Chinese Economics Thread

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China's social financing dropped by 1.11 trillion yuan (176 billion U.S. dollars) year-on-year to 12.83 trillion yuan in 2011, the central bank said Wednesday.

The decrease was equal to a year-on-year decline of around 8 percent, according to figures released by the People's Bank of China (PBOC).

New yuan-denominated lending in 2011 reached 7.47 trillion yuan, down 390.1 billion yuan year-on-year, the PBOC said in a statement.

New loans in foreign currencies were worth 571.2 billion yuan, up 85.7 billion yuan from a year earlier, it said.@ China had targeted pumping 14 trillion yuan into social financing in 2011.

The PBOC hiked banks' reserve requirement ratio (RRR) six times and the benchmark interest rate three times in 2011 to fight inflation before cutting the RRR by 50 basis points in December.

The social financing scale gauges the overall pace of fund raising to help the central bank judge how much liquidity is in the financial system. The concept was first introduced by the central bank in December 2010.

It includes all the funds raised by entities in China's real economy during a certain period of time, such as loans of local and foreign currencies, entrusted loans, trust loans, bank acceptance bills, corporate bonds, equity financing, foreign direct investment and foreign debt.

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Economic exchanges and cooperation between the Chinese mainland and Taiwan saw progress in 2011, the State Council's Taiwan Affairs Office said on Wednesday.

Cross-strait trade volume in the first 11 months of 2011 reached a record high of 147 billion U.S. dollars, according to a statement issued by the office.

By the end of 2011, the mainland had invested a total of 220 million U.S. dollars in Taiwan, establishing 47 new business projects worth 68.19 million U.S. dollars in 2011.

From January to November 2011, the mainland approved 2,376 Taiwan-funded business projects and put 1.95 billion U.S. dollars in Taiwanese investment into use, it said.

By the end of 2011, 41 cities on the Chinese mainland and nine cities in Taiwan had implemented cross-strait direct flights, including 558 passenger flights and 56 cargo flights every week.

The Economic Cooperation Framework Agreement (ECFA) signed by the two sides in June 2010 has been effectively implemented, bringing multiple benefits to Taiwan's enterprises and people, the office said.

In 2011, Chinese mainland authorities allowed five Taiwanese commercial banks to set up branches on the mainland and approved three Taiwanese companies to be listed on the mainland's stock market. The mainland also allowed six Taiwanese financial organizations to invest in the mainland's capital market.

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China has what I like to call a “high quality problem.” Only in the People’s Republic does economic growth of 8.9 percent represent a slump.
These kinds of numbers would be pure fantasy to Americans or Europeans. American real GDP growth is clocking in at less than 2 percent, and the Eurozone may already be in recession. Even among other emerging markets China’s growth rates look spectacular. India’s economy is expected to grow by just 6.8 percent this year (see article), and Brazil’s growth rate isn’t much higher than that of the United States. Turkey, one of the Sizemore Investment Letter’s favorite investment destinations, is expected to see its economy chalk up a measly 2.9 percent growth, according to the IMF. (To see Charles Sizemore’s favorite way to play the coming boom in Turkey, see “Turkcell at the Crossroads“).

Still, to be fair, China’s growth of “only” 8.9 percent is the lowest in two and a half years. And its rapidly deflating property bubble is worrisome. It’s hard enough to get good data in an open, transparent market like the United States, but China is notoriously opaque. As such, we have to depend more than we’d like on anecdotal evidence, and the anecdotal evidence is not encouraging. In late 2011, it was reported that a real estate developer in the Chinese city of Wenzhou was offering a free BMW to anyone who bought an apartment. Though extreme, this was not an isolated case. Developers throughout the country are having to resort to the same kinds of tactics that American builders used in the

early stages of the housing bust: giving away high-priced goodies to entice would-be buyers.

Still, it’s dangerous to draw too many conclusions from the woes of the Chinese property sector. It should be remembered that the current slump was actually planned. The Chinese government was uncomfortable with the level of speculation and moved quickly to let the air out of what was quickly becoming a bubble by tightening lending standards. This is a tough balancing act for government or central banks; you use too little force and you fail to stop the bubble, but if you use too much you can end up engineering a deep recession. With GDP growth of nearly 9 percent, China is clearly not in recession, though it remains to be seen if there are spillover effects that act as a further drag on growth.

China will eventually blow up. It is extremely difficult to transition from a hyper-growth emerging market to a slower-growth developed economy, and I have my doubts about China’s ability to make that transition smoothly. Still, it would appear to me that 2012 is the year that this will happen. Frankly, if the 2008-2009 meltdown wasn’t enough to derail China, then it’s hard to see Europe’s current predicament doing it in 2012. Yes, Europe is China’s biggest export market and yes, Europe is in very bad shape. But 2008-2009 was the worst financial crisis in 100 years, and China was able to keep on chugging along.

China benefitted in 2008-2009 from a massive stimulus and infrastructure program that is highly unlikely to be repeated. I get that. My point is not that China will or will not enjoy growth rates of 9 or 10 percent. My point is simply that China is not likely to suffer a hard landing this year.

In the meantime, more anecdotal evidence points to Chinese economic strength. In the last quarter of 2011, ex-Asia world oil demand fell by 700,000 barrels per day, but Asian oil demand—led by China—grew by 400,000 barrels per day. The same report that showed Chinese GDP rising by 8.9 percent also made a passing remark that 2011 was a milestone year for China; a majority of Chinese citizens now live in urban areas. Urbanization is critical to the continued rise of the Chinese middle class, which is in turn critical to the development of China’s domestic consumer economy. And speaking of the domestic consumer economy, the same report also mentioned that China’s retail sales grew by 18 percent in December; not too shabby for a country purportedly at risk of recession.

Bottom line, I believe the rumors of China’s impending doom have been greatly exaggerated. China should be a bright spot in 2012, and I continue to recommend American and European companies with exposure to China.

Still, I might resist the urge to load up on Chinese stocks themselves. Again, looking at the anecdotal evidence, I see a few disturbing developments. The Associated Press reported that nearly half of Chinese citizens with investable assets of $15 million were considering leaving the country. In another report published by the Financial Times, 60 percent of high net worth Chinese planned to emigrate. Many wealthy Chinese nationals have also taken to buying high-end luxury properties in the West as a means of transferring assets out of the country.

When the country’s elite are wanting to leave with their money, that is a deeply troubling sign. It doesn’t mean that a crash is coming any time soon, but it does give credence to my belief that the best way to invest in China is to do it indirectly, through Western firms with a strong foothold in the country. One to consider: German luxury automaker Daimler AG (DDAIF).

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China’s economy is no longer humming along at the double digit rate it once was, and could conceivably sputter along in the high-7′s and 8% range in 2012. But if commodity demand is any indicator, the China dragon is still hungry for raw materials. The Chinese economy isn’t done growing just yet.

While China’s economy is undeniably slowing, this is one kind of slowdown the global economy needs. For the most part, the country is importing more commodities than it did in 2010, but in percentage terms volume growth is not as big as it was when comparing 2010 imports to 2009 imports.

Nevertheless, China’s December trade data showed solid commodity demand above and beyond what markets had been expecting, Barclays Capital said in a report on Monday. Demand for commodities across the board was 8.7% higher.

In base metals, copper imports actually set a new record of 406,937 metric tons.

“While we believe the strength of imports into the end of 2011 was driven by consumer demand following the end of destocking, we also believe a portion of these imports went into trader and exchange stockbuilding. Chinese copper imports fell over 2011 as whole, but it was a year of two halves: a weak first half due to destocking but a strong rebound in the second half due to a recovery in
buying and attractive lower prices,” Barclays analysts wrote in a report for clients on Monday titled “Feeding the Dragon.”

December trade data for precious metals showed a continuation of recent trends. Silver and platinum imports declined, while palladium imports continued to rise, tracking China’s underlying auto market trends.

On the energy side of commodities, crude oil imports broke a record last month, too. China imported 5.067 million barrels of oil a day in 2011. Oil demand also averaged a record high of 9.231 million barrels a day, up 6.4% from 2010.

All in all, despite a relatively weak year for China, with credit constraints and inflationary pressures, China’s underlying demand provides a strong support to commodities this year. Barclays analysts said that they were maintaining their view that should global growth surprise to the upside by a small extent, credit conditions improve and China decides to start buying more commodities to restock– for which signs are emerging already – Chinese oil demand can be key source of upside surprise relative to consensus estimates this year.

China demand for commodities remains robust, but not as robust as the year before when compared to the previous 12 months. China’s government is still managing to hold onto a soft landing of the economy, as fixed investment slows, the housing market corrects significantly, and the country’s biggest trading partners in Europe head for a recession.

China Energy Commodity Trade Data

Crude Oil Imports (000 b/d)
2011: 60,800
2010: 57,667

Coal Imports (000 tons)
2011: 182,395
2010: 164,833

LNG Imports (tons)
2011: 12,212,646
2010: 9,355,842

 

[Equation]

You should read Zerohedge

What's that? Do you have a link to it? Thanks.

 

[Maggern]

It all depends on Greece. If they start to default, yes, but if not, then they'll be okay. I don't know how long the Greek government will play this game of "I need help or else I'm going to default". This is not fair for the Germans and French who had to bail out these other weaker EU nations in numerous times.

You know, if the s*** hits the fan, I think the EU could squeeze Greece out, at least from the currency. There's no precedence of this, but considering how one member could crash the cooperation by not applying to the rules, the other members should be allowed to give it some kind of "vote of no confidence" and suspend it...

 

[lostsoul]

What's that? Do you have a link to it? Thanks.

Economics news & commentry website. Has been very useful for invenstors. Alot of info you don't read/see on the main stream media. Zerohedge filters out the garbage financial news.
www zerohedge.com (makesure you register - that way you can vote on ppls comments and see what everyonelse thinks about them).

 

[Equation]

Economics news & commentry website. Has been very useful for invenstors. Alot of info you don't read/see on the main stream media. Zerohedge filters out the garbage financial news.
www zerohedge.com (makesure you register - that way you can vote on ppls comments and see what everyonelse thinks about them).

Thanks, I will look into it when I have time.

 

[escobar]

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Chinese entrepreneurs are increasingly looking to the U.S. for a taste of the American Dream.

The Chinese New Year is a time of family reunion and feasting. So why do I loathe it?
I'm expected to return to my native China to visit family and friends and celebrate the holiday. These supposedly fun vacations are normally packed with "business consultation" meetings about buying properties or setting up sales offices in the U.S.

In the 1990s, my brother, who headed an ailing state enterprise in central China, would introduce me to his entrepreneurial friends. Over sumptuous meals, they bombarded me with questions about how to get American businesses or wealthy individuals to invest in Chinese ventures, from medical equipment and golf courses to cooking utensils and soft drinks.

But that's all changed. In recent years, as China's economy boomed, their questions have switched from seeking American investment in China to looking for opportunities to invest in America.

China's outward direct investment (ODI) is growing fast, despite an overall decline in the developed world. In 2010, China ranked fifth in outward investment with $68 billion, surpassing traditional investment giants such as Japan ($56 billion) and the United Kingdom ($11 billion). Chen Deming, China's Minister of Commerce, predicts that China's ODI will grow by 30% annually and outpace its inward investments from other countries within three years.

And the mix of public and private investment from China has begun to shift. Since the government began to gradually ease its ODI restrictions five years ago, many large and medium-sized, privately owned companies have joined the race. Among the top 500 private enterprises in China, 154 invested overseas in 2011, making up about 11% of China's total outward investment.

The cash-rich Chinese businesses expect 2012, the year of the dragon, to be another big year and they are eyeing cheap targets in the U.S. and the European Union. "We hope our expansion will be like a flying dragon that lands solidly on foreign soil," quipped a Shanghai-based entrepreneur.

Pushed out by China

While state-run enterprises want access to raw materials, advanced technology and managerial skills to meet China's long-term development needs, private companies have different motives for setting up shop in the U.S. Some want to sell their goods locally in the U.S. or set up the functions needed to re-export to other countries. Others come looking for new technologies to improve their productivity. And a few ambitious clothing and toy manufacturers, as well as automakers, hope to create their own independent brands overseas.

China's housing market is set for a hard landing

James Wen, an economist at Trinity College in Hartford, Connecticut, says the recent push by private enterprises also reflects tougher conditions in China, where the administration favors mega state-owned enterprises. At the height of the financial crisis in 2008 and 2009, the Chinese government allocated a lion's share of its $586 billion stimulus money to local governments and state enterprises, offering them generous tax breaks and preferred access to land and state bank loans. Private companies face discrimination and unfair competition from state enterprises.

And so they looked elsewhere. Liu Junhai, an expert on overseas investment at the Beijing-based Renmin University, says most private companies in China put the U.S. as their top destination because of its "mature and transparent capital market, independent and comprehensive legal systems, advanced technology and high-quality workers." Recent successes by companies like Lenovo, which purchased IBM's PC division, and SANY, a large Chinese concrete machinery manufacturer that opened up a plant in Georgia, have reinforced the perception.

Culture clash?

China's ODI in the U.S. has increased from $1.2 billion in 2008 to $6.5 billion in 2011. In California alone, Chinese companies have recently purchased the Marriott Hotel in downtown Los Angeles, the Sheraton Universal Hotel in Universal City, and the Balboa Bay Club & Resort and the Newport Beach Country Club in Newport Beach. Meanwhile, a Chinese investor has acquired the Riverside, California-based MVP RV to export recreational vehicles to China.

Despite these reported or under-the-radar investments, the amount is still relatively small compared to China's overall ODI. Investment in the U.S. makes up just 3% to 4% of China's total ODI activities. Nearly 90% still goes to projects in Asia, South America and Africa.

China can't grow its way out of a European recession

That may be because it's not always easy. While the Chinese government's cumbersome approval and review process has restricted the volume of investment in the U.S, the recent "regulatory scares" in the U.S. have not helped either, says Liu. In 2011, the Committee on Foreign Investment in the United States cited "national security" concerns when it blocked several major acquisitions by Chinese state-run enterprises Huawei Technologies, the world's second-largest supplier of mobile telecom infrastructure equipment, the Chinese Anshan Iron and Steel Group and China's aviation giant General Aircraft. "The seemingly discriminatory actions have deterred companies, both in the public and private sectors," adds Liu.

Joe Zhang, a New York-based clothing manufacturer from China, who started his business in the U.S. in the late 1980s, believes private enterprises will have a relatively easier time with regulators. "The scope of private investment is smaller, and their targets are limited to industries such as clothing, automobiles, commercial and residential real estate, finance and home electronics, none of which is likely to be blocked by Congress," he says.

There will be challenges, both culturally and financially. Indeed, some entrepreneurs who have made a mint in China are guided by a misperception that they could strike it rich in the U.S. in a few years and then leave. "It is true that there are many opportunities here; competition is at every corner, but it's transparent and fair. If you don't have a long-term vision and invest in your core business, you will not succeed," Zhang says.

For American companies and individuals dealing with private Chinese investors, Zhang extols the virtue of patience and recommends the use of an intermediary, one who not only speaks the language, but who also understands the business. He also suggests that Chinese companies set up joint ventures, like what Americans did in China during the 1990s and let locals run the operations.

Comparing China's recent global expansion with that of South Korea and Japan in the 1990s, Zhang says the outward trend will be irreversible. In the next twenty years, when Chinese companies have acquired new knowledge and ideas, Zhang predicts the emergence of many Chinese versions of Samsung, Hyundai and Sony.

If I could be sure which of my brother's friends were behind those companies, I would be happy to help.

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The U.S. remained the favored destination for businesses that are expanding internationally in 2011, but China narrowed the gap significantly.

The United Nations Conference on Trade and Development Tuesday reported that businesses invested $1.5 trillion overseas in 2011, a 17% increase on the previous year despite growing economic uncertainty and the turmoil in global financial markets.

UNCTAD said inflows of foreign direct investment into developing and transition economies hit a record high of $755 billion.

It expects a modest further increase in global flows to $1.6 trillion this year, although it said the outlook was subject to "significant risks and uncertainties" given "the debt crisis in developed countries, the uncertainties surrounding the future of the euro, and rising financial market turbulence."

Following three years of decline, foreign investment in developed economies rose strongly in 2011, by 18% to $753 trillion.

However, FDI into the U.S. fell by 7.7%. But at $210.7 billion, that left the U.S. as the largest recipient of FDI, a position it has long held.
China was the second largest recipient, attracting $124 billion in FDI, up 8.1% from 2010. Adding the $78.4 billion that flowed into Hong Kong, FDI into Greater China was just $8 billion less than in the U.S.

The European Union attracted $414 billion in FDI, an increase of 31.9% from 2010. But that may not be a sign of strength. Much of the increase--some $61 billion--was due to intra-company loans, or parent companies providing support to their subsidiaries because they can't borrow from troubled European banks.

Within the EU there were starkly contrasting national fortunes. FDI in Ireland---one of three euro-zone members that is reliant on a bailout from the EU and the International Monetary Fund--surged by 101.3% to $53 billion.

That was more than France and Germany, and second only to the U.K., which attracted FDI of $77.1 billion, an increase of 49%.

Greece, another of the bailout three, suffered a very different fate in the form of a withdrawal of $0.8 billion in FDI. However, that wasn't the largest outflow in the EU, with the Netherlands suffering a loss of $5.3 billion.

Foreign direct investment can take a number of forms, including mergers and acquisitions, building new facilities from scratch, reinvesting profits earned from overseas operations and intra-company loans.

FDI into Latin America increased by 34.6% to $216.4 billion, driven by a 35.3% increase in flows to Brazil, and despite a 10% decline in flows to Argentina.

Asia attracted 6.7% more FDI than in 2010, or $392.9 billion, with India attracting inflows of $34 billion, an increase of 37.9%. Foreign investment in Africa declined marginally, although FDI into Egypt fell by 92.2% to $0.5 billion. Russia attracted 23.4% more FDI than in 2010 at $50.8 billion, while Turkey attracted 45.1% more than in the previous year, at $13.2 billion.

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Visiting Australia for the first time in a decade, what strikes me most is the vital role China plays in shielding the land 'down under' from much of the economic crisis afflicting Europe and elsewhere.

Indeed, in an upbeat New Year assessment of the country's economic prospects in 2012, Treasurer (Finance Minister) Wayne Swan expressed confidence that China would take "whatever steps are necessary" to maintain its own rapid growth and that, along with some improvement in American prospects, would keep Australia out of trouble.

China had "plenty of policy firepower to respond if they're adversely affected by Europe…. but every piece of analysis I get gives me confidence they will continue to manage whatever domestic challenges they have in a prudent way," he declared.

In the past, Australia was known as the 'Lucky Country', and, although it has not been immune from economic downturns in more recent times, the fact is that a country ranking only 52nd in the world in terms of population now has the 13th largest economy.

A good part of this is due to abundant agricultural and mineral resources much in demand elsewhere. In the 1970's and 1980's, Japanese demand kept the Australian economy buoyant. Now, that role has been taken over by China.

Far removed from all the nonsense going in Europe, and with their eyes firmly fixed on close cooperation with Asian neighbors, Australians enjoy one of the world's lowest rates of government debt; in fact, this year, net debt is forecast to go no higher than 8.9 per cent of GDP. That's financial rectitude in anyone's book and all three international credit-rating agencies recognize this with a solid AAA.

In the mining sector, things have not been this crazy since the gold rush of the 1850's. If you want to see a genuine boomtown in operation, go is Port Hedland, a gritty place of some 20,000 souls in a remote desert area of Western Australia, where nondescript three-bedroom bungalows are selling for a million Australian dollars. It sounds crazy but it reflects the massive growth in the local mining industry to keep China's industrial machine turning smoothly.

I recall a few years ago the respected British weekly magazine The Economist began its analysis of the trade phenomenon by declaring: 'Having trouble finding a taxi or getting served in a Perth restaurant? Blame China!' The point it was making was that many of the taxi drivers and waiters had abandoned the bright lights of the city for high wages in the desert.

If you think that sounds a bit fanciful, then consider a report I spotted in a newspaper just the other day: Australia has launched a recruitment program to fill vacancies in its military forces that are struggling to compete with the mining sector for highly skilled workers, especially when they can earn well over A$100,000 a year.

With military retrenchment biting deep in countries like Britain, many former engineering or electronic specialists for example, are heading for Australia where recruiters from the mines are waiting with open arms - and open checkbooks.

And that brings us back to Port Hedland, the coastal exit for the iron ore (a staggering 700,000 tonnes a day), copper and other resources gouged out of the desert interior.

In 2011, over two-thirds of the mineral exports passing through the port were destined for China, up from 45 percent in 2005. Even though its handling capacity had tripled in the past decade, the port still struggles to cope with a demand expected to double again by 2016. Graphs showing the exponential growth tend to be almost vertical and run off the page.

It isn't just Port Hedland that prospers on from China's high profile buying - the entire national economy has benefited immensely.

Chinese demand, in fact, is credited with ensuring that Australia was among the lucky few countries that managed to avoid a recession in the previous international financial crisis in 2008, and this seems to be one of the reasons Wayne Swan is so confident that his country will ride out what is expected to be a rough 2012.

The dependence on China is likely to triple by the end of the present decade. IMF predictions believe trade with China will then account for around 35 percent of Australia's GDP growth, compared to 12 percent in the last 10 years.

However, there could be a downside to this. Australia is considering making a complaint to the WTO that its companies face increasing demands to buy Chinese-made equipment and services if they want to avoid being locked out of the mainland minerals market. Unions are getting agitated that this might cost domestic jobs in the long run.

As a result, while enjoying the wealth pouring into their economy from China, Australians are beginning to wonder if it's not becoming 'too much of a good thing' and creating new economic vulnerabilities.

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A joint study among government officials, academics, and industry figures from China, Japan, and South Korea on the establishment of a trilateral free trade area (FTA) ended smoothly and yielded positive results. The three countries agree that a trilateral FTA is feasible, and will benefit all three sides. Talks on the FTA are likely to start this year, ushering in a new phase in the East Asian economic integration.

Academic institutions from the three countries believe that the FTA will bring practical benefits to the people of the three countries and to their economic development, with South Korea being a major beneficiary.

The FTA's bright prospects are based on the countries' economic structures and potential for cooperation. The combined gross domestic product (GDP) of China, Japan, and South Korea has reached 10.2 trillion U.S. dollars, accounting for nearly 19 percent of the world's total and 70 percent of total East Asian GDP, and is nearing the European Union's 12 trillion U.S. dollars of GDP.

However, the trade volume among the three countries accounts for less than 20 percent of their total foreign trade volume, and investment among the three countries is particularly low. The three countries are at different development stages, and have their own unique comparative advantages. Their economic relations are complementary rather than competitive, and they have great potential in establishing a manufacturing network in East Asia and promoting trade and investment in the region. The global financial crisis has taught them a hard lesson that it is highly dangerous to rely on the United States and Europe as main export markets.

The three countries have been preparing for the FTA for 10 years, and encountered considerable opposition from domestic forces.

The primary goal of establishing the free trade zone is to open the countries' markets to each other. It will inevitably touch the sensitive areas and products of the three countries.

For example, China may have relatively large potential interests in the area of exporting agricultural products to Japan and South Korea. For Japan and South Korea, the agricultural product issue is the most sensitive issue in all the trade negotiations.

But on the other hand, Japan and South Korea have obvious advantages in many industrial areas, especially in technology-intensive manufacturing areas such as the iron and steel, petrochemical engineering and automobile, and the further opening of these areas may affect China's relevant areas.

Japan and South Korea are both countries heavily dependent on foreign trade. In a sense, foreign trade is the foundation for developments of the two countries. The two countries' advantages in the manufacturing area are also the key for them to hold the lead in many industrial areas in fierce competitions of the economic globalization.

Trade expansion may lead to larger trade imbalances. It is the concern of many people in China, Japan and South Korea. However, this issue is an inevitable subject of any free trade zone negotiation. The negotiation itself is actually a process of interest exchange. It will test the three countries' wisdoms and foresights that how the short-terms interests, long-term interests, industrial interests and overall interests will be handled.

The regional economic integration should take opening as a principle. In the course of promoting the China-Japan-South Korea relations, economic and trade cooperation plays the role of a guide. China always adheres to the principle of peaceful development, and facts have proved again and again that a peaceful-rising China does not exert political influences by using economic measures like some other countries.

The construction of the free trade zone has turned into an important part of China's opening-up policy. Currently, China has signed 10 free trade zone agreements. Especially, the China-ASEAN Free Trade Zone is extremely vigorous and has turned into a remarkable force pushing the development of Asia.

The Northeast Asia is a most vigorous region with largest development potential in the world. If free flows of goods, personnel and capitals are realized among China, Japan and South Korea, the region's influence in the world will be further strengthened. The construction of the China, Japan and South Korea Free Trade Zone needs the three countries to focus on the overall benefit of economic development

 

[A.Man]

Look Yourself:
Eight Industries the U.S. Has Lost to China-Including High Tech:

7. High-Technology Exports
> China production: $348 billion in 2009
> U.S. production: $142 billion in 2009
> U.S. position: 2nd

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Americans are used to the U.S. being the leader, or a top-ranked nation, in many areas. But in a number of industries and businesses, the U.S. has lost that first place, usually to China. While some, such as coal production, may not come as a surprise, other industries the U.S. has lost the market leadership might. 24/7 Wall St. looked at a large number of manufacturing, agricultural and financial businesses to find those in which China has surpassed the U.S.

For several years, economists have said that China’s GDP growth indicates that its economy will pass that of the U.S. in the next two or three decades. China’s GDP is measured at about $6.5 trillion, now second in the world. America’s GDP is over $15.2 trillion, according to the International Monetary Fund. While China certainly has much catching up to do, the two countries’ rate of GDP growth is also very different. Last year, China’s economy expanded at more than 9%. America’s GDP grew at a little better than 2%.

One reason that China continues to gain so rapidly on the U.S. is the high cost of American labor and manufacturing. In fact, U.S. manufacturing costs have risen so much that they are much higher than in any developed nation with factory capacity. This includes countries like China, Mexico and South Korea — places the U.S. and Japanese companies often contract to do their factory work. The labor price advantage has helped China become the largest steel producer in the world. China is also first place in car manufacturing.

Low labor costs are not the sole reason China has become the single largest provider of many goods. China’s 1.3 trillion citizens have become voracious consumers as workers in its manufacturing sector have grown the number of its middle class. China also has decided that it is often financially better to provide its own raw material for its factories — items like cotton — than it is to import such items from overseas.

24/7 Wall St. examined the manufacturing, agricultural and financial businesses in which China has surpassed the U.S. China likely will become the world’s largest economy based on GDP. It certainly has shown that it has the capacity to advance on that position — one large industry at a time.

1. Steel
> China production: 627 million metric tons in 2010
> U.S. production: 80 million metric tons in 2010
> U.S. position: 3rd

In 1973, the U.S. was the largest producer of steel, making more than 136 million metric tons of crude steel, according to the International Iron and Steel Institute. Up to that point, the U.S. had enjoyed many decades of industry dominance, centered around the city of Pittsburgh. The following year, U.S. production was overtaken by the USSR, which produced 136.2 million metric tons, compared with the U.S.’s 132.2 million. Today, however, completely different players dominate the steel market. In 2010, the world’s top producer of crude steel was China, which produced approximately 627 million metric tons. Japan was a distant second-largest producer with nearly 110 million metric tons. The U.S. was third, producing approximately 80 million.

Also Read: The Ten States With the Worst Mortgage Debt

2. Cotton
> China production: 7.3 million metric tons in 2011
> U.S. production: 3.4 million metric tons in 2011
> U.S. position: 3rd

In 2000, the U.S. produced 4.2 million metric tons of cotton — the largest amount in the world. China was not far behind, producing 3.81 million metric tons. By 2008, however, China had not only surpassed the U.S., but made nearly double the U.S.’s production amount. China produced approximately 8.1 million metric tons to the U.S.’s 4.2 million. A year earlier, the U.S. lost its second spot among top cotton producers to India, thanks in part to technological breakthroughs in seed and production practices. Between 2011 and 2012, China produced 7.3 million metric tons, India produced 6 million and the U.S. was third, producing 3.4 million.

3. Initial Public Offerings
> China production: $73 billion raised in 2011
> U.S. production: $30.7 billion raised in 2011
> U.S. position: 2nd

Even in the world of finance the U.S. is losing its dominance to China. According to the National Bureau of Economic Research, “the yearly average of U.S. IPOs has decreased from 27 percent [global share] in the 1990s to 12 percent in the 2000s.” And as the U.S.’s share of IPO proceeds decreased, China’s share increased. It is now the world leader in IPOs. In 2011, companies raised a total of $73 billion through IPOs in the Shanghai, Shenzhen and Hong Kong stock markets. This is nearly double the amount raised in New York Stock Exchange and NASDAQ, according to Dealogic. The last time the U.S. raised the most in IPO funds globally was 2008.

Also Read: The Nine American Cities Nearly Destroyed by the Recession

4. Tobacco
> China production: 3 million metric tons in 2010
> U.S. production: 0.33 million metric tons in 2010
> U.S. position: 4th

Until 1976, the U.S. produced the largest share of the world’s tobacco. Today, the U.S. only produces 6% of the global output, according to Stephan Richter, editor-in-chief of The Globalist, in an interview by Marketplace. The most recent data from the Food and Agriculture Organization of the United Nations places the U.S. as the fourth-largest producer of tobacco in the world. China is the largest, producing more than 3 million metric tons of the crop in 2010. The U.S. produced slightly more than 326,000 metric tons that year. The other larger producers are Brazil and India, in that order.

5. Autos

> China production: 18.3 million autos in 2010
> U.S. production: 7.8 million autos in 2010
> U.S. position: 3rd

Automotive manufacturing is considered one of the U.S.’s most critical industries. But in recent years, other countries have surpassed the U.S., which is now the third-largest producer of autos in the world, according to the International Organization of Motor Vehicle Manufacturers. The American auto industry nearly collapsed in 2008, requiring massive federal support for General Motors (NYSE: GM) and Chrysler. By 2010, the U.S. manufactured 7.8 million cars and commercial vehicles. Japan, which is headquarters to major brands such as Toyota (NYSE: TM), Honda (NYSE: HMC), Nissan, and Mazda, produced 9.6 million vehicles — the second most — although damage caused by the earthquake has hurt production in the country. China is the world’s largest carmaker, producing 18.3 million in 2010.

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6. Beer Production
> China production: 443.8 million hectoliters in 2010
> U.S. production: 227.8 million hectoliters in 2010
> U.S. position: 2nd

The U.S. lost its top position even in beer production. In 2000, the U.S. beer industry was the greatest in the world, producing 232 million hectoliters, compared with China’s 220 million. One decade later, and China is in first place, generating 443.8 million hectoliters of beer, versus the U.S.’s 227.8 million. Not only does China have a population that is more than four times that of the U.S., but beer consumption in the country has increased dramatically in recent years. According to the World Health Organization, the average Chinese citizen drank about half a bottle of beer in 1961. By 2007, that amount had increased to 103 beers per year.

7. High-Technology Exports
> China production: $348 billion in 2009
> U.S. production: $142 billion in 2009
> U.S. position: 2nd

High-technology exports are defined as “products with high R&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery,” according to the World Bank. The U.S. remains home to the largest pharmaceutical industry in the world, and the rest of industries mentioned are also huge domestically. According to the World Bank, China began earning more from high-technology exports than the U.S. as recently as 2005. In 2009, Chinese high-technology exports were worth $348 billion. High-technology exports from the U.S. were worth a more modest $142 billion.

Also Read: $1.1 Trillion – What the Ten Leading Causes of Death Cost the U.S. Economy

8. Coal Production
> China production: 3.24 billion short tons produced in 2010
> U.S. production: 985 million tons produced in 2010
> U.S. position: 2nd

America led the world in coal production up until 1984, and it is now a distant second to China. According to the BP Statistical Review of World Energy, the U.S. produced just under 1 billion tons of coal in 2010. China produced more than three times that amount, generating 3.2 billion short tons. There has been exponential growth in the Chinese energy infrastructure in the past decade. Since 2005, American coal production has decreased slightly, while Chinese production has increased by nearly 38%. Despite the U.S.’s decline in coal production, it is still the world’s second-largest producer, and combined, the two countries account for more than half of the world’s total coal production.

Charles B. Stockdale, Douglas A. McIntyre



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[Blitzo]

China’s 1.3 trillion citizens have become voracious consumers as workers in its manufacturing sector have grown the number of its middle class.

Lulzy.

 

[delft]

It all depends on Greece. If they start to default, yes, but if not, then they'll be okay. I don't know how long the Greek government will play this game of "I need help or else I'm going to default". This is not fair for the Germans and French who had to bail out these other weaker EU nations in numerous times.

Greece is a small country. The main problem is the incompetence of Western politicians and bankers.

 

[solarz]

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Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”