Posted on 07/13/2002 7:28:41 AM PDT by spycatcher
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China dream alive and kicking
Tiawan: Taipei
A new book The China Dream: The Elusive Quest for the Greatest Untapped Market on Earth, provides an analysis of the unrealized hopes of foreign investors and businesses regarding the limitless scope of the mainland China market.
In his review of Joe Studwell’s book in the Far Eastern Economic Review, David Murphy comments that, “From the 19th-century English writer, who wistfully hoped that Lancashire's cotton mills would boom if every Chinese was persuaded to lengthen his shirt tail by an inch, to today’s car manufacturers, who hope that one in 10 Chinese will buy a car, businesses have dreamed of making it in the Middle Kingdom.” Still, the potential and promise of the mainland “El Dorado” is spell-binding, reinforced by official growth “statistics.” The statistics do not tell the whole story; the murky side is carefully hidden.
According to Nicholas Lardy, an expert on the mainland economy, “The official data overstate the pace of economic expansion ... if for no other reason than over the past decade there has been an extraordinary buildup of unsold and unsaleable inventories. While these inventories are counted as part of output and thus contribute to growth of gross domestic product, they are not utilized for either consumption or fixed investment. The real resources that have gone into the production of these goods has been largely wasted.”
Take one example. “On average from 1990 to 1998, annual additions to inventories absorbed 42 percent of incremental output,” much of it reflecting “the continued production of low-quality goods for which there is little or no demand.” Considering the mainland’s padded statistics, one must be very skeptical.
The economic rot, though, is much wider. The mainland banking system is crisis-ridden and corrupt. In an open political system, it would in all probability have collapsed by now, considering that half to two-thirds of all bank loans are nonperforming and growing.
High-level linkages between the perpetrators of such fraud, however, result in disinterested investigations. According to the Far Eastern Economic Review, “China Construction Bank has been involved in financing the information-technology business activities of President Jiang Zemin's eldest son.” Still, banks like these control US$900 billion in individual savings. If people knew what was going on, there would be an instant run on the banks, which would bring the Chinese economy to a halt.
In a broader sense, any discussion of the mainland economy without taking into consideration the social context is extremely misleading. As Alvin Toffler observed when interviewing Japanese Prime Minister Junichiro Koizumi, “The central risk for the world over the next 30 years will be the mainland. This is because the changes that the government in Beijing is trying to bring about are of such great magnitude. The population of the mainland is so big that these changes will naturally create domestic turbulence.”
In a meeting with the mainland’s State Development and Planning Commission, Toffler was told, “We have 900 million first-wave peasants involved in agriculture. We have a second-wave urban industrial population of 250 million to 300 million involved in manufacturing. Finally, we have 10 million third-wave people with computer and Internet access.” Even with the best scenario for economic development, the relative income mix of the vast population is not likely to change significantly.
In other words, the overwhelming majority of people will continue to live on the land. But land and jobs are shrinking in rural areas. According to Jiang Xueqin, “Across the mainland, people are losing their land to expanding cities and attempts to make tiny farm plots more efficient by merging them into large agribusinesses.” Land confiscation is a serious issue in the countryside, and has sparked large-scale riots. The worst culprits are almost always local officials.
Jiang quotes a local community leader to sum up the people’s feelings: “What's happening is land transfers to a few rich people. The government has had a long-standing policy of letting a few people get rich first.” One can only imagine the pervasive sense of helplessness and frustration among the peasant masses. This is because there are no effective channels for political or legal redress open to them. No wonder grain production is falling steadily. Last year, it reportedly decreased by 1.9 percent, following a 9-percent drop in 2000.
At the same time, unemployment is alarming. The state-run China Daily has put the number of jobless at 132 million — 120 million of them in rural areas. The real figure is obviously much higher. It is expected that this will only get worse following Beijing’s accession to the World Trade Organization.
Despite all the razzle dazzle of big coastal cities, there is widespread poverty. According to World Bank estimates, there are 200 million very poor people in central and western China living on the equivalent of less than one U.S. dollar a day.
If the poverty bracket were raised to include also those living on or below US$2 dollars a day, the number of poor would be much higher.
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“The official data overstate the pace of economic expansion" ..
"The mainland (USA) banking system is crisis-ridden and corrupt. In an open political system, it would in all probability have collapsed by now, considering that half to two-thirds of all bank loans are nonperforming and growing."
"High-level linkages between the perpetrators of such fraud, however, result in disinterested investigations"..
"If people knew what was going on, there would be an instant run on the banks, which would bring the (US) Chinese economy to a halt.
"Considering the mainland’s padded statistics, one must be very skeptical.
Land confiscation is a serious issue in the countryside,
“What's happening is land transfers to a few rich people. The government has had a long-standing policy of letting a few people get rich first.”
Ah, government employees!
OTOH, street level free market capitalism is simply raging out of control. Its pretty cool actually. Everyone wants to start a business, everyone wants to get rich. The average man in the street is a hard core capitalist.
The worst part is that China will turn into a Super-Mexico and flood the world with illiterate illegal aliens. It'll be The Camp of the Saints time.
You are correct in saying that the collapse of American economy will bring down the Chinese economy, and ironically her ambition to become the World hegemon, replacing America. I always thought that the surest way to check Chinese aggression is for American economy to tank for a while. Not that I like the consequence of it in America. But my feeling was that American business and political community will continue to suck it up for China, blinded by the billion men market, without such an event.
I do see that any serious economic downturn in America this time around is something you cannot get out of easily. I do not enjoy this event unfolding. But the potential is there. It should be reminded that the American economic downturn can be triggered by an external event, such as the collapse of Japanese economy. Chinese economy may collapse on its own, too. There are at least three large economies wobbling at the edge of a financial disaster. Whichever falls first will take all the blame (for a while at least) and the rest of dominos will fall. At the beginning of 90's, the world looked so peaceful and full of hope. Things got seriously screwed up in a dozen years.
That 20% is crucial. The rest, 80%, can be more of accounting hot air than real substance. Besides, all other sectors of economy depends on export sector for their prosperity. Most of growth momentum comes from that 20%.
We are talking about the numerical proportion and its impact. Yes, China is a large economy. I am just saying that 20% of Chinese economy, the export sector, is more crucial than the number 20% suggests. It is where most of net hard currecy comes out. The domestic sector may be big in numbers but they may not have robust foundations. As you may know, the pace of development in economy is not uniform along all sectors. Export sector is usually most competitive, and other sectors are slowly catching up, such as finance. It is natural in an economy like Chinese. You cannot change everything overnight at the same speed across the board. Especially, if Chinese financial sector is weak, external financial shock can inflict serious damage in Chinese economy, or any other economy in East Asia.
Sounds like my kind of place. I'll bet in many ways China has a more Capitalistic culture than we have.
As a matter of fact, S. Korea's exposure to America these days is 20 % of all export volumes. Chinese portion is increasing, eclipsing American portion. It is true that, at the moment, the prevailing thought is that China will continue to grow as she did in last decade or so. But we all know that, even the growth comes in waves. Japan had its near-linear growth up until 1990, and stalled. S. Korea and other Asian contries went into same serious downturn in 1997. America claimed that it does not suffer problems of these economies. But it created its own financial bubbles bigger than any previous bubbles combined. In later part of 90's, China and America were the rage. But as in previous economies, the projection of growth is based on the assumption that it will contiune the same pace as previous years. We all know that it peaks at some point and retreats. S. Korean and Japanese businessmen suffers from the same euphoria as American businessmen, "China will grow unabated." They will push and push until they hit a wall. The same thing happened regarding America until quite recently. Businessmen all over the world could not imagine the American economy runs into serious problem. Businessmen are just susceptible to hypes and group-think as any ordinary folks.
Not surprising from the commie LA Times , eh ? - voa -davidk 7/13/02
I am not talking about Chinese economy in the future when its domestic economy is well-established. But its domestic economy now. Any serious financial crisis can damage both domestic and export sectors. With sound financial sector and no state-sector bleeding the rest of economy, China can have self-sustaining domestic economy. But I do not think China is there yet. Hence, the vulnerability.
Its another planet. Pity about the government, it simply must go.
Anyway once they ditch the Party, stand back for a massive deflationary shock state side, especially unskilled labor and manufacturing-wise.
It will probably take them another 20 years to match our technology, if they play their cards rights. Right now, they haven't figured out how to make a car engine that runs more than 30,000 miles (no small task).OTOH, labor is so cheap and folks are so enterprising, you don't need to. At 20,000 you just pull over into an alley, and some budding young capitalist will happily tear the whole car down on the sidewalk and rebuild it that day. Tax-free of course. The communists simply haven't managed the degree of mindless tax obedience that the IRS has.( The fiscal burdern of government is currently 2X lower in "Communist" China than in the US).
Chinese government tried to push too fast ahead while holding onto vast territory and population. Apparently, the expectation of population and some ruling class is running ahead of what can be realistically done. It is the case of "Chinese irrational exhuberrance". People and institution do not change as fast as equipment and factory do.
If you asked the same questions to people in Thailand and Malaysia around 1994 and 1995, they would have answered the same way. More vibrant than ever. No sign of any danger in horizon. I have no doubt that things look the way you described in the streets of Shanhai. That was the way it looked in Seoul in 1996 and in NYC in 1999. All the troubles were behind. Only the bright future. But I knew that Korea was having some problems starting 1994. It was the matter of time. It hit eventually, in the way worse than I expected. I thought that America will be in trouble after 1996's Greenspan's "Irrational Exhuberance speech. Looks can be deceiving. It does not take a financial genius to figure it out as long as one is not blinded by hypes.
Slavery gives a nation obvious advantages.
Let me guess... they called the legislation that authorized the hiring of the 400 government milkmaids the "Dairy Security Bill" and touted it as a legislative victory over potential Himontereyjacking and other forms of cheese terrorism.
Leaders of China are not clones of Lee Kuan-Yew. I do not discount that, in the business of catching up with front-runners, top-down reform can be done effectively as long as ruling elites can maintain some integrity. That is the case of Singapore. Old German empire and post-war Japan could keep some level of integrity too. In S. Korea, they were not as successful but bottom up pressure of popular dissent kept things under control. I am not sure Chinese leadership is sticking to voluntary code of integrity as much as they should or people's bottom-up pressure is effectively checking any corruptions or excess before it is too late.
Ah, government employees!
Perhaps 399 of them call in sick every day.
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