Chinese Economics Thread

[Geographer]

Just to make a contrast, Pakistan (supplying much of the workforce) and the Arabian Persian Gulf states have not developed their human capital and institutions to a similar success as China and if their oil runs dry, they will only depend on really exploited foreign immigrants to run their economies. Despite that these countries have an officially higher per capita wealth than China and many European countries, well, they lack constructive ideas.

True, the Persian Gulf states are an embarrassing waste of money and human capital. They would be nothing without oil. Dubai is a notable exception because they have very little oil, but have developed a favorable business climate which is no small feat. Nevertheless, they are not an example to copy because they have a tiny citizenry and thus can pick and choose who comes to the city. They will never have any problems with the homeless, disabled, or elderly because their citizenry is so small they have enough resources to take care of them, and anyone else will be deported. Modern states can't just deport their needy populations.

As a side note, it's ridiculous that U.S. foreign policy favors the Gulf States and Saudi Arabia over Iran. Iran has a real, thriving civilization, not the oil-fueled orgies of conspicuous consumption seen across the Arabian peninsula. Iran might be burdened with a backward Islamic government, but it's not as bad as Saudi Arabia where women can't even drive. Iranian society from top-to-bottom is more sophisticated and educated than any of the Gulf states.

 

[Kurt]

Throw away society?

Endless deregulation and money printing to repay your current debt will slowly eat the middle class away bit by bit. What did the ECB just did last week creating 439 billion Euro out of thin air? Have you watched "Inside Job" yet? Even a great value investor/crook like Buffet called out derivatives as WMD. It's quite ironic that the man who larged started this financial mess by creating the fiat currency and the FED is considered as one of the greatest presidents of the US in the modern era. Donald Regan.

The difference is that the Chinese people know that their government officials are shameless and arrogant thieves while the Western middle class find it unthinkable/impossible that they could been robbed by banksters in a democratic society.

Great comment, we do indeed have the perceived eating away of the middle class because since the end of the Cold War in all Western countries the scissor became wider (some started at that even earlier). Now the new generations fear they will not receive the same entitlements for their educational struggles as their parents despite being even better educated from their own point of view.

In my opinion, we need a new conceptual revolution, something that changes technology and life as drastically as the WWII jump, but I would embrace if this happens without the tears and bloodshed. Giving away some buying power for fancy stuff (not survival things) is in my opinion an OK deal if it helps to create a better world with more educated minds having a chance to solve all the problems we face.

I agree with Geographer on Iran. Iran and Egypt are the centers of the whole region and have always been a place for great minds. Just a shame we do indeed support Saudi Arabia so they can export their fanatism and terror to us (other than oil).

 

[delft]

If the interest rate is, in this case pretty far, below the inflation rate the investor loses. But don't forget the largest investor in US debt is the Fed, which creates money out of hot air.
And when inflation really picks up it is likely to increase really fast.

 

[Geographer]

And when inflation really picks up it is likely to increase really fast.

No, not really. Inflation is driven when aggregate demand bumps up against a country's maximum economic output. Imagine that factories are running 24/7 and still can't keep up with demand. That is when inflation occurs. The American and European economies have been so under-utilized since 2008 that there is a lot of space capacity. All those millions of unemployed and under-employed workers represent spare capacity.

The low interest rates on sovereign debt indicate investors do not fear inflation. The Federal Reserve might be the single largest buyer of Treasury bonds, I don't know. But it's not a majority or anywhere close to that of all bond trading activity.

 

[i.e.]

True, the Persian Gulf states are an embarrassing waste of money and human capital. They would be nothing without oil. Dubai is a notable exception because they have very little oil, but have developed a favorable business climate which is no small feat. Nevertheless, they are not an example to copy because they have a tiny citizenry and thus can pick and choose who comes to the city. They will never have any problems with the homeless, disabled, or elderly because their citizenry is so small they have enough resources to take care of them, and anyone else will be deported. Modern states can't just deport their needy populations.

As a side note, it's ridiculous that U.S. foreign policy favors the Gulf States and Saudi Arabia over Iran. Iran has a real, thriving civilization, not the oil-fueled orgies of conspicuous consumption seen across the Arabian peninsula. Iran might be burdened with a backward Islamic government, but it's not as bad as Saudi Arabia where women can't even drive. Iranian society from top-to-bottom is more sophisticated and educated than any of the Gulf states.

Definitely true for Iran.

These people has the ambition, the organization and the historic awareness to make something of themselves. whichever the road they eventually take. it is ultimately their choice.

They have a chance. while Oil Arabia don't (yet).

the Oil Kingdoms has successfully crushed the "spring" (Saudi intervention in Bahrain anyone? no? Western Media decide it is not important enough on the headlines? instead wack Mr. Q was more interesting? no?)

they have successfully crushed their last hope of a vibrant future.

 

[delft]

No, not really. Inflation is driven when aggregate demand bumps up against a country's maximum economic output. Imagine that factories are running 24/7 and still can't keep up with demand. That is when inflation occurs. The American and European economies have been so under-utilized since 2008 that there is a lot of space capacity. All those millions of unemployed and under-employed workers represent spare capacity.

The low interest rates on sovereign debt indicate investors do not fear inflation. The Federal Reserve might be the single largest buyer of Treasury bonds, I don't know. But it's not a majority or anywhere close to that of all bond trading activity.

It goes slowly as yet. The US government only spends 60% more than its income, while the Japanese one spends 100% more and is still going on. But there is no prospect of either country going to live within its means.
To avoid trouble with value of the US dollar China and Japan are going to trade in their own currency with each other (

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) so enabling trade even if the dollar were to go under.

 

[Hendrik_2000]

Interesting interactive scenario as to when China will eclipse US economy . Not that is important Go to the site and enter your own scenario

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The dating game

Dec 27th 2011, 14:00 by The Economist online

We invite you to predict when China will overtake America

AMERICA'S GDP is still roughly twice as big as China’s (using market exchange rates). To predict when the gap might be closed, The Economist has updated its interactive chart below with the latest GDP numbers. This allows you to plug in your own assumptions about real GDP growth in China and America, inflation rates and the yuan’s exchange rate against the dollar. Over the past ten years, real GDP growth averaged 10.5% a year in China and 1.6% in America; inflation (as measured by the GDP deflator) averaged 4.3% and 2.2% respectively. Since Beijing scrapped its dollar peg in 2005, the yuan has risen by an annual average of just over 4%. Our best guess for the next decade is that annual GDP growth averages 7.75% in China and 2.5% in America, inflation rates average 4% and 1.5%, and the yuan appreciates by 3% a year. Plug in these numbers and China will overtake America in 2018. Alternatively, if China’s real growth rate slows to an average of only 5%, then (leaving the other assumptions unchanged) it would not become number one until 2021. What do you think?

A broader analysis by The Economist finds that China has already overtaken America on well over half of 21 different indicators, including manufacturing output, exports and fixed investment. The chart below predicts when China will surpass America on the rest. By 2014, for example, it could be the world’s biggest importer and have the largest retail sales. America still tops a few league tables by a wider margin. Its stockmarket capitalisation is four times bigger than China’s, and it spends five times as much on defence. Even though China’s defence budget is growing faster, on recent growth rates America’s will remain larger until 2025.

 

[Kurt]

I would say 2020 as a safe bet and I'm waiting for the inevitable Chinese economic crash afterwards that devalues much of their current assets and achievements. It'll be the right time to invest in China and get more bang for your buck. Unfortunately, the Chinese will similar to the Japanese have a lost generation or overtake US debt records, so you might need to wait some time before your investments pay off.

 

[Blitzo]

^ Bold predictions -- I think the only real certainty we know is that China will overtake the US as the world's largest economy sometime around the 20s, how much larger they will grow, the rate they will grow at and for how long, whether they will crash and what degree of a crash it will be is all in the smoke at the moment.

Not sure where the prediction from a "lost generation" came from though

 

[Hendrik_2000]

I would say 2020 as a safe bet and I'm waiting for the inevitable Chinese economic crash afterwards that devalues much of their current assets and achievements. It'll be the right time to invest in China and get more bang for your buck. Unfortunately, the Chinese will similar to the Japanese have a lost generation or overtake US debt records, so you might need to wait some time before your investments pay off.

You are comparing apple and orange here Kurt. Japan lost its competitiveness due to to pressure from western nation to jack up their yen by 100% in the Plaza accord.

Japan has no choice because she is beholden to the US and the West interest and depend on the western market and security.
Japan compounded the error by keeping all those Zombies of Banking alive in order to buy the social peace.

China is master of her own destiny beholden to no one. She refused to raise the Yuan parity under constant badgering by the US and the West.

As well only 50% of her population live in urban setting and the need to move about 400 million of surplus labor to the cities , will keep China humming for years to come. Just think of all the need housing, power,transportation, social facilities etc.

China is continental size economy with large internal market, Largely independent of grain, coal, oil and most metal , their energy comes mostly from coal . The oil import only serve transportation

So any comparison to Japan is irrelevant!