China: Exactly Where Japan Was in the 1980s? 84 comments
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I know, I may sound like I’m beating a dead horse – how much printer cartridge can one spill over China? – but I have a very high burden of proof to overcome. Let me demonstrate it by this analogy: Let’s rewind 20 years. It is 1989 and I am writing that the Japanese economy is on the verge of severe decline. I’m facing a lot of skepticism. Most people are calling me crazy and throwing heavy objects at me. After all, the Japanese are on top of the world. Their economy has been a consistent grower for decades, with a rate of growth that trumps that of the US and Europe.
Japan has the manufacturing thing nailed – they are simply better and more efficient at it than us. Magazines and newspapers swarm with stories about Japan, how hard working they are, how unique their culture is (we of course, feel inferior, as lazy Americans). Japanese exports significantly exceed their imports, generating huge capital-account surpluses – they are swimming in dollars and buying up America. Every other restaurant in Hawaii serves sushi and menus are in English and Japanese (not Spanish). I may be exaggerating with the last part, a little, but not much.
So, in 1989, who am I to poke holes in Japanese grandness and predict their malaise. Japan could do no wrong. Of course, we know how that story played out: a bust of a major banking/real estate bubble, a contracting economy for almost two decades, accompanied by deflation, ballooning debt, etc.
Fast-forward, and China today is where Japan was in the late ’80s, except with the greater political instability that comes with a semi-controlled economy and the lack of a social safety net (read: jobless, hungry people don’t write angry letters, they riot).
Since China can do nothing wrong, everything I write about it is met with skepticism. Today China projects to the world a similar image as Japan did in the 1980s. My personal favorite is the incredible spectacle of the Chinese Summer Olympics opening ceremony: the elegant, wonderfully choreographed performance by fifteen thousand people, the marvels of modern technology (the 500-foot LCD screen comes to mind here), the virtually unlimited budget of the Chinese government, and seven years of preparation created a spectacular event that will be hard for any nation to follow. (I feel bad for Russia and England, who will be putting on their Olympic spectacles next).
Lately, the Chinese economy has been impressing us with its growth: it was growing when the rest of the world was contracting, fast. But Chinese economic structure is not is not superior to the West’s; the Chinese can just cook GDP numbers better and control their economy more effectively through forced lending and spending.
However, these short-term advantages come with long-term consequences – there will be a steep price to pay for them; there always is. I’ve written a lot about this (here and here). Instead I’ll quote James Grant, the publisher of Grant’s Interest Rate Observer. Jim is providing the latest issue of his newsletter free, and I encourage you to download it and read his article on China – it is excellent! (Full disclosure: I’ve never met James and have not been recruited to plug his newsletter).
Here are a few quotes from his article – many things you’ve heard from me before, but he finds a way to say them better:
In the 1930s, Western intellectuals persuaded themselves that the Soviet economic model was depression-proof. Today, not a few investors marvel at the vigor of the modified communist economic model of the People’s Republic.
A superb primer on the risks of China’s go-for-broke lending drive was published by Fitch Ratings on May 20. Is it not passing strange, the agency asks, that Chinese lending is accelerating even as Chinese corporate profits are shrinking? ‘Ordinarily, falling corporate earnings are met with tightened lending, but in China, precisely the reverse is evident. . . .’ You would expect—and Fitch does anticipate—that the borrowers of these trillions of renminbi are not so profitable as they were in the boom, and some will therefore struggle to service their debts.
I think this chart, also excerpted from Grant’s Interest Rate Observer, tells the full story of the quality of China’s latest growth and its lending habits (lending has doubled over a span of a few quarters!):
The Shanghai A-share market jumped by 65% in the first half, to a level that fixes its value at 31 times trailing net income, up from 12.8 times at the October lows. Chinese M-2 was 25.7% larger in May than it was a year before.
Examining, first, the track of Chinese bank lending and, second, the trend in Chinese nonperforming loans, the seasoned reader will remember … Drexel Burnham Lambert. In the mid-to-late 1980s, the American junk bond market combined breakneck growth with muted default rates. The secret, fully revealed during the subsequent bear market, was that the default rates were a direct product of the issuance rates. Borrowers didn’t default because of—to adapt the Fitch formulation to that earlier time—the ‘pervasive rolling over and maturity extension of bonds as they fell due.’ Drexel failed when the junk market did.
It’s no small thing that China is especially enamored of the shot-and-a-beer-for-breakfast approach. Nothing about China is small or insignificant nowadays, since the Chinese economy is actually growing. It might, indeed, account for 74% of worldwide GDP growth in the three years to 2010, the International Monetary Fund estimates.
Finally, the most important part:
Since 2005, China has generated 73% of the global growth in oil consumption and 77% of the global growth in coal consumption. [emphasis are mine]
Need I say more?
P.S. Painting “Beauty Samba” is by my father Naum Katsenelson
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This article has 84 comments:
Other countires, like the US, are doing what they can to manipulate their own ecconomies too (Auto bailout, Cash for Clunkers, etc).
I remember when the "Japaneese are better than us" nonsense ended and working in technology there was much rejoicing for engineers. However, in the US it wasn't a huge change. They were still a trading partner...
Not so fast.
That nation called China still has immense geopolitical and legacy problems that would not render it even close to what Japan was in the 1980's.
After all, Japan was, in the pre-WWII decades, a highly technologically advanced nation that can develop its own superior aircraft carriers and fighter planes, among others. After WWII the Japanese benefited from a democratized parliament system and its legal system is way ahead of that of China's.
China cannot be a great nation until and unless it has a functioning legal system separate from its political party apparatus. That, unfortunately, could take decades or may even be centuries away.
TK
With all due respect to Mr. Grant, he's making the unfortunate mistake of trying to analyse the China Paradigm through his own set of Western-centric economic precepts.
Can the Chinese "cook the books" better? Of course they can. But they can't hide real supply versus real demand, no matter how hard they try. And right now, they're out to "supply" the rest of the world with as many of their US$ as they can, for anything and everything in sight with a US$ price tag on it, while those US$ still have any remaining value, prior to plunging into ZImbabwean oblivion.
China's population base is some 10 times larger than that of Japan. If it was wrong in 1989 to assume that the Japanese workers on average would be perpetually much more productive than their American peers, it would be equally wrong to assume that the American workers would hold that advantage vis-a-vis their Chinese peers.
Population
Japan: population 127 million
China: population 1.33 BILLION, 10 times greater than Japan
Land Area
Japan: 394744 sq km (a tiny country)
China: 9.6 million sq km—the third-largest country in land size in the world, sitting right next to Siberia on the Northern western side, which they will be able to easily grab or 'buy' for resources
Japan is and was basically a Xenophobic island country. China has embraced everyone else technologically and is using its Chinese worldwide network (the Chinese Diaspora) to great advantage.
Japan being an economic power at all is a near miracle.
China is the real deal, Japan was purely based on their citizens working 18 hours a day for 8 hours salary. That corporate slave generation in Japan is retired or near retirement and their offspring have no intention of working that hard.
japan built their economy on an overvalued dollar/ undervalued yen and invested wisely, but have seen their anti-entrepreneurial economy shrink in the two decades since; china has built their economy the same way. what japan amply demonstrated is the impossibility of maintaining that imbalance. the chinese culture is far more entrepreneurial, thus will adjust much faster (see germany, which also did the same thing); however, all that phony GDP (based on production instead of sales), easy lending and stock/ real estate market bubble will result in some kind of contraction.
not a perfect analogy b/c of the different cultures, but the FX, GDP and lending facts, thus the conclusions, are solid
While I agree with several points you made and China is by no means "perfect", there are huge differences between China and Japan, so I have to disagree with your conclusions.
It's going to take a long time to compare China to Japan in any reasonable level of detail, but 50000ft view is:
Japan: imports substantially all commodities that it consumes.
China: has natural resources of its own
Japan: expensive labor
China: plenty of cheap labor
Japan: limited geographically
China: plenty of space to grow
Japan: limited militarily, must rely on the US to trade
China: has means to control seas and ports that it needs to control in order to trade
On Aug 23 03:39 PM Jeff Nielson wrote:
> As the author of some of the most absurd nonsense I've seen on "Seeking
> Alpha", I'm wondering how much you have to pay them to get your tripe
> named an "editor's pick"?
Here I'll do your home work for you since you have the "Editors Pick" . Who the heck is the Editor? Here is the research you need to help you right this article.
Real-estate Prices were highest in Tokyo's Ginza district in 1989, with choice properties fetching over 100 million yen (approximately $1 million US dollars) per square meter ($93,000 per square foot). Prices were only marginally less in other large business districts of Tokyo.
Lets make note..$93,000 per square foot in Tokyo in 1989 prices!!!
Now did you compare this to Beijing 2009 prices? No. Well I'll leave some research for other analyst.
I did find this interesting "fact" posted at well known writer Paul Kedrosky's Infectious Greed website.
Beijing Commercial Real Estate
By Paul Kedrosky
Some fairly staggering numbers on the mess that is commercial real estate in Beijing: (he claims)
500 million square feet of commercial real estate has been developed in Beijing since 2006, more than all the office space in Manhattan. And that doesn't include huge projects developed by the government. [Jack Rodman] says 100 million square feet of office space is vacant -- a 14-year supply if it filled up at the same rate as in the best years, 2004 through '06, when about 7 million square feet a year was leased.
Now I believe some go-getter anaylst can make a more meaning full estimate of Japan vs China realestate bubble which was the Super Nova Asset Bubble that started imploding on Japan in 1989.
Pretty soon they'll be playing American football too. They apparently already learned this phrase, " Hey, pass the ball."
Let's see if we're right on China... tinyurl.com/kswqho track this call over time
p.s. I think SA likes crisp, new, unmarked $20's in a plain brown envelope. Give it a try next time you have any.
On Aug 23 03:39 PM Jeff Nielson wrote:
> As the author of some of the most absurd nonsense I've seen on "Seeking
> Alpha", I'm wondering how much you have to pay them to get your tripe
> named an "editor's pick"?
Japanese GNP was much higher than China in the 80's. Case in point, avg factory worker toils in the typical sweat shop for meager $100 plus room and board. Japanese factory workers in the 80's were making enough money to own cars.
Some sober facts:
1. China is a communist country ruled by 1 party with iron grip. Party bosses pick the politicians and many private company managements since many private companies are ex-SOE (communist state owned enterprises).
2. Corruption in China is rampant and one of the worst even down to lower ranking employees. Even factory canteen chef gets "envelopes" in scheme where he claims he received 10 bags of rice when only 8 bags are delivered.
3. There is almost no "law" since law itself is written to support the communist party or corrupt local communist bosses. Judges are appointed by the local communist boss and few if any understand law. Many judges got job thru "guanxi" or connection and of course bribes.
4. The Chinese banks in are BIG TROUBLE. E&Y got in heaps of trouble for discussing hidden bad and noncollectable debts. Local communist cadres dictate banks to lend to their pet projects and of course friends who bribe them not to mention COMPLETE lack of transparency.
5. No one except pea size brains trusts the communist government's statistics which are MANIPULATED.
6. Many of the listed companies numbers are COOKED. Auditors and their management can be bribed and extorted. It's beyond me how anyone would trust Chinese companies' financials unless audited by Big 4. And even Big 4s audited numbers are suspect since most Chinese companies carry multiple books including one for taxation and another with slush funds.
7. Latest Chinese share and commodity appreciation have lot to do with communists pumping money to the economy by directing the banks to lend. This kind of stimulus cannot go on.
Now is good time to buy FXP when all the investment gurus in unison are recommending Chinese stocks.
1) JX's thesis seems more probable, China is Japan circa 1969, not 1989.
2) Japan reached the pinnacle of developed world standards when it plunged to the abyss. Its population is aging, and its labor pool more expensive than even here. China has the 'cheap labor' advantage, which in a capitalistic system will always win the jobs. That labor is cheap precisely because we are too expensive - ask a Chinese laborer how much subsidized health care they receive in a given year, and then ask yourself what it would take for you to accept the same.
3) Unsubstantiated bias bordering on statist (not Chinese) propaganda:
"Lately, the Chinese economy has been impressing us with its growth: it was growing when the rest of the world was contracting, fast. But Chinese economic structure is not is not superior to the West’s; the Chinese can just cook GDP numbers better and control their economy more effectively through forced lending and spending."
Let me guess - your father was the late Senator McCarthy.
"However, these short-term advantages come with long-term consequences – there will be a steep price to pay for them; there always is."
Wait a moment. WE are paying a steep price for our reckless behavior. China has made all of our crap for next to nothing, your typical Chinese laborer barely has enough money to pay for his own food while somehow saving 40% of his paycheck, and all you can think about his how THEY will pay? Amazing...the hubris (or ignorance) is stifling.
I will concede that there is a political angle, "Better them than us," when it comes to scapegoating and general politicking, but really. Your rhetoric leaves nothing to be said other than 'good job on protecting our jobs from those Chinese heathens' or 'wow, I bet you have not come within 1000 miles of East Asia'. Neither is encouraging.
Outside of that, your chart is enlightening (unfortunately the only part of the article that is so). But, you contradict your bearish bias by quoting the following: "Since 2005, China has generated 73% of the global growth in oil consumption and 77% of the global growth in coal consumption. [emphasis are mine] Need I say more?"
You do need to say more. More on facts, and opinion that is based upon them. Unfortunately, your opinion is about as relevant to the facts presented here as your father's painting is to the subject matter at hand. While well written (the article) and beautifully portrayed (the painting), neither lend credence to whatever misbegotten point you are trying to make.
On Aug 23 07:11 PM Vladimir Senkov wrote:
> Vitaly,
> While I agree with several points you made and China is by no means
> "perfect", there are huge differences between China and Japan, so
> I have to disagree with your conclusions.
>
> It's going to take a long time to compare China to Japan in any reasonable
> level of detail, but 50000ft view is:
>
> Japan: imports substantially all commodities that it consumes.<br/>Ch...
> has natural resources of its own
>
> Japan: expensive labor
> China: plenty of cheap labor
>
> Japan: limited geographically
> China: plenty of space to grow
>
> Japan: limited militarily, must rely on the US to trade
> China: has means to control seas and ports that it needs to control
> in order to trade
I'd give the Japanese a lot more credit. The Meiji Revolution was Japan's 'opening up', where they sent personnel across the globe to learn how the US was able to gain such a superior bargaining position at their own ports. They apparently learned very well - they gave the Russians a run for their money, and put up a good fight against the most dominant force of the 20th century (us, the US).
Japan is about as xenophobic as most other Asian countries. How can't they be? The international dialogue is set in Western terms. Code words such as 'Renaissance' and 'Enlightenment' have no cultural significance in that part of the world - there, they go by different, and unfamiliar terms (to us).
"China is the real deal, Japan was purely based on their citizens working 18 hours a day for 8 hours salary. That corporate slave generation"
Really now. I'd rather be a stiff suit working long hours than working in actual slave-like conditions with little more than rice and water any day of the week.
On Aug 23 03:25 PM pigdog67 wrote:
> There are two huge differences between Japan and China.
> Population
> Japan: population 127 million
> China: population 1.33 BILLION, 10 times greater than Japan
> Land Area
> Japan: 394744 sq km (a tiny country)
> China: 9.6 million sq km—the third-largest country in land size in
> the world, sitting right next to Siberia on the Northern western
> side, which they will be able to easily grab or 'buy' for resources
>
> Japan is and was basically a Xenophobic island country. China has
> embraced everyone else technologically and is using its Chinese worldwide
> network (the Chinese Diaspora) to great advantage.
> Japan being an economic power at all is a near miracle.
> China is the real deal, Japan was purely based on their citizens
> working 18 hours a day for 8 hours salary. That corporate slave generation
> in Japan is retired or near retirement and their offspring have no
> intention of working that hard.
On Aug 23 10:10 PM doubleshortetf wrote:
> Some sober facts:
>
> 1. China is a communist country ruled by 1 party with iron grip.
> Party bosses pick the politicians and many private company managements
> since many private companies are ex-SOE (communist state owned enterprises).
>
>
> 2. Corruption in China is rampant and one of the worst even down
> to lower ranking employees. Even factory canteen chef gets "envelopes"
> in scheme where he claims he received 10 bags of rice when only 8
> bags are delivered.
>
> 3. There is almost no "law" since law itself is written to support
> the communist party or corrupt local communist bosses. Judges are
> appointed by the local communist boss and few if any understand law.
> Many judges got job thru "guanxi" or connection and of course bribes.
>
>
> 4. The Chinese banks in are BIG TROUBLE. E&Y got in heaps of
> trouble for discussing hidden bad and noncollectable debts. Local
> communist cadres dictate banks to lend to their pet projects and
> of course friends who bribe them not to mention COMPLETE lack of
> transparency.
>
> 5. No one except pea size brains trusts the communist government's
> statistics which are MANIPULATED.
>
> 6. Many of the listed companies numbers are COOKED. Auditors and
> their management can be bribed and extorted. It's beyond me how anyone
> would trust Chinese companies' financials unless audited by Big 4.
> And even Big 4s audited numbers are suspect since most Chinese companies
> carry multiple books including one for taxation and another with
> slush funds.
>
> 7. Latest Chinese share and commodity appreciation have lot to do
> with communists pumping money to the economy by directing the banks
> to lend. This kind of stimulus cannot go on.
>
> Now is good time to buy FXP when all the investment gurus in unison
> are recommending Chinese stocks.
On Aug 23 08:20 PM Moon Kil Woong wrote:
> China although aware of the fall off of tiger countries when their
> economies grow and their currencies appreciate is trying to hold
> off a recession and prevent the natural economic collapse through
> currency depriciation and massive growth in money supply and gearing.
> Even though this inevitably results in an even more painful correction
> in the future it would seem that they learned a trick or two from
> their partners and rivals. Enjoy today and let the future politicians
> deal with the aftermath and collapse.
>
> Pretty soon they'll be playing American football too. They apparently
> already learned this phrase, " Hey, pass the ball."
On Aug 23 08:57 PM mineralt wrote:
> Since I'm a musician, I'll give you an analogy. Japan in 89 was a
> cocaine induced Duran Duran video. Today, China is more like Metallica's
> One...lots of hard work and intensity.
Drunk with success at home and abroad, the Japnese ventured to buy assets at overheated valuation not only in Japan but also in USA and Europe. These purchases increased their pain when their prices too crashed during the late eighties. They increased their integration with the west through these purchases.
The Chinese however have been held off by our hyper vigilant Senate (during the Republican years, mind you) whenever they tried to buy anything of consequence. Like Unocal, for instance. So the Chinese have been made to bide their time, and what should happen but for the sale of the century (the next century, not the past one, the only one that matters) to drop into their laps. So are they buying US companies now? No, they are buying only things of consequence, like commodities. The Chinese have no wish to increase integration with the West if they can avoid it. They'd rather just treat us like one big market.
On commodities, I believe it is of considerable frustration to them that they are not able to lock their supply of commodities for the next quarter century at today's fire sale prices but they are trying. The tiff with RTP is a sign of things to come. While the US of A pleads with them to keep buying treasuries, the Chinese government is using its newfound prominence and muscle to create leverage for their local companies. This has already happened over the last 20 years where they forced companies to transfer technology to local companies as the price for doing business in China. How much value will remain for technological innovation in the west if China can simply force private companies to transfer sophisticated knowhow to their local companies for free? This will play out in the next few years with the Chinese dictating terms on behalf of their companies. Any hard bargaining against Chinese companies is going to get treated as a state crime against the country. All the while we argue in US of A about the role of government in the private sector, we seem to have no qualms in buying shares of Chinese companies that we know are close to Government and hence more likely to prosper. There will be shades here of Russia invading Hungary as the West looks away. Old habits die hard. By the time the West realizes what China is doing, it might be too late. It might already be too late.
The one overpriced thing that the Chinese have bought of course are the US Treasuries. I'll wait and watch to see how China tries to force the US treasury to make them whole. New TIPS issuance anyone?
Let me mention just a few items:
a). Japan is a country with US military bases all over its territory. Japan is a semi-independent country who depends on US military to protect it. Consequently, back in 1980s and now, Japan is too dependent on the USA. During the last 20 years, Japan did not have a depression. Japanese did not stay in lines to soup-kitchens. Japan just 'lost" the last 20 years. It aws a terible for Japan loss. Now, it finds itself in a bad situation:
- America "military umbrella" is very much questionable
- Access to & supply of outside natural resources also is questionable
- Historically unfriendly to Japan China is becoming a superpower
- Japan trade reliance on US markets (in light of US financial/economic catastrophe) does not promise anything good
b). At the same time, China is an independent country. It has nuclear weapons to protect itself. China is rapidly moving in a position similar to the Soviet Union was in 1930s, i.e., China is moving in a superpower country status. Remember, China is a Communist country. The present China uses very similar objectives and methods used by Stalin's Soviet Union in 1930s when it became a world superpower.
c). The present world geopolitical situation is very unstable
- US military and economic might is rapidly declining. US military commitments are terribly overextended
- Russia is very unstable
- Chinese economic & military capabilities are growing very rapidly
- EU is also in a crisis
- Do not forget Brazil, India and other rapidly developing countries
Other things I feel should be pointed out not directed at anyone in particular:
There is significant government involvement in large companies from overseas who have divisions in China. However, this is as much about protectionism as it is about a controlled(doesn't have to be communism) economy.
There's a pretty significant degree of small business startups in China in the past several years. This really isn't a characteristic of a communist country. Increased lending encourages consumption and corporate investment, supply side economics. Whether it works or not is debatable, but hey many people here in hte US seem to be really behind the idea. The relevance to japan is that China has an extremely low rate of consumption, I can probably guess that japan had a much higher consumption rate in 1989. A lot of the policies that are in place are to stimulate consumption. These are things the Fed and treasury( through tax cuts) does in the United states. The only difference is China has more control over how to do these things and is more efficient at getting them done because of that. Is that more socialist, probably. But stimulating consumption is very capitalist, communists would probably not be concerned with increasing consumption at all.
On Aug 24 12:01 AM nova wrote:
> To compare today China with Japan in 1980s is outright stupid. <br/>
>
> Let me mention just a few items:
>
> a). Japan is a country with US military bases all over its territory.
> Japan is a semi-independent country who depends on US military to
> protect it. Consequently, back in 1980s and now, Japan is too dependent
> on the USA. During the last 20 years, Japan did not have a depression.
> Japanese did not stay in lines to soup-kitchens. Japan just 'lost"
> the last 20 years. It aws a terible for Japan loss. Now, it finds
> itself in a bad situation:
> - America "military umbrella" is very much questionable
> - Access to & supply of outside natural resources also is questionable
>
> - Historically unfriendly to Japan China is becoming a superpower
>
> - Japan trade reliance on US markets (in light of US financial/economic
> catastrophe) does not promise anything good
>
> b). At the same time, China is an independent country. It has nuclear
> weapons to protect itself. China is rapidly moving in a position
> similar to the Soviet Union was in 1930s, i.e., China is moving in
> a superpower country status. Remember, China is a Communist country.
> The present China uses very similar objectives and methods used by
> Stalin's Soviet Union in 1930s when it became a world superpower.
>
>
> c). The present world geopolitical situation is very unstable
> - US military and economic might is rapidly declining. US military
> commitments are terribly overextended
> - Russia is very unstable
> - Chinese economic & military capabilities are growing very rapidly
>
> - EU is also in a crisis
> - Do not forget Brazil, India and other rapidly developing countries
>
But unlike Japan in 1989, China's major problem is not asset bubble. Their market is overvalued but far from what we've seen in Japan back in 1989. They have inherent faults in their system which no other countries share with. That's the real issue there.
So many people bristle when China is mentioned with question marks. It's like a new religion is being defended. I'm not sure if this is because people really love China all that much or just hate America instead and desire the end of the American Empire, no matter which empire is the one to replace her.
Japan, obviously, is a tiny island, with a limited population, and very limited natural resources. This makes them a very disciplined society. And much more stable politically than China is. China is sprawling, decentralized, with a history of having trouble holding all their different parts together. China's current government is not flexible and is nourished by bribery and corruption. China may be a waking giant. But we will have to see how much skill the Chinese government has in disciplining their people once they get a taste of the good life. That was never a problem for the Japanese.
On Aug 23 11:11 PM Diogenes of Sinope wrote:
> Jim Rogers says China today is where the USA was in 1910: in the
> early phases of industrialization and development.
When the good times eventually end in China, it will probably be dramatic and fast. It might start with a bank failure, or a stock market crash. I've read several reputable accounts claiming that a large percentage (as much as 50%) of the new Chinese stimulus money was poured into the stock market through cheap (0-2%) "business loans". All it will take is a shake in confidence, or a percentage of these loans to be called for the same money to come rushing out of the stock market.
That being said, it will take a significant catalyst for the illusion to fall apart. The same underlying problems have existed for multiple years now. The Chinese authorities have proven very adept at managing these problems. They could manifest themselves next week, or we might not see them for ten years.
On Aug 23 12:41 PM JX wrote:
> A better Japan comparison for China today would be Japan in 1965
> -- both one year removed from being deemed worth of hosting the Olympic
> Games, and both's stock indexes traded quite a bit below their respective
> recent highs. Japan's per capita GDP was higher than the US' one
> in 1989, while China's in 2009 was only a fraction of the US' counterpart.
> It would take quite some ignorance to see any similarity between
> Japan in 1989 and China in 2009, other than the underlined assumption
> that the US as a nation would forever be the top dog and any would-be
> challengers are pretenders.
>
> China's population base is some 10 times larger than that of Japan.
> If it was wrong in 1989 to assume that the Japanese workers on average
> would be perpetually much more productive than their American peers,
> it would be equally wrong to assume that the American workers would
> hold that advantage vis-a-vis their Chinese peers.
China is but a huge consumer economy, akin to the US or Japan or Germany, minus:
(1) the military technologies ($billion stealth jets);
(2) the aeronautical technologies ($billion spaceships / 787s);
(3) the manufacturing technologies (Fanuc - largest manufacturing robot firm in the world, listed in Tokyo, debt free);
(4) the vehicular technologies (Prius and friends);
(5) the environmental technologies (solar panels and nuclear alike);
(6) the pharmaceutical technologies (Tamiflu etc);
and also
(6) artistic / Midas touches (Milan / Paris);
(7) "entertainment / education" films / websites (the unions in California);
(8) justice system to protect foreigners' money; and
(9) currency system to let foreigners TAKE OUT the money they put in;
If such a country were to grow in any meaningful sense, it would be in the American cents...which doesn't mean much anymore.
They are not buying exorbitantly expensive properties or assets around the world unlike Japan in the late 80's. They are buying CHEAP, CHEAP, and CHEAP.
That is not a sign of someone going down because of over-indulgence with the good high-flying lifestyle.
Those imbalances did not survive many American administrations, but they took a too much time to eliminate for American manufcturing to survive.
As a result, America manufactures very little. Japan built factories here to secure its position in our markets.
As has been beaten to eath, China is a different situation altogether. They do not need to subsidize cheap goods. They work cheap. Their standard of living will increase, so their labor will get more expensive.
What I wonder is whether America's inevitable decrease in standard of living for the middle and lower classes will allow us to be competitive in manufacturing again. I suspect so.
Jeff, this guy is hopeless. So is most of SA and the most of the respondents.
On Aug 23 03:39 PM Jeff Nielson wrote:
> As the author of some of the most absurd nonsense I've seen on "Seeking
> Alpha", I'm wondering how much you have to pay them to get your tripe
> named an "editor's pick"?
"If inflation is everybody's bogeyman, China is Santa Claus."
It seems everybody believes that China is so smart, that they can't do anything wrong. They're buying natural resource companies and securing future energy supply while the west are supporting dying industries. And what's funny is that some of the biggest China lovers are big supporters of free-market capitalists (like Jim Rogers).
I don't know if China is Japan in 89, but I recognize the one-sided beliefs in their superiority when I listen to how great China is doing all the time. I think it is wise not to believe the present hype.
The next Olympic specatacle is in Vancouver, Canada.
Being plugged into the man on the street in both Beijing and Shanghai, I am able to analyze the situation in the PRC from ground level, and I can tell you that the urban areas are not as robust as the reports would have them. Is the Chinese government manipulating the numbers? Of course they are. Is the U.S. government manipulating the numbers. Absolutely. Does that mean that we will crawl into a hole and curl up in a fetal position because our governments manipulate the numbers? No, it won't.
As one who produced a report in the 1970s on the future economic rise of Japan, I can also point to similarities between China and Japan. But China is not at the peak, as Vitaliy's piece might indicate. Rather, it is at the start. Whether China will succumb to the same temptations as Japan is left to be seen. But culturally, having plugged into a friend who worked both in Tokyo and Shanghai, the Chinese and Japanese are very different. According to him, the Japanese are xenophobic, while the Chinese love us. The Japanese work themselves to death, while the Chinese, who do work hard, balance life and work better. This difference in philosophy of life/work balance is more sustainable than the Japanese mentality.
Of course, all nations succumb to complacency or arrogance when they reach the top. The Chinese dynasties, like the Japanese dynasties, Roman, British, Ottoman, Persian, and American Empires are examples of this. But the current Chinese economic growth is probably more comparable to the U.S. growth in the early 1900s than the Japanese peak in the 80s.
China: Not
Japan: an ally
China: the single biggest cause of global unrest. 1) police state 2) continued invasion of Tibet 3) support of Burma 4) support of Darfur criminals (Sudanese oil). The US has made many mistakes (Iraq; not fully stabilizing Afghanistan), but nothing with the same negative impact to world peace as China.
Japan: democracy
China: police state
Japan: quality exports
China: cheap junk that might poison you.
If you want cheap labor, look to India, not China. Seeking Alpha is about money, not politics, but mark my words, dealing with unsavory police states ALWAYS comes back to bite you. They don't look at the world the way we do: lift shirt; present back; get stabbed in it. WHEN China explodes with domestic rage, we will regret being "enablers" for the Communist thugs.
On Aug 23 07:11 PM Vladimir Senkov wrote:
> Vitaly,
> While I agree with several points you made and China is by no means
> "perfect", there are huge differences between China and Japan, so
> I have to disagree with your conclusions.
>
> It's going to take a long time to compare China to Japan in any reasonable
> level of detail, but 50000ft view is:
>
> Japan: imports substantially all commodities that it consumes.<br/>Ch...
> has natural resources of its own
>
> Japan: expensive labor
> China: plenty of cheap labor
>
> Japan: limited geographically
> China: plenty of space to grow
>
> Japan: limited militarily, must rely on the US to trade
> China: has means to control seas and ports that it needs to control
> in order to trade
I fully agree with you. Today China reminds me more of Soviet Union in 1930s but
- Chinese are much more sophisticated
- The Western world is presently in much more decline than it was back in 1930s. The West has no leadership at all; it even cannot formulate it own objectives. It is desperately trying to preserve "the past glory and prosperity" using people and methods responsible for the today disaster.
China has neither desire nor intentions to integrate with other countries or other people. 15 years ago, living in San Francisco, I met a city manager for a major financial institution who bluntly advised me: Never waste your time trying to sell anything to Chinese unless they cannot buy it from their own people!
A few minor corrections...
1. China as % population, do not have as many PhD's as Japan. But still outstrip them in numbers of PhD's.
2. China, unlike the USA, has not been "exporting democracy", nor was it a member of the Axis.
3. Japan has been ruled by the same party (LDP) since end of WWII (except a 5yr period in late 80's to early 90's). Its somewhat of a rubberstamp democracy. Many of the Prime Ministers are descendants of war criminals. The current PM came from a family that ran forced labour camps.
4. Most of what China produced today was produced by Japan a few decades ago. Remember Sony "Walkman" from the 80's? And guess who made your MP3 player today? And my "Japanese" Toshiba is "Made in China".
There are similarities between the Chinese and Japanese econ, but Japan's economic acceleration reached a wall because everything that can be developed has been. For most of 90's Japan literally built bridges-to-no-where when their gov spent billions on road construction. Where as the PRC has ALOT more room to build.
Does China make sense? Overpriced? Prices are not even close to comparison. The writer above who said it is like Japan 1965 is far closer to the truth...
In 1989 Japan was buying up American property at stupid prices (Rockefeller Ctr, Pebble Beach), NEC was on top of the PC and chip world....it is not even remotely close to the same. Where are the Chinese imported cars?2025 maybe....
One of the most important reason that the Chinese economy is doing well is that on average Chinese people are poor. There are huge productivity gains to be realized. You should know how productive (or less productive) Chinese workers were in 1998 vs how productive they are now. With the use of new technologies and new management processes, there has been tremendous improvements in productivity. China 30 years ago could not produce enough food to feed its own people and now the country to supplying the world with consumer goods. They along with the rest of the world are all benefiting from the gains in productivity. One may ask there are millions of other poor people out there in other countries and why did they not do well? This is where the government comes in. A stable economic and political environment, a changing legal and social system, a changing culture to embrace new ideas from outside... are all some of the things that the government was producing/maintaining over the years. The type of China you described should have already collapsed and plunged into chaos many years ago. The fact they are still here and growthing says a lot of things. If you think China today is China 10 years ago with cooked numbers, then I really have nothing to say but to wish you good luck.
On Aug 23 10:10 PM doubleshortetf wrote:
> Been to China over 30 times since 1998 while working for 3 multinationals.
> It's amusing to see "experts" who has not been to China or spent
> few days in the big Chinese cities recommending Chinese stocks...
> Wonder if they ever spent weeks at a time in gritty factory towns
> or poor interior areas...
>
> Some sober facts:
>
> 1. China is a communist country ruled by 1 party with iron grip.
> Party bosses pick the politicians and many private company managements
> since many private companies are ex-SOE (communist state owned enterprises).
>
>
> 2. Corruption in China is rampant and one of the worst even down
> to lower ranking employees. Even factory canteen chef gets "envelopes"
> in scheme where he claims he received 10 bags of rice when only 8
> bags are delivered.
>
> 3. There is almost no "law" since law itself is written to support
> the communist party or corrupt local communist bosses. Judges are
> appointed by the local communist boss and few if any understand law.
> Many judges got job thru "guanxi" or connection and of course bribes.
>
>
> 4. The Chinese banks in are BIG TROUBLE. E&Y got in heaps of
> trouble for discussing hidden bad and noncollectable debts. Local
> communist cadres dictate banks to lend to their pet projects and
> of course friends who bribe them not to mention COMPLETE lack of
> transparency.
>
> 5. No one except pea size brains trusts the communist government's
> statistics which are MANIPULATED.
>
> 6. Many of the listed companies numbers are COOKED. Auditors and
> their management can be bribed and extorted. It's beyond me how anyone
> would trust Chinese companies' financials unless audited by Big 4.
> And even Big 4s audited numbers are suspect since most Chinese companies
> carry multiple books including one for taxation and another with
> slush funds.
>
> 7. Latest Chinese share and commodity appreciation have lot to do
> with communists pumping money to the economy by directing the banks
> to lend. This kind of stimulus cannot go on.
>
> Now is good time to buy FXP when all the investment gurus in unison
> are recommending Chinese stocks.
Vitaliy Katsenelson writes "China: Exactly Where Japan Was in the 1980s? - "I know, I may sound like I’m beating a dead horse – how much printer cartridge can one spill over China? – but I have a very high burden of proof to overcome. Let me demonstrate it by this analogy: Let’s rewind 20 years. It is 1989 and I am writing that the Japanese economy is on the verge of severe decline."
Katsenelson makes an interesting point, but needs to consider how the world has changed since the 1980s. In some ways China may be in a weaker situation. It has the large manufacturing base to produce goods cheaply and efficiently, but many other countries are catching up, and some of it is paradoxical. For example, as wages increase, the real estate market drives prices up, and environmental standards start to rise, then the cost of manufacturing in China increases. This will in turn send some of their current customers for other locations.
On Aug 23 03:39 PM Jeff Nielson wrote:
> As the author of some of the most absurd nonsense I've seen on "Seeking
> Alpha", I'm wondering how much you have to pay them to get your tripe
> named an "editor's pick"?
On Aug 23 10:10 PM doubleshortetf wrote:
> Been to China over 30 times since 1998 while working for 3 multinationals.
> It's amusing to see "experts" who has not been to China or spent
> few days in the big Chinese cities recommending Chinese stocks...
> Wonder if they ever spent weeks at a time in gritty factory towns
> or poor interior areas...
>
> Some sober facts:
>
> 1. China is a communist country ruled by 1 party with iron grip.
> Party bosses pick the politicians and many private company managements
> since many private companies are ex-SOE (communist state owned enterprises).
>
>
> 2. Corruption in China is rampant and one of the worst even down
> to lower ranking employees. Even factory canteen chef gets "envelopes"
> in scheme where he claims he received 10 bags of rice when only 8
> bags are delivered.
>
> 3. There is almost no "law" since law itself is written to support
> the communist party or corrupt local communist bosses. Judges are
> appointed by the local communist boss and few if any understand law.
> Many judges got job thru "guanxi" or connection and of course bribes.
>
>
> 4. The Chinese banks in are BIG TROUBLE. E&Y got in heaps of
> trouble for discussing hidden bad and noncollectable debts. Local
> communist cadres dictate banks to lend to their pet projects and
> of course friends who bribe them not to mention COMPLETE lack of
> transparency.
>
> 5. No one except pea size brains trusts the communist government's
> statistics which are MANIPULATED.
>
> 6. Many of the listed companies numbers are COOKED. Auditors and
> their management can be bribed and extorted. It's beyond me how anyone
> would trust Chinese companies' financials unless audited by Big 4.
> And even Big 4s audited numbers are suspect since most Chinese companies
> carry multiple books including one for taxation and another with
> slush funds.
>
> 7. Latest Chinese share and commodity appreciation have lot to do
> with communists pumping money to the economy by directing the banks
> to lend. This kind of stimulus cannot go on.
>
> Now is good time to buy FXP when all the investment gurus in unison
> are recommending Chinese stocks.
Doubleshort, I doubt if you were ever in China or if you were, you never left the deluxe hotel. People that have been to China recently, especially away from the coastal, export-oriented cities would NOT recognize the country you describe.
You seem like an intelligent person. Perhaps instead of simply decrying all of the detritus here (which you seem to do very often), why don't you actually write an article of your own and measure yourself to some sort of standard? It's precisely because Jeff Nielson has attempted to do so that has earned him a certain measure of regard, much more than I can say for you.
If you are looking for journalistic quality standards, be aware that people who contribute here typically do not have a paid editor to parse through the article for readability. In that sense, your disappointment may be linked more to your own inflated expectations than any actual issue of quality. If you're looking for exceptional journalism, subscribe to one of the many out there.
I for one am hunting for perspectives that may be left out of the media, while still maintaining a good level of content - quality journalism is less of a concern. To me, if I can find such 'gems' before others do, I'd be ahead of the game.
However, I do agree with you that this article fails in content, even though the writing is of a high standard of quality.
On Aug 24 09:45 AM coreopsis wrote:
> Vito: your articles continue to be the work of a light-headed and
> perhaps light-footed charlatan. At the end of 1989, Japan's Nikkei
> index was nearing 36,000. Today it stands at 10, 580. So basically
> you're saying the Shanghai is going to 900. Rots of ruck.
>
> Jeff, this guy is hopeless. So is most of SA and the most of the
> respondents.
There are only 2 ways to grow an economy. 1) increase the population, and 2) increase the productivity of each person. Japan topped out in 1989 with little opportunities for productivity increases. China is just beginning to climb the productivity curve so there is plenty of opportunity for productivity growth left.
When the Japan housing market collapsed in the early 1990s and the economy went into recession, the government tried to boost the economy with government sponsored infrastructure projects. But, that didn’t work so well for multiple reasons. One reason is there were few “high multiplier” infrastructure projects left.
A project with a high multiplier is one where the economic benefit of the project is much higher than the cost because it greatly increases the productivity of people. Hydroelectric dams often have very high multiplier effects because they provide electricity, water for irrigation, and flood control.
However, there are many high multiplier infrastructure projects left in China. The three gorges dam is a big success that greatly boosts the economy of the country, mostly from huge electricity generation. Many people in China need the basic tools of life that make them much for productive like housing, food, sanitation, and electricity. It doesn’t matter how much corruption “sucks” wealth off the economy, and corruption always does, the government-sponsored high-multiplier infrastructure projects will more than make up for it.
So comparing China of today to the US of 1910 is probably most accurate. The US then needed lots of infrastructure to make its work force much more productive.
Note that US government funding of infrastructure projects worked well for the economy up until the 1970s. The high multiplier of these projects, like the instate highway system, far outweighed the natural inefficiencies of government. But, in the 1970s something happened. We ran out of high multiplier projects, but the government still kept spending. This, along with oil crisis, led to a stagnant economy. The Reagan revolution which drastically lowered taxes and stopped government waste solved this stagnation.
So until China has a fully developed infrastructure, don’t even try to compare its economic issues to the economic issues of a fully developed first world country like Japan in 1989.
My insights from experience:
1) "Have they been to gritty factory towns?" OSHA would have a heart attack if they saw the working conditions in China, and the working hours in Japan.
2) "China has a the Communist Ruling Party." Japan has been a one-ruling party government for years.
3) Japan's Zaibatsu's (read corporations) have had a cozy arrangement with Japan's ruling party since the Empire.
4) "Corruption is rampant in China," and Japan, and the U.S.
5) "No one except pea sized brains would trust statistics that are being manipulated in China," and Japan, and the U.S.
6) "Chinese banks are in big trouble"; Not as bad as our banks.
7) "China has a communist government with an iron grip." The U.S. government is a democratic government with a weak grip. When we exported democracy to Iraq, Afghanistan, the Philippines, or replacing Tito's Yugoslavia, it made things better, right? I'd like to see any one of our presidents try to manage a country like China. Don't get me wrong, I love our democracy; it's just that it may not work in other places as well as it works here. It may not be exportable as McDonald's or KFC.
8) "E&Y got into heaps of trouble." And gee, E&Y is still around. Much more than I can say about Arthur Anderson.
My point is that these negatives existed in Japan and in the U.S., but they did not prevent Japan and the U.S. from becoming the very richest of nations. Japan's mistake is that it became too full of itself; the U.S. can also make the same mistake; and in time, but not today, China will aspire to making the same mistake.
And yes, when everyone is recommending a particular category of stocks, whether China, Japan, U.S., dot.com, gold, run like hell the other way. When I worked for one of the world's largest financial firms, I noticed they would put out a mutual fund representing the hot stories of the day, and it would immediately tank. It was the perfect contrarian indicator. LOL.
And remember, too, that Double short ETFs like FXP, are marked to market on a daily basis. Short term play with risk management stops. Be careful.
> Yes, you hit the main points to contradict the article. But the main
> point to contradict your comment is that the Chinese government
> is not stable. They are creating a mess and therefore in for much
> pain, just not the kind of pain Japan is going through -- somewhat
> more intense short term pain.
Mess is a relative term. What happened in USSR when it attempted to transition from a planned economy (although not well planned) to a market one, that was a real mess and still is, btw. Chinese are doing much better, in my opinion.
You have to remember it's incredibly difficult to transition from a communist police state to an open society. It can't be done overnight, it will take a long time and it won't be done perfectly. And nobody can teach the Chinese how to do it. They'll have to do it on their own and then maybe they could teach others how to do it.
There is truth to what you are saying, but let's look at our own fiscal policies. China don't look all that crazy now does it?
On Aug 23 11:21 AM Neal Mar wrote:
> Even if what you say is true, since almost no Americans are directly
> invested in China, how exactly is this going effect us (how can I
> profit)? With the stock pile of cash, China can spend for a long
> time on the materials that they don't have domestically.
>
> Other countires, like the US, are doing what they can to manipulate
> their own ecconomies too (Auto bailout, Cash for Clunkers, etc).
>
>
> I remember when the "Japaneese are better than us" nonsense ended
> and working in technology there was much rejoicing for engineers.
> However, in the US it wasn't a huge change. They were still a trading
> partner...
On Aug 24 09:58 PM Wank wrote:
> I hope you invest better than you spell.
BTW, China does already have your items 4, 5, 6 in some very competitive way. So I suggest you come back to check your list at least once a year.
On Aug 24 03:21 AM roger maxims wrote:
> With all due respect, my friends, where lies the argument (1910/65/89
> Japan)?
>
> China is but a huge consumer economy, akin to the US or Japan or
> Germany, minus:
>
> (1) the military technologies ($billion stealth jets);
> (2) the aeronautical technologies ($billion spaceships / 787s);<br/>(3)
> the manufacturing technologies (Fanuc - largest manufacturing robot
> firm in the world, listed in Tokyo, debt free);
> (4) the vehicular technologies (Prius and friends);
> (5) the environmental technologies (solar panels and nuclear alike);
>
> (6) the pharmaceutical technologies (Tamiflu etc);
>
> and also
>
> (6) artistic / Midas touches (Milan / Paris);
> (7) "entertainment / education" films / websites (the unions in California);
>
> (8) justice system to protect foreigners' money; and
> (9) currency system to let foreigners TAKE OUT the money they put
> in;
>
> If such a country were to grow in any meaningful sense, it would
> be in the American cents...which doesn't mean much anymore.
On Aug 24 12:01 AM nova wrote:
> To compare today China with Japan in 1980s is outright stupid. <br/>
>
> Let me mention just a few items:
>
> a). Japan is a country with US military bases all over its territory.
> Japan is a semi-independent country who depends on US military to
> protect it. Consequently, back in 1980s and now, Japan is too dependent
> on the USA. During the last 20 years, Japan did not have a depression.
> Japanese did not stay in lines to soup-kitchens. Japan just 'lost"
> the last 20 years. It aws a terible for Japan loss. Now, it finds
> itself in a bad situation:
> - America "military umbrella" is very much questionable
> - Access to & supply of outside natural resources also is questionable
>
> - Historically unfriendly to Japan China is becoming a superpower
>
> - Japan trade reliance on US markets (in light of US financial/economic
> catastrophe) does not promise anything good
>
> b). At the same time, China is an independent country. It has nuclear
> weapons to protect itself. China is rapidly moving in a position
> similar to the Soviet Union was in 1930s, i.e., China is moving in
> a superpower country status. Remember, China is a Communist country.
> The present China uses very similar objectives and methods used by
> Stalin's Soviet Union in 1930s when it became a world superpower.
>
>
> c). The present world geopolitical situation is very unstable
> - US military and economic might is rapidly declining. US military
> commitments are terribly overextended
> - Russia is very unstable
> - Chinese economic & military capabilities are growing very rapidly
>
> - EU is also in a crisis
> - Do not forget Brazil, India and other rapidly developing countries
>
Japan is, and has been for decades, a well regulated, homogenous, consensus based culture. It is also an incredibly wealthy nation. Yes the last 20 years or so have not been great, but that has been a loss of growth, not a slide into dire poverty.
China is a totally different beast. China suffered unimaginable chaos after the war during the cultural revolution. Poverty in many areas is still horrible. Environmental restrictions in many areas are almost unknown. Toxic chemicals of all sorts are dumped in the air, land and water. There is usually little recourse if one develops a debilitating disease from this.
China is huge and consists of many disparate cultures. Some areas of China, particularly the coastal areas, have seen enormous economic growth. The disparity between places like Shanghai and the poorer provinces is enormous. I can barely imagine the tensions that exist between the different elements of their society.
My take is that China is still working to build the nation. It is still working to supply basic necessities to many segments of the population. If farm productivity increases they can still bring more of the population into the manufacturing base.
Someone mentioned above about the Walkman being made in Japan and now similar products are made in China. The Walkman was a breakthrough product designed and made in Japan. It brought great wealth to SONY.
Apple computers are made in China but they are designed in Cupertino. China has yet to design and produce their own world changing product. If an Apple laptop brings ~$1,200 retail how much of that goes to China? $20? $40? Intel makes many of the chips. Other components come from Taiwan, Korea and Japan.
How does that affect their economic future? I don't know. I see it as too chaotic to easily make a prediction. There are many upsides, but the disease causing pollution and waste and lack of worker rights, lack of human rights, lack of civil rights, the corruption all take their toll. I suspect they need two generations to instill a sense of stability and normality into their population and to find their way as a society.
Disclosure: I lived in Japan for nine years between 1984 and 2002 and visited China a dozen times or so during that time on business. I road trains and buses to the small towns where I provided training at universities and institutes.
(1) China has no modern technology of its own: (i) space rockets are Russian technologies from 1960s; (ii) automobiles are copied from BMW, Mercedes-Benz, and [your favourite brand]; (iii) drugs are what they are literally - they're killers rather than cures.
(2) Whatever technologies the Japanese, Americans or Germans license China, they range from one generation (in technology) to one decade behind! Reason: national / commercial / self-interest in the real world outside Pyongyang you know baby.
(3) China's best scientists, doctors and mathematicians live next door to you and teaches at Princeton having graduated from Yale and collected a Nobel prize in Stockholm with another planning.
(4) Cultural revolution + 1989 takes 15 years off China's clock whilst the rest of the world thinks about reinventing the telephone, culminating in companies with weird names like Nokia and Ericsson.
(5) As a "consumer" economy, China doesn't care about R&D. All it want is to make peasants rich and bureaucrats richer. Even if it did try, the combination of (2) - (4) above means that its technologies will never make international standards, come hell or high water. How can you get rich selling chow mein and dragon dances?
(6) No country would be willing to contribute its newest technologies in "scientific co-operation" with China, because of national interests.
These six are the very reasons why China has to suck up to the US even under present circumstances. It simply has no way out.
So pack up your optimism, save some US$, buy some more burgers before they are priced in yen or yuan.
On Aug 25 12:03 AM HaavBline wrote:
> Entertaining. But since no country has all items on your list, what's
> your point?
>
> BTW, China does already have your items 4, 5, 6 in some very competitive
> way. So I suggest you come back to check your list at least once
> a year.
This kind of thinking is reminiscent of China in the 17th century, when their emperors thought they were the center of the world, and congratulated themselves on how advanced they were and how they didn't need anyone else, as they were the most powerful country on the planet.
Think about that.
On Aug 25 04:04 AM roger maxims wrote:
> Much obliged. In entertainment and joy, Sir, you will recall that:
>
>
> (1) China has no modern technology of its own: (i) space rockets
> are Russian technologies from 1960s; (ii) automobiles are copied
> from BMW, Mercedes-Benz, and [your favourite brand]; (iii) drugs
> are what they are literally - they're killers rather than cures.
>
>
> (2) Whatever technologies the Japanese, Americans or Germans license
> China, they range from one generation (in technology) to one decade
> behind! Reason: national / commercial / self-interest in the real
> world outside Pyongyang you know baby.
>
> (3) China's best scientists, doctors and mathematicians live next
> door to you and teaches at Princeton having graduated from Yale and
> collected a Nobel prize in Stockholm with another planning.
>
> (4) Cultural revolution + 1989 takes 15 years off China's clock whilst
> the rest of the world thinks about reinventing the telephone, culminating
> in companies with weird names like Nokia and Ericsson.
>
> (5) As a "consumer" economy, China doesn't care about R&D. All
> it want is to make peasants rich and bureaucrats richer. Even if
> it did try, the combination of (2) - (4) above means that its technologies
> will never make international standards, come hell or high water.
> How can you get rich selling chow mein and dragon dances?
>
> (6) No country would be willing to contribute its newest technologies
> in "scientific co-operation" with China, because of national interests.
>
>
> These six are the very reasons why China has to suck up to the US
> even under present circumstances. It simply has no way out.
>
> So pack up your optimism, save some US$, buy some more burgers before
> they are priced in yen or yuan.
Time to teach you about natural resources:
The only way that China can grow is by gulping mountains of steel and lakes of oil. What else can you use to feed machines that manufacture and to fill workers' rice bowls (extra virgin olive oil)?
Au contraire, the only way that the real First World can grow is by inventing new technologies, which requires a nanocentimetre of reinforced steel for their Swiss-made heavy duty sketch pens and a pea-sized drop of saffron oil to cleanse the free roaming mind.
On Aug 25 05:13 AM mna wrote:
> Wow... just wow. There's actually people out there who's STILL this
> misguided? Mr Roger Maxims: You sir, have given me a whole new outlook
> on the US. With people still this clueless about the upcoming competition
> we're facing, the nation's absolutely, positively doomed.
>
> This kind of thinking is reminiscent of China in the 17th century,
> when their emperors thought they were the center of the world, and
> congratulated themselves on how advanced they were and how they didn't
> need anyone else, as they were the most powerful country on the planet.
>
>
> Think about that.
>
> On Aug 25 04:04 AM roger maxims wrote:
But I believe much of China's recent advance will turn out to be a mirage and that they're well on their way to another bursting bubble. Simply put, their central command has not and does not allocate resources efficiently. It spent the last decade or longer positioning the economy to cash in on a rate of Western consumption that is not ultimately sustainable. In its rush to paper over that problem it is, without a doubt, funding important infrastructure projects, but at the same time it's funding speculation, creating a lending environment that encourages "entrepreneurs" to continue to throw crap against the wall (much like our dot com phase), and, most disturblingly, spending billions to entrench the most technologically advanced spy state the world has ever known.
As they've forced the development of an export-based economy how many world-class companies have they they forged that can thrive during an economic downturn? Enough to overcome the billions wasted on coddling the cronies at state-run enterprises, or on fly-by-nights in the export economy that can't pay back their loans?
I'm in Vitaly's camp in this one. China is not immune to the boom/bust cycles related to the misallocation of resources. It's in their future to make great strides, but as people pop the celebratory champagne bottles over their arrival be on the lookout for bubbles.
China lacks sufficient natural resources to actually make its products. As the author also points out, China largely does not actually develop the products it makes, and merely follows the directed outlines of what the finished product is supposed to be. China has not showed an interest in developing first rate education and globally acclaimed universities. Whereas, Japan quickly developed outstanding educational infrastructure which enabled the nation to PIONEER, INNOVATE, and DEVELOP completely new industries and companies. This generated massive amounts of wealth that lead to some of the largest multinational companies (Sony, Toyota, Nintendo, etc.). Can one of these people drinking the Chinese Kool Aid please tell me in what areas the Chinese are at the global forefront, how many top notch universities exist, and what % of the population is actually literate?
China has remained a producer nation rather than use its capital inflow to take the next step and build an educational system. The sole reason for an American/European company to use Chinese labor is because it is cheap. It is only a matter of time until Vietnam, Mynamar, Laos, or any other nation that can produce even cheaper and reliable labor than China. What will happen then? Where will China's growth come from? No middle class, very few companies that actually produce anything of innovative value to the global economy.
On Aug 25 05:41 AM roger maxims wrote:
> And therefore, whilst logic is stupidity's worst enemy and ignorance
> is the latter's best friend, tell me your reasoning.
>
> Time to teach you about natural resources:
>
> The only way that China can grow is by gulping mountains of steel
> and lakes of oil. What else can you use to feed machines that manufacture
> and to fill workers' rice bowls (extra virgin olive oil)?
>
> Au contraire, the only way that the real First World can grow is
> by inventing new technologies, which requires a nanocentimetre of
> reinforced steel for their Swiss-made heavy duty sketch pens and
> a pea-sized drop of saffron oil to cleanse the free roaming mind.
>
In Jeff Nielson's article, "China's problem -- too much cash", he clearly pointed out that the coastal cities, which are export driven, are
"in reality, ... comprise less than 10% of China's total population, and no more than ¼ of GDP. In reporting its GDP, China has openly stated that this segment of its economy (the “first tier cities”) is only growing at a little more than 1%. The vast majority of China's economic growth is coming from its interior “second” and “third tier” cities, which are entirely focused on China's domestic economy – which (as mentioned earlier) is growing by more than 20% per year."
So the vast majority of China's growth comes from domestic economy, which can continue to grow for a long time by producing "Chinese Kool Aid", and without the help from top notch universities and innovation.
And, since China has a vast interior which is still undeveloped with dirt cheap labor, it will be a long time until Vietnam, Mynamar, Laos, or any other nation that can produce even cheaper and reliable labor than China.
On Aug 25 04:07 PM KingGeithner wrote:
> Completely in agreement, Roger.
>
> China lacks sufficient natural resources to actually make its products.
> As the author also points out, China largely does not actually develop
> the products it makes, and merely follows the directed outlines of
> what the finished product is supposed to be. China has not showed
> an interest in developing first rate education and globally acclaimed
> universities. Whereas, Japan quickly developed outstanding educational
> infrastructure which enabled the nation to PIONEER, INNOVATE, and
> DEVELOP completely new industries and companies. This generated massive
> amounts of wealth that lead to some of the largest multinational
> companies (Sony, Toyota, Nintendo, etc.). Can one of these people
> drinking the Chinese Kool Aid please tell me in what areas the Chinese
> are at the global forefront, how many top notch universities exist,
> and what % of the population is actually literate?
>
> China has remained a producer nation rather than use its capital
> inflow to take the next step and build an educational system. The
> sole reason for an American/European company to use Chinese labor
> is because it is cheap. It is only a matter of time until Vietnam,
> Mynamar, Laos, or any other nation that can produce even cheaper
> and reliable labor than China. What will happen then? Where will
> China's growth come from? No middle class, very few companies that
> actually produce anything of innovative value to the global economy.
>
>
> On Aug 25 05:41 AM roger maxims wrote:
What you are proposing, dear Yaudy, is that First World countries like America would have grown rich since 1949 just as quickly WITHOUT Princeton, Yale, Harvard, Silicon Valley and Wall Street. That high-paying jobs could have been replaced by 10,000 McDonald's outlets hiring kids to flip burgers.
The only end result of crazy growth of 20% in 2nd and 3rd tier cities is crazy inflation. Do teach me how, without innovation, to squeeze more productivity out of China's workers when your Walmart Levis jeans are US$8.99.
In baby economists' terms, China has NO tertiary industry. None. What use are lawyers when the government debars them for disturbing Beijing's peace? And what use are bankers when your currency / stock market is closed to the outside world, like Monopoly?
You only need to read my opponent's response below to smell the rot of your argument. Need I say more.
On Aug 25 05:13 AM mna wrote: [excerpt]
[...]
> This kind of thinking is reminiscent of China in the 17th century,
> when their emperors thought they were the center of the world, and
> congratulated themselves on how advanced they were and how they didn't
> need anyone else, as they were the most powerful country on the planet.
Furthermore, China lacks any system to protect property rights, which will only stunt its growth. Where is the motivation for an individual to innovate and develop a new product that the globe will need, if the government cannot even protect that person's patent/trademark rights?
On Aug 26 03:50 AM roger maxims wrote:
> You mean, Yaudy, that a country can grow by itself? You mean by making
> peasants / factory workers rich and earn yuan, and drenching China's
> US$ reserves to buy raw materials and machines, China will become
> even one-quarter as powerful as any of its friends at G7? A factory
> is a factory, even if you paint it green and put in glass facades.
>
>
> What you are proposing, dear Yaudy, is that First World countries
> like America would have grown rich since 1949 just as quickly WITHOUT
> Princeton, Yale, Harvard, Silicon Valley and Wall Street. That high-paying
> jobs could have been replaced by 10,000 McDonald's outlets hiring
> kids to flip burgers.
>
> The only end result of crazy growth of 20% in 2nd and 3rd tier cities
> is crazy inflation. Do teach me how, without innovation, to squeeze
> more productivity out of China's workers when your Walmart Levis
> jeans are US$8.99.
>
> In baby economists' terms, China has NO tertiary industry. None.
> What use are lawyers when the government debars them for disturbing
> Beijing's peace? And what use are bankers when your currency / stock
> market is closed to the outside world, like Monopoly?
>
> You only need to read my opponent's response below to smell the rot
> of your argument. Need I say more.
>
> On Aug 25 05:13 AM mna wrote: [excerpt]
> [...]
You mean Japan is the Asia Pacific version of Alice in Wonderland?
You mean Toyota and Sony's technologies are dreamt up by Mr Watanabe and Mr Tanaka overnight when they saw fairies?
You mean over 80% of ministers in the current Japanese cabinet / opposition politicians are idiotic lawyers having graduated from sandboxes like the University of Tokyo, or passed the 1.7% success rate bar exam (lowest in the world btw)?
You mean industrial revolution on its alone made middle-class people millionaires and entrepreneurs billionaires?
You really should consider joining the law firm Morrison & Forrester, better known by itself and others as MoFo.
On Aug 27 04:54 PM Yaudy wrote:
> Roger, blind faith like yours in Harvard and lawyers is exactly the
> source of America's problems. Japan does not have any school that
> can compare to Harvard, and does not have a ton of lawyers which
> the US has, so how come Toyota makes better cars than GM? How come
> GM's Harvard and Wharton MBAs and lawyers now live on government's
> charity to survive. It is workers, Chinese or American, who drive
> the economy, not the top executives who makes 200 times the workers
> salary. See the problem?
Japan makes better electronic products than the US BECAUSE of its educational system. While it may not have a Harvard, it actually does have prestigous universities. Schooling in Japan is also much different in elementary through high school than in the US, as many children actually attend classes and club meetings on weekends (and their school days are longer than in the US). So yes, it appears roger and I do have blind faith in an advanced education system being a means for prosperity for a nation.
Soviet Russia depended on its workers, and did not have a legal system that recognized property rights or established mechanisms for resolution of grievances. Look how that regime ended up. This will forever be a thorn in China's growth. As much as I disagree with Ayn Rand, the basic tenet that if government removes the incentives for individuals to innovate and enjoy the fruits of their hard work and discoveries society will be stunted, will always ring true. Until China can move away from constructing low quality garments, toys, etc., and actually create its own products, wealth will be capped at how high it can grow.
On Aug 27 04:54 PM Yaudy wrote:
> Roger, blind faith like yours in Harvard and lawyers is exactly the
> source of America's problems. Japan does not have any school that
> can compare to Harvard, and does not have a ton of lawyers which
> the US has, so how come Toyota makes better cars than GM? How come
> GM's Harvard and Wharton MBAs and lawyers now live on government's
> charity to survive. It is workers, Chinese or American, who drive
> the economy, not the top executives who makes 200 times the workers
> salary. See the problem?
One gets the sense that China is composed of two countries:
1) a rapidly modernizing Asian "Tiger", with values and policies that are probably more like South Korea than Japan (authoritarian/role of military)
2) Country 2 is a rural, very poor country of nearly a billion people, with bad environmental conditions and lots of political animus
It seems to me that China's politics are often about trying to keep country 2 from exploding, while country 1 gets rich.
Whether this balancing act will work or not is anyone's guess. What we _can_ say is that it worries the Chinese.