Chinese Economics Thread

AssassinsMace

Lieutenant General
I never over-generalized nor mentioned about the one-child policy so I didn't jump to conclusions. I'm pointing out the constant contradictions in the media reporting about China's economy. Every other article says the property bubble is caused by China building and no one buying. This articles says the opposite. It's like how the media points to rising labor costs in China as if the economy will collapse because there are other countries now where labor is cheaper so China loses all those jobs. No rising wages means people are finding better paying jobs. The problem lies in Chinese seeing property as investment and not to live in because they already have a home for that.
 

Franklin

Captain
The anwser to rising house prices and the construction boom is to tighten monetary policy ie raise interest rate and reform the way that local governments are funded. They rely for about 20% of their income on land sales. That needs to end. The one child policy doesn't come into play here.
 

In4ser

Junior Member
I never over-generalized nor mentioned about the one-child policy so I didn't jump to conclusions. I'm pointing out the constant contradictions in the media reporting about China's economy. Every other article says the property bubble is caused by China building and no one buying. This articles says the opposite. It's like how the media points to rising labor costs in China as if the economy will collapse because there are other countries now where labor is cheaper so China loses all those jobs. No rising wages means people are finding better paying jobs. The problem lies in Chinese seeing property as investment and not to live in because they already have a home for that.

Please re-read my post...I stated IT doesn't overgeneralize. Not YOU. Besides what you said is is not mutually exclusive to what has been stated in article. No doubt, one of the underlying reasons for a bubble is oversupply caused by speculation in rural areas and non-major cities...but places like Shanghai and Beijing have a bubble of a different nature. They do are not empty ghosts cities and the prices over-inflated by short-supply.
 
Last edited:

AssassinsMace

Lieutenant General
Please re-read my post...I stated IT doesn't overgeneralize. Not YOU. Besides what you said is is not mutually exclusive to what has been stated in article. No doubt, one of the underlying reasons for a bubble is oversupply caused by speculation in rural areas and non-major cities...but places like Shanghai and Beijing have a bubble of a different nature. They do are not empty ghosts cities and the prices over-inflated by short-supply.

I read that a lot of these "ghost cities" I don't know about places like Ordos but the ones closer to Shanghai and Beijing are a result of Chinese investing in property like I mentioned earlier. The prices are too high in Shanghai and Beijing because everyone is buying property for investment that developers started building outside Shanghai and Beijing as an alternative investment opportunity. That's why you see hardly anyone living there because they're investment properties not places to live.
 

solarz

Brigadier
No where in the article does it over-generalize and say one child policy is the sole reason of the property bubble and ghost towns so you're jumping to conclusions. It is definitely one of the biggest contributors of the bubble and applicable for the Chinese middle class which by the way is around 300 million with others being overzealous investors, and corruption. Believe me as my friends in China confirmed to me how expensive it is living there, where just purchasing an apartment can cost 1 million USD or more. China should end the One Child Policy ASAP, it has served its purpose but childbirths and fertility rates are not a switch that can be easily turn back on when switched off, as developed countries have discovered.

This article makes a fatally flawed assumption:

article said:
How the one-child policy will lead to the housing market’s collapse

Because they lack siblings, the vast majority of Chinese couples 34 and younger are the sole inheritors of four parents’ wealth. When they die, their offspring get at least two extra homes (and, given investment trends, likely more). This extra supply will drive down prices, says Zhang, and because of the one-child policy, China will have too few young people to absorb the overspill.

This will sink in by around 2020. But the policy could affect the market even sooner. China’s working age population—the most likely new homebuyers—is about to start falling (official statistics say it peaked in 2012; the UN says 2015).

Meanwhile, China’s sex ratio peaked in 2005. Only children leaving the nest and move into their parents’ extra apartments and cooling bachelor competition will lower demand for new homes.

The gist of this argument is that the pre-family-planning generation will die off, creating a population drop. That is simply ridiculous because it ignores a host of population factors:

1- People are not born and do not die at the same time.

Take a look at this graph:
cohen_fertility3.jpg


There is no dramatic fertility drop with the introduction of the family-planning policy. Any population decline, if it declines at all (which is highly doubtful), will be a gradual descent rather than a sudden drop. This brings us to...

2- People move around.

Whenever you see mention of sky-high property prices in China, it is always centered on a few cities: Shanghai, Beijing, Hangzhou. Property price just 20 km away is 1/5 the price of downtown Shanghai. The population of Shanghai and Beijing combined is only 43 million. That's only 3% of the entire Chinese population. Where is the property bubble for 97% of the population?

This kind of argument is akin to saying there is a property bubble in the US based only on Manhattan prices.

The simple fact is, property price in China is dictated by the urbanization of its population. More and more people will be moving into cities in the coming decades, which means more demand for housing. Anybody claiming that Chinese property prices will crash in the foreseeable future is simply ignorant of this dynamic.
 

AssassinsMace

Lieutenant General
Quartz is full of it. They had recently an article blaming China for the downturn of emerging economies since it was China buying raw materials from them that spurred growth but now because China's economy is slowing, the money train ride is over. How is that China's fault? Would it be better that China never bought raw materials so they made no money at all? It's the same stupid logic of Robert J Samuelson of the Washington Post who blamed China for the 2008 Western financial meltdown because China bought US Treasuries thus kept interest rates low where the banks were loaning money left and right to people to buy homes they couldn't afford and thus the crash. How is that China's fault? Because if China didn't buy US Treasuries, interest rates would be high and thus keep people from seeking loans for homes they couldn't afford? How about the banks just shouldn't have loaned the money to people who couldn't afford the payments? It's like blaming an oil company because a drunk driver killed a child with a car. If the oil companies didn't provide the gas that allowed the drunk to drive, the child wouldn't have been killed. That kind of logic is called the inability to take responsibility for one's own actions. Their own decision making is what's responsible yet they believe nothing can be their own fault so they have to find someone else to blame. That's what Quartz is doing trying to get emerging economies to blame China and not their own bad economic policy decisions.
 
Last edited:

broadsword

Brigadier
Huawei Snatches Major Deal from Ericsson in Denmark


STOCKHOLM--China's Huawei Technologies Wednesday won a big contract from Denmark's main telecom operator TDC ASA (TDC.KO), striking a blow against Ericsson (ERIC) in the company's Nordic back yard.

The contract will see Huawei become the sole network vendor to build TDC's fourth generation data network. It will replace the operator's all base stations, as well as managing the company's mobile network.

The deal is worth 4 billion Danish kroner ($711 million) and runs over six years. The TDC contract used to belong to Sweden's Ericsson, which confirmed that it had lost the contract.

Huawei said it will add 200 new employees to its Danish operations as a result of the deal. While Ericsson used to manage TDC's network from Romania, Huawei said it plans to move the network operating centre to Denmark.

"This is a milestone for Huawei in Denmark," Jim Lu, Huawei's head of Central Eastern Europe and the Nordics, said in a written statement.

Huawei is currently involved in deploying roughly half of Europe's approximately 60 commercial Long Term Evolution, or forth generation, data networks. According to Informa, a market research firm, it has a 40% market share on the global LTE market.

Its customers in Europe include Vodafone Group PLC, Telefonica S.A. and Deutsche Telecom AG.
 

montyp165

Senior Member
Quartz is full of it. They had recently an article blaming China for the downturn of emerging economies since it was China buying raw materials from them that spurred growth but now because China's economy is slowing, the money train ride is over. How is that China's fault? Would it be better that China never bought raw materials so they made no money at all? It's the same stupid logic of Robert J Samuelson of the Washington Post who blamed China for the 2008 Western financial meltdown because China bought US Treasuries thus kept interest rates low where the banks were loaning money left and right to people to buy homes they couldn't afford and thus the crash. How is that China's fault? Because if China didn't buy US Treasuries, interest rates would be high and thus keep people from seeking loans for homes they couldn't afford? How about the banks just shouldn't have loaned the money to people who couldn't afford the payments? It's like blaming an oil company because a drunk driver killed a child with a car. If the oil companies didn't provide the gas that allowed the drunk to drive, the child wouldn't have been killed. That kind of logic is called the inability to take responsibility for one's own actions. Their own decision making is what's responsible yet they believe nothing can be their own fault so they have to find someone else to blame. That's what Quartz is doing trying to get emerging economies to blame China and not their own bad economic policy decisions.

Another thing is that anyone who actually tries to apply the scientific method to economic data analysis will find their analysis impeded, distorted and buried by ideologues with vested interests (Chicago School, corporations and government lackeys, etc).
 

Hendrik_2000

Lieutenant General
Now coming from Keith Bradser the New York times Chief China basher It must be satisfying for China. Well he has no choice did he. That is why don't believe all those prediction of white elephant that there is no way China will recuperate the capital cost of building high speed railway. Too expensive for the average Zhang. Or another prestige Potemkin village. The usual mix of green eye and sour grape. he finally concede that China HSR is one of the safest in the world and huge success
As I have predicted the opening of HSR has changed China more than oneway


Speedy Trains Transform China
Timothy O'Rourke for The New York Times

The high-speed rail station in Changsha, China, opened less than four years ago.
By KEITH BRADSHER
Published: September 23, 2013


CHANGSHA, China — The cavernous rail station here for China’s new high-speed trains was nearly deserted when it opened less than four years ago.
Related
Despite a Deadly Crash, Rail System Has Good Safety Record
By KEITH BRADSHER
Please, Log in or Register to view URLs content!


Statistics suggest that China's high-speed trains have actually proved to be one of the world's safest transportation systems so far.

Nearly every train from Changsha station, leaving minutes apart for cities across China, is sold out, and a big expansion is already planned.


Not anymore. Practically every train is sold out, although they leave for cities all over the country every several minutes. Long lines snake back from ticket windows under the 50-foot ceiling of white, gently undulating steel that floats cloudlike over the departure hall. An ambitious construction program will soon nearly double the size of the 16-platform station.

Just five years after China’s high-speed rail system opened, it is carrying nearly twice as many passengers each month as the country’s domestic airline industry. With traffic growing 28 percent a year for the last several years, China’s high-speed rail network will handle more passengers by early next year than the 54 million people a month who board domestic flights in the United States.

Li Xiaohung, a shoe factory worker, rides the 430-mile route from Guangzhou home to Changsha once a month to visit her daughter. Ms. Li used to see her daughter just once a year because the trip took a full day. Now she comes back in 2 hours 19 minutes.

Business executives like Zhen Qinan, a founder of the stock market in coastal Shenzhen, ride bullet trains to meetings all over China to avoid airport delays. The trains hurtle along at 186 miles an hour and are smooth, well-lighted, comfortable and almost invariably punctual, if not early. “I did not think it would change so quickly. High-speed trains seemed like a strange thing, but now it’s just part of our lives,” Mr. Zhen said.


China’s high-speed rail system has emerged as an unexpected success story. Economists and transportation experts cite it as one reason for China’s continued economic growth when other emerging economies are faltering. But it has not been without costs — high debt, many people relocated and a deadly accident. The corruption trials this summer of two former senior rail ministry officials have cast an unfavorable light on the bidding process for the rail lines.

The high-speed rail lines have, without a doubt, transformed China, often in unexpected ways.

For example, Chinese workers are now more productive. A paper for the World Bank by three consultants this year found that Chinese cities connected to the high-speed rail network, as more than 100 are already, are likely to experience broad growth in worker productivity. The productivity gains occur when companies find themselves within a couple of hours’ train ride of tens of millions of potential customers, employees and rivals.

“What we see very clearly is a change in the way a lot of companies are doing business,” said Gerald Ollivier, a World Bank senior transport specialist in Beijing.

Productivity gains to the economy appear to be of the same order as the combined economic gains from the usual arguments given for high-speed trains, including time savings for travelers, reduced noise, less air pollution and fuel savings, the World Bank consultants calculated.


Companies are opening research and development centers in more glamorous cities like Beijing and Shenzhen with abundant supplies of young, highly educated workers, and having them take frequent day trips to factories in cities with lower wages and land costs, like Tianjin and Changsha. Businesses are also customizing their products more through frequent meetings with clients in other cities, part of a broader move up the ladder toward higher value-added products.

Li Qingfu, the sales manager at the Changsha Don Lea Ramie Textile Technology Company, an exporter of women’s dresses and blouses, said he used to travel twice a year to Guangzhou, the commercial hub of southeastern China. The journey, similar in distance to traveling from Boston to Washington, required nearly a full day in each direction of winding up and down mountains by train or by car.

He now goes almost every month on the punctual bullet trains, which slice straight through the forested mountains and narrow valleys of southern Hunan province and northern Guangdong province in a little over two hours, traversing long tunnels and elevated concrete viaducts in rapid succession.

“More frequent access to my client base has allowed me to more quickly pick up on fashion changes in color and style. My orders have increased by 50 percent,” he said.

China relocated large numbers of families whose homes lay in the path of the tracks and quickly built new residential and commercial districts around high-speed train stations.

The new districts, typically located in inner suburbs, not downtown areas, have rapidly attracted large numbers of residents, partly because of China’s rapid urbanization. Enough farm families become city dwellers each year to fill New York City, part of a trend visible during a series of visits to the Changsha high-speed train station over the last four years.


Statistics suggest that China's high-speed trains have actually proved to be one of the world's safest transportation systems so far.

When the station opened at the end of 2009 in an inner suburb full of faded state-owned factories, the neighborhood was initially silent. But by 2011, nearly 200 tower cranes could be counted building high-rises during the half-hour drive from downtown Changsha to the high-speed rail station. On a morning last month, only several dozen tower cranes were visible along nearly the same route. But a vibrant new area of apartment towers, commercial office buildings and hotels had opened near the train station.

China’s success may not be easily reproduced in the West, and not just because few places can match China’s pace of urbanization. China has four times the population of the United States, and the great bulk of its people live in the eastern third of the country, an area similar in size to the United States east of the Mississippi.

“Except for Boston to Washington, D.C., we don’t have the corridors” of high population density that China has, said C. William Ibbs, a professor of civil engineering at the University of California, Berkeley.

China’s high-speed rail program has been married to the world’s most ambitious subway construction program, as more than half the world’s large tunneling machines chisel away underneath big Chinese cities. That has meant easy access to high-speed rail stations for huge numbers of people — although the subway line to Changsha’s high-speed train station has been delayed after a deadly tunnel accident, a possible side effect of China’s haste.

New subway lines, rail lines and urban districts are part of China’s heavy dependence on investment-led growth. Despite repeated calls by Chinese leaders for a shift to more consumer-led growth, it shows little sign of changing. China’s new prime minister, Li Keqiang, publicly endorsed further expansion of the 5,900-mile high-speed rail network this summer. He said the country would invest $100 billion a year in its train system for years to come, mainly on high-speed rail.

The Chinese government is already struggling with nearly $500 billion in overall rail debt. Most of it was incurred for the high-speed rail system and financed with bank loans that must be rolled over as often as once a year. Using short-term loans made the financing look less risky on the balance sheets of the state-controlled banking system and held down borrowing costs. But the reliance on short-term credit has left the system vulnerable to any increase in interest rates.

“Even well-performing railways capable of covering their cash running costs and interest on their debt will almost certainly be unable to repay the principal without some long-term financing arrangements,” said a World Bank report last year.

Another impact: air travel. Train ridership has soared partly because China has set fares on high-speed rail lines at a little less than half of comparable airfares and then refrained from raising them. On routes that are four or five years old, prices have stayed the same as blue-collar wages have more than doubled. That has resulted in many workers, as well as business executives, switching to high-speed trains.

Airlines have largely halted service on routes of less than 300 miles when high-speed rail links open. They have reduced service on routes of 300 to 470 miles.

The double-digit annual wage increases give the Chinese enough disposable income that domestic airline traffic has still been growing 10 percent a year. That is the second-fastest growth among the world’s 10 largest domestic aviation markets, after India, which now faces a slowdown as the fall of the rupee has made aviation fuel exorbitantly expensive for air carriers there.

High-speed trains are not only allowing business managers from deep inside China to reach bigger markets. They are also prompting foreign executives to look deeper in China for suppliers as wages surge along the coast.

“We always used to have go down south to Guangzhou to meet with European clients, but now they come up to Changsha more often,” said Hwang Yin, a sales executive at the Changsha Qilu Import and Export Company.

The only drawback: “The high-speed trains are getting very crowded these days.”
 
Last edited:

AssassinsMace

Lieutenant General
Please, Log in or Register to view URLs content!


Why China Will Disappoint the Pessimists Yet Again

By Jim O’Neill - Sep 25, 2013


China’s eagerly anticipated “hard landing” hasn’t happened yet, and recent indicators make me wonder (not for the first time) if it ever will. In the past two months, the Chinese economy has actually shown signs of accelerating.

Constant pessimism in financial markets about the country’s prospects is only partly guided by economic analysis. There’s also the faith-based view that growth as rapid as China’s simply can’t go on -- and that a non-democratic country really shouldn’t expect to prosper. Many skeptics have been highlighting China’s impending collapse for almost as long as I have been following the country. Maybe the skeptics should be viewed a little more skeptically.

By the end of this year, China’s gross domestic product will be roughly $9 trillion, making its economy comfortably more than half the size of the U.S., and half as big again as Japan. I recall once projecting that China might be as big as Japan by 2015. The country’s far ahead of that optimistic schedule.

China’s economy is already more than three times the size of France or the U.K., and half as big again as Brazil, Russia and India combined. Of the four BRIC countries, China is the only one to have exceeded my expectations. The other three have done less well than I’d hoped.

As I mentioned in a previous column, China is in effect creating another India every two years -- making a mockery of those who’ve argued that India’s democratic model is more likely to deliver long-term economic success. China is already more than four times bigger than its southern neighbor. India’s economy won’t rival China’s for a very long time, if ever.

One Trillion

With GDP growth of 7.5 percent, inflation running about 3 percent, and a currency that’s rising gently against the dollar, China is adding about $1 trillion a year to global GDP, easily boosting its share of the total.

For many analysts, none of this is enough. According to a popular refrain, China might have staved off disaster in 2013 and papered over the cracks yet again in the short term -- but next year (or maybe the year after), the crunch will come. Supporting this notion is a question I’m asked all the time: If China’s doing so well, how come everyone always loses money investing there? Let me explore both issues a bit further.

It isn’t clear to me why China’s economy must deteriorate next year. China’s slowdown to its current 7.5 percent growth rate was well signposted by a sharp slowdown in leading indicators. Those measures, including monetary growth and electricity usage, are no longer flashing red. Coincident indicators such as the monthly purchasing managers’ index have picked up. Unless you believe that China is somehow doomed to fail, these signs are encouraging. They suggest that the rest of this year and the first part of 2014 might see slightly stronger growth.

The more resourceful pessimists next argue that the better growth signals are coming from parts of the economy where growth is unsustainable -- such as the urban housing market and government-directed investment -- from excessive growth of credit extended by shadow banks, and not from a broadly based expansion of consumer spending. If this were clearly the case, I’d be a pessimist, too, because a buoyant China needs consumers to take the lead.

Data for monthly retail sales suggest that consumption has held up well despite the fall in the trend of industrial production. I closely follow the trend of retail sales, adjusted for inflation and relative to the trend of industrial production, and though not moving in a straight line, this indicator has been generally rising for three years. This is a pretty good sign that the rebalancing China needs is happening. Another is the decline in the current-account surplus to about 3 percent of GDP.

Adjustment Achieved

Reducing the external surplus from more than 10 percent of GDP before 2008 to about 3 percent now -- while limiting the fall in growth from 10 percent to about 7.5 percent -- is quite an achievement. In my view, the “unsustainable” component of China’s economic prospects was the current-account surplus, not the growth rate, and the needed adjustment in the surplus has been achieved.

What about investors losing money in China? How can that be, if the economy is doing pretty well? It depends on how you measure investors’ returns. True, passive investors in the Shanghai index have suffered since 2007, despite a big rally from late 2008 through late 2009. But how many investors invest that way? More important, the Shanghai index is dominated by past winners in the China growth story. If China is rebalancing -- moving away from exports, improving the quality and sustainability of its growth, depending less on government-backed companies -- then the winning investments will be quite different than before.

It’s revealing that the Shenzhen index is performing much better than the Shanghai index, thanks to its greater exposure to newer, smaller, private companies. There’s a more general point here: When a country is embarking on a significant compositional change to its economy, stock-pickers rather than index-trackers have the upper hand. The same logic applies to foreign companies trying to benefit not just from China’s ongoing growth but also from its new drivers of growth. No doubt this is a little simplistic, but Apple Inc. (AAPL) or Procter & Gamble Co. (PG), say, are likely to benefit more in this economic environment than Caterpillar Inc. (CAT)

If you ask me, China’s economy hasn’t finished impressing the world with its strength. The changing foundations of that strength may make the prospects harder to read -- but the fact that the underpinnings of Chinese growth are indeed changing is all to the good.

(Jim O’Neill, former chairman of Goldman Sachs Asset Management, is a Bloomberg View columnist.)
 
Top