M.R. Henderson

Death of the Asian Development Model: Exporters Chasing a Failing Strategy?

If he is wrong, and now jobs are created, while consumption levels return in a year to levels that allow factories to turn a profit running under capacity, and as just happened (largely unreported) the government quietly pays off the bad loans of its banks allowing them to continue with little adverse affect, then China will have in place a more efficient infrastructure with which to develop the internal economy that it also knows is strategically necessary in the case of a war. Most of China's stimulus projects have been on the books for years. They are being accelerated, with 1/3 of the stimulus leaking, which arguably isn't that bad a thing right now in the face of declining domestic demand for goods and property. We call this corruption, Keynes would call it demand. It doesn't really matter where it comes from, if it takes cars off the lot and liquefies overbuilt apartments. And that's not even considering the deflationary effects of increased savings amidst over capacity. So this first salvo of stimulus is not necessarily a mistake for China.

But if demand from the world for China's goods does not come back to a certain level, if as Soros and others suspect, we are at a paradigm shift, and savings rates around the world increase, then China will need to rapidly increase long term employment, possibly through health and other public safety initiatives to help control things at a simmer for awhile. However, the Chinese consumer, fed by Hollywood, may need little stimulus to increasingly recycle its earnings, the Chinese multi-child boomers (1970-1981) are now coming into peak profit earning age. They do not save like their parents, indeed they spend their parents savings.