China's Economy

[brett]

Here's an interesting article:

China heading for huge crash

Officially China is growing at ~8% a year. But what did I see in Hubei Province last month? Hmm, I saw rampant building of massive apartment complexes. I saw deserted shopping centres where even I gasped at the prices. I saw dozens of banks, yet staff that took an hour to change sterling into RMB. My lady earns 1000RMB a month, so a couple earning that kind of money aren't going to have much disposable income. My lady tells me that the economy isn't great. Competition for jobs and customers is severe.

I maintain my position that with the Western debt fuelled boom years long gone, China could be in trouble. Sure there will be some increased internal demand, but with the export market depressed, this won't come easily.

Discuss!

[RobertBfrom aust]

Brett , if it was not for China coming to the rescue the U.S.A , UK and a lot of the European countries would be in a deeper load of s--t than they are , building lots on credit , the world powers in a monetary sense have changed , and it is the moms and pops money that has bailed everyone on the other side of the globe out , so Chinese people generally cannot borrow as easily as 18 months ago , so a lot of private construction is on a go slow timetable timed to take double what it would normally be , trouble is I do not see to many CEO's or board members of failed [ and rescued ] corporations being charged as yet , and China will be also watching this regards Ying and Robert .

[David5o]

From what i can make of the present situation in China, is that the invisible business market (commerce) is going full speed ahead, while the visible market has been hit to some extent by the drop off of overseas trade. It's normally this sector that affects the population of a country, because it is based on production within factories and the like. Therefore those workers will be the most affected, and then you get the knock on affect, that goes down the line through the suppliers of components and raw materials etc etc..... The home market isn't affected too much, but the available disposable income will be, hence the slowdown in building new homes and shopping outlets, to name but two local affected markets/businesses.... Unlike most western countries, China has the the means and wherefore all to ride this storm out, and be ready to cash-in when world trade starts picking up again...

David.......

[JimB]

And the suppliers are not dropping their prices to drum up business as far as i can tell. In fact they are raising  prices.  In Tianjin, six months ago my wife contacted a silk supplier for my sisters store.  They were a bit high so she didnt buy anything.  Two weeks ago my wife contacted them again and they had raised their prices to make up for the shortfall.  My wife said she had seen this in other places also.  I dont claim to be able to speak with any sort of knowledge on the overall Chinese economy but what I saw there is that all of the local malls and stores are jam packed, but the high end stores have very few shoppers.  All of that tends to back up Davids statement.

[David E]

Correct.....

China IS in trouble...just like most of the rest of the World.

Unemployment has reached 9%...and there is no "nanny State" to bail them out...no dole, no welfare, no handouts.

9% of Chinese workers are suffering just as much as the 10% unemployed in USA and the 11% in UK and Europe.

Difference is...1.3 Billion consumers makes for a lot of domestic demand, coupled with the nett population growth of this giant population (even with the one-child-policy) ensured that a STATIC economy must grow at 8% just to barely stand still.

The Western debt fuelled boom was done on the back of the "modest" savings of 1.3 billion Chinese...they used to save 40% of their nett income...and they lent it to USA and the rest of the World....who really couldnt be bothered to save...too busy buying lots of goodies on credit.

Now, with their economy in the doldrums, they are "only" saving 20% of their income...so even those on wages of 1000 RMB per month will still save something.

These savings now will fuel the Chinese economy...with not much left over for the rest of us.

Second and third tier manufacturing and commerce has dried up....due to global demand falling. Subsistence spending (to keep in food and shelter) has not changed and in fact is growing at the mentioned 8% per.

At an individual level, a lot of Chinese folks are doing it tough...just like the rest of the World. But at a National level, they are much better off...because in the Western World, debt servicing costs...due to Balance of Trade imbalance and funding of horrendous bail out packages for the bastards who caused all this...have resulted in many Countries having debt service costs bigger then GDP...USA for example.

In fact recently Iceland was the first Country to declare bancrupcy !!...Government was dumped and they are now cancelling debts !!...just like a banana republic that we all sneered at for many years (especially the South American ones !)

It is envisaged that many more countries will follow suit.

China has virtually no debt service costs...because the whole world owes China money !!!...which came from the savings of your Lady and the other "mums and dads" in China....however tiny these are at the individual level, there are 1.3 Billion of them.

China's main threat comes from the consequences of the $US falling much further...its Trillions of dollars worth of US Treasury bonds could be almost worthless...and then the world should get ready for a SERIOUS downturn !!!!!!

DavidE

[ttwjr32]

I agree with what both Davids had stated here. I believe we still have a
  little more of a storm on the horizon before it does start to get better.

[shaun]

The news media is telling America that the recession is over and things are looking better. Problems is my sales are still going down not up.  I hope they are not trying convince anyone one because it is not working. The economy is falling faster than rice between chop sticks in my hands.

Shaun

[Paul Todd]

For the first time in history, a communist country is in a position to bring down global capitalism. The Chinese Communist Party, if it were to sell the $763 billion in US Treasury bonds it holds, yes that's right $763 billion! would trigger a massive devaluation in those bonds and the value of the American dollar, thereby bringing the world economy to its knees, as David so rightly pointed out. I am not saying that they are about to do this,but it is in there power although not in there interest to do so.
An often-repeated verse in China these days observes:

In 1921, only socialism could save China.
In 1978, only capitalism could save China.
In 1991, only China could save socialism.
In 2009, only China can save capitalism.

As the American budget deficit for example rattles towards $1 trillion, it is China's $2 trillion in foreign-exchange reserves that are seen as the salvation for the world economy. So Brett I would not be too worried about the Chinese ,I would be more worried about the ineffectually politicians running our country and BS there spouting to keep them and there friends out of prison. People who live in glass houses should not throw stones.

[David S]

For the first time in history, a communist country is in a position to bring down global capitalism. The Chinese Communist Party, if it were to sell the $763 billion in US Treasury bonds it holds, yes that's right $763 billion! would trigger a massive devaluation in those bonds and the value of the American dollar, thereby bringing the world economy to its knees, as David so rightly pointed out pointed out. I am not saying that they are about to do this,but it is in the power although not in there interest to do so.
An often-repeated verse in China these days observes:

In 1921, only socialism could save China.
In 1978, only capitalism could save China.
In 1991, only China could save socialism.
In 2009, only China can save capitalism.

As the American budget deficit for example rattles towards $1 trillion, it is China's $2 trillion in foreign-exchange reserves that are seen as the salvation for the world economy. So Brett I would not be too worried about the Chinese ,I would be more worried about the ineffectually politicians running our country and BS there spouting to keep them and there friends out of prison. People who live in glass houses should not throw stones.

VERY good points.

[align=center]My Perspective on Victorious countries...[/align]

2000 BC - We won, we're taking your prettiest women for our wives, your gold for our pockets, and your hardiest men to be our slaves.

1000 AD - We won, Stay where you are, but give us all the fruits of your land.

1700 AD - 1900ish AD - We won! This is our land now.  Here have a bottle of whiskey and go live on this small plot of land... no wait that land has oil, you go over here now... no wait that land has uranium, you live here... (conquered nations: "F&#K Y%U!! I'm building a casino and you can't do a damn thing about it!)

2000 - We won, you will now govern your nation as we govern ours.

[Proteus]

About my fatherland, I know I am worrying, but I am not sure what to worry. Under the veil of economy, there might lie a much bigger crisis...

[Voiceroveip]

Excellent analysis David!

The only risk China has medium term is a US default on debt, I think the FX will settle short term, the US$ will rise again at some stage, probably in spring, Europe currently "likes" the exchange rate because energy import costs are kept reasonable, even if European exports are hampered somewhat. The big exporters (Germany) see growth and a very favorable trade balance. Once the heating is turned off, the $ will rise again, no real worries for the Chinese I think. They can finance US dept with internal savings.

What one should worry about is the US economy medium term. Where will the next war be?

Correct.....

China IS in trouble...just like most of the rest of the World.

Unemployment has reached 9%...and there is no "nanny State" to bail them out...no dole, no welfare, no handouts.

9% of Chinese workers are suffering just as much as the 10% unemployed in USA and the 11% in UK and Europe.

Difference is...1.3 Billion consumers makes for a lot of domestic demand, coupled with the nett population growth of this giant population (even with the one-child-policy) ensured that a STATIC economy must grow at 8% just to barely stand still.

The Western debt fuelled boom was done on the back of the "modest" savings of 1.3 billion Chinese...they used to save 40% of their nett income...and they lent it to USA and the rest of the World....who really couldnt be bothered to save...too busy buying lots of goodies on credit.

Now, with their economy in the doldrums, they are "only" saving 20% of their income...so even those on wages of 1000 RMB per month will still save something.

These savings now will fuel the Chinese economy...with not much left over for the rest of us.

Second and third tier manufacturing and commerce has dried up....due to global demand falling. Subsistence spending (to keep in food and shelter) has not changed and in fact is growing at the mentioned 8% per.

At an individual level, a lot of Chinese folks are doing it tough...just like the rest of the World. But at a National level, they are much better off...because in the Western World, debt servicing costs...due to Balance of Trade imbalance and funding of horrendous bail out packages for the bastards who caused all this...have resulted in many Countries having debt service costs bigger then GDP...USA for example.

In fact recently Iceland was the first Country to declare bancrupcy !!...Government was dumped and they are now cancelling debts !!...just like a banana republic that we all sneered at for many years (especially the South American ones !)

It is envisaged that many more countries will follow suit.

China has virtually no debt service costs...because the whole world owes China money !!!...which came from the savings of your Lady and the other "mums and dads" in China....however tiny these are at the individual level, there are 1.3 Billion of them.

China's main threat comes from the consequences of the $US falling much further...its Trillions of dollars worth of US Treasury bonds could be almost worthless...and then the world should get ready for a SERIOUS downturn !!!!!!

DavidE

[brett]

Yes anyone who thinks the current crisis is over has their heads in the sand. The can has been kicked further down the road, and that road is longer than any of us could have believed. Global governments appear to have inflated a new bubble to replace the old one, but the end game is fast approaching.

The man in the street - well he knows there is trouble ahead and is repaying debt as fast as possible. He has stopped buying cheap Chinese junk. That demand may never come back.

It's at the bank/government level that the problems exist. Banks have no idea what to do. Governments are spending more, instead of tackling the problem of excessive debt. Very soon we will end up with massive inflation or deflation. Anyone caught on the wrong side of that equation will get skinned alive.

China has got rich by making cheap stuff. There is always somewhere else that will make the same stuff for less. There are also looming environmental and social problems and it may be hard for the powers that be to advance the nation when it has to keep 1 billion plus people happy.

Anyone who cares about their future should keep an eye on http://market-ticker.denninger.net/

[Willy The Londoner]

All I can say on financial matters is that today I drew out 2500rmb from the ATM and noted that for the first time that the rate of exchange had risen to 11.0021 for each 1 GBP.

Long may it stay at that rate or go even higher.

Willy