this subject - or maybe Krugman could write a column, since economists are pretty good at solving exponential equations.
Trump, Sanders, Warren, Clinton and others need to stop the "Yellow Peril" demagoguery and anti-Asian racist code words like "outsourcing." President Obama's trade policies will be recognized as one of the highlights of his administration, and he rightly called out Warren for her many misstatements.
Autocratic systems with top down directives may be able to coerce an economic system to grow via mandates, targets, edicts, etc....and they may be successful in doing so, for a time. But they end up strangling the system longer term. Economic systems tend to be self-organizing once "birthed," and thrive best when free to do so as that developing system grows or "thinks best."
I'm a simple man. I think of these sorts of things in simple ways. Do you know how to grow a tree? From its conception, initial starts and on to a towering red wood (for instance)? Do you truly know how to grow that tree? How it, itself, organizes and grows? Of course not. You can nurture it, but the best gardeners are those who understand that benign neglect within an environment set up (by the gardener) to aide the tree's self development is best. And that garden needs to be open and loosely organized. You cannot force the tree to grow. Therein lies the basic flaw in all autocratic governing systems like China's. Their leadership ranks aren't good gardeners. Left to their own devices history indicates they will kill that tree, much as they are strangling it now.
Just some layman's thoughts on a very complex economic topic.
John~
American Net'Zen
I'm a simple man. I think of these sorts of things in simple ways. Do you know how to grow a tree? From its conception, initial starts and on to a towering red wood (for instance)? Do you truly know how to grow that tree? How it, itself, organizes and grows? Of course not. You can nurture it, but the best gardeners are those who understand that benign neglect within an environment set up (by the gardener) to aide the tree's self development is best. And that garden needs to be open and loosely organized. You cannot force the tree to grow. Therein lies the basic flaw in all autocratic governing systems like China's. Their leadership ranks aren't good gardeners. Left to their own devices history indicates they will kill that tree, much as they are strangling it now.
Just some layman's thoughts on a very complex economic topic.
John~
American Net'Zen
China's problem is the rule by the communist autocracy. President Xi looks more like an emperor of the historical China day by day. Economic success in China has prolonged the life of Chinese Communist Party (CCP). This is only because CCP was the ruling class of China that engaged in the economic development. All the highly educated East Asian countries like Japan, Korea, Taiwan or Singapore succeeded in miraculous economic growth handled by the non-communist elites. When these countries faced middle-income barrier of $8,000, they have changed to democracy from autocracy, though Japan's case is different from other east Asian countries because of her earlier industrial revolution in late 19th century and genuine democracy after WWII.
China will not be able to change from autocracy to democracy because CCP wants to rule as a sovereign of the country. China's slowdown of the economy will trigger turmoil unless CCP gives up its sovereign status.
China will not be able to change from autocracy to democracy because CCP wants to rule as a sovereign of the country. China's slowdown of the economy will trigger turmoil unless CCP gives up its sovereign status.
I recall seeing a video interview recently with a factory owner in China who is in the process of converting to robots to replace human labor. He said quite casually that workers who came from interior China to be employed at this factory needed to return to their villages because they were no longer needed there. China still has hundreds of millions of people living in non-urban areas, many of whom are very poor. What happens when the remittances sent to these places by urban migrants starts to wither?
10
Investment managers as authors cannot see the society for the capital, the forest for the trees. China as a nation in a crumbling world economy would thrive the way the U.S. did after WWII. A domestic market a domestic labor force. Yes: global corporations would not feast and the wealthy would suffer. But China's lifeboat is now the world's largest and best equipped.
Hard to unravel misperceptions in a few sentences, especially when they may carry a few elements of truth, but much of what Sharma says is beside the point.
Current estimates are that 60% + of the PRC’s GDP is private, the second largest world economy after the USA just as is the total Chinese package. CCP has found the Market Economy an asset.
Be happy the rich Chinese are buying American real estate; it is an Export and adds to U.S. GDP. The first real rush was when Hong Kong was to be transferred back to China and wealthy families rushed westward, San Francisco prices jumped as the mansions were scooped up. Chinese investments in American industry are a plus but the earning will be an Import.
On currency movement the recent rush of RMB’s out of China was induced by the government dropping the exchange rate of CNY/USD to booster exports in a sagging world market. People with wealth attempted to move it offshore, government has upped restrictions.
Sharma’s holding forth on record of authoritarian economies is vague without references but seems irrelevant given the PRC’s long expansive growth path, unmatched in world history. When America has solved its mounting economic problems rejoice, but China’s seem less troublesome in comparison and active governments are finding their supporters, East and West.
Current estimates are that 60% + of the PRC’s GDP is private, the second largest world economy after the USA just as is the total Chinese package. CCP has found the Market Economy an asset.
Be happy the rich Chinese are buying American real estate; it is an Export and adds to U.S. GDP. The first real rush was when Hong Kong was to be transferred back to China and wealthy families rushed westward, San Francisco prices jumped as the mansions were scooped up. Chinese investments in American industry are a plus but the earning will be an Import.
On currency movement the recent rush of RMB’s out of China was induced by the government dropping the exchange rate of CNY/USD to booster exports in a sagging world market. People with wealth attempted to move it offshore, government has upped restrictions.
Sharma’s holding forth on record of authoritarian economies is vague without references but seems irrelevant given the PRC’s long expansive growth path, unmatched in world history. When America has solved its mounting economic problems rejoice, but China’s seem less troublesome in comparison and active governments are finding their supporters, East and West.
1
An interesting article, but one which does not even consider the role of fraud in China's economy. Also, in a country where even mortality figures are a state secret, it's hard to truly "know" anything about China since virtually all statistics are managed and manufactured. The Chinese situation is likely to be far worse than this article suggests, hence the desperate measures being taken the flow of funds out of the country.
China's economic growth is a miracle and there is no previous history of this - trying to understand its future performance based on traditional economic parameters looks simplistic. One thing we must remember - the Chinese culture and practices are not biased by Western thoughts but by Confucius thoughts - centered on humanistic spirit not individualistic greed. Chinese communist party so far demonstrated that they are not deviating from that principle - the meaning of "debt", "human rights", "state power", "individual rights", "freedom of speech", .....have different interpretation on the Confucius culture.
Definitely, there is a transition of Chinese economy model and Communist leaders openly accepted that shift - the difficulty of Western economists is to understand that shift based on their culturally biased looking glasses. Most likely, investors will get the "cut" and state will absorb the non performing assets and citizens will adjust the life style. Already we are seeing some of these trends. Impact of these changes we see in commodity prices and export deceleration and Chinese growth rate. Let us try to see "out of the box"
Definitely, there is a transition of Chinese economy model and Communist leaders openly accepted that shift - the difficulty of Western economists is to understand that shift based on their culturally biased looking glasses. Most likely, investors will get the "cut" and state will absorb the non performing assets and citizens will adjust the life style. Already we are seeing some of these trends. Impact of these changes we see in commodity prices and export deceleration and Chinese growth rate. Let us try to see "out of the box"
1
Wall Streeters, the great advocates of capitalism and laissez faire often talk of the Chinese and the Chinese government as if they have repealed the rules of economics. They oppose helping American governmental intervention in the U.S. economy to help Americans as foolhardy but are such the Chinese Communist Party has the answers.
Unpresedented pollution of air, water, and soil. And no physical or economic means to reverse the damage. Next will be news of even more substantial death and illness from non-breathable air. Then food shortage.
China's fate was sealed many years before the financial crisis. On its own, there is no reasonable solution. But China's failure will drastically destabilize the world economy, making military aggression more likely.
We are on an ever-smaller planet that we are abusing. We urgently need to realize the fates of our children and grandchildren, and hopefully more future generations, are dependent on actions of humanity in these next precious few years.
China's fate was sealed many years before the financial crisis. On its own, there is no reasonable solution. But China's failure will drastically destabilize the world economy, making military aggression more likely.
We are on an ever-smaller planet that we are abusing. We urgently need to realize the fates of our children and grandchildren, and hopefully more future generations, are dependent on actions of humanity in these next precious few years.
2
China’s economic woe is the price to pay for its miraculous break-neck growth for three decades. There is no free-lunch. Growth and its opposite – slump cannot exist without the other – the question is which one can fight it out and hold on for how long.
As the global economy has plunged into the abyss of depression for a long haul, China has no way out of the impasse. Its business model of maximization of investment regardless of requirements of immediate return proves to be an embarrassing mistake. Over-investment in company with over-production does not seem to help the economy. The so-called supply-side economics or the related trickle-down economics has a tough time to do the trick also.
The oncoming unemployment and underemployment debacle will render the haplessness worse. When the worse turns for the worst, social revolution will be the only exit.
As the global economy has plunged into the abyss of depression for a long haul, China has no way out of the impasse. Its business model of maximization of investment regardless of requirements of immediate return proves to be an embarrassing mistake. Over-investment in company with over-production does not seem to help the economy. The so-called supply-side economics or the related trickle-down economics has a tough time to do the trick also.
The oncoming unemployment and underemployment debacle will render the haplessness worse. When the worse turns for the worst, social revolution will be the only exit.
3
China always called the US a Paper Tiger but it turns out China was the fragile state. So many problems in this country but because it's so integrated in the world economy those problems are ours. Pray for a soft landing.
1
As we stare in the face of a Trump campaign for top office, this lesson in authoritarian government should not fall on deaf ears. Nations cannot ban descent and expect to be stable, economically or otherwise.
Another disturbing propaganda anti-china by thr NYT. China is still growing 3x faster than the USA.
1
I disagree with the writer's claim that "Growth in the world's working age population is slowing for reasons unrelated to the economic meltdown beginning 2008", though it is not a vital point of analysis in his article. As shown in a recent article in The Economist, fall in fertility rates has worsened post the recession. Fewer young couples are having children now, owing to insecure future projections on their part. It has been argued that the living standards they envision for their children-to-be aren't being met at present, due to a slow recovery in the world economy, hence they are delaying procreation. Hence I feel it wouldn't be correct to say that the fall in working age population, resulting from a declining fertility, is caused by factors unrelated to the crisis- rather it is a direct offshoot of it.
1
The author is only speaking of "working age population," not children. The current slowing of growth in the working age population is the consequence of demographic events predating the 2008 recession. The phenomenon you have identified is very real across the developed and developing world and will indeed result in a decline in the working age population in the next generation. We need to prepare for that now-inevitable change. Indeed this was probably an important factor in Angela Merkel's original invitation to the Syrian refugees.
" If China were eating America’s lunch, its people would not be rushing to buy safe-haven apartments in New York or San Francisco. "
You may not understand this but much of the loss of the middle class' wealth has been due to the decrease in the manufacturing sector in the US. Obama has admitted the US would lose additional jobs if the the TPP was passed. But keep using Manhattan and San Francisco real estate as your economic barometer and you'll find friends in Krugman, Kristof, Cohen et al.
They understand nothing about working class America and neither do you.
You may not understand this but much of the loss of the middle class' wealth has been due to the decrease in the manufacturing sector in the US. Obama has admitted the US would lose additional jobs if the the TPP was passed. But keep using Manhattan and San Francisco real estate as your economic barometer and you'll find friends in Krugman, Kristof, Cohen et al.
They understand nothing about working class America and neither do you.
Because of distortion in their demographics (thanks in large part to the one-child policy), the expression that best describes China in the future is "China will grow old before it grows rich."
There are two things going on here: First, the "economic" issues of debt and waste and lack of growth (poor economic management) and, second, the problem of the "Party" staying in power. China cannot collapse, or so says the Party, because that would be the end of the Party. So the Party has its own agenda. Of course, as noted in many comments, it is difficult to believe in the numbers we are given to show what is going on. But clearly it is not going well. We can speculate on the outcome from this economic and Party conflict, but we cannot "know." At least not yet. Is there a lesson for the USA in this? Maybe, in terms of trying to be grateful for our messy, less organized, marketplace for money and ideas.
1
"Soaring Debt"
Krugman & Co. must be optimistic about China's economic future.
Krugman & Co. must be optimistic about China's economic future.
Hard to unravel misperceptions in a few sentences, especially when they may carry a few elements of truth, but much of what Sharma says is beside the point.
Current estimates are that 60% + of the PRC’s GDP is private, the second largest world economy after the USA just as is the total Chinese package. CCP has found the Market Economy an asset.
Be happy the rich Chinese are buying American real estate; it is an Export and adds to U.S. GDP. The first real rush was when Hong Kong was to be transferred back to China and wealthy families rushed westward, San Francisco prices jumped as the mansions were scooped up. Chinese investments in American industry are a plus but the earning will be an Import.
On currency movement the recent rush of RMB’s out of China was induced by the government dropping the exchange rate of CNY/USD to booster exports in a sagging world market. People with wealth attempted to move it offshore, government has upped restrictions. On currency movement.
Sharma’s holding forth on record of authoritarian economies is vague without references but seems irrelevant given the PRC’s long expansive growth path, unmatched in world history.
When America has solved its mounting economic problems rejoice, but China’s seem less troublesome in comparison and active governments are finding their supporters, East and West.
Current estimates are that 60% + of the PRC’s GDP is private, the second largest world economy after the USA just as is the total Chinese package. CCP has found the Market Economy an asset.
Be happy the rich Chinese are buying American real estate; it is an Export and adds to U.S. GDP. The first real rush was when Hong Kong was to be transferred back to China and wealthy families rushed westward, San Francisco prices jumped as the mansions were scooped up. Chinese investments in American industry are a plus but the earning will be an Import.
On currency movement the recent rush of RMB’s out of China was induced by the government dropping the exchange rate of CNY/USD to booster exports in a sagging world market. People with wealth attempted to move it offshore, government has upped restrictions. On currency movement.
Sharma’s holding forth on record of authoritarian economies is vague without references but seems irrelevant given the PRC’s long expansive growth path, unmatched in world history.
When America has solved its mounting economic problems rejoice, but China’s seem less troublesome in comparison and active governments are finding their supporters, East and West.
So much for this bean counting "bad-mouth China" opinion. Actually, the Chinese are pinning everything on technology and science. I don't know what China Mr Sharma knows, maybe he needs to quit basing his assessments on interviewing street vendors and go to high-tech fairs instead. Meanwhile, here we are, grasping at straws trying to avoid falling into fascism. Wonderful.
The irony of China is that the communist party is afraid of the people.
The Chinese government stimulated the economy to benefit themselves and their circle. The leaders didn't want the majority of their population benefiting from it because They fear that too much wealth distributed too widely will make the population hard to control.
The consumers of all the excess their stimulus created were not paid commensurate wages. Henry Ford knew what he was doing when he paid his workers enough to buy the Model T.
It would do the US well to remember that it is the average consumer who drives the economy, not the guys in the penthouses.
The Chinese government stimulated the economy to benefit themselves and their circle. The leaders didn't want the majority of their population benefiting from it because They fear that too much wealth distributed too widely will make the population hard to control.
The consumers of all the excess their stimulus created were not paid commensurate wages. Henry Ford knew what he was doing when he paid his workers enough to buy the Model T.
It would do the US well to remember that it is the average consumer who drives the economy, not the guys in the penthouses.
This development was predicted, accurately and with great clarity 4 years ago, by Gordon G. Chang in Forbes:
http://www.forbes.com/sites/gordonchang/2012/05/20/hey-krugman-ask-china...
Excerpts:
"Yet before the industrialized democracies commit to debt-fueled expansion policies, perhaps they should see what effect that approach has had in China. Chinese leaders have been praised for their stimulative tactics announced in November 2008 to counteract the effects of the global downturn."
"The effect of the torrent of money was immediate. The stock market, as measured by the Shanghai Composite, skyrocketed 80.0% in 2009, and property markets across China zoomed upward.
And the country’s GDP growth was the envy of the world. In 2009, the economy grew 9.2% according to official statistics.....
The boom continued as Beijing kept open the taps in following years. In 2010, growth was 10.4%, and last year it came in at 9.2%. What’s not to like with numbers like these?"
"..Chinese citizens and businesses are increasingly reluctant to accept low deposit rates mandated by the central government in order to keep bank loans cheap for state enterprises and local governments. "
" Debt matters, even in countries like China where it can be hidden for decades on the books of the banks, local government instrumentalities, and central government ministries. "
Mr. Chang was right, and he wrote this 4 years ago.
http://www.forbes.com/sites/gordonchang/2012/05/20/hey-krugman-ask-china...
Excerpts:
"Yet before the industrialized democracies commit to debt-fueled expansion policies, perhaps they should see what effect that approach has had in China. Chinese leaders have been praised for their stimulative tactics announced in November 2008 to counteract the effects of the global downturn."
"The effect of the torrent of money was immediate. The stock market, as measured by the Shanghai Composite, skyrocketed 80.0% in 2009, and property markets across China zoomed upward.
And the country’s GDP growth was the envy of the world. In 2009, the economy grew 9.2% according to official statistics.....
The boom continued as Beijing kept open the taps in following years. In 2010, growth was 10.4%, and last year it came in at 9.2%. What’s not to like with numbers like these?"
"..Chinese citizens and businesses are increasingly reluctant to accept low deposit rates mandated by the central government in order to keep bank loans cheap for state enterprises and local governments. "
" Debt matters, even in countries like China where it can be hidden for decades on the books of the banks, local government instrumentalities, and central government ministries. "
Mr. Chang was right, and he wrote this 4 years ago.
The four reasons given include serious errors.
China does not have any depletion of its labor force. It has hundreds of millions in its rural areas not yet reached by its modern economy. It has still left to mobilize more than the whole population of the US. No depletion there.
China has used debt as stimulus, in defiance of the austerity theme of Western governments. China has grown from that, just as the austerity regions have not. Now we see this portrayed as a problem, that they must become more like us. Duh, their system works better than ours. The inflation and debt fears so often debunked by Krugman on these pages are just as false when applied to China.
Sure they have some bad debts. They also grow even now every year more than we do in a whole Presidential term of four years in office. That is their new low.
Sure trade is falling off. That is not because China is failing. It is because everyone else they trade with is failing. That is not a reason for China to act more like everyone else.
China's currency was said to damage us when it is too low, when it is too high, when it is too strong, and when it is too weak. There is no just right, Goldilocks. China's currency is a boogeyman blamed for our own failures, by the people who are committing those failures. Which failures? Well, read Krugman for a start -- those failures.
This article repeats about China the things that are wrong when written about everywhere else.
China does not have any depletion of its labor force. It has hundreds of millions in its rural areas not yet reached by its modern economy. It has still left to mobilize more than the whole population of the US. No depletion there.
China has used debt as stimulus, in defiance of the austerity theme of Western governments. China has grown from that, just as the austerity regions have not. Now we see this portrayed as a problem, that they must become more like us. Duh, their system works better than ours. The inflation and debt fears so often debunked by Krugman on these pages are just as false when applied to China.
Sure they have some bad debts. They also grow even now every year more than we do in a whole Presidential term of four years in office. That is their new low.
Sure trade is falling off. That is not because China is failing. It is because everyone else they trade with is failing. That is not a reason for China to act more like everyone else.
China's currency was said to damage us when it is too low, when it is too high, when it is too strong, and when it is too weak. There is no just right, Goldilocks. China's currency is a boogeyman blamed for our own failures, by the people who are committing those failures. Which failures? Well, read Krugman for a start -- those failures.
This article repeats about China the things that are wrong when written about everywhere else.
120
Sorry, I've read many analyses from many sources and yours sounds like GOP gobbledygook... And whatever your true persuasion is the idea that you are just going to turn country bumpkins into productive office workers, manufacturers and high level consumers is ridiculous.
1
On the demographic data this is not correct. The working age population in China has been declining in China in absolute numbers for the past several years. The underemployed rural work force is depleted, leaving elderly people caring for children. There will be gains from ongoing urbanization but nothing like the waves of migrant workers that drove the economy for decades after 1979. China had a demographic dividend from a large working age population, with smaller cohorts of children and retired. That has turned to a demographic drag as the bulge is now retiring. The aging of the Chinese population is irreversible and will continue for years to come. The impact on economic growth is significant. A larger problem may be the fiscal challenge of an underfunded pension scheme and undeveloped elder care.
4
I'm curious. Does the outright rejection of studied fact, facts that were studied by people much smarter and more qualified than yourself, stem from a generalized denunciation of the west or a more particular dislike of the United States? You rejected out of hand four assertions made by the author and only included one minor rebuttal without citation or specific figures and even then your logic is flawed, as seen by you making an assertion that there are "hundreds of thousands of rural workers not yet reached" when that quantity could easily have been included in the given figure and in fact is if you bother to check the source. And it's true that all sorts of valuations of Chinese currency cause problems for the US, but this is because a currency with no logical valuation can cause a lot of problems, and the way China manipulates its market and currency exacerbates this. In the future kindly regard facts as facts and not merely propaganda until and unless they are revealed as such through careful review
3
Wise or foolish economic management has nothing to do with China's decisions. It is all about the bargain the Party has struck with the People - we give you prosperity, you don't challenge our power. Any threat to strong growth is an existential threat to China's rulers, so they will pump as much money as possible into the economy to keep that growth, long term consequences be damned. Same for other authoritarians, which explains the high rate of economic instability among non democratic countries. If you are a dictator and your people are starving, all you can give them is xenophobic wars of aggression to stay in power. Let's hope the Chinese economy muddles through.
43
The exactly opposed is true. The USA is bombing 6 different countries right now to steal natural resources in the middle east and the "pivot to Asia" is a strategy to keep India and China poor.
"It is all about the bargain the Party has struck with the People - we give you prosperity, you don't challenge our power."
But wait, it is not only China that functions that way. That "bargain" is universal, at every level of control.
But wait, it is not only China that functions that way. That "bargain" is universal, at every level of control.
1
journalists without macroeconomic background have no business analyzing china's transition
35
thanks for the tip Beijing.
Huh? This article wasn't written by a journalist.
"Ruchir Sharma is the chief global strategist at Morgan Stanley Investment Management. This essay is adapted from the forthcoming “The Rise and Fall of Nations.”
"Ruchir Sharma is the chief global strategist at Morgan Stanley Investment Management. This essay is adapted from the forthcoming “The Rise and Fall of Nations.”
And your judgment would be referring to whom?
1
Does Trump read anything but the National Inquirer. He keeps spouting views that pay no attention to the data on the ground. The same could be said about immigration and Mexico---in reality Mexicans are heading back home--great time to build a wall right.
14
Mr. Sharma makes a very good point regarding how authoritarian regimes are actually detrimental to economic stability. I would suggest one more point.
I have relatives to travel to China pretty regularly on business. The impression I get from talking to them is that China's government functions largely as a "black box" with very little transparency. This means investors and the public do not have a lot of confidence in the government's public positions and announcements. There is almost a presumption that the government will flat out lie about economic developments or at least hide bad news. Suspicious investors are skittish investors prone to panic.
I have relatives to travel to China pretty regularly on business. The impression I get from talking to them is that China's government functions largely as a "black box" with very little transparency. This means investors and the public do not have a lot of confidence in the government's public positions and announcements. There is almost a presumption that the government will flat out lie about economic developments or at least hide bad news. Suspicious investors are skittish investors prone to panic.
29
Could it be that modern societies require occasional waves of authoritarianism in order to maintain long term viability?
1
The party knows it needs to keep people employed to maintain its authority. This key motivation behind past as well as future government actions should have been addressed more clearly. Their first priority is to do all they can to stay in power unchallenged - everything else comes second.
6
Not so unlike our own parties?
The short reply: BOSH!
The one accurate section is the creation of a stock market and the rush to get rich that is built into the Chinese culture; people did borrow and buy with no real knowledge or reliable information and as prices soared the bubble broke. Sound familiar. Government still trying to create structure for functioning market.
If it helps the IMF did studies on China’s Debt/GDP ratio and found no problem because of China’s incredible reserve of foreign exchange.
China is intentionally restructuring its economy away from over invested heavy industry and toward a growth in service and consumer related industries.
The Keynesian type expenditures that pulled the economy out of the depressed export market of 2008-09 built the highways and bullet train networks seen today and these are infrastructure recognized as growth supporting. Too many houses, yes well ahead of demand, but national plan to move another 250 million people urban wise and shift agriculture into agribusiness as elsewhere in the world.
Doubt Ruchir Sharma is a careful observer but just one more of a thicket of End of History enthusiast. The world needs a stable China, wish it well of think of the options.
The one accurate section is the creation of a stock market and the rush to get rich that is built into the Chinese culture; people did borrow and buy with no real knowledge or reliable information and as prices soared the bubble broke. Sound familiar. Government still trying to create structure for functioning market.
If it helps the IMF did studies on China’s Debt/GDP ratio and found no problem because of China’s incredible reserve of foreign exchange.
China is intentionally restructuring its economy away from over invested heavy industry and toward a growth in service and consumer related industries.
The Keynesian type expenditures that pulled the economy out of the depressed export market of 2008-09 built the highways and bullet train networks seen today and these are infrastructure recognized as growth supporting. Too many houses, yes well ahead of demand, but national plan to move another 250 million people urban wise and shift agriculture into agribusiness as elsewhere in the world.
Doubt Ruchir Sharma is a careful observer but just one more of a thicket of End of History enthusiast. The world needs a stable China, wish it well of think of the options.
24
Makes sense. Looks informed. I still prefer the Western model of extensive freedom and democratic involvement. It's far more humane. I cannot but suspect enormous corruption, kleptocracy, you name it, taking place at all levels of Chinese government. The people have no essential rights of recourse to basic justice, guaranteed by law and enforced within the judiciary. It's basically a police state, shoe-horned into a capitalist world economy. Truth be known: no doubt the people (read: Tibetans, etc.) suffer greatly. I'll take the rule of law any day over arbitrary dictatorship.
5
Excuse me, but you seem to forget that Western model of extensive freedom and democracy was what gave rise to communism. Hundreds of years ago you guys colonized and exploited poorer weaker countries. We got so fed up with your do-whatever-I-want spirit that Germany went to fascism to cope with your depressions, and others went to communism for independence.
I know that capitalism has improved very much, people now are more humane and care for other's well-being, not so selfish anymore. But then again look at reality. Why does democrazy still fail so hard in countries other than Japan, South Korea, U.S., Europe...? Get democracy in the Middle East, South East Asian and the many parties fight for power, rig elections, use bribery, even resort to civil war. It's so idealistic, democracy that is, when compared with the reigning regimes. But when it wins and has to be enforced, democratic systems manifest so many flaws and problems.
I agree that communist party is a tyrant, an invisible tyrant, a tyrant that can deter blame cuz it has no king but has the whole population vote for it (though we don't even know the candidates, we don't even understand the ones who are up for elections, let alone others who are good, moral but so unknown. the candidates don't have the exposure to media like U.S. presidential candidates have, we see a crowd of them on TV and give them benefits of the doubt, like ah they got here, so they have to be competent and good, yeah!!)
continue....
I know that capitalism has improved very much, people now are more humane and care for other's well-being, not so selfish anymore. But then again look at reality. Why does democrazy still fail so hard in countries other than Japan, South Korea, U.S., Europe...? Get democracy in the Middle East, South East Asian and the many parties fight for power, rig elections, use bribery, even resort to civil war. It's so idealistic, democracy that is, when compared with the reigning regimes. But when it wins and has to be enforced, democratic systems manifest so many flaws and problems.
I agree that communist party is a tyrant, an invisible tyrant, a tyrant that can deter blame cuz it has no king but has the whole population vote for it (though we don't even know the candidates, we don't even understand the ones who are up for elections, let alone others who are good, moral but so unknown. the candidates don't have the exposure to media like U.S. presidential candidates have, we see a crowd of them on TV and give them benefits of the doubt, like ah they got here, so they have to be competent and good, yeah!!)
continue....
...
But at least commism give us stability. What do you know when these candidates hopeful for the communist positions at one point, when the party got abolished, these candidates themselves will use corruption, money, power (they still have it, their wealth is not dependent on the party) to get to high positions. What troubles would arise, corruption, strike, demonstrations, even civil war (like in Thailand, Myanmar, Cambodia...)?
So I wanna ask if the communist party is abolished for real, then how can we achieve the level of transparency and good-will as in the U.S. when we are still poor, when people in the countryside (the majority) don't really have good judgement and are eager to believe talks and promises if those promises uses propaganda, builds on people's instinctual fear, love of short-term benefits (like the ones that Donald Trump are saying on television screen or newspaper or twitter right now.)
But at least commism give us stability. What do you know when these candidates hopeful for the communist positions at one point, when the party got abolished, these candidates themselves will use corruption, money, power (they still have it, their wealth is not dependent on the party) to get to high positions. What troubles would arise, corruption, strike, demonstrations, even civil war (like in Thailand, Myanmar, Cambodia...)?
So I wanna ask if the communist party is abolished for real, then how can we achieve the level of transparency and good-will as in the U.S. when we are still poor, when people in the countryside (the majority) don't really have good judgement and are eager to believe talks and promises if those promises uses propaganda, builds on people's instinctual fear, love of short-term benefits (like the ones that Donald Trump are saying on television screen or newspaper or twitter right now.)
Irrespective of this article, I am still in awe of 'autocratic' Chinese achievements! They were able to turn a poor third world country into a middle income nation with poverty being largely eradicated from the nation within one generation!! It will go down as one of the greatest achievements in human history. Yes China may pay the price of excessive debt as the writer noted, but they will overcome and come out stronger.
24
This "miracle" is just China coming late to the industrialization process. England did it 300 years earlier. Same "miracle". But England changed by gradualism. Unions. Health codes. Building Standards. Democracy, Laws, Courts. China has none of these without a bourgeois revolution - which is long overdue.
The idea that the Chinese Communist Party has largely eliminated poverty is a myth. The ruling Politburo is very adept at steering Western media to the developed glitzy areas such as Shanghai and away from the poor rural countryside. The Chinese are always about saving face, that's in their DNA and embedded in their national character. Although there has been progress in some areas and the well connected has reaped massive wealth, albeit ill gotten, the fact remains that Chinas per capita is only $900.00. The stark reality is that 40 years after Deng Xiaopeng hung the "Open for Business" sign, the majority of China's population (approximately 80% according to some studies) still live a rural farming subsistence. This is not Singapore we're talking about, far from it. And the troubling part is that this whole façade could gradually unravel and drag the rest of the world.
If you're looking for places that inspire awe, try Singapore, not China. Went from Third World poverty to one of the richest countries in the world with no natural resources in 50 years. Not a liberal democracy but strong rule of law, very little corruption and very transparent. Massive investment in education, health and world-leading infrastructure. And nobody cares what you're reading on the Internet.
The Chinese may not be eating our lunch, but it is no blessing that Chinese individuals are buying up our real estate. Prices up, no one lives there, so no customers for nearby businesses, no place to live for working Americans in these cities, no low cost housing stock being built, and when the inevitable crash comes, a lot of angry foreigners wanting to come here? No thanks.
49
A strong China must be achieved at the expense of its nieghbors. Neither is a nuclear Japan a good joke.
And this has been going on for years, not as a response to current fears for future conditions.
Industrialization results in rapid growth. Nothing more special about China there than the UK, Germany, US, Japan, India.
The difference, which the propagandists would have us forget, is that it is ruled from the center and their friends who creamed off more money than anyone can imagine. To that end they are, like the Fed, printing more and handing it to their friends who then launder it in the real estate markets of California, New York, Vancouver, Sydney, London.
This will end. The banksters will make intergenerational fortunes meanwhile, just as they continue to do in Silicon Vallyey and Wall Street. But it will end. And that may be soon. My only hope is that they dont start a war Weimar style, to restimulate demand.
The difference, which the propagandists would have us forget, is that it is ruled from the center and their friends who creamed off more money than anyone can imagine. To that end they are, like the Fed, printing more and handing it to their friends who then launder it in the real estate markets of California, New York, Vancouver, Sydney, London.
This will end. The banksters will make intergenerational fortunes meanwhile, just as they continue to do in Silicon Vallyey and Wall Street. But it will end. And that may be soon. My only hope is that they dont start a war Weimar style, to restimulate demand.
34
The style of necessarily straight talk that may lead to visa denial. In any case, fascinating research indicators. "Pilot induced oscillation" comes to mind, in terms of a small number of hands constantly lagging in trying to adapt to changing conditions.
2
Great article Mr. Sharma. Thanks!
9
This is big, big trouble. The two questions are: when does it explode, and what does it do to the rest of the world?
5
"Keynes in Asia"
.... But the main point here is that Korea and China both engaged in much more aggressive stimulus than any Western nation — and it has worked out well."
Paul Krugman , NY TImes 2010/07/24
Aren't you saying that China overdid Keynes, and she is now suffering from a mighty Keynesian hangover ?
http://krugman.blogs.nytimes.com/2010/07/24/keynes-in-asia/
.... But the main point here is that Korea and China both engaged in much more aggressive stimulus than any Western nation — and it has worked out well."
Paul Krugman , NY TImes 2010/07/24
Aren't you saying that China overdid Keynes, and she is now suffering from a mighty Keynesian hangover ?
http://krugman.blogs.nytimes.com/2010/07/24/keynes-in-asia/
30
Hmm -- more out of context gotcha-ing of Krugman. What worked in 2010 stopped working, this article says, when Beijing didn't pull back on the stimulus but started directing it corruptly. And if you read the whole blog post you quote from, you'll see that Krugman says that stimulus is only sometimes appropriate....
5
In the U.S. we have "junk" bonds.
In China they have "junk" economic statistics.
The former offer high rates of interest, given the risk factor. The latter offer economic ruin. I hope Janet Yellen is on top of this beach ball.
In China they have "junk" economic statistics.
The former offer high rates of interest, given the risk factor. The latter offer economic ruin. I hope Janet Yellen is on top of this beach ball.
5
I guess the Chinese can't call for repayment from the United States for the treasury bills they have purchased?
How China fell off the Miracle Path- physics. This idea that economies can grow forever in a finite world is ludicrous. In search of the magic elixir of growth they have totally fouled their air and soil, and are running out of water. Nature says enough is enough but people continue to believe in exponential growth. So what do they do? They borrow and borrow, trying to create growth by any means. When the economy doesn't grow enough to pay off all that debt and collapse sets in.
23
"Text without context is pretext". Reverend Jesse L. Jackson Sr.
For most of the past 2200 years China has been an socioeconomic political educational scientific technological superpower. Ruling with the Mandate of Heaven the Central or Middle Kingdom has been around a lot thriving longer than the Beautiful Country as America is known in Mandarin.
Ruling with a single political party led by a term limited collective leadership that has abandoned Marxist-Leninist rhetoric and practice China can feed and house all of it's people particularly the 300 million Chinese brought into the middle class. While China has the nominal 2nd world GDP, on a per capita basis China ranks 80th near Bulgaria. The most populous country on Earth, China is 92% ethnic Han with 55 other ethnic minorities. There are more Han living outside of China than there are Americans. About 19% of the human race is ethnic Han. But the one-child policy has led to an aging shrinking population on land the size of America.
With 5% of humanity America has 22% of nominal world GDP. America spends as much annually on it's military as the next eight nations combined including 12x Russia and 4x China. America has many military and economic alliances. The 2.3 million Americans in prison are 25% of Earthlings in prison. There is no American miracle path to prosperity without Chinese success. Without the Dragon fire-breathing the Eagle cannot soar.
For most of the past 2200 years China has been an socioeconomic political educational scientific technological superpower. Ruling with the Mandate of Heaven the Central or Middle Kingdom has been around a lot thriving longer than the Beautiful Country as America is known in Mandarin.
Ruling with a single political party led by a term limited collective leadership that has abandoned Marxist-Leninist rhetoric and practice China can feed and house all of it's people particularly the 300 million Chinese brought into the middle class. While China has the nominal 2nd world GDP, on a per capita basis China ranks 80th near Bulgaria. The most populous country on Earth, China is 92% ethnic Han with 55 other ethnic minorities. There are more Han living outside of China than there are Americans. About 19% of the human race is ethnic Han. But the one-child policy has led to an aging shrinking population on land the size of America.
With 5% of humanity America has 22% of nominal world GDP. America spends as much annually on it's military as the next eight nations combined including 12x Russia and 4x China. America has many military and economic alliances. The 2.3 million Americans in prison are 25% of Earthlings in prison. There is no American miracle path to prosperity without Chinese success. Without the Dragon fire-breathing the Eagle cannot soar.
4
Beautiful. Hopeful understood.
Bad debt, or large debt has been a problem for many countries. Some countries were able to deal with in a mature manner. Japan had a LOST DECADE (and more) when over the period of 1995 to 2007, its GDP fell from $5.33 trillion to $4.36 trillion in nominal terms. Japan is still no out of the crisis. Japan realized that conspicuous consumption of the 1980s and lavish spending could never return, but then it was wide open. It did not hide its debt.
China on the other hand is pushing the can further down the road and hiding bad debt. Its total debt to GDP is now whopping 286% and growing fast. RIGHT NOW, China's bad loans are estimated to between 15 to 19% and these would only grow with a slowing economy. This could be DANGEROUS. Chinese bank's solution to bad debt has been equity ownership. While this would have worked if growth picked up to the same levels as 5 years ago, but it is fraught with risks. It could bring entire Chinese economy down.
Contrast this with India, where bad debt is still a big problem -- although not as much as China given the smaller debt & economy size. But interestingly, India has taken a different approach under its governor Rajan who forced banks to fully disclose all bad debt by 2017 and make provisions for them. Their government is now forcing bankruptcies and asset sales that lowers bad debt considerably. Yes, the banking stocks have been down for 3 quarters straight but this saves India from big shocks. This is a more sustainable model.
China on the other hand is pushing the can further down the road and hiding bad debt. Its total debt to GDP is now whopping 286% and growing fast. RIGHT NOW, China's bad loans are estimated to between 15 to 19% and these would only grow with a slowing economy. This could be DANGEROUS. Chinese bank's solution to bad debt has been equity ownership. While this would have worked if growth picked up to the same levels as 5 years ago, but it is fraught with risks. It could bring entire Chinese economy down.
Contrast this with India, where bad debt is still a big problem -- although not as much as China given the smaller debt & economy size. But interestingly, India has taken a different approach under its governor Rajan who forced banks to fully disclose all bad debt by 2017 and make provisions for them. Their government is now forcing bankruptcies and asset sales that lowers bad debt considerably. Yes, the banking stocks have been down for 3 quarters straight but this saves India from big shocks. This is a more sustainable model.
10
I stopped reading after this claim: "It will be difficult for any country to grow as rapidly as 6 percent, and all but impossible for China." It's hard to take a supposed financial expert seriously when he says that something is basically impossible while most economists expect it to happen: http://www.oecd.org/economy/china-economic-forecast-summary.htm.
11
I lived in China for five years, their Olympics in the middle of my stay. I was consulted by both Jiang's and Hu's sides of the party often. China rose during the last recession caused by the sub-prime mortgage crisis. The next one, which will predictably occur during Hillary Clinton's first year as president, probably precipitated by China as the author suggests, is expected in China to last longer than the 2008 recession. China will not rise during this one, but neither will any other country and China will be the first one back up fairly solidly, albeit far from the heights of the roaring generation there. Then, America will really have to face itself as the defeated Trump and Sanders minions blame Hillary and the establishment for the great pain and instability that the U.S. will likely suffer.
18
Deng Xiaoping turned approximately 900 million Chinese from peasant farmers to middle class citizens after Mao's death. That was one neat trick. Unfortunately, their massive relocation program currently in progress where they are moving hundreds of millions from the countryside to new cities is taking a huge toll on their domestic economy. Add the slowing domestic production industrial economy to the growth of the smaller countries such as Vietnam and South Korea, and China is in a real mess. Currently, they are spending anywhere from 35 to 60 percent GDP on domestic programs and that may lead them to a generations of recession if they don't pull out very soon. China's leaders figured out how to get the middle class going - they just can't figure out how to keep it going. And when their economy fails, it will be savage.
13
Isn't Foxxconn now replacing 60,000 workers with robots? That kind of thing is going to hurt....
4
I would say, "Deng Xiaoping turned approximately 900 million Chinese from peasant farmers to middle class consumers...". While I agree that there has been real progress in the "quality of life" for many (a very great many) Chinese, I worry that their vision of a wholesome, sustainable, culture is as non-existent as is our own.
The missing piece is where all that speculative money that is skimmed ends up. It's no longer in some Swiss bank account. It's here in the good ole us if a. It's the reason the us stock market hasn't swooned. We are the money launderers last port of call. All the worlds purloined future is sunk in houses and land here. When it inevitably dries up we too will taste the bitter draughts of a global deleveraging and markdown of all debt.
32
Don't let Prof. Krugman read this article. It just might alter his perception of debt and how debt, like ours, not only stymies growth and initiatives such as public works projects but also steals our future and our kids'futures.
1
Read the piece again. It clearly compare's China's debt to the situation in the U.S. There's really no equivalency.
2
You are right. It takes all sorts to make the world but that would not save the world from destruction by ignorant humans.
Given the expectation of the Chinese people that unbridled prosperity will be unending, and the government's propensity to to do anything to avoid their disappointment ( and their turning against them), it seems that this situation will not soon change course.
There is no mention of what currency reserves China still has to offset any downturn in their economy. China still holds a good chunk of US debt and though so far the consequences of their sale of treasuries to plug the holes in its economy have not been felt, who knows if this will be able to continue in the case of a financial crisis.
There is no mention of what currency reserves China still has to offset any downturn in their economy. China still holds a good chunk of US debt and though so far the consequences of their sale of treasuries to plug the holes in its economy have not been felt, who knows if this will be able to continue in the case of a financial crisis.
3
Our democracy may be messy, but it produces a much more sustainable economy than any autocracy. Autocracies tend to be corrupt, and the fruits of corruption are misallocated resources and an underperforming economy. Venezuela, Cuba, Zimbabwe, and now China are proving this once again.
9
Don't kid yourself. Western democracy is every bit as corrupt as Chinese autocracy.
If what you say is true, how is it that democracy has not been practised since the time of the Greeks?
The saga of misallocated investment in China during the last decade or so is a real tragedy -- because it could have been so productive if it had been wisely invested. Worker productivity in China is still very low in comparison to best practice. Workers have less human capital (education and skills) and far, far less physical capital (machines, tools, efficient transport, etc.) The opportunities for increasing labor productivity are so enormous that they could support continued rapid growth in per capita income for a long time to come -- with the right kinds of investment.
This opportunity is still available -- to private business, and much more to governments in China. Why doesn't it get taken up? A perverse system of incentives, uncertainty as to government policy both overall and vis-a-vis individual industries and companies, too much money available through corruption in real estate schemes... What a pity.
This opportunity is still available -- to private business, and much more to governments in China. Why doesn't it get taken up? A perverse system of incentives, uncertainty as to government policy both overall and vis-a-vis individual industries and companies, too much money available through corruption in real estate schemes... What a pity.
6
The government in China is totalitarian and rife with corruption, at every level. No country with a totalitarian, corrupt government can achieve sustainable economic growth. Innovation and motivation are squashed. And, the market economy is thrown out of whack with supply and/or demand becoming artificial. Fundamentally, capitalism is undermined - in China's case, to the point of potential economic collapse.
3
Have you decided to ignore the last 20 years in China? They proved that capitalism works anywhere it is permitted, including a country run by a totalitarian bureaucracy.
3
As someone who has traveled to China often, I can concur with much of this article. The major issues will be seen foremost in the 3rd and 2nd tier cities (ZhengZhou, PingDingShan for example).
On my last visit, I had dinner with a high ranking officer at a mid sized bank. He noted the amount of bad loans was unstable and predicted an increase in defaults by a margin unthinkable here. I asked what his bosses (all in Beijing) thought about this. He said, "There are two accounting books. The ones we have and the ones we send to Beijing. This is how it's done". I am in belief that the economic numbers acquired by our press here in America are more likely not showing the full extend of the issue.
Another concern is the potential (or increase) of nationalism that is being projected by Beijing towards Japan and America. Always defaulting on the classic Soviet-era tactic, the move will alienate more educated and well traveled Chinese while its effects on the poor and less educated will probably work to coalesce anger at the invisible hand of foreign interventionalists. Could this lead to war? I don't think so now, but during a steep decline all bets are off.
I wish this article was also in Chinese. I think there are many in the mainland who would benefit from this knowledge.
On my last visit, I had dinner with a high ranking officer at a mid sized bank. He noted the amount of bad loans was unstable and predicted an increase in defaults by a margin unthinkable here. I asked what his bosses (all in Beijing) thought about this. He said, "There are two accounting books. The ones we have and the ones we send to Beijing. This is how it's done". I am in belief that the economic numbers acquired by our press here in America are more likely not showing the full extend of the issue.
Another concern is the potential (or increase) of nationalism that is being projected by Beijing towards Japan and America. Always defaulting on the classic Soviet-era tactic, the move will alienate more educated and well traveled Chinese while its effects on the poor and less educated will probably work to coalesce anger at the invisible hand of foreign interventionalists. Could this lead to war? I don't think so now, but during a steep decline all bets are off.
I wish this article was also in Chinese. I think there are many in the mainland who would benefit from this knowledge.
78
The NYT site is blocked in China anyway--as are almost all Western news sources. So it wouldn't matter what language this article is in. Besides, it could be adequately translated online, too--but, again, most of all of that is blocked in China.
And, the Chinese government would just claim it was all a Western attempt to manipulate the common folk and it would be held up as further evidence of how the West is destroying China.
And, the Chinese government would just claim it was all a Western attempt to manipulate the common folk and it would be held up as further evidence of how the West is destroying China.
7
Your concerns are not enough to change the course of history.
I think this is the main problem. Two maybe three sets of books. You can't trade with those whom you can't trust, at least marginally. But I believe it to be a cultural failing, not bad capitalism or communism. It is hard to have one truth when parties put more stock in face than truth.
Mr. Sharma demonstrates that he is ignorant about the difference between public and private debt.
Once more: the Chinese government will never run out of yuan - it created all yuan in existence! - how could they ever suffer a funding shortfall? Mr. Sharma regularly conflates the debts of the private sector (who must find funds to pay debts) and the public sector (which simply creates funds). Pure ignorance.
Please stop pretending that the Chinese government suffers from 'the curse of debt'; it does not. The Chinese economy has many problems, but sovereign debt is not one.
Once more: the Chinese government will never run out of yuan - it created all yuan in existence! - how could they ever suffer a funding shortfall? Mr. Sharma regularly conflates the debts of the private sector (who must find funds to pay debts) and the public sector (which simply creates funds). Pure ignorance.
Please stop pretending that the Chinese government suffers from 'the curse of debt'; it does not. The Chinese economy has many problems, but sovereign debt is not one.
55
it is a little more complicated for China, because most of the government debt is local government debt. they can't print yuan. in the end, I'm sure Beijing will backstop the provinces and major cities, but it means the central government and the markets have an incomplete view of the situation. The potential for an unexpected shock an devaluation is large.
2
This is the same point Paul Krugman always has to make in response to Republican obtuseness. Countries are not businesses. They can't go bankrupt. And they can print all the money they want. But they can make terrible decisions and suffer from various disabilities such as deflation, rampant inflation, bubbles, etc. But it's not normally about debt, especially now with interest rates near zero.
7
The Chinese government can and does effectively print money, just like the Fed. But real growth is only about 3% and falling (read Michael Pettit). Their problem is misallocation, spending on bridges to no where, shoddy buildings which dont last, and the massive capital flight as the CCP and cronies launder their money through our real estate. This rebalances their surplus but it does not set them up well for a transition to a service economy or the creation of a middle class.
6
Yes, China's high level of debt is a big worry. But the debt situations in China and the U.S. are not comparable. China's debt largely financed investments that will help China grow in the years to come. U.S. debt largely finances consumption, which will do the opposite in future years, even if the percentage of GDP is less.
52
Huh? Why would China worry? Don't they OWN our T-Bills, loans, Manhattan and California real estate? I don't get it...
1
A mothballed factory will be at best an obsolete one. An apartment block in the desert will crumble into sand. Malinvestment as the name implies is not a good thing. China could use more consumption for the 99%.
15
Private consumption certainly has been fostered by debt, but so too has government debt in fighting wars which have continuing costs in the damaged returning soldiers & in displaced civilian populations. We have done quite a bit by public investment in health, but in education we show up far less well, between quality & Americans personally paying for much of it.
This is a good account of what has happened over the past few years; the one major factor that was not mentioned is the increasing cost of past environmental loading and the related water shortage. Estimates of current debt/GDP are around 280% or more. The problem is not so much the current debt level as the growth since 2008. It must slow down and stop growing over the next five years or so yet the constant temptation is to pump up growth with more debt whenever it falters. The impact on the rest of the world is likely to be limited, however. China continues to increase exports slowly despite declining global trade, gaining market share. Commodity producers will never get a return to China-driven prosperity but that impact has already occurred. Given new structural reforms, it is quite possible that China can stabilize at a growth rate of 3% per annum, not bad for the world's second largest economy. The problems, while serious, will mostly likely be domestic rather than dragging down the US, EU or Japan. So, a good column, but alarmist - maybe an occupational hazard for a macro forecaster.
7
The Chinese debt is mostly owed to the Chinese government, at various levels. Foreign exchange remains in the trillions. Is the government going to seriously shake things up by foreclosing on businesses? Answer: NO.
When you have bureaucrats running a nation's economy -- as they do in Communist China -- rather than the businesses themselves (this is called "free enterprise") -- you inevitably end up playing "wack-a-mole".
Meet the pre-eminent "wack-a-mole" economy: Communist China.
When you are a control freak, you get what you control: no initiative, no creativity, government intervention at every step of the way, and suspicion and finger pointing.
None of these add up to what you really want: a vibrant, competitive, creative, resourceful economy.
The comrades running the nation need to let go. Let the economy decide what works, not the cya of bureaucrats and politicians and party elites.
Duh!
Meet the pre-eminent "wack-a-mole" economy: Communist China.
When you are a control freak, you get what you control: no initiative, no creativity, government intervention at every step of the way, and suspicion and finger pointing.
None of these add up to what you really want: a vibrant, competitive, creative, resourceful economy.
The comrades running the nation need to let go. Let the economy decide what works, not the cya of bureaucrats and politicians and party elites.
Duh!
7
As in the free-market US. Have you been asleep lately? The good times after WW2 are over, and we never really had a free market system, anyway. Lenin was right, and it is just a matter of time, unless you turn the market into a regulated one. If you combine greed and patrimony with capitalism you get what we are getting today.
18
"The comrades running the nation need to let go. Let the economy decide what works, not the cya of bureaucrats and politicians and party elites.
Duh!"
Well, didn't that work out well here in the States? 2008 ring any bells?
Duh!"
Well, didn't that work out well here in the States? 2008 ring any bells?
You don't have to worry about China for another 20 years.
As long as our wealthy elites grow their portfolios than all is well.
5
...what am I missing here? Huh? Why would China worry? Don't they OWN our T-Bills, loans, Manhattan and California real estate? I don't get it...
7
In reply to Randy, Ph. D.:
I will assume that your questions are genuine, and I have two suggestions that I think might help you find the answers you seek. First, SOME Chinese own SOME of our T-Bills, real estate, and so forth. Getting away from absolute thinking will help keep things in perspective. Second, the whole issue of sovereign versus foreign debt is complicated. However I think that some of the articles in this newspaper and other sources on the structural problems of the Eurozone might give you some insight.
I will assume that your questions are genuine, and I have two suggestions that I think might help you find the answers you seek. First, SOME Chinese own SOME of our T-Bills, real estate, and so forth. Getting away from absolute thinking will help keep things in perspective. Second, the whole issue of sovereign versus foreign debt is complicated. However I think that some of the articles in this newspaper and other sources on the structural problems of the Eurozone might give you some insight.
China has a lot of problems that must be addressed.
But to state it's near a collapse because of debt is ridiculous. First, China's financial system is entirely state owned, centralized and controlled; second, most of China's debt to with itself, not foreign creditors.
But to state it's near a collapse because of debt is ridiculous. First, China's financial system is entirely state owned, centralized and controlled; second, most of China's debt to with itself, not foreign creditors.
9
"FOR years now, Donald J. Trump has been sounding the alarm on China, calling it an economic bully that has been “eating our lunch.” But that narrative is so last decade. China is now a threat to the United States not because it is strong but because it is fragile."
So you're saying Donald Trump doesn't know what he's talking about, and in fact the opposite of what he is saying is true? Huh.
So you're saying Donald Trump doesn't know what he's talking about, and in fact the opposite of what he is saying is true? Huh.
3
Insightful article.
But there was no reason to drag Donald Trump into this mix. And it was completely irrelevant to your analysis of China today.
What Trump is talking about, has already happened. China has already eaten our lunch (and stolen our technology and has your SS number too)
But there was no reason to drag Donald Trump into this mix. And it was completely irrelevant to your analysis of China today.
What Trump is talking about, has already happened. China has already eaten our lunch (and stolen our technology and has your SS number too)
18
So a guy at Morgan Stanley is preaching that State Capitalism is a precarious bet. He may be right. I'm not so sure though that our 1 percent "Free Market" capitalists are any better at what they do than China's 1 percent state capitalists - at least when it comes to my personal interests.
77
Actually they're both extremely good at what they do - which is exactly the same everywhere - to pull as much money out of the pockets of the 99.9% into their offshore accounts.
But the Chinese Overlords do it differently than our 0.1% Overlords. The Chinese state owns the factories and the legal system, but they - the elite - are the State. Smart those Chinese.
And consider Marx's definition of capitalism: The owners of the equipment pay the workers just enough so they stay alive to work, but not enough to buy their own equipment.
No wonder Democrats and Independents say they prefer Democratic Socialism by about 52%.
But the Chinese Overlords do it differently than our 0.1% Overlords. The Chinese state owns the factories and the legal system, but they - the elite - are the State. Smart those Chinese.
And consider Marx's definition of capitalism: The owners of the equipment pay the workers just enough so they stay alive to work, but not enough to buy their own equipment.
No wonder Democrats and Independents say they prefer Democratic Socialism by about 52%.
China did what Paul Krugman wanted done in America.
In defense of China, though, it is still mostly a third-world country, with new infrastructure genuinely needed, and the cost of development in China is far lower than in the US, where government mandates sometimes double the cost.
In defense of China, though, it is still mostly a third-world country, with new infrastructure genuinely needed, and the cost of development in China is far lower than in the US, where government mandates sometimes double the cost.
2
China's record on freedom of speech and political expression is deplorable, but people will tolerate a lot of they have jobs and can support their families. Economic unrest will do more to force this issue than any speech from the US President.
6
The author is correct. Why would anyone believe that China might be better at managing their economy then the developed nations. They are not more experienced, their economy is not better distributed, their productivity is not superior, they cannot depend upon larger reservoirs of "good will", they do not have greater natural resources, etc., etc. The Chinese are well know for their fervor to gamble, even more so then our own "masters of the universe".
China will learn the hard way, as we all do.
China will learn the hard way, as we all do.
5
Another economy done in by the bankers. Plus ça change, plus c'est la même chose.
4
Chinese mercantilism by virtue of its fiats will always hinder true price discovery mechanisms. Without prices being determined by supply and demand, the inevitable result will be 'lumpy' economies, with whole sectors out of balance. And if a particular sector (say housing, or steel production,etc) remains out of whack with demand, then the only way to address cost pressures is to issue more debt.
4
China has many other problems as well.
#1 - an aging workforce and population
#2 - an overcrowded education system (think 50+ students per class) primarily focused on teaching ideological conformity and preparing students for high stakes tests (the zhongkao and gaokao).
#3 - a growing shortage of potable water due to groundwater pollution
#4 - a health-care system which is ill-prepared to deal with the aging population or the consequences of pervasive air and water pollution
#5 - a workforce which does not have the skills (i.e. creativity and teamwork) valued by modern market forces and employers
And
#6 - a leadership largely incapable of dealing with problems #1-5.....
#1 - an aging workforce and population
#2 - an overcrowded education system (think 50+ students per class) primarily focused on teaching ideological conformity and preparing students for high stakes tests (the zhongkao and gaokao).
#3 - a growing shortage of potable water due to groundwater pollution
#4 - a health-care system which is ill-prepared to deal with the aging population or the consequences of pervasive air and water pollution
#5 - a workforce which does not have the skills (i.e. creativity and teamwork) valued by modern market forces and employers
And
#6 - a leadership largely incapable of dealing with problems #1-5.....
40
Are you talking about China or the US?
Democracy VS Authoritarian. Democracy wins in the long run, humans have to be free to be creative and competent in the long run. The top 1% elite Chinese looted the country, at the sweat & blood of the hardworking masses, and invested in real estate, and also spoilt their children with designer bags, diamonds, and fancy cars! Which fool would loot it's Mother country, that is what the !% corrupted Chinese did!!! Now for India, the idiot and cruel politicians loot the country to the tune of trillions of dollars and store the money at Swiss banks, including a foreign illiterate woman who has no business to be in India and be part of the looting gang! The masses and the poor would be much better if only these countries' elite, and politicians would leave the ways of the past behind and think of the country for once. Meanwhile US's middle class has almost disappeared!
1
Whatever one's feelings on China and the CCP, this is going to be bad news when it happens. Almost impossible to predict what might happen in the event of widespread social unrest in China and how the CCP might try to suppress or redirect it.
I suppose Gordon Chang may feel some long-awaited vindication, at least.
I suppose Gordon Chang may feel some long-awaited vindication, at least.
1
Oh, so because China isn't so strong, something is different? Maybe for the big exporters and big banks it isn't so rosy. However for the rest of us, not much has changed. The real problem right along has been the damage done by imports and that is going to continue to the extent there is demand here. At least with growth, there was hope that their costs would increase so as to bring the playing field closer into balance, like happened with Japan and Korea. Without growth, China has the potential to not mature but continue to use hundreds of millions of workers in ways that jeopardize American workers and the world environment.
8
China hasn't fallen of it yet - and as there is this fact - that there is no better way to selfdestruct for an economy than with a housing bubble China without any doubt has 'the mother of all bubbles' - but as Chinese Investors now built part of it - also in Canada and in the US it has become a fascinating international Experiment of Greed and the destructive force of the money slosh.
So what will come down first - or where will it burst firstl?
Really in China? - where the government - with all it's problems - still - and for such a long time was able to ignore the Bubble -
Or in the US? -
Or even in such a (in relation) small bubble as Vancouver - as our 'chaotic capitalistic system' is very sensitive to any news about the Confidence Fairy pulling the plug...
So what will come down first - or where will it burst firstl?
Really in China? - where the government - with all it's problems - still - and for such a long time was able to ignore the Bubble -
Or in the US? -
Or even in such a (in relation) small bubble as Vancouver - as our 'chaotic capitalistic system' is very sensitive to any news about the Confidence Fairy pulling the plug...
2
Utter nonsense from the neo-con and neo-liberal sector. Here's the Chinese view: "Back to the Chinese economy, the mantra across multiple, powerful Beltway factions is that a crash is imminent. Once again; the House of Cards theme.
China's total debt is now a whopping 280% of GDP. That includes the 115% that apply to SOEs' debts; in Japan, for instance, that SOE figure is only 31%. Yet what really matters is that only a maximum of 25% of Chinese SOEs' debts will need to be restructured.
Xi's strategy is that the Goddess of the Market will turbo-charge those SOEs, not kill them. So forget about the CPP handing out control of the Chinese economy to companies that the CCP itself does not control. No wonder what's left for US Big Capital's spokespersons is to carp about a House of Cards."
http://www.opednews.com/articles/Is-China-a-House-of-Cards-by-Pepe-Escob...
China's total debt is now a whopping 280% of GDP. That includes the 115% that apply to SOEs' debts; in Japan, for instance, that SOE figure is only 31%. Yet what really matters is that only a maximum of 25% of Chinese SOEs' debts will need to be restructured.
Xi's strategy is that the Goddess of the Market will turbo-charge those SOEs, not kill them. So forget about the CPP handing out control of the Chinese economy to companies that the CCP itself does not control. No wonder what's left for US Big Capital's spokespersons is to carp about a House of Cards."
http://www.opednews.com/articles/Is-China-a-House-of-Cards-by-Pepe-Escob...
1
To see the level of nuance in this essay, though I am not qualified to judge the validity of each particular point, is endearing to me. When campaign slogans and soundbytes reduce global economic concerns to pithy sayings, more of this kind of informed information should reign supreme.
2
What also doesn't help is an authoritarian mindset that blindly believes that it can control the worldwide economy in the same manner it attempts to control its citizens. The World doesn't work that way!
It used to be that when America sneezes, the rest of the world gets sick. If China gets very sick, do we imagine that the US will have a headache? With low growth in the USA, even a small secondary negative impact- growth dropping 1%- could have large negative consequences.
2
Despite a global surplus of savings, debt is always and everywhere bed. We must save, save, save because somewhere, perhaps on Mars, there are profitable private investment opportunities.
America built the occasional "bridge to nowhere" back when spending in infrastructure was closer to what's actually required. China seems to have been in the frequent habit of building entire "cities for nobody". A free democracy is occasionally able to reign in the truly ridiculous, while still allowing creativity to flourish. Any human endeavor will always have some waste. Imperfect execution is a natural byproduct of progress. One party communist rule is problematic at best. It's a high speed path back to China, 1960s style. When this bubble finally bursts, leadership's iron fist will only try to further tighten it's grip. A true recipe for unnerving chaos. A defeated Mr. Trump will be able to watch it all unfold from a darkened room, deep inside Mar-a-Lago. He'll probably claim credit for "rattling China's cage" during the election. Wherever human misery and chaos exists, Trump only sees an advantage.
5
My real concern is that the autocratic government there will try to distract the populace from economic failure through foreign military adventurism, an age-old trick that often works for at least a little while. They are already sowing the seeds, building up military bases on small disputed islands in the South China Sea.
8
Been reading the NYT I see.
The 9 dash line goes back to end of WWII and China an allie US saw no problem; same into the Mao and Deng – Jiang years. Recent years neighbors doing the same in effort to lay territorial claims and US see opening to militarization of those neighbors called Pivot to Asia. Settlements are possible but only in a world so inclined. One now in the courts; China’s response likely to ignore. More saber rattling sure to follow. Pray for Peace unless you have an investment in M-I-C.
The 9 dash line goes back to end of WWII and China an allie US saw no problem; same into the Mao and Deng – Jiang years. Recent years neighbors doing the same in effort to lay territorial claims and US see opening to militarization of those neighbors called Pivot to Asia. Settlements are possible but only in a world so inclined. One now in the courts; China’s response likely to ignore. More saber rattling sure to follow. Pray for Peace unless you have an investment in M-I-C.
They can always sell their 1.7 trillion dollars in bonds and they will be right as rain, but the USA will be once again behind the 8 ball.
2
If there is a collapse in the Chinese economy, that amount would certainly tide them over for several months to help them recover, but the question is will they recover? Compare that with Russia's plight whose economic woes due to the drop in oil prices have the Russian using their dollar reserves of 500 billion dollars which according to the latest news will be exhausted in 18 months. Unless oil recover its peak prices, Russia's economy is bound to get worse than better.
With the 240% to 270% debt to GDP ratio I think the concern here is because there is too much debt a certain percentage of them would be non-performing loans and enough to cause a dent in the economy. China's loan to the USA in the form of bonds are performing loans.
With the 240% to 270% debt to GDP ratio I think the concern here is because there is too much debt a certain percentage of them would be non-performing loans and enough to cause a dent in the economy. China's loan to the USA in the form of bonds are performing loans.
3
Much of China's miracle was fueled by our addiction to cheap imported goods with their "too good to be true prices". Given there are no other "America's", it will be hard to find other customers that will be agreeable to such unfair trade practices and whose governments can subsidize their under/unemployed (with borrowed money) as we do. Don't fret though, they have us. We are still addicted.
1
The Chinese economy is opaque at best. We cannot rely on the Chinese to fuel global growth.
The U.S. debt almost doubled during the Obama administration - it now sits around $21 trillion dollars. The article dismissed our debt - even though it continues to grow and is expected to reach $23 trillion in 2 years, as we are still running an annual deficit.
We shouldn't look overseas and worry about whether China is mismanaging its economy - we can look right here at home.
We can't balance our budget and the interest expense on our debt is growing larger and larger and if rates rise, can become crippling to our economy.
Debt. We take on debt or leverage our capital to to fuel economic growth, that same debt can result is perilous consequences if not managed prudently and properly.
The U.S. debt almost doubled during the Obama administration - it now sits around $21 trillion dollars. The article dismissed our debt - even though it continues to grow and is expected to reach $23 trillion in 2 years, as we are still running an annual deficit.
We shouldn't look overseas and worry about whether China is mismanaging its economy - we can look right here at home.
We can't balance our budget and the interest expense on our debt is growing larger and larger and if rates rise, can become crippling to our economy.
Debt. We take on debt or leverage our capital to to fuel economic growth, that same debt can result is perilous consequences if not managed prudently and properly.
2
I am not an expert on China. I did visit China for two weeks in 2012 and read what journalists in general newspapers, like the NY Times, have to say.
One point that Mr. Sharma does not address is the unreliability of economic numbers that come from the Chinese government. What is the real number for economic growth? A second point not addressed is the amount of corruption at all levels of government and industry. How many hundreds of billions of dollars are being skimmed out of the economy?
When I visited the sites and learned some of the history of the imperial dynasties, I was struck by parallels between ancient history and current events. The people of China accepted the autocratic rule of emperors who kept them secure and free from famine. But, dynasties were overthrown by uprisings when the emperors could not deliver relative peace and prosperity. This seems to be the same bargain that the Chinese have today with their autocratic, communist government. Is it only the economy that is at a tipping point, or will the political system fall, too?
One point that Mr. Sharma does not address is the unreliability of economic numbers that come from the Chinese government. What is the real number for economic growth? A second point not addressed is the amount of corruption at all levels of government and industry. How many hundreds of billions of dollars are being skimmed out of the economy?
When I visited the sites and learned some of the history of the imperial dynasties, I was struck by parallels between ancient history and current events. The people of China accepted the autocratic rule of emperors who kept them secure and free from famine. But, dynasties were overthrown by uprisings when the emperors could not deliver relative peace and prosperity. This seems to be the same bargain that the Chinese have today with their autocratic, communist government. Is it only the economy that is at a tipping point, or will the political system fall, too?
64
Now we will see if picking fights with their neighbors, stealing shoals, reefs and sand barges from other countries, claiming 1/2 of the Pacific ocean, not cooperating on the North Korean issue, stealing and hacking from America, one sided deals with third world countries, ...let's see if it was worth it.
The chickens are coming home to roost.
The chickens are coming home to roost.
23
They are in an interregnum period. It remains to be seen if they will continue without emperors or find a new one.
Mem,
The problems such as unreliable economic numbers is because Chinese economy just started on its track, here, you need to give them time
Though I do agree with the article it is top people missed some big chances, or even abused their power on this track of modernizing of their economy, so much so, the evolution has never started
The problems such as unreliable economic numbers is because Chinese economy just started on its track, here, you need to give them time
Though I do agree with the article it is top people missed some big chances, or even abused their power on this track of modernizing of their economy, so much so, the evolution has never started
1
The Chinese gov't in an effort to show that it is infallible has set the stage to collapse their economy. This is apparently the mother of all bubbles.
54
On top of that they feel compelled to build their military for seemingly no good reason.
3
"they feel compelled to build their military for seemingly no good reason." They have a great reason. It's called the military/industrial complex. Works great here.
1
Not trying to show infallibility, just doing the best they can to feed their people, constrained by the limits of their unwieldy system.
Their current command system is not easy to manage. Think of it as a large steam filled room with lots of levers and ropes to pull. About a thousand technocrats run around the room making frantic adjustments while bumping into each other. Compare this to our semi-market system with its seven Board Members who meet in the club over drinks and release a statement every six weeks.
Yes, the mother of all bubbles - amazing that the clever Chinese have been able to hold it together for so long.
Their current command system is not easy to manage. Think of it as a large steam filled room with lots of levers and ropes to pull. About a thousand technocrats run around the room making frantic adjustments while bumping into each other. Compare this to our semi-market system with its seven Board Members who meet in the club over drinks and release a statement every six weeks.
Yes, the mother of all bubbles - amazing that the clever Chinese have been able to hold it together for so long.
Let's just accept this fact. By virtue of this fact China will fail because it lacks the democratic ingredient. It is easy to see why it will fail; when and how is the open question.
Thus our policy must be to prepare for the inevitable failure of China's model. Can it safely steer to become democratic? One would hope - it tries - but is is unlikely.
Which leads me to my own prediction: India chose the messy path of Democracy. With its 1 Billion plus people it will be the next superpower. It survived many crises in the democratic model and it will continue doing so; albeit it is at times hard to see how.