Chinese Economics Thread

[jackliu]

car production also has this problem.

Many sectors of the chinese economy have overcapacity, the result of double digit growth in the last 10 years.

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The same situation was facing US in 2008, all sector of economy was facing collapse, but they give most of them bailouts, especially the banks. Japan had the same situation in the 80s and all of them got bailed out by the government. Now both economy is facing stagnation.

China had let it is state owned company gone bankrupted once before at the turn of the century, let's see if they have the guts to do it again. Or will they give in the pressure to keep propping them up.

 

[Equation]

The same situation was facing US in 2008, all sector of economy was facing collapse, but they give most of them bailouts, especially the banks. Japan had the same situation in the 80s and all of them got bailed out by the government. Now both economy is facing stagnation.

China had let it is state owned company gone bankrupted once before at the turn of the century, let's see if they have the guts to do it again. Or will they give in the pressure to keep propping them up.

They will probably do something of both. The will continue to prop them up, BUT at the same time denied them of any more easy credit or state funding until they resolved their own previous debt. That way it would teach them to be both more careful and responsible with state funds. Look at how the US bail out of the auto industries and supplies, it made GM and Chrysler more leaner by cutting off many of their dealerships that's been running on the red for so long, therefore no longer a weighing issue on the companies profit margarine.

 

[J-XX]

Steel Production has the same problems

car production also has this problem.

Many sectors of the chinese economy have overcapacity, the result of double digit growth in the last 10 years.

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Lol maybe you should consider why the US economy is in terminal decline before pointing out problems in china.

US has a MASSIVE bubble in bonds.
The US banks are lending to the government instead of lending to the private sector.
US debt is reaching levels of Greece if you include all debt.

The US economy is operating on endless QE, without it, the US economy would collapse, not go into recession, but totally collapse.
Because the US economy cannot afford normal interest rates, the debt is so high that any spike in interest rates will cause massive pain to the government, consumers, and companies.

The zero interest rate policy has distorted the entire US economy from production to financial speculation.
The cheap money is inflating bubbles.

Most of the gains in the US stock market and economy is the result of inflation, inflation only creates the illusion of wealth, while the middle class is shrinking in the US as inflationary drains wealth.
US is spending more money on the same amount of goods due to inflation.

Funny how the worlds largest debtor (US) finds time to laugh at the worlds largest creditor (china).

China might be slowing but it doesn't have the debt problems, doesn't have current account deficits and doesn't have endless QE with zero interest rates.
Chinese economy is now going through a restructuring where certain industries (heavy industry) are shrinking in size and new sectors rising (services).
At the same time the Chinese government is making important reforms like liberalising interest rates to bring in more competition to banks, developing the bond market (junk, corporate), exchange rate flexibility to reduce PBOC accumulating forex reserves, allowing private capital into state owned sectors, reducing and removing unnecessary rules and regulations, reducing and reforming taxes like introducing VAT tax and eliminating turnover tax, etc.

While the US (like Japan) is trying to prop up a failed system( by endless QE) instead of letting the market clear, china has decided to reform to get growth up and allow the market to allocate resources.
Over the long term china will win.

QE will only give short term benefits and it distorts the economy and each QE will give a smaller and smaller boost.
As Bill Gross said, the US is a debt addict like a person addicted to crystal meth.

 

[Franklin]

car production also has this problem.

Many sectors of the chinese economy have overcapacity, the result of double digit growth in the last 10 years.

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This is what i have been saying all the long that China's biggest economic problem today is overcapacity and China needs to allow its unproductive companies to go bankrupt. If China keeps propping up money losing (state owned) enterprises and build infrastructure that has very low returns then in a few years time China may end up with a debt crisis not dissimilar to that in Japan, US and Europe today. That of course is easier said than done. The fear of massive job loss and the social consequences and the influence that these massive corporations have on politics is hard to overcome. The same applies in Japan, US and Europe as well and hints all the bailouts that we have here today and in the past.

 

[kroko]

This is what i have been saying all the long that China's biggest economic problem today is overcapacity and China needs to allow its unproductive companies to go bankrupt. If China keeps propping up money losing (state owned) enterprises and build infrastructure that has very low returns then in a few years time China may end up with a debt crisis not dissimilar to that in Japan, US and Europe today. That of course is easier said than done. The fear of massive job loss and the social consequences and the influence that these massive corporations have on politics is hard to overcome. The same applies in Japan, US and Europe as well and hints all the bailouts that we have here today and in the past.

You are right. It seems that the chinese solar industry companies (already suffering from overcapacity) will be getting further financing to continue to survive.

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[jackliu]

You are right. It seems that the chinese solar industry companies (already suffering from overcapacity) will be getting further financing to continue to survive.

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That is not the final conclusion, all solar company in China are in deep trouble if there is no help from government at all, none of them will survive, however letting them die is a big mistake because solar have a lot of potential in the future, maybe they are only letting the big one survive and letting the smaller one die or merge up.

 

[J-XX]

That is not the final conclusion, all solar company in China are in deep trouble if there is no help from government at all, none of them will survive, however letting them die is a big mistake because solar have a lot of potential in the future, maybe they are only letting the big one survive and letting the smaller one die or merge up.

You know why they are losing money?

Because they are producing a good that the market does not need.
Their profit losses is the way the market is giving signals that the products they make with the price they charge and the quantity they build are not wanted.

The government is picking winners here.
Let private business use land, labour and capital to produce a good that the market wants.
If solar is not wanted by the market, then it's not wanted.

The main problem with these industries having overcapacity is due to interest rates not set by the market.
Having artificially low interest rates gives rise to mass production in certain industries that make it easier to borrow cheap.
If interest rates were set by the market, then these overcapacity problems will be minimised as companies won't have the ability to borrow so cheap to mass produce.

This is why liberalising the interest rate ceiling and floor is the first thing that should happen.
This is why the service sector in china had not developed as capital intensive industries (like manufacturing) have benefited from low cost of capital (low interest rates).
The Chinese economy has been skewed toward manufacturing and exporting(RMB exchange rate policy to blame here) where other sectors have stagnated.
Usually the service sector has a lot to do with domestic consumption, and the service sector has more labour absorption per unit of GDP than manufacturing sector (it employs more people compared to manufacturing).
Productivity increase in manufacturing can reduce the number of workers employed as more companies use machinery to help.

Service sector also has higher pay than manufacturing sector.

To develop the service sector, china must liberalise interest rates so that no one sector has an advantage.
Liberalising interest rates will restructure the economy to a more balanced and sustainable path.
It will get rid of the overcapacity problems too.

 

[bladerunner]

The Chinese economy is being hit by a double whammy at the moment, falling exports to its main markets in the West as well as internal demand.

@JXX

Most of the gains in the US stock market and economy is the result of inflation, inflation only creates the illusion of wealth, while the middle class is shrinking in the US as inflationary drains wealth.
US is spending more money on the same amount of goods due to inflation.

In Theory a little inflation is good because it stimulates the economy when its needed. With no inflation people arent in any hurry to spend.

However The US dollar will still be the reserve currency for a long time to come and the most used currency when trading. Because of this the US is still the top destination for capital inflows and can afford to engage in monetary easing without too much backlash from investors. In the last decade some eminent economists such as Krugman have been predicting a sell off of U.S. Treasuries.... Has it happened? Not as yet anyway.

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Brazil and China expand cooperation in science and technology

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razil and China are to increase cooperation in the areas of science and technology, with a succession of public and private agreements that are being launched, ranging from nanotechnology and satellites, to training scientists.

Under the terms of the “Science Without Borders,” programme, which aims to train Brazilian scientists abroad, almost 5,000 Brazilians will study in China by 2015, which is around a third of the scholarships to be provided, according to official figures issued recently by the Brazilian government.

With economic and trade relations increasing to the point where China is the biggest destination for Brazilian exports and new two-way investments announced almost every week, in June of this year the two countries raised the status of their relationship to Strategic Global Partnership.

The new status was recognised during an official visit by the Chinese prime minister to Brazil, on the sidelines of the Rio+20 Sustainable Development Conference.

The 10-year cooperation plan now launched outlines joint initiatives in science, technology, and innovation.

Recently, representatives from Brazil and China scheduled the launch of Cbers 3 (China-Brazil Earth Resources Satellite), which will be the fourth Chinese-Brazilian satellite launched by the space programme between the two countries.

The two countries also plan to work together to develop new technologies in the area of nanotechnology, following a visit to China by am official delegation including representatives of the technical and scientific commission of the Brazil-China Centre for Research and Innovation in Nanotechnology (CBC-Nano).

Long term research projects will be carried out in the fields of the environment, energy conservation and reducing emissions, new materials such as biomass for energy, functional materials such as sensors for health, as well as applying nanotechnology to agriculture and meteorology.

Alongside this, the virtual laboratory of the Chinese Academy of Agricultural Sciences (CAAS) in Brazil has officially opened in Brasilia during a ceremony held at Brazil’s Ministry for Agriculture, Livestock and Supplies.

Chinese and Brazilian companies have also got involved in joint projects, such as manufacturing latest generation organic medication as part of a technology transfer agreement.

The agreement, between EMS and two laboratories from Shanghai (Biomabs and Guojian), is part of Brazil’s efforts to develop its pharmaceutical industry and relieve Brazil’s high levels of dependency in this sector.

The first product resulting from the new partnership, which is expected to be manufactured in Brazil in 2014, is Etanercept, a drug that is mainly used to treat rheumatoid arthritis, which affects around 850,000 Brazilians.

The agreement also includes setting up a technological platform and manufacturing a further five organic drugs

 

[jackliu]

You know why they are losing money?

Because they are producing a good that the market does not need.
Their profit losses is the way the market is giving signals that the products they make with the price they charge and the quantity they build are not wanted.

The government is picking winners here.
Let private business use land, labour and capital to produce a good that the market wants.
If solar is not wanted by the market, then it's not wanted.

The main problem with these industries having overcapacity is due to interest rates not set by the market.
Having artificially low interest rates gives rise to mass production in certain industries that make it easier to borrow cheap.
If interest rates were set by the market, then these overcapacity problems will be minimised as companies won't have the ability to borrow so cheap to mass produce.

This is why liberalising the interest rate ceiling and floor is the first thing that should happen.
This is why the service sector in china had not developed as capital intensive industries (like manufacturing) have benefited from low cost of capital (low interest rates).
The Chinese economy has been skewed toward manufacturing and exporting(RMB exchange rate policy to blame here) where other sectors have stagnated.
Usually the service sector has a lot to do with domestic consumption, and the service sector has more labour absorption per unit of GDP than manufacturing sector (it employs more people compared to manufacturing).
Productivity increase in manufacturing can reduce the number of workers employed as more companies use machinery to help.

Service sector also has higher pay than manufacturing sector.

To develop the service sector, china must liberalise interest rates so that no one sector has an advantage.
Liberalising interest rates will restructure the economy to a more balanced and sustainable path.
It will get rid of the overcapacity problems too.

True, but the whole point is trying NOT let market fully take over. Like you said, if there is no government incentive towards solar, China won't even have any solar at all, and everyone would just keep using coal and oil which would keep polluting, environment be dammed, in economics whatever the cheapest works. So everyone suffers and dies a early death due to cancer.

In that report, it says solar industry is suffering, but it also said the price have dropped from 63 cent per kw 4 years ago to 19 cent today, if there is no incentive from government in the first place, the price would still be well above a dollar per kw right now. That means the solar industry will NEVER ever have the chance to compete with polluting coal and oil. And the only way to make them cheaper, it to produce more of them, that means they still have to loose money in the process so only government incentive can do this.

Market is great, it is very efficient in fulfilling the needs for the public, but it is also very short sighted at same time. That means sometimes it is up to the government to make long term goals in what to develop to anticipate the need for the future, even this need does not have any demand in current times.

After all, that is what China's 5 year plans been all about, they come up with a goal to accomplish, and then give a lot of incentive towards those industry, this is by far not free market practice, but hey, you can't argue it have bring far more benefit than the alliterative. Which is India, fully free market, fully capitalistic and yes with a lot of service industry, what you end up with is a two tier economy, the money goes to where the free market is, where the profit is, aka the upper-middle class, while vast majority of the poor are starving themselves to death because there is no profit to be made there, so the free market is not going to take care of them, and so won't the government.

 

[solarz]

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