China's Economy: Last to Weaken, First to Recover

It is somewhat misleading to talk about China's “economic recovery” - since it never slid into negative growth (i.e. a recession). Officially, the robust growth never slowed below a 6% annual rate – although some have suggested those numbers are somewhat “padded”.

Nevertheless, what is unequivocal is that China's economy has actually turned up – something which no other major economy has been able to achieve. There are many reasons why China has experienced the least disruption from the global recession, and the quickest “recovery”.

First of all, China has the world's strongest domestic economy. This is in contrast with the U.S. domestic economy, which is still the world's largest – but is obviously terminally ill. There are many reasons why China's domestic economy is expanding at a phenomenal rate, and has passed the U.S. as the world's largest automobile market (after already passing the U.S. in automobile manufacturing).

First, Chinese consumers never carried much debt. Indeed, like many Asian economies, the Chinese have a massive pool of savings – thanks to a savings rate which never dips below double-digits. Thus, when China's “stimulus package” buoyed Chinese optimism, they had the buying-power to immediately stoke their domestic consumption (see “Chinese consumers BEGIN flexing economic muscle”).

It must be noted that supposed “weakness” of the Chinese economy, based on falling exports was never more than a disinformation campaign from U.S. propagandists. China's domestic economy has been growing by more than 20% per year for most of this decade. When you have a population of 1.2 BILLION, a growth rate of that magnitude, and consumers with a HUGE savings-rate, it should have been apparent to anyone capable of operating a calculator that China's domestic strength would quickly offset temporary weakness in exports.

With China now the growth-engine of the global economy, its rapid recovery will immediately begin strengthening neighbouring Asian economies – with the exception of Japan's zombie-economy – along with large commodity-exporters like Canada, Australia, and Brazil.

However, there is another reason why it's interesting to note that China's economy was the first to turn higher, despite being the last to weaken. For the last year and a half, U.S. propagandists have continued to advance the totally absurd argument that because the U.S. was the first economy to crash, it would be the first to strengthen.

China has already partially repudiated that argument, but there was never any rationality to this. The U.S. economy was first to weaken not because it was simply “ahead” of other countries in the business cycle, but because there were numerous terminal weaknesses in this economy (mostly based on grossly excessive debt levels), which were exacerbated by the bursting of the largest asset “bubble” in history – Wall Street's multi-trillion dollar “Ponzi scheme” based on the U.S. housing sector.

Since the U.S. economy began plummeting downward, the U.S. government has spent or pledged over $12 TRILLION – however only 2 - 3% of that money has actually been spent on anything remotely resembling “stimulus”. Almost all the money has been spent propping-up failed businesses, with the vast majority of those dollars spent on keeping the U.S. financial crime syndicate out of bankruptcy.

In other words, despite countless denials to the contrary, the U.S. has been duplicating Japan's economic policies – where the economic trough into which that country plunged has now lasted for roughly two decades. Yet despite following a strategy they knew was doomed from the beginning, U.S. officials (notably Ben “the Buffoon” Bernanke) have continually predicted one “economic recovery” after another – based on the flimsiest of arguments.

Currently, in the 5^th “economic recovery” which Bernanke has personally predicted, his entire justification for yet another empty lie is simply that the U.S.'s heavily-doctored economic “statistics” (i.e. propaganda) are plummeting downward at a slightly slower rate.

To summarize the situation, the argument that the U.S. would “recover first” because it “slowed first” was always nonsense – and has already been repudiated by the example of China. This leaves the U.S. government in the position of still predicting a rapid “recovery” as they duplicate the economic blunders which Japan made twenty years ago.

With U.S. unemployment plummeting downward, government spending totally out of control, over $50 TRILLION in total public and private debt, another $50 TRILLION in unfunded liabilities – and a totally corrupt government doing absolutely nothing to address its massive, structural problems, the U.S. economy is rapidly headed toward bankruptcy, not “recovery”.

Comments

[Tom E.:]

You sound like a recent graduate of a Chinese reeducation camp.

May 13 08:15 AM

[Ferdinand E...:]

The only thing that can stop the Chinese is a shortage of natural resources. When it comes to leadership and drive, they have what it takes. Maybe it's time to pass out copies of Mao's 'little red book' to all school children. At least it will keep them occupied when the dope and pronography run out.

May 13 09:45 AM

[chleoku:]

I agreewith you Jeff. I recently travelled to Asia for business and things are amazing there especially China. Huge market, cheap and hard-working workforce, and HUGE domestic demand:

www.wealthalchemist.co.../

May 13 09:47 AM

[hondaicivic:]

And what are you? The former advisor to the Bush Administration?......


On May 13 08:15 AM Tom E. wrote:

> You sound like a recent graduate of a Chinese reeducation camp.

May 13 01:05 PM

[DHH:]

The US is done. I'm switching out of US stocks to Chinese ones.

May 13 02:53 PM

[EEB:]

What's with all the rhetoric? I doubt that the US economy is "terminally ill"? It might very well be in bad shape, but what would it mean to be terminally ill? Does that mean that economic activity will drop to zero soon? Also, just because you call someone a buffoon doesn't mean that they are. Finally, you claim that only 2-3% of $12 trillion has been spent on stimulus. This implies that the US government has spent $12 trillion and wasted much of it. A lot of this "spending" has been in the form of loans, etc. Some of it has already been paid back. Some of the stimulus was in the form of tax cuts. Cutting taxes is not the same as spending. To jumble all of these financial happenings together and call all of it spending is dishonest.

May 13 09:16 PM

[beijingpaddy:]

There is some truth in what you say but also an over-simplification of a very complicated situation. As you may recall from your Political Science 101 course, all elites act as a cohesive group in every nation that is successful. America’s elite have been in large part financial based (banks, investment houses, etc.) since the beginning of its industrial revolution in the 1880s. Nothing short of a devastating revolution has much chance of altering this. That they are acting in self-interest along with the help of the government is nothing new. Usually though, the US system is such that the little folks do gain something from it, enough to have provided a pretty high standard of living for them by international measurements. It is a fact that there will be elites. It is how well they act as a group that matters most.

The Chinese elite are acting in their self interest too. The system is still in the development stage resulting in more potential for hidden speed bumps. One thing is clear, most commentators and writers insist on talking about the Chinese government as if is working in isolation of its people’s desires and wishes. This is wrong. The Chinese people are determined to be successful and restore their national self-respect. The government is just their tool to get them there. Last year the Pew Foundation did a phone survey in China and discovered that the government had an 80% support rate. Anyone who lives here and speaks the language can tell you how determined the Chinese are and what price they willing to pay to win.

There is no denying that the world has changed. Changed to what, we don’t know yet. It will be an interesting contest between the ingenuity, free spirit, rule of law, and republican form of government of the Americans and the military-like cohesiveness, determination, intelligence and hard work of the Chinese.

Athens vs. Sparta.

May 14 01:43 AM

[Jamaican in...:]

China’s growth over the last three decades is impressive, but China is not a juggernaut, but is a nation with severe structural problems and disadvantages. These problems will undermine China's growth and the author is ignoring them.

1. China lacks sufficient of arable land to feed its large population (www.worldwatch.org/nod...) . Large population and substitution of arable land for growth of urban centers, industrial growth and infrastructure projects like the three gorges dam are going to force China to purchase more food from abroad at a greater cost.
a. Countries with efficient agricultural sectors like the US will face increasing demand for agricultural products from Chinese consumers which will make them much them more profitable. In the end the cost of food to the Chinese consumer (who earns much less than his American, European and Brazilian counterpart) will force him to substitute a greater portion of his income to buy food, than to purchase consumer goods produced locally thereby reducing the domestic demand for manufactured goods.
b. As demand falls workers will get laid off, and the demand for social services in the urban centers will increase with the probability of social unrest that may begin to demand greater freedoms from the autocratic regime. The memories and resentments of the Tiananmen Square massacre, suppression of Tibetan demands for freedom, and denial of personal and religious freedom to various ethnic groups is fueling resentments that China’s current prosperity is allowing the government to manage (www.carnegieendowment....) . If the prosperity falters, these resentments will be difficult to manage and China could face internal chaos. As recently as 1993 China documented less than 9,000 episodes of social unrest, this has grown steadily, and by 2003 this number was greater than 58,000 a growth of more than 600% in less than a decade even while the economy was providing more and more Chinese with unprecedented prosperity.

2. China is currently importing a large quantity of the raw materials it needs and is expected to import an even greater portion of the raw materials it needs from unstable regions in Africa, the middle east and throughout the third world (www.cfr.org/publicatio.../) . The world today is less unstable than it was 30 years ago, and instability restricts supply causing cost to rise. The outlook is for lesser developed countries to become more unstable, thus it is reasonable to project that the cost to China for acquiring raw materials from poor nations to increase further eroding it’s competitive advantage.

3. Because China has experienced rapid growth it has also experienced increased urbanization, dramatic increase in pollution, a tremendous increase in the production in raw sewage from urban centers and degradation in the water quality and environment. The World Bank estimates that pollution costs China between 4 and 5% of GDP (web.worldbank.org/WBSI...~pagePK:34004173~piPK:... . As the pollution worsens it is reasonable to expect that the cost to reverse the pollution also increase.

a. The result of environmental degradation and increased population density in urban centers is that the population has experienced increased morbidity and mortality (AIDS wjz.com/health/AIDS.be... , cancer www.ictradiotherapy.co... , respiratory diseases like asthma www.emaxhealth.com/108... and infectious diseases like SARS) associated with crowded urban centers, pollution from industrial and domestic waste and improper use of fertilizer in an attempt to boost agricultural production.
b. China will have to divert a tremendous amount of money to address these issues. The money will have to be diverted from needs like the purchasing raw materials, funding its military growth and continued to modernization of its industrial centers.

I have carefully selected documents to support and validate my arguments in order to demonstrate that I am not responding emotionally to the author's arguments. So, before the author continues the fallacy that the US economy is terminally ill (which it is not) and suggest that China’s growth is unstoppable he should examine the facts about the Chinese economic and industrial miracle and the environmental, social, economic and healthcare pressures facing that nation. It might surprise him.

May 14 06:16 AM

[coreopsis:]

This is very well stated and I think it corresponds with empirical data. However, at the end (from exuberance?) the author utilizes a false analogy. China has never had a strong military in modern times (remember the Opium Wars, the Sino-Japan War of the late 19th C, the ceding of Manchuria to Japan, World War II which relied on the US) -- indeed it is contrary to their basic world view (qv Sun Tzu's The Art of War). From a fiscal point of view, it's helped their economy in the last 30 years. Compare with Iraq which will end up, by most estimates, somewhere near $2 trillion.


On May 14 01:43 AM beijingpaddy wrote:


>
> Athens vs. Sparta.

May 14 12:53 PM

[OtherGuy:]

Aside from the heavy emotion in your argument, I have one other problem with China's 'recovery' that was not mentioned by Jamaican in Africa.

What is the No. 1 obstacle to China's growth that everyone mentions: it's lack of technical expertise.
If you look at the trend of modernized Chinese culture (including its economy), it stands out that the foundation of China's accomplishments is not Chinese, but foreign. Modern Chinese culture is not Chinese in origin; from the clothes they wear to their economic policies to their political ideas.
Why?

A lack of practical applications skills. I am teaching English in China now; the established method is the teacher just teaches and the students just listen. Very little discussion. Chinese schools emphasize established formulas and problem-solving, hence the Chinese are masters of mathematics, engineering, the sciences; but are handicapped when it comes to critical thinking.

This is manifest throughout China's institutions -- the Central Government has flashy projects like Three Gorges, the Olympics, Shenzhou 7, and the Showcases of Shanghai and Shenzhen; but it is not leading China; the unrestrained economy is keeping everyone content.
The government is responsive, not proactive. You look at daily Chinese agendas or announcements; they are baffling in their lack of detail: a long-term goal and a rough skeletal plan, but no clear guide as to how to get there.
For example, Hu jintao at the world leaders summit to discuss the economic crisis, said "the world needs to work together..." nothing new; no idea how.

Where China's growth comes from is it's cheap prices, eased (often lack of) government restrictions, and borrowed technology. (The chief reason why the US and other countries refuse to trade higher tech with China is because intellectual property and copyright laws are not respected.)

This is a legacy from Mao and continued today, the Communist Party wants people whose minds generate money, but it doesn't want thinkers in its country. Thinkers often disagree with mainstream ideas (case in point, Mao). Look at the so-called Great Firewall; information is controlled, why? so people don't get non-state approved ideas.

The result is the Chinese are skilled in problem-solving, and they do what they're told. When the government is happy, the people are happy. When the government is angry at the Japanese, the people go smash bottles against its embassy walls.
But in the process critical thinking skills and with that innovation and not developed. Again, you look at the trends of China's rise; what's new?
What new scientific theories, applications, or contributions are Chinese recently?
Shenzhou 7 was China's third flight in space and its first space-walk. The US, Russia: been there, done more than that decades ago.
Foreign companies are constantly defending themselves against piracy and theft of intellectual property. (My aunt worked for Motorola and compiled a pirated cell phones case for the Shenzhou government)
The list goes on.

Essentially, my point is that China's economic growth (and its modern culture) is built on foreign blueprints and copy-and-paste. Until China starts showing trends that it is not simply borrowing other people's ideas, I am not be convinced that it will become a superpower before the US has made a complete recovery. It has several times.

May 18 09:04 PM

[OtherGuy:]

I think to say the Chinese government is a "tool" is also a bit of an oversimplification that diminishes the role of the government. It is more accurate to say the Central Government and the economic powers of China have an unspoken truce: that is the government does not mingle in economic affairs and the economy pays lip service to Communism.
Granted, the government is not taking a strong leading role in China's development, but one thing it has enforced over the years is its dominance (examples can be provided).
It's actually a cozy relationship: the government keeps face (if not legitimacy) and the economy generates money, so everybody wins.

< The Chinese people are determined to be successful and restore their national self-respect. The government is just their tool to get them there. Last year the Pew Foundation did a phone survey in China and discovered that the government had an 80% support rate. Anyone who lives here and speaks the language can tell you how determined the Chinese are and what price they willing to pay to win. >

May 22 11:01 AM