China Becoming a 'Middle-Class' Nation 48 comments
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As China's economy rose to #3 in the world in 2008, the rising incomes of its residents have raised the standard of living in China from a “low-income” nation to a “lower middle-income” nation – according to data released by its National Bureau of Statistics. While the data comes from China, the classification of the living standard for Chinese residents is based upon criteria from the World Bank.
An article from ChinaDaily recounts the meteoric rise of China's economy. Over the last 60 years, China's economy has averaged annual growth in GDP of 8.1%. In aggregate terms, the Chinese economy is now 77 times larger than in 1949.
A companion article reports that the incomes of both urban and rural residents is rising even faster than GDP this year. The income of its urban residents has risen by 9.8% year-over-year, while the income of China's rural population rose by 8.1% - exceeding GDP growth of 7.1% over that same time period.
This report is yet another set-back for the China-bashers, who continue to spread the myth that China “needs” the United States to buy its goods, making China's economy somehow more vulnerable than the bankrupt, U.S. economy, according to these critics.
The reality is that along with the world's 3rd largest economy, China now has the world's 5th largest domestic market – including the world's largest market for automobiles. In the past, I have pointed to the enormous pool of savings in the Chinese economy as proof that these domestic trends were sustainable (given that the Chinese people have historically had a savings rate close to 30%).
However with incomes rising faster than GDP, this suggests that the rise in domestic spending has taken place without tapping into those savings. This means that unlike the debt-burdened economies of Western industrialized nations, there are no limiting factors preventing many more years of similarly spectacular growth in GDP, incomes, and the domestic economy (which has been growing at more than double the rate of GDP growth).
Suggesting, as the critics do, that this domestic economy cannot support China's manufacturing sector displays either willful blindness or the inability to perform basic arithmetic. Even if neighbouring Asian countries were not becoming larger and larger customers of China's manufactured goods (offsetting declines in Western demand for China's imports), China's rate of increase in domestic demand virtually negates lower Western demand, by itself.
Indeed, it is a measure of the irrationality of China's critics that they are essentially evenly divided into two camps. The one group argues that the Chinese government is doing far too little to develop its domestic economy – which is why these critics argue that China “needs” the West. They dismiss China's economic growth as “statistical lies”, while omitting an explanation of how China's $2 TRILION surplus of foreign currency reserves was accumulated from an economy which is supposedly mostly “smoke and mirrors”.
The other army of China's critics makes the exact opposite argument. They see “bubbles” everywhere! There's a “housing bubble”, a “stock market bubble”, and a general “bubble” in the domestic economy, which they argue means that China's financial system could see a U.S.-like meltdown of its own.
Those critics ignore the fact that China's government raised the reserve requirements for Chinese banks five times – in 2007, alone. At the exact same time that most Western banking systems were hitting peak levels of their leverage-insanity (with the Canadian banking system being a notable exception), China's banks were sitting loaded with reserves.
These critics also ignore the miniscule debt levels of both the Chinese government and its citizens. As I pointed out in “China's problem: too much money”, total debt among China's citizens amounts to only 3% of GDP – less than half that of Russian citizens, and only ¼ of the debt level of Brazil's citizens (two other “BRIC” nations). Yet there is no shrill clamor about “bubbles” in Brazil's economy.
What separates an asset-bubble from merely an over-valued market are high levels of debt, since as a matter of arithmetic a market cannot have entered “bubble” territory without accompanying high levels of debt. Over-valued markets correct, while “bubbles” collapse – and the reason for the collapse, rather than an orderly correction are defaults on debt.
Where there is little debt, there is obviously little potential for default – and without the disruption caused by defaults on debt, markets correct in an orderly fashion.
China's fledgling status as a “middle-class” nation should finally to begin to quiet some of this nonsensical yammering. With most Western nations seeing their own “middle-classes” steadily shrinking, it's clearly time that these critics focused their attention on problems in their own domestic economies – which, unlike the “problems” with China's economy are real, not fabricated.
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This article has 48 comments:
Average Chinese spend 50-60% of income on food. By Engels coefficient, that is on the verge of poverty. I do admire the ability of this author to slice and dice the information and manufacturing technique from China. But don't allow your dogs or cats to eat it.
I grew up in a country where you expected better every year as a birthright. We have sold out to rent-seekers and have lost so much real productivity that it requires ludicrous assignments of economic value to digging holes and filling them up again. Only phony statistics ginned up by sold-out suits papers over our real decline. In China, you mostly have to measure the gains. Nice problem.
Bottom line, as the article says, is that we "need to focus our attention on our own domestic economies."
China-doubters will point to the Chinese source (China Daily) as 'questionable', but any objective observers who looks at big pictures can neglect all Chinses official statistics and still come to the same conclusions.
It is not important to argue wether China is now 'lower middle-income' or still working their way toward that goal. It is clear that China has been consistently moving UP toward that direction at a very decent pace, and that direction and pace will continue despite the burst of global financial bubble. There is no doubt that the middle class continues to grow quickly.
In addition to the accumulation of financial reserves, few people pay much attention to the significance that China now has accumulated a surplus of 'college grad' reserves. This is much more meaningful that most people realize.
30 years ago, at the end of the Cultural Revolution and the beggining of the current modernization drive, China faced an extreme shortage of educated elite, a whole generation of young elites wasted a decade away from universities, which were all closed. This situation led to the fundamental limitations faced by China's reformist leaders in the past 30 years which resulted to the TWO glaring deficiencies within the impressive success of China's development.
1. With a extreme shortage of educated capable officials, China must allocated the small pool of them to big cities in coastal regions. Goverments in vast rural and inland areas had to put up with unqualified officials who has absolutely no need skills to handle moderrnization programs.
2. A advanced service industry, which requires a large pool of educated employees, could not be developed.
To address these problems, China has been expanding university enrollments at a much faster pace that GDP growth rate in the past 10-15 years. (Quality is going to suffer for sure) And now faces a different problem, finding jobs for a surplus of millions of college grads.
This virtually garantees that new Chinese goverment policies will focus on modernizing rural and inland goverment administrations with new college grads and the development of the serivce sector to assorb large numbers of these educated youths. The much expanded pool of educated youths will now support three main DOMESTIC drivers of future economic growth, continued vast urbanization, rural and inland development, and service sector development. And as a result, China will develop into a much more balanced economy in the next 30 years.
This will be Asia's century. Those slowest to see it will be denied the best investment returns available in this new world.
> Before China can save the world, it must save itself first.
I challenge you to go to Beijing, Shanghai, or some of the other developed cities and see if they need to be "saved." Sure, a large part of China is still underdeveloped; Appalachia and the deep South were underdeveloped during the late 1800s to early 1900s when the American economy was providing real growth. Just because a sizable chunk of a population has not achieved a certain level of income does not mean that the nation isn't on the right trajectory.
1. Isn't the amount of loans made by banks in China during H1 of some concern? If the government was pushing banks to lend and too many bad loans resulted, that could create at least temporary economic problems. Or do your stats indicate that Chinese banks capital cushions are sufficient enough to absorb losses?
2. In the long term (30+ years), won't the unintended consequences of the One Child Policy cause serious social problems when there are too few workers supporting too many elderly?
You obviously could use a refresher course in arithmetic. I will accept your figure of 100 million Chinese living in poverty - and point out that is SIGNIFICANTLY less than 10% of the population.
Neither the U.S. nor Canada can match that poverty-rate, and I doubt there are many European nations with such a low poverty-rate.
If you don't even understand the significance of YOUR OWN numbers, you should probably refrain from attempting to criticize mine.
On Sep 09 09:07 AM huangthomas wrote:
> This is one of those "nonsensical yammering" the author referred
> to. There is no denial that China has made significant progress
> in economic development over the last 30 years, but the rosy scenario
> painted by the author is shear "nonsensical yammering". The origin
> of this post is that someone quoted a statement from the World Bank
> that residents of Beijing is becoming rich because they only spend
> 30-40% of income on food. The official Xinhua news agency immediately
> denied that classification even for Beijing and Shanghai, two of
> the highest personal income region. Less than a year ago Xinhua reported
> that China had 100 million rural residents in poverty by World Bank
> standard, e.i. subsisting on less than $1.25 per day. The criteria
> are originally set for Africa by World Bank, 1 dollar a day. Adjusted
> for inflation, it is $1.25 a day.
>
> Average Chinese spend 50-60% of income on food. By Engels coefficient,
> that is on the verge of poverty. I do admire the ability of this
> author to slice and dice the information and manufacturing technique
> from China. But don't allow your dogs or cats to eat it.
1. China is relatively, for the size of its population, resource poor; it must, like Japan, manufacture and trade in order to sustain growth, or even simply not to starve. This holds true for most of South East Asia. The idea that this region could be economically self sufficient could only come from America, where the blessings of an abundance of resources and a relatively sparse population are so taken for granted that the reality of other nations’ true circumstances are apparently seldom imagined. The domestic energy resources that China does have, chiefly coal, are very dirty, which brings us to the next point.
2. As the US continues to increase its fiscal debt, China continues to incur its enormous environmental one. The US may default on its government debt some day but China’s degradation of the environment will be impossible to walk away from. Hundreds of thousands of Chinese are already dying every year as a direct result of pollution. Anyone who doubts that China is paying an unsustainable price for its vaunted economic expansion should go there and look around and just take a deep breath.
3. The fossil aquifer under northern China that is supplying much of the irrigation water to feed China’s 1.33 billion people is already showing signs of running dry. Then what? Well maybe they will own enough US treasuries and gold by then to buy Alaska or something. One can only hope that they take Sarah Palin with it.
No argument from me that China has a LONG list of serious problems. And obviously China's political system has its own set of deficiencies.
My optimism about China (economically) is based upon their PROVEN track record of taking on these challenges (successfully), along with a genuine commitment to make the life of its average citizen BETTER. This is in stark contrast with most Western governments - which AVOID tackling problems (for reasons of political expediency), and where the standard of living for the average citizen continues to decline.
With respect to the environment, I would point to China's "green-for-grain" program - which has already demonstrated significant success in reversing environmental degradation caused by primitive and unsustainable agricultural practices in Western China.
When it comes to comparisons of wealth, these can be very tricky. Arguably, the United States is the poorest nation on Earth. It's government is the most-indebted on the planet, it's citizens have a hugely negative net worth (as soon as government debt is factored in).
ONLY Corporate America has a positive net-worth. And, as we have seen in the scams from Wall Street and the dismantling of the U.S. manufacturing sector, these multi-national corporations have ZERO allegiance to ANY government.
In contrast, both China's government, and the "balance sheets" of its citizens show strongly POSITIVE net-worth.
As I have observed before, if China were to borrow $57 trillion (the total amount of U.S. public/private debt), they could produce an image of wealth which would dwarf that of the OPEC oil-Sheikhs.
On Sep 09 11:45 AM Eduard Fischer wrote:
> Although I generally enjoy this author’s articles here are a few
> reasons why China’s future may not be quite as rosy as he suggests:
>
>
> 1. China is relatively, for the size of its population, resource
> poor; it must, like Japan, manufacture and trade in order to sustain
> growth, or even simply not to starve. This holds true for most of
> South East Asia. The idea that this region could be economically
> self sufficient could only come from America, where the blessings
> of an abundance of resources and a relatively sparse population are
> so taken for granted that the reality of other nations’ true circumstances
> are apparently seldom imagined. The domestic energy resources that
> China does have, chiefly coal, are very dirty, which brings us to
> the next point.
> 2. As the US continues to increase its fiscal debt, China continues
> to incur its enormous environmental one. The US may default on its
> government debt some day but China’s degradation of the environment
> will be impossible to walk away from. Hundreds of thousands of Chinese
> are already dying every year as a direct result of pollution. Anyone
> who doubts that China is paying an unsustainable price for its vaunted
> economic expansion should go there and look around and just take
> a deep breath.
> 3. The fossil aquifer under northern China that is supplying much
> of the irrigation water to feed China’s 1.33 billion people is already
> showing signs of running dry. Then what? Well maybe they will own
> enough US treasuries and gold by then to buy Alaska or something.
> One can only hope that they take Sarah Palin with it.
On Sep 09 11:20 AM Jeff Nielson wrote:
> Huangthomas,
>
> You obviously could use a refresher course in arithmetic. I will
> accept your figure of 100 million Chinese living in poverty - and
> point out that is SIGNIFICANTLY less than 10% of the population.
>
>
> Neither the U.S. nor Canada can match that poverty-rate, and I doubt
> there are many European nations with such a low poverty-rate.
Secondly, income BY ITSELF tells us virtually nothing about a person's standard of living without also including cost-of-living data. Even INSIDE North America, there is such a huge variation in cost-of-living that someone can move from a rural area to an urban one (or vice-versa) and see a LARGE change in their standard of living - even with NO change in income.
On Sep 09 01:02 PM User 142738 wrote:
> If the U.S. and Canada were to use China's definition of poverty
> (living on 2 yuan, or $0.30 per day) the poverty rate in those countries
> would be near zero. I would invite you to a "refresher course in
> arithmetic" yourself, and possibly a remedial Social Studies course
> since you are confusing the U.N. definition of "poverty" with each
> country's independently determined definition of "poverty."
How China Cooks Its Books
It's an open secret that China has doctored its economic and financial statistics since the time of Mao. But could it all go south now?
BY JORDAN CALINOFF | SEPTEMBER 3, 2009
In February, local Chinese Labor Ministry officials came to "help" with massive layoffs at an electronics factory in Guangdong province, China. The owner of the factory felt nervous having government officials there, but kept his mouth shut. Who was he to complain that the officials were breaking the law by interfering with the firings, he added. They were the law! And they ordered him to offer his workers what seemed like a pretty good deal: Accept the layoff and receive the legal severance package, or "resign" and get an even larger upfront payment.
"I would estimate around 70 percent of workers took the resignation deal. This is happening all over Guangdong," the factory owner said. "I help the Department of Labor, and they'll help me later on down the line."
Such open-secret programs, writ large, help China manipulate its unemployment rate, because workers who "resign" don't count toward that number. The government estimates that roughly 20 million migrant factory workers have lost their jobs since the downturn started. But, with "resignations" included, the number is likely closer to 40 million or 50 million, according to estimates made by Yiping Huang, chief Asia economist for Citigroup. That is the same size as Germany's entire work force. China similarly distorts everything from its GDP to retail sales figures to production activity. This sort of number-padding isn't just unethical, it's also dangerous: The push to develop rosy economic data could actually lead China's economy over the cliff.
Western media outlets often portray Chinese book-cooking as part and parcel of a monolithic central government and omnipotent Beijing bureaucrats. But the problem is manifold, a product of centralized government as well as decentralized officials.
Pressure to distort or fudge statistics likely comes from up high -- and it's intense. "China announces its annual objective of GDP growth rate each year. In Chinese culture, the government has to reach the objective; otherwise, they will 'lose face,'" said Gary Liu, deputy director of the China Europe International Business School's Lujiazui International Financial Research Center. "For instance, the government announced that it wanted to ensure a GDP growth rate of 8 percent in 2009, and it has become the priority for government officials to meet that objective."
But local and provincial governmental officials are the ones who actually fiddle with the numbers. They retain considerable autonomy and power, and have a self-interested reason to manipulate economic statistics. When they reach or exceed the central government's economic goals, they get rewarded with better jobs or more money. "The higher [their] GDP [figures], the higher the chance will be for local officials to get promoted," explained Liu.
Such statistical creativity is nothing new in China. In 1958, Chairman Mao proclaimed that China would surpass Britain in steel production within 15 years. He mobilized villages throughout China to establish backyard steel furnaces, where in a futile attempt to reach outrageous production goals, villagers could melt down pots and pans and even burn their own furniture for furnace fuel. This effort produced worthless pig iron and diverted enough labor away from agriculture to be a main driver in the devastating famine of the Great Leap Forward.
Last October, Vice Premier Li Keqiang said in a speech after inspecting China's Statistics Bureau, "China's foundation for statistics is still very weak, and the quality of statistics is to be further improved" -- a brutally harsh assessment coming from a top state official.
Indeed, China has predicated its very claim of being the healthiest large economy in the world on faulty statistics. The government insists that even though China's all-important export sector has been devastated -- contracting about 25 percent in the past year -- a massive uptick in domestic consumption has kept factories producing and growth churning along. A close examination of retail sales and GDP growth, however, tells a different story. China's domestic retail sales have risen about 15 percent year on year, but that does not really translate into Chinese consumers purchasing 15 percent more televisions and T-shirts. The country tabulates sales when a factory ships units to a retailer, meaning China includes unused or warehoused inventory in its consumption data. There is ample evidence that state-owned enterprises buy goods from one another, simply shifting products back and forth, and that those transactions count as retail sales in national statistics.
China's retail statistics seem implausible for other reasons, too. They would imply an increase in salaries among Chinese people, allowing them to purchase that extra 15 percent. To be sure, the Statistics Bureau reported salaries had increased 12.9 percent in the first half of 2009. But Chinese netizens complained such numbers were hard to believe -- as did the bureau's chief.
A look at GDP growth also raises serious questions. China's economy grew at an annualized 6.1 percent rate in the first quarter, and 7.9 percent in the second. Yet electricity usage, a key indicator in industrial growth and a harder metric to manipulate, declined 2.2 percent in the first six months of the year. How could an economy largely dependent on manufacturing grow while its industrial sector shrank?
It couldn't; the numbers don't add up. China announced a $600 billion stimulus package (equal to about 14 percent of GDP) last fall. At that point, local governments started counting the dedicated stimulus funds in GDP statistics -- before finding projects to use the funds, and therefore far before the trillions of yuan started trickling into the economy. Local governments keen to raise their growth and production numbers said they spent stimulus money while still deciding on what to spend it, one economist explained. Thus, China's provincial GDP tabulations add up to far more than the countrywide estimate.
Alternative macroeconomic metrics, such as the purchasing managers' index (PMI), which measures output, offer a no more accurate reflection. One private brokerage house, CLSA, compiles its own PMI, suggesting a sharp contraction in industrial output between December 2008 and March 2009. Beijing's PMI data, on the other hand, indicated that industrial output was expanding during that period.
Unfortunately, such obfuscation means China's real economic health is difficult to assess. Most indicators that would help an intrepid economist correct the government numbers -- progress on infrastructure projects, end-user purchases, and the number of "resigned" workers -- are not public.
Still, it is possible to infer the severity of the gap between economic reality and China-on-paper by looking closely at monetary policy. China's state-owned banks dramatically increased lending in the first half of 2009 -- by 34.5 percent year on year, to more than $1 trillion. This move seems intended to keep growth artificially high until exports bounce back. Most analysts agree that it is leading to large bubbles in the stock, real estate, and commodity markets. And the Chinese government recently announced plans to raise capital requirements -- an apparent sign it sees the need to reign in the expansion.
For the long term, China is banking on its main export markets -- in the United States, Europe, and Japan -- recovering and starting to consume again. The hope is that in the meantime, rosy economic figures will placate the masses and stop unrest. But, if the rest of the world does not rebound, China risks the bursting of asset bubbles in property and stocks, declining domestic consumption, and rising unemployment.
That's when the Wile E. Coyote moment could happen. Once Chinese citizens no longer believe that the economy is doing well, social unrest and more widespread worker riots -- already increasing in scope and severity -- are likely. That's something that China will have a harder time hiding. And then we'll know whether China's statistical manipulation was a smart move or a disastrous mistake.
On Sep 09 11:14 AM Alphameister wrote:
> Centrally planned economies "always" fail, most importantly because
> they fail to get the prices right. China has had the good sense to
> use international markets to set prices generally (though meddling
> in certain areas just like the more developed "capitalist" countries
> do). There will inevitably be inefficiencies associated with their
> central planning, but they are growing from such a low base with
> so much known technology still underutilized in their country, and
> they are so soundly based financially, I see no reason that their
> centrally planned "capitalist" economy cannot generate superior economic
> growth for many years to come.
I wonder if it is appropriate to post entire articles from another publisher?
No one is arguing that China's statistics are up to western standards. Still there are plenty varifiable information to confirm China's tremendous growth over years.
Can China fake the $2T forex reserve and the $1T+ US goverment debt they hold? Can China fake the endless new infrastructures the build? Can China pay for all those foreign resource acquisitions with worthless RMB? Will the consumers respond to goverment's car buying insentives with such gusto if there are no hidden wealth in China? Can there be a #1 car market if only the corrupt officials get rich, as many China-bashers are insisting?
I guess they've been "faking" the last 60 years of economic growth, huh? Boy, those Chinese are clever.
Wake up - if there is one country which has the worst (fake?) economic and corporate statistics, it is the US, not China.
On Sep 09 02:28 PM HaavBline wrote:
> Susan:
>
> I wonder if it is appropriate to post entire articles from another
> publisher?
>
> No one is arguing that China's statistics are up to western standards.
> Still there are plenty varifiable information to confirm China's
> tremendous growth over years.
>
> Can China fake the $2T forex reserve and the $1T+ US goverment debt
> they hold? Can China fake the endless new infrastructures the build?
> Can China pay for all those foreign resource acquisitions with worthless
> RMB? Will the consumers respond to goverment's car buying insentives
> with such gusto if there are no hidden wealth in China? Can there
> be a #1 car market if only the corrupt officials get rich, as many
> China-bashers are insisting?
"Can China fake the $2T forex reserve and the $1T+ US goverment debt they hold?"
No. There is no doubt about the huge forex reserve. As long as China artifically keeo RMB down, they have to keep buying US debt. The question I got when I traveled to China is THE EXACTLY AMOUNT really in Chinese Treasure and how much leaked out as some form of gratifications. When I was in China to take care of my sick dad in 2007, I was approached by one of minions of Chinese top generals as this general was granted CNY Billions as part of package for his retirement. The deal was way over my head. Later, I found out that this general chose a supposed former morgan PE associate to invest the fund into the natural resourses at one of provinces in Northwestern part of China. It turned out that this associate was an US fugitive and possible murder. I don't know how much the fund was recovered at the end. However, all thse tales were reminiscent of what happened in 1999 just before HK was returned to the mainland. Former Primer Zhu found out that the treasure was running on empty even though the reserve showed the recorded surplus.
“Can China fake the endless new infrastructures the build? “
To a degree they can. The local officials want to build NO. 1 bridge, highway, skyscrape, theme park, industrial park and etc. in the world, regardless of the demands. The more they build, the quicker they get promoted.
Will the consumers respond to goverment's car buying insentives with such gusto if there are no hidden wealth in China? Can there be a #1 car market if only the corrupt officials get rich, as many China-bashers are insisting?
A good news for the Western companies is that China is full of aspiration buyers who will try to imitate western lifestyle (mostly from the movies). This day, a guy has to own a car in order to find a girlfriend and get married. I want to ask how many people here have been a ordinate Chinese apartment? If you were in one, you would have ask why they even want a car? If you can only park your car in a car farm miles away, what is the point to have one? Chinese cities try to urbanize not suburbanized. The marginal utility of owning a car is not that great.
1) "The government insists that even though China's all-important export sector has been devastated -- contracting about 25 percent in the past year -- a massive uptick in domestic consumption has kept factories producing and growth churning along."
- Why would you mention this without mentioning a corresponding drop in imports? The drop in imports would negate a large part of the impact to Chinese GDP. I can't think of a reason to leave that extremely important point out unless you want to specifically cite only facts supporting your conclusion.
2) "The country tabulates sales when a factory ships units to a retailer, meaning China includes unused or warehoused inventory in its consumption data. There is ample evidence that state-owned enterprises buy goods from one another, simply shifting products back and forth, and that those transactions count as retail sales in national statistics. "
- Fair point, but it's just a different way of calculating growth via production rather than consumption. unless you believe that Chinese people manufacture goods to store in warehouses for fun, there's no reason to expect that these goods will not be sold. Unsold inventory is costly as it allocates capital that could be used somewhere else. No one's stupid enough to build inventory to "pump" the numbers.
- On the second point... where is that ample evidence of the shift in inventory of SOEs? I've googled it and yet to find it. Someone find it please let me know.
3) "China's retail statistics seem implausible for other reasons, too. They would imply an increase in salaries among Chinese people, allowing them to purchase that extra 15 percent."
- Where does this logic come from? why would increase in 15% retail sales imply 15% salary gain? Have we forgotten the chinese have one of the highest saving rates in the world? Maybe they just saved a little less in the last couple of months to take advantage of the government stimulus? Jump to conclusions much?
4) "Yet electricity usage, a key indicator in industrial growth and a harder metric to manipulate, declined 2.2 percent in the first six months of the year. How could an economy largely dependent on manufacturing grow while its industrial sector shrank?
It couldn't; the numbers don't add up."
- Finally a point worth debating. I'll just note here that the decline was mostly industrial electricity use. Residential, Agricultural, and tertiary industry electricity usage actually increased. This is actually consistent with a reduction to exports as heavy electricity users such as steel mills shut down. I'll just say here that a drop in these users don't necessarily indicate a dropping GDP, since residential, agricultural, and tertiary industry uses can easily make up for the GDP loss of the heavy industries without the corresponding heavy electricity usage. Either way, without strong numbers to back me up, I'll refrain from making that conclusion (unlike the author, who insists that there's no way these numbers make sense.)
I'd go on, but I think I've poked enough holes and exposed the bias. Honestly... it's a very disappointing article. Starts off with an anecdotal example (and thus completely irrelevant) to make a point, conveniently forgets to cite important details, and jumps to conclusions. I'm not saying that China does not ever make up numbers to suit their purpose (The US is not exactly innocent in this department either for that matter, witness the unemployment figures), but the whole article is disingenuous in pointing out China specifically, and does not mention even in passing similar data manipulations of the other western governments, for example.
To add: this came from Foreign Policy, a publication that is know for its Anti-China slant. I'm not against the publication of truthful and insightful analysis even if it's anti-china, but at least do the homework so you don't mislead people into making the wrong investment decisions that have real-life economic consequences.
Continuing moving up from a low base toward middle-income will take another 15-30 years. Meanwhile, since China is a huge economy that covers some extremely difficult terrains, the leading edge of it will be quite advanced while the trailing edge will remain very 'challenging' for a long time.
On Sep 09 03:44 PM dshark wrote:
> 90% of it has been in the last 30 yeas, Nil before that. Also when
>
> your starting from a 1$ is it easy to jump to $2, it's gets exponentially
> harder as you catch up to the rest of the world and try to manage
> growth and people.
>
> SHARK
836 million in China live on $2.00 or less per day:
- 162 million live on between $1.26 - $2.00 per day.
- 544 million live on between $1.00 and $1.25 per day
- 130 million people living in China survive on less than below $ 1 a day
INDIA
903 million or 79.9% of their population live on less than $2 a day.
I'm sure some of the material is correct. If there is fabrication of numbers taking place, certainly this year there is more motivation than usual.
It's simply impossible to debate/discuss material where there is no verification other than some vaguely supportive quotes.
The only piece of hard data was the number on electricity usage. This is the 2nd time this particular piece of data has been put forth as a "conclusive" indicator. I read an article by another writer which refuted this by pointing to FREQUENT examples in economies all over the world where GDP growth was NOT positively correlated with electricity usage (over a short period of time).
Given that this is the ONLY piece of hard data, and it is ONCE AGAIN being misrepresented, this certain makes me question the motive of the author, along with that long list of stated conclusions.
Simply saying something doesn't make it so.
This is what America all about. Remember a shoeshine boy offering Wall-Street investing recommendations just before the market crash back in Nov.1929?
If China decides to change agriculture to less resource-hungry ways, they could probably produce much more. I saw few plantings of trees or use of windbreaks. Consequently evaporation is great, and substantial water is required. I did see clover used as opposed to grass, a practice that just appears to be starting in the U.S. Careful attention to the work of Vandana Shiva and Masanobu Fukuoka could improve productivity. One of Fukuoka's rice strains is already used there, from what I understand. It requires less water and less fertilizer than conventional strains.
What food-production I saw was monocropping. So much canola that I was dazzled, but dismayed. Restaurant food was largely meat, except at a restaurant connected to the Chinese opera and another in a hotel that served many Japanese visitors, in Beijing. There, the vegetables were very good and not an after-thought.
China is so huge, and parts seem rather desolate and sparsely populated, in contrast to the huge cities. I think it's difficult to know what potentials are not even counted in the reports that get relied on.
Disclosure: I own STP, a Chinese solar play.
The whole premise of your article is wrong. China does not have a very high savings rate when you factor in the complete utter lack of a social safety net. Nearly all of China's savings is simply for personal retirement and healthcare. Also, on the ground, (I live in China) they are only selling so many cars and electrical appliances because the government is basically giving them away through crazy subsidies.
> Hey Jeff,
>
> The whole premise of your article is wrong. China does not have a
> very high savings rate when you factor in the complete utter lack
> of a social safety net. Nearly all of China's savings is simply for
> personal retirement and healthcare.
The fact that the savings may be "earmarked" for retirement and possible healthcare spending is irrelevant. The savings get banked, and that pool of capital gets allocated to entrepreneurs. It is the ACT of saving, not the goal that one is saving for, that creates the necessary pool of capital.
> Hey Jeff,
>
> The whole premise of your article is wrong. China does not have a
> very high savings rate when you factor in the complete utter lack
> of a social safety net. Nearly all of China's savings is simply for
> personal retirement and healthcare.
The fact that the savings may be "earmarked" for retirement and possible healthcare spending is irrelevant. The savings get banked, and that pool of capital gets allocated to entrepreneurs. It is the ACT of saving, not the goal that one is saving for, that creates the necessary pool of capital.
Do not forget, the largest economy in the world in the 19th century was Imperial Britain. In the 20th century it was the U.S. For most of the preceding two thousand years it was China.
India is always going to be a sewer of an economy, just like its rivers. I don't see any effort in India that comes close to the effort in China to aggressively improve the economy and pull up the standard of living of the common person.
This is why I like China for investment much more than India.
On Sep 09 10:24 PM Pete Stenwick wrote:
> CHINA
> 836 million in China live on $2.00 or less per day:
> - 162 million live on between $1.26 - $2.00 per day.
> - 544 million live on between $1.00 and $1.25 per day
> - 130 million people living in China survive on less than below $
> 1 a day
>
> INDIA
> 903 million or 79.9% of their population live on less than $2 a day.
Some sober data on China for investor (speculators) fascinated with China - 3rd world country ruled by 1 party - communist. Similar to the adoration US had for Japan 20 yrs ago right before the mother of all Japanese bear markets starting in 1989.
China would have to triple the size of its economy - and the US would have to stand still - if China were to pull even with the US in GDP.
Consider the following numbers, culled from official Chinese statistics:
1. About 65 million or 5% Chinese people live in households with more than $20,000 a year in income.
2. Around 165 million or 13% make between $2,000 and $20,000 a year.
3. About 400 million or 31% Chinese have household Âincomes between $1,000 and $2,000 a year.
4. About 670 or 52% million have household incomes of less than $1,000 a year.
As you see China is a land of extraÂordinary poverty.
And some dreamers to think that China can pull US and the world out of financial rut...
"ONLY Corporate America has a positive net-worth. And, as we have seen in the scams from Wall Street and the dismantling of the U.S. manufacturing sector, these multi-national corporations have ZERO allegiance to ANY government."
--- agree with this statement, but little else from your usual pom pom parade for China.
China has no such future legacy debt. This kind of debt is what brought GM and Chrysler to it's knees. It is un-earned, unfunded and and undeserved to be payed. Sorry, all you retirees from now (myself included), 10, 20, 30 years ago... All these un-funded schemes are part and parcel of the Ponzi schemes that our gov't ("health-care reform in all forms) continue to foist on the barely- literate electorate. But hold on, even the sheeple understand the word "bankrupt." After all many are there, and many are on the brink
of such.
The next down-leg of the world markets will leave none unscathed. Our propped-up farsical system that was "saved" by TARP and the other check-kiting scams between the Federal Reserve, the Treasury and the IMF will come tumbling down. All the paper fiat money in the world can't paper it over. The steps that could have been taken in the first crash weren't. They've just been put off for a few months or years. The 50-100T in world derivatives (gosh, nobody knows how much; gosh they know but ain't tellin) are coming due much sooner than the US tab.
When the drop occurs the gang-banksters (Wall Street schills) will again come runnin' hat-in- hand to the DC flunkies, but the well will be dry. And the BS the politicos are all so good at dispensing will be seen for what it really is.
Not to worry; people like George Soros, Kirk Kerkorkian (sp?), Boris Yeltsin, reps of the People's Republic of China, Gnomes of Zurich, heavily garbed and jeweled sheiks from the middle-east, and last-but-certainly-not... some Charlemagnian-Teutonic... German!) will jump up and bail the world out! Gold will glitter for the briefist of moments throughout the catastrophe until it is "seized" if not physically (remember FDR and the Great Depression gold seizures; of course we don't) than financially (ie. fixed prices or markets shut down)
We'll all rejoice with the new world order, a "change we can believe in"(quoth Obama); a change we'll find hard to believe, but we'll all get used to. The new-mark (the "mark-of the-beast?") will save the world!!
...but hey, I digress... How are supposed to make a buck in the markets in the mean time???!!!
On Sep 09 01:58 PM Susan Weerts wrote:
On Sep 09 06:11 PM HaavBline wrote:
> You are right. It will get harder as China grows closer to the global
> adverage. But there is still a long way before China gets there,
> as the China Daily recognize that China has progress to only 'lower
> middle-class' status, and per-capita GDP still rank somewhere close
> to #100 in the world (was #107 in 2007, I think).
>
> Continuing moving up from a low base toward middle-income will take
> another 15-30 years. Meanwhile, since China is a huge economy that
> covers some extremely difficult terrains, the leading edge of it
> will be quite advanced while the trailing edge will remain very 'challenging'
> for a long time.
If I understand your point correctly, I completely agree. There is too much focus on short-term minutiae - and not nearly enough focus on long-term "big picture" analysis.
On Nov 11 10:14 AM coreopsis wrote:
> Susan is a perfect example of what Nassim Taleb (the Black Swan)
> identifies: way too much reliance on data has stunted her ability
> to think. China is the Black Swan. Relentless peeling back of the
> onion skins leads you further and further away from the Black Swan.
>
Besides asians will never blow money liek americans do their culture will not permit it
The decoupling everyone preaches is not based in reality
Go to china and you will see
In fact, the strong growth in the Chinese economy WITHOUT the benefit of high levels of exports is the most-certain evidence of decoupling - since it shows that China's economy can be sustained by DOMESTIC strength (a characteristic which USED TO exist with the U.S. economy).
Don't allow yourself to get distracted with the faulty arguments of the propagandists. China's economy was ALWAYS going to morph into a self-sustaining juggernaut - do the enormous amount of SAVINGS which supports this economic boom.
Indeed, it is the total ABSENCE of savings in the U.S. economy which guarantees that the (numerous) current, asset-bubbles cannot continue to be propped-up.
On Nov 11 11:57 AM Gary A wrote:
> I have trouble with this decoupling argument. I just don't think
> they are there yet. Shipping was down in a China index a few months
> ago. That seemed very odd to me.
Watch how Asia reacts to weak economic news in America. It has a material affect on their stock purchases. They are more worried than you are.
And Jeff, if China's leaders are so worried about the US deficit doesn't that imply that they are concerned that the purchasing power of the US consumer is at risk and is a risk to their economy?
The 1.2 billion Chinese consumers (4 times the U.S. population) have REAL savings and rising incomes. There was never a question of whether Chinese consumption would replace U.S. consumption as a "driver" of the Chinese economy - only how quickly.
China's domestic economy is now experiencing growth AT LEAST as explosive as what it was experiencing with its exports - year after year of 20+% growth (a doubling in size in 4 years).
As for China's "concern" about the U.S. out-of-control deficits, China's government is DUMPING dollars far faster than accumulating them. However, UNTIL they are nearly done with this process, they will not TALK about this - since it would accelerate the collapse in the USD (and their own loss on currency).
It's always better to judge (and interpret) the actions of the Chinese government much more by what it DOES than what it SAYS (of course that point probably applies to lots of governments - lol).
On Nov 11 01:27 PM Gary A wrote:
> Jeff, this is an infrastructure recovery in China. It isn't an end
> demand recovery. The Chinese consumer cannot replace the American
> consumer. In my view the American consumer is the engine of world
> growth and will not be able to take the world forward, having been
> damaged by the ponzi housing and credit schemes of the Fed and Basel
> 2.
>
> Watch how Asia reacts to weak economic news in America. It has a
> material affect on their stock purchases. They are more worried than
> you are.
>
> And Jeff, if China's leaders are so worried about the US deficit
> doesn't that imply that they are concerned that the purchasing power
> of the US consumer is at risk and is a risk to their economy?
The second point I would make is that in almost all of these "examples" of supposed vulnerabilities, the numbers are many times worse in the U.S. (even using phony, "official" statistics)but these SAME commentators don't see ANY such problems in the U.S. economy - which is supposedly now experiencing "robust growth".
The third area of deception is that so many of these doom-and-gloom pieces focus only on the export hubs - which even the Chinese government claims are only slightly above zero in growth.
The interior "second tier" and "third tier" cities which service the DOMESTIC economy barely even slowed down at the WORST of the crash. It was the export hubs and some of the peasant populations where there has been the worst problems.
The other factor is size. Last year I saw all these headlines "China loses 20 million jobs!" In a population of 1.2 billion, that's nothing more than the normal number of layoffs in a normal downturn - so it's important to not allow yourself to get fooled by arguments which don't acknowledge the differences in scale.
Never forget that getting people to believe that China's economy is weaker than generally believed helps the U.S. government sell more Treasuries.
I don't agree that the US is doing so great. I agree with you there too. I just don't see the Chinese consumer being able to sub for the US consumer to the degree necessary to pull the world out of recession.
I hope you are right, but I am not sure.