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Friday, January 1 2010 |
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- Hold the champagne before celebrating China's economy, says the American Enterprise Institute's Michael Auslin - there's an asset bubble and resource-allocation problems on the underside that make the country look a lot like '80s Japan.
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This news story has 20 comments:
On Oct 24 09:40 AM prudentinvestor wrote:
> China looks more like 1960's Japan than 1980's Japan; and barring
> socio-political collapse, still has two decades of strong growth
> before it stalls.
We have seen folks here whining and ranting about "Democracy Elected" lawmakers and governing officials here in the United States and the Western World.
It is interesting to note that this article appears to point to the fact that "Single-Party Non-Elected" lawmakers and governing officials in China are enjoying the same behavior. Their system is much akin to an Imperial Court run by a Privy Council.
The issue here is about human corruption.
TK
The internal growth has been taking palce so far. Retail Sales were up 15+% in the latest reading. However, a good portion of this has been stimulus mediated. It is extremely unlikely that China can sustain these huge multiple internal growth rates without external stimulus. At some point in probably the near future, a lag will produce a cascade effect of bad news in China. Eventually there will be a glut of production with no place to sell it. China has already been in the news this year for multiple cases of industrial dumping of products in the US and Europe. Oversupply by the Chinese will lead to deflation internally. The US housing market is the latest example of what horrors deflation can bring. The same thing can and likely will to some degree happen in China. Loans made to businesses based on those businesses being able to grow at 10+% per annum will start to go bad. The whole thing will snowball. Yes China seems to have recovered from the recession early, but has it done it at the cost of mortgaging its future? Has China fixed its short term problem through stimulus by creating a bigger long term problem of oversupply? Only time will tell how true this is. It seems likely there is truth to it though.
But not the conclusion.
Because of NOT barring "social and political collapse." In this regard, China is LESS stable than Japan has been
On Oct 24 09:40 AM prudentinvestor wrote:
> China looks more like 1960's Japan than 1980's Japan; and barring
> socio-political collapse, still has two decades of strong growth
> before it stalls.
Japan: home of the real 'stiff upper lip'.
On Oct 24 11:58 AM Graham and Dodd Investor wrote:
> Agree with the premise.
>
> But not the conclusion.
>
> Because of NOT barring "social and political collapse." In this regard,
> China is LESS stable than Japan has been
Japan's economic system, banking system, island nature, lack of natural resources, population size, culture --I could go on and on-- make it a poor candidate to use as a model for either China or the U.S. The likelihood of either country following in Japan's footsteps is so remote as to border on ridiculous.
Japan has a developed, but stagnant, domestic economy because its people have little inclination to consume, not to mention of small, non-growing population. Their greatest source of wealth, exports, has been under relentless attack from Korea, China and other Asian economies, and they have done little to combat this loss of business with alternative developments. And, Japan has almost no indigenous natural resources.
Just to state a simple reality, China, unlike Japan, has a huge supply of its own natural resources, and China has an enormous domestic population that still requires the economic basics, much less advanced commercial goods and luxuries. Coupled with China's huge currency reserves, the country can sustain a healthy rate of growth from internal development alone, not to mention its status as the world's leading exporter.
Similarly, the U.S. still has a growing population, mostly through immigration. This fuels demand for products and services. Also, the country has huge stores of natural resources (if the suicidally-inclined environmentalists and politicians will allow them to be accessed). And, the banking system in the U.S. is structured entirely differently than Japan's.
In summary, I can't think of a more specious model to which to compare either the U.S. or China than Japan.
During the 1980's the world went Japan-mad -- kids were being taught Japanese at high school; reams of books were published on the Japanese economy and management techniques; tradeable Japanese investments such as warrants were all the rage. The same process is getting underway now. When the bubble bursts, that's not to suggest that China won't be in some way transformed -- it will. But the bubble will burst.
Unlike Japan which is 98% the same culturally, China is more like the old Soviet Union, with a wide variety of very often not compatible cultures across many regions. Tibet and the Uihgers are only the best known ones, there are many others that are from reaching the "melting pot" stage.
Pollution and environmental issues in many areas is much worse than the US ever was, rivaled only by India. One of the single most important resources - clean water - is becoming more and more scarce, and in many regions has gone beyond crisis mode.
So while, China for the moment is the investors darling - it may not last another decade.
China, unlike the Soviet Union --amazingly, even increasingly unlike the current U.S.-- is very capitalistic (forget the "communist" moniker) and, unlike the decrepit Soviets, produces a vast array of the world's goods.
The growth in China, internally and externally, should continue for as far out as one can reasonably see.
On Oct 24 03:03 PM Windsun33 wrote:
> One thing that many people fail to notice is that the boom in China
> is very spotty - in some ways very much like depression era USA.
> You have some brightly lit economic zones, but at the low end you
> still have millions on the verge of starvation, especially in the
> far regions, such as Mongolia and around the (ever expanding) Gobi
> desert.
>
> Unlike Japan which is 98% the same culturally, China is more like
> the old Soviet Union, with a wide variety of very often not compatible
> cultures across many regions. Tibet and the Uihgers are only the
> best known ones, there are many others that are from reaching the
> "melting pot" stage.
>
> Pollution and environmental issues in many areas is much worse than
> the US ever was, rivaled only by India. One of the single most important
> resources - clean water - is becoming more and more scarce, and in
> many regions has gone beyond crisis mode.
>
> So while, China for the moment is the investors darling - it may
> not last another decade.
"an emerging asset bubble"
"Questions abound over how efficiently resources are allocated, particularly those by wealthy individuals and private companies."
"growing income gaps"
Are you sure this wasn't a Wall Street article?
In China, if they do not work, they starve. They have nothing to lose if they riot. There are incidents of entire villages suffering ill effects from chemical poisoning, such as memory loss of nearly all of the children due to nearby lead factories.
Japan 'suffered' an unemployment rate hovering around 5%.
Why not bring in Ethiopia or Darfur while you're at it? Perhaps your enlightened sense of 'discipline' will solve the problems there as well.
On Oct 24 12:08 PM Michael Clark wrote:
> I agree. Japan is a disciplined society. China is not. Japan is
> so disciplined they can go through two decades of deflation and not
> have a single public demonstration against the government. China
> has had worker riots to deal with for many years. This past year,
> a state factory was sold to a private company; the manager called
> the workers together to tell them about the sale, and they beat the
> manager to death. A much different situation than Japan.
>
> Japan: home of the real 'stiff upper lip'.
China is smarter than Japan was because China knows that she will be a slave to the international bankers if she blows a huge bubble and leaves it unpopped. What happened in Japan is that Basel 1 put a clamp on the banks and raised their capital requirements. That put Japan into a deflationary spiral.
Moral to the story, you don't pop your bubbles and you leave yourselves vulnerable to international banker intervention. That is not going to be good for your economy. The US will see in 2010 just how bad that trap will be. I don't see China following Japanese or American zombie bank economics.
On Oct 24 01:11 PM Daniel Harrison wrote:
> Finally, someone with some understanding of the ways that Asian economies
> function! China today is a whole lot like Japan in the 1980's, not
> least in the sense that it is the world's latest pet growth project
> with which America is madly in awe. An enormous bubble in asset prices
> is bound -- by the law of common sense -- to appear when a country
> which is totally unacquainted with market economics adopts it for
> the first time: that bubble is bound -- by the laws of economics
> and history -- to blow up at some point. This is what happened in
> Japan, and this is what is happening in China.
>
> During the 1980's the world went Japan-mad -- kids were being taught
> Japanese at high school; reams of books were published on the Japanese
> economy and management techniques; tradeable Japanese investments
> such as warrants were all the rage. The same process is getting underway
> now. When the bubble bursts, that's not to suggest that China won't
> be in some way transformed -- it will. But the bubble will burst.
All these comparisons of China (and the U.S.) to the "Japan experience" are completely wide of the mark. By miles.
On Oct 24 04:42 PM Tack wrote:
> The growth in China, internally and externally, should continue for
> as far out as one can reasonably see.
"...Dateline: BEIJING The former deputy chief of the finance department of Air China was executed this week on embezzlement charges, a court official said Wednesday.
Yang Ning was convicted of stealing more than 26 million yuan (dlrs 3.1 million), said an official of China's Supreme People's Court. She would give only her surname, Wang...."
On Oct 24 04:05 PM Wildebeest wrote:
> while everyone is railing on the size of the US "stimulus", the China
> stimulus, as a proportion of GDP, is of the same magnitude. While
> I'm sure they have their share of cronyism and nepotism, they don't
> seem to have visibly thrown their stimulus money at their "too bit
> to jail" companies.