Fit2BThaied
Mar 31 2006, 06:52 AM
I'm no expert, not even an ex-spurt. But I can't imagine how the Chinese bureaucrats in Bejing can manage the economy. If Alan Greenspan and the US Congress can't regulate the American economy, how can a tired bunch of Communists run a country of 1,221,398,402 people? This a country with one time zone, when it should have five!
I'm returning to China this month, for a week in Shanghai. What should I look for? Last time I went, two years ago, my guide (best friend, 35 year old native of Shanghai) was amazed that the police didn't arrest beggars in the street, right on the Bund. My friend's condo in the best neighborhood of Shanghai is worth about twice what it was just a few years ago; that's a sign of inflation. And you see the strangest thing in Shanghai: CARS!!
I understand that only eastern China is prosperous, and the rest of the country is dirt poor. When Jian Xeming retired, the new president/Chairman's first speech was a warning to the Politboro that the natives in central and western China were restless.
Fit2BThaied
Apr 6 2006, 07:47 AM
Yes, JohnL, I think you or one of your twin brothers posted something like that recently, on one of these threads. I thought Alan Greenspan was the nakedest emperor in the Western Hemisphere, but I suspect that the Chinese politboro looks like a nudist colony.
Communists can't do economics. Central planning doesn't work even in a nation of 20 million people. China still has far too much control by its govt. The free enterprise system is less than 20 years old, and bound to be shaky. Banking? They're probably very good at taking in savings and paying out 2% a year, but how many well-trained economists are there in China? Perhaps they need 29,439 economists, but I'm sure that not ten meet JohnL's requirement of properly trained economists.
Another thing that's unsustainable in almost any economy, especially China's, is the explosive growth rates. Nothing lasts forever in the cold Bejing rain, especially growth rates. 9% per year would mean doubling the economy every 8 years, and neither the society nor the govt. can handle that. Are any of their official numbers worth one devalued yuan?
Yohan
Apr 7 2006, 11:48 AM
QUOTE (John L @ Mar 31 2006, 01:30 AM)
..... China is running into economic problems. As I have stated earlier, the banking structure within the PRC is leading China into severe difficulty, and China is facing a Huge economic turndown in the coming years ahead.
Now, the country is facing rising prices and other countries are becoming more attractive to the investor and businesses that are cost competitive. This does not bode well for PRC, as it has trouble increasing it's productivity to make up for the rising costs. Again, this does not look good for China.
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You said it. China has huge internal problems, and might even fall apart into 5 or more smaller countries in the future.
Internet heavily censored including BBC News, re-entry visa required for the own citizens, development along the coast line done out of WWII peace treaty obligatory investments from Japan, inside of China deep poverty...government afraid of its own people, prisons full of people because of their religion or political opinion - everywhere corruption...and of course a communist government, which wants to control all and everything.
Chinese communists have one ability however, and this is how they trick out foreigners. Chinese Communists are very good in separating the various issues. They try not to mix them up.
They talk about politics with politicians only accusing them for their critics - they talk about trade with businessmen, never mentioning anything about politics, but trying to sell something - tourism is for tourists, who want to spend money....and so on.
Funny, the Japanese are travelling around in China visafree, while the Chinese people are not even allowed to move from rural regions to a major city within their own nation...
Population is a major problem for China, I expect some serious problems in the future - China is not such a stable nation...
Yohan
Apr 9 2006, 02:00 AM
QUOTE (Nomad @ Apr 9 2006, 06:18 AM)
China is quite vulnerable, if there are no exports anymore. All what you have to do, is slowly to redirect orders for cheap labour.
Some Asian countries are doing that already, like to redirect from China to Vietnam, or EU is interested to redirect production orders to poor-off EU-zones in the future, like Romania, Bulgaria and some other places in Eastern Europe.
Also USA is offering too many orders to China - this should be redirected to Latin America, Africa, even to India or elsewhere.
Chinese currency is artificial regulated, and if open to real market values, all exports would become much more expensive. - These measures will take a while, but will force out of production a lot of factories in China, and will create a serious number of jobless people.
The Chinese government is not in an easy position for sure.
Fit2BThaied
Apr 10 2006, 10:47 PM
Doesn't China have to pay a very expensive price to be a member of the WTO? For example, don't they have to have a real banking system? From what little I know about Chinese history, they pride themselves on their independence from the rest of the world. Well, those days are long gone, and China is tragically dependent upon the fixed value of the yuan, upon buying US treasury bonds, upon a lopsided export/import system, and a globalization of both trade and information. They are not ready for the Information Age, and they may run out of exportable/reimportable talent for the Talent Age. Yao Ming's not going to play ball for the Shanghai basketball team, and my best friend won't return to help them build their superhighways.
Curtis
Apr 11 2006, 01:38 AM
You know, sometimes I think that nations, like people, tend to repeat the same kinds of behaviors over and over again. If that's so, I don't see how China can rule in this century. They have a tumultuous, violent history, and a strange inability to project outwards and become a world power, and that may be their future. Of course, that's a very pessimistic view and now that I've typed it up, I don't really like it... I want to believe that nations, like people, can change.
However, putting aside that, China has some serious problems: most notably, 1) they're deeply in debt; 2) they have significant social tensions related to people resenting the repression of the government. So far the government has maintained power through nationalistic ranting, and that may not work forever.
John L
Apr 11 2006, 08:43 AM
I am going to post this report from Stratfor once more for those who have not had the good fortune to see it before. It is right on the money with regards to China, and they have been right about the PRC for years now.
Note: this is only part of the Stratfor decade forecast from 2005. I can not link to it, as Stratfor is a premium pay site, and you would not be able to access it if you wanted to. Anyway, enjoy this insightful assessment.
Decade Forecast: 2005-2015, Part II
February 07, 2005 18 00 GMT
East Asia
Excerpt
On the whole, Stratfor's long-term East Asian forecasts have been right on the money. However, we have always been bearish on China -- not for ideological reasons but for structural ones -- and our forecasts, which we believe remain fundamentally accurate, have not matched the bullish view that others give to the Chinese economy and national status. Our view of China's future is in stark contrast with the positive outlooks we see coming from investment houses and others.
One key reason for the difference is that most forecasts on China are linear -- in essence they say that since the Chinese economy is clipping along at 8 percent or 9 percent GDP growth each year, in 10 or 20 years China will dominate the global economy. Our basic supposition, however, is that the shape of the world today is probably the least likely shape of the world a decade or two out. The world operates in cycles, long and short, and linear extrapolations fail to take into account the reactions and arrestors on growth or decline. For example, in 1990, a year after the Tiananmen Square incident, the prediction that China would be the regional economic engine a decade later would have been laughable, as foreign investors fled the country and the hands of repression were clearly seen. A decade later, it was hard to keep foreign money out of China, and Beijing was even beginning to look at ways to slow the economy.
China is obviously a major factor for East Asia in the next decade. And in looking at China, the status of the economy -- particularly growth -- is the core issue. It is our view that China's economic growth rates, driven largely by foreign investment, trade and government spending, will continue to slow. This slowing will exacerbate underlying structural tensions in the Chinese economic system -- between the urban and rural areas, between the coast and the interior, between the north and south, between the rich and poor and between the center and the periphery -- and at its core between the state-controlled and market economies.
Why, then, if Stratfor sees a China on the verge -- if not already in the midst -- of massive internal upheaval, is there a general global acceptance of the idea that not only is China on an unstoppable rise, but that people should pour their money into the Chinese economy? In part, this is due to tunnel vision -- assessors of the Chinese economy are looking only at the booming center-coastal economies in and around Shanghai. In part, it is intentional self-delusion, a failure to connect the dots.
There is no shortage of reporting on the underlying weaknesses of the Chinese banking system, the state-owned enterprises (SOEs), the unemployment problems, the uneven distribution of wealth and labor and myriad equally troubling and seemingly insurmountable problems. However, the holy grail of selling a single orange to each of the 1.3 billion Chinese continues to blind others to the reality of the situation, and the desire for a piece of what someone else might get has fed a steady stream of investment into China, keeping the system on life support and "justifying" the positive outlooks.
But on this last point, something has been overlooked: In recent years, foreign direct investment (FDI) moving into China has declined, but this trend is hard to see clearly. U.S. investment in China was the key driver in bringing China up from the Asian economic crisis. Weary of waiting for the return on investment in China, U.S. investors slowed the flow of FDI. However, the herd mentality and the shiningly optimistic assessments of China as the next golden goose led to a successive wave of European investments. This was followed by Asian investors, who did not want to be left behind.
This rush of foreign investment and interest in China has masked the Chinese economy's underlying weaknesses and given the government tools to maintain control. But it will not last. Already there is dissent forming in the international community, and the need for quicker profits -- or any profits -- is driving companies and investors to look elsewhere. Rising interest rates and the perception of strong market fundamentals are bringing investments to the United States. High energy prices, sector bubbles and the resurgence of "China threat" fears are taking the shine off the Chinese economy.
Beijing has enjoyed a brief respite from these fears. The external pressures on China were set to increase in late 2000 with the election of U.S. President George W. Bush. By early 2001, China and the United States were in a tense standoff as a U.S. E-P3 sat on a Chinese runway on Hainan Island. The incident was resolved, but the strains on U.S.-Chinese relations were not relieved. The came the Sept. 11 attacks in the United States, and suddenly China became a back-burner issue. Beijing even became, briefly, a fellow "target" of international terrorism, convincing Washington that Uighur militants were tied to Osama bin Laden and out to create a greater Islamist state in western China and Central Asia.
But while Beijing had some time -- and took advantage of it to effect a relatively smooth transition from Jiang Zemin to Hu Jintao, the so-called Third and Fourth Generation leadership -- Washington's overwhelming infatuation with bin Laden, al Qaeda and international jihadism began taking a more proportional position in the American global strategy. For China, this means the return of U.S. pressure.
The same factors that led to the downfall of the Qing Dynasty in 1911 are still inescapable today. China is showing classic symptoms apparent before the end of dynasties: the disruption of internal economic wealth, increasing gaps between rich and poor and between regions, the economic encroachment of outside powers and the undermining of the social contract with the state. The central government has lost its legitimacy after trading ideology for money that is now supplied from afar rather than from within.
The balance between the center, which seeks to pacify and stabilize the vast interior population, and the coastal periphery, whose economic and political interests lie in foreign trade and are therefore ultimately aligned more with foreign nations than the center of China, continues to create friction. The center, in order to maintain control of the interior, must take money from the periphery. Fears of issues of social stability lead the center to take action in the interior, which might be anathema to the interests of the coastal provinces.
China today has two economies: the import/export economy based in the densely populated coastal regions and the remains of the old Maoist SOE-based economy in the interior and the Northeastern "rust belt." FDI supports the import/export economy, while the central government must keep the SOEs afloat. In 2003, SOEs employed 375 million of 750 million workers and controlled 57 percent of the country's industrial assets. The SOEs are kept alive -- and at times bailed out -- by preferential bank loans, but the inefficient enterprises are giant capital vacuums, compounded by corruption and continued mismanagement.
Bad loans in China, most of which stem from lending to SOEs, have been estimated to reach as high as $500 billion -- by no less than the investment houses who have a vested interested in making this number appear as low as possible. That is not far off China's $609.9 billion -- as of Jan. 1, 2005 -- in foreign currency reserves. Beijing is constantly pulling from its own reserves to feed the state banks, which in turn feed the SOEs. Since 1999, Beijing has spent about $275 billion in asset transfers and bailouts in attempts to solve the bad loan problem. All such "fixes" have failed, since they do not require the SOEs to change their operating policies. The SOEs, in turn, feed the people who, under the communist system, came to expect -- and depend on -- the continued existence of a state-sponsored Iron Rice Bowl.
The coastal areas, where the import/export economy is based, received 87 percent of China's FDI in the last three years, but western China, which is home to many SOEs and farming operations, received only 3 percent of FDI in the same period. In these areas, where nearly a quarter of China's population lives, per capita income fell from 84 percent of the national average to 56 percent from 1980 to 1999.
The forces at work within China's SOE-based economy are preventing the country from capitalizing on its current growth and will eventually drain the energy from the import/export economy. Fearing the urban unemployed even more than the rural unemployed, since poor farmers at least have land and can feed themselves, Beijing is offering life support; but unemployment, which in 2002 was between 6.2 percent (official data) and 13.1 percent (estimated by a 2004 University of Michigan study), continues to rise. This triggers wave after wave of demonstrations and protests -- which have thus far been isolated incidents -- but the chances for coordination increase daily. And Beijing's only response will be repression, sending in troops to end by force whatever opposition it perceives, as it did at Tiananmen Square.
China recovered from Tiananmen not because of the continued crushing of the students and their supporters but through capitulation to the population, which resulted in the state taking a steadily decreasing role in the lives of the average Chinese. But this capitulation to the masses, while initially resulting in pacification, also has served to raise material expectations. Turning back is no longer an option. Beijing is, therefore, stuck. It options are limited and time is running out. The mandate of heaven, it appears, is being repealed.
Beijing knows the troubles it is in. The strains between the coast and the interior, the rich and poor and the north and the south are growing more and more tense, and Beijing's ability to maintain the system is fading. This is compounded by corruption, which not only drains government coffers but further de-legitimizes the Party.
China's leadership is presented with few options.
First, it can implement a sudden and swift overhaul of the entire economic system, similar to South Korea's actions following the 1997 economic crisis. This, however, would require a government characterized by lethargy and fear of social instability to make a sharp, painful and -- if done effectively -- relatively swift move. The massive social dislocation of such a move makes it untenable.
Second, Beijing could revert to the Deng and Jiang method of encouraging unabated and unequal growth at the expense of profit, occasionally trimming dead wood in SOEs, pumping money into the banks to recycle into the insolvent SOEs and thereby maintain the bare minimum of social stability to avoid significant unrest. Any small stirrings are met with crackdowns on social movements. This, however, only furthers the underlying structures that have rotted out China's economic expansion, and, in relying on the "Asian" model and the "Communist" model, it fails to address the true problems.
A third method is that being attempted by Jintao. This involves slowing growth a few percentage points, more closely regulating the economy from the center and trying to direct FDI into the worst of the SOE areas, namely the northeast. In the midst of this, Beijing seeks to take a million small steps toward addressing underlying weaknesses. This simply prolongs the pain -- even if regionally isolated -- and builds tensions between haves and have-nots. And it relies on foreigners' good will or poor judgment to invest in the worst of the Chinese state institutions. Ultimately, if social stability can be maintained (and this seems unlikely for long), China's best case is a sustained slump, reminiscent of the past few decades in Japan.
The fourth option is the "Mao" method: Close the country and economy and undertake a massive social restructuring. This is not really an option among the Chinese leadership, which has a vested interest in expanding trade with the outside world. It also would result in a loss of international power, at least for a decade or so. Without the ideological underpinnings that allowed Mao Tse-Tung's social revolutions, gaining any sense of national buy-in for another "Cultural Revolution" would be highly unlikely, and the opposition to such a path would be anything but quiet.
The first and fourth options appear untenable now and in the foreseeable future. The fight is not over closing the economy or keeping it open, but over the pace and scope of economic growth versus economic fundamentals. It is a core question of defining strength. While the "Hu" method has won out for now, if things start to bite -- and they likely will -- there will be a renewed push for the "Jiang" method, though whether China can entice others into a new "boom" too many times is unclear.
The government is challenged now to prove its legitimacy as the center of the nation. Under Mao, the underpinning was ideology and a sense of international embattlement. Under Deng and Jiang, that underpinning was the promise of money and material goods. China's rapid growth economy is very young, and tearing that promise away -- even in the name of market fundamentals -- is extremely dangerous. The only way South Korea managed it was to rely on a very close sense of ethnic nationalism and to put the blame for the pain on a non-state actor, the International Monetary Fund. China has neither the ethnic homogeneity nor pervasive sense of nationalism to ask for much self sacrifice, and the stresses on the system will continue to compound.
If China adheres to the World Trade Organization (WTO) accession agreement and opens its banking system in 2006, the SOEs will collapse, since China's banks would no longer able to funnel money to bail out non-performing companies. Strengthening the SOEs through reform creates massive new pools of unemployed labor, leaving even more disgruntled and disillusioned former state workers with no jobs and nowhere to turn. Ending bank lending to the state institutions creates hundreds of millions of new unemployed. A social cataclysm of that magnitude will tear the country apart -- or at minimum lead to the collapse of the Party and the government. Therefore, China will choose another path.
Beijing will want to prop up the SOEs as long as possible to buy time to convert them into productive members of China's economy. However, time is not on China's side; the country must open its economy before the SOEs can be converted. The center will want to forestall this as long as possible and is therefore unlikely to accede to its full obligations under the WTO agreement.
Beijing, then, will seek to mitigate the internal upheavals now apparent from the 1979 economic opening and reform the system. Mismanagement, rampant corruption and the combination of an Asian (growth-driven rather than profit-driven) and Communist (social control over profits) economy has left Beijing with few immediate solutions. If China slows its opening and reforms -- the most likely path, albeit done in a subtle Chinese way -- FDI will begin to dry as foreign investors shift away from China. When FDI dries up, growth in the import/export economy will slow down. When growth slows down, social stability issues will become more pronounced, since there will be less and less money to pump into the SOEs. Capital flight by Western investors already has begun, with Asian investors making up the difference, but they will be unable to sustain adequate levels for very long.
FDI decreases also factor into the rifts between the center and the periphery in somewhat unexpected ways. A decrease in FDI is what triggered the 1999 corruption crackdown. In 1999, FDI going into China decreased by more than 11 percent as a result of the Asian financial crisis. With less money coming into the country, the center tried to keep the SOEs afloat with money from the import/export economy. This was met with resistance in the periphery, and the center responded by moving in and taking what it wanted under the guise of a crackdown on corruption. In extreme cases, the periphery reacted violently; in others it simply took the money and ran.
China will struggle on through 2008. The Olympics are a powerful force, driving economics and providing a rallying point to keep divergent interests temporarily subdued. That will not last. Nationalistic entreaties playing off the Olympics, space programs and the like can do little to hold the disparate interests and factions together. Intentionally or not, the face of the Chinese Communist Party will shift in the years shortly following the Olympics.
The turmoil this will likely cause will lead to a loss of central control and a regionalization of power, as has often been seen in Chinese dynastic transitions, in which the country -- while nominally unified -- will in fact become a cluster of fiefdoms, effectively modern warlord states. The capital will have a national leader but the center's reach and influence will be at the mercy of the regions. In a place such as Afghanistan, this is called status quo; in China, warlordism -- only this time, there will be nuclear weapons in play.
S.J.LongPants
Apr 27 2006, 11:00 AM
Quoting JohnL: "Funny, the Japanese are travelling around in China visafree, while the Chinese people are not even allowed to move from rural regions to a major city within their own nation..."
? No truth to this. Where is this from? I have always been able to travel with my ex-wife, and family (Chinese), their friends, (Western,Eastern, Northern & Southern Chinese) anywhere in China at anytime wherever we they wanted to go without any type of this so called "Government national Visa" ?
I read this and called my Mother-inlaw in China and asked her, she laughed!
I've been going there for 15 years! never heard this.....
As afr as their economy regarding exports? Taiwan was there before china, they bounced back in other directions and stablized. They just have to work a little harder for the big quick buck that used to be there.
