“The Chinese delegation has said all week that there will be double-digit growth for years to come and the Brits have lapped it up. But the data doesn’t add up. We think we’ve experienced credit bubbles over the past few years, but China is the biggest. And yet the global economy is looking to China as not just a crutch but a springboard out of the recession. It’s crazy.”

-Anonymous hedge fund manager in Mayfair. England

>

Fascinating article in the UK Telegraph about the increasing risk that China’s rampant “growth at any cost” poses to the global economy:

“There have been academics and analysts who have argued about the dangers of China’s economy overheating for some time. But for many, the fact that hedge funds, particularly those with track records on previous crises, are launching specific funds is the sign that the bubble is close to bursting.

One academic said: “Economists have contrarian views all the time. But these hedge funds have their shirts on the line and do their analysis carefully. The flurry of ‘distress China’ funds is a sign to sit up.”

More analysts are becoming bearish too. Last week, Lombard Street Research put out a note warning of China’s “already dangerously home-grown inflation”.

The analysts said figures showing the continuing boom in China were far from welcome: “On the contrary, Chinese policymakers have to slam on the brakes.” The financiers are warning that rather than depending on China as the prop of the recovery plan, Britain needs to be braced for another shock.”

My question is whether China’s central planners can circumvent normal market forces — or if they can keep the economy humming along for 20 years as they migrate 800 million people from the exurbs to the cities . . .
>

>

Source:
Hedge funds bet China is a bubble close to bursting
Louise Armitstead
Telegraph, 16 Jan 2011
http://www.telegraph.co.uk/finance/economics/8261740/Hedge-funds-bet-China-is-a-bubble-close-to-bursting.html

Category: Economy, Short Selling

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “Is China an ‘Enormous Tail-Risk’?”

  1. Petey Wheatstraw says:

    The world’s “capitalists” are beating a path to China’s door. They’re after relative poverty-level wages and the opportunity to despoil the Chinese environment without consequence. The Chinese are all too willing to accommodate the relationship in order to gain market share on a global scale. The seller and the buyers are in agreement. The only way China’s economy bursts is if external demand for cheap labor and low cost of doing business suddenly stops. China is a juggernaut.

  2. Sechel says:

    I’ve read more than one account suggesting that not only does China mis-allocate capital but that Chinese firms operate with margins well below official Chinese numbers and below anything acceptable to a comparable, Indian, American, German or U.K. concern.

    It will be interesting what happens if the country moves toward market based decisions which would mean less infrastructure, less goods, and margin companies shutting down. It would also be interesting to see if the country would even go in that direction. Minds smarter than I have openly stated that China is overly concerned about economic unrest and considers job one keeping its people working, a priority that trumps political and religious freedoms.

  3. Sechel says:

    In response to Petey Wheatstraw.
    [The world’s “capitalists” are beating a path to China’s door. They’re after relative poverty-level wages and the opportunity to despoil the Chinese environment without consequence.]

    I wonder if there’s something more at play here. China opens up its markets and western companies come in, but they earn Renminbi profits which are not easily converted to Dollars, so western companies seek to spend those Renminbi buying local products and services for goods that will be sold in Dollars.

  4. philipat says:

    That “Anonymous Hedge fund manager in Mayfair” would propbably be Hugh Hendry of Eclectica who is simply “Talking his book”. And, IMHO, he is another “Instant expert” and, like Chanos, is wrong. The law of big numbers alone dictates that China will NOT grow at double digit rates forever but, in absolute terms, the growth will be the same.

  5. whskyjack says:

    right now, China’s growth is limited by our ability to consume.
    There are signs that many companies with proprietary knowledge are regretting their investments in China as the Chinese steal the knowledge and then use it to compete against the companies.

    Other thoughts.
    James Fallows over on the Atlantic blogs does some good posts on China. The other day he did a thought experiment so his readers could get a better understanding on China’s potential and problems.
    Take the continental US , in that land area put in all the population of the western hemisphere, add the population of Japan and Nigeria.
    Now think about all those people crowded into that area and the great potential just from size but also the many great problems too.

    Jack

  6. rktbrkr says:

    No tree grows straight to the sky. China growing at double digits ad infinitum is an impossibility, the open question is if they will slow down slowly & smoothly or if there will be an abrupt change.

    How will you keep them down on the farm after they’ve seen Modem City? The transition from rural subsistence farming to mono-industry city dwellers is a new social phenomenon for China and it is being heaped on a “one child” policy that is producing a first time ever distortion in male/female ratios. There is already tension with a non-democratic government that is mixing central planning with elements of free market capitalism.Although I am certain the government is willing and able to do whatever it takes to keep a lid on the effects of these social stresses I think the interaction between all these tensions is going to make a slow and smooth transition to slow growth a virtual impossibility.

  7. Petey Wheatstraw says:

    Sechel,

    Where will US consumers get the dollars to buy anything from the Chinese without first borrowing from them?

    If foreign corporations serve the Chinese consumer, in Chinese currency, then they will have to use Chinese labor to produce products the average Chinese worker can afford. China will not be buying flat-panel TVs from the west or from Japan (maybe from Korea, but not for long or not without a reduced standard of living for the Korean working class), as the consumer-class income differential between established industrial economies and the emergent Chinese economy is too great. At best, we will export culture (style, fashion, entertainment, and consumerism), raw materials, and intellectual/technological/production assets. In the meantime, the Chinese have plenty of easily-convertible USDs with which to buy raw materials and foreign capital assets on the world market.

  8. DeDude says:

    The financial crisis demonstrated that China has been considerably better at making effective policies than we have. Their banks did not get into nearly as much trouble as ours, because the government didn’t allow them to do nearly as much stupid stuff as we did. Their economy didn’t suffer nearly as much as ours because they instituted a stimulus that was big enough and that did not waste money on ineffective (tax-cut) measures, but went straight to infrastructure. Rather than simply allowing bubbles to run their “natural” course, they actually institute countermeasures that keep them smaller than they otherwise would be (not that they are eliminated), so the damage when they burst is less.

    There is no doubt that normal market forces neither can nor should be completely controlled, and that boom-bust cycles will occur no matter how much the Chinese central planners try to counter them. However, active interventions have so far ensured that the negative effects of market forces were much better curtailed in China than they were here.

    Only time will tell if their planners will make some bad miscalculations and do something that makes things worse rather than better. So far their track record has been excellent. They also appear much better at learning from their mistakes than US. We had “trickle down” fail twice, and still strong forces advocate doing it again. They are already in the process of creating a home consumer force (more new cars sold in China than in US last year), to move away from an “export” growth model toward something more sustainable.

  9. call me ahab says:

    more new cars sold in China than in US last year

    with a population of 1.3 billion- I don’t find this statistic all that compelling. Sadly- in Beijing- although there are still many bicycles getting around- traffic jams and cars abound-

    the smog and pollution is worse than any American city I have ever been to- your eyes will tear up and sting after a few hours touring such landmarks as the “Forbidden City”-

    nothing like progress

  10. RW says:

    Michael Pettis at http://tinyurl.com/4zgo846 (China Financial Markets blog) makes the case that China’s escape from its last banking crisis was so expensive in terms of damage to household balance sheets that it is unlikely China will be able to pull off a similar escape again viz “[the crisis] did not result in a collapse in the banking system, but it nonetheless came with a heavy cost. The banking crisis in China resulted in a collapse (and there is no other word for it) in household consumption as a share of the economy.”

    If this is accurate the odds of successfully ramping up Chinese consumption while avoiding hyperinflation are not promising. I have no guesses regarding even semi-smooth alternatives, all roads seem rocky.

  11. J Kraus says:

    more news cars sold in China than in US last year

    I actually watch Chinese car sales as barometer of forward-looking Chinese growth. What China needs to sustain growth is more domestic consumption and more small businesses. Car sales in the US are largely replacement sales. Most Chinese sales are replacements for a scooter or bicycle.

    Think of the massive infrastructure of businesses that automobiles create in their wake. First you have new car dealerships, and right behind them come the car washes and gas stations. Then you have used car dealers, independent repair shops, detail shops, accessory emporiums, paint & body shops and tire & alignment facilities.

    At a higher level, wholesale parts distribution networks and jobbers are required to supply the retail mechanical and body repair businesses. No other consumer product creates follow-on businesses and jobs like the automobile.

  12. DMR says:

    Jack,

    That is an oversimplification. The US is very unevenly populated. The population density of NJ, CT, RI, MA are near 1000 people per square mile as opposed to 5 per square mile in Montana.

    All it would take for the US population to approach China’s (or the entire western hemisphere) is for there to be another megalopolis in the US approaching the Bos-NY-Wash northeast corridor . Over time, it is not inconceivable to see something similar in Florida, Texas, or California as their growth matures.

  13. DeDude says:

    The old China believed that both micro- and macro-economics should be guided by the government hand and nothing left to the invisible hand. But the economic experiments of the 20’th century clearly showed that micro is much better left to the invisible hand. Now the US is turning hard right for small government (owned by predators who want total freedom) and China continue its strong central government policies (allowing only micro to be ruled by the invisible hand). So in the first part of the 21’st century we will test if macro is best left to the invisible hand, or government needs to play a strong part in macro. So far it looks like China is ahead and produce much better growth with government hands rather than the invisible hand handling macro. Also look at the issue of rare earth minerals (essential for the future battery fueled cars). They have taken control of the world supply as a strategic government decision, while we closed down our production because it wasn’t profitable (even libertarians have to admit that is a 1-0 for government hand over invisible hand, although some call it cheating).

    Right now it looks like it is best to let the invisible hand do micro and let governments hand do macro. So the smart money is on China, and the US will either have to change its ways or have it’s a$$ handed to it by 2050. Outcome depends on the ability of US to let go of obsessive individualism and anti-government paranoia (going to be hard in a country heavily populated by individualists fleeing oppressive governments).

  14. MacroEconomist says:

    @DeDude, you live in a dream world.

    If you think negative NPV projects are the key to success, then more power to you. I hope your finances had fun during the Greenspan Internet/Credit Bubble or the Housing Bubble.

    It is never different this time.

    I have no doubt on the future success of China, but it won’t be under the current policy regime which is simply a Credit Bubble and wasteful spending on Steroids.

  15. HistorySquared says:

    After having done considerable research on China, not only is there a very good chance China have an economic crises, but whether they have a political one as well. Here was the sum of my analysis as of a few months ago, but since have uncovered more. For example, one political crises model with an 80% out of sample and 100% in sample, predicts social unrest by 2014 (without an economic crises being one of their 150 factors). The second being that their SOE’s would not be profitable without favorable loans from banks, who have historically not wanted to pay even those back.

    China : The Emperor Wears no Clothes

    http://historysquared.com/2010/08/11/china-housing-bubble-the-emperor-wears-no-clothes/

    “Once Upon a Time there was an emperor who wore no clothes. For the longest time, no one noticed.”
    Extraordinary Popular Delusions and the Madness of Crowds

    In many ways, the 2008 Summer Olympics in Beijing captured the essence of the “China Miracle.” The opulence of the opening ceremonies as a demonstration of how far the country has progressed, the patriotism of the crowd in contrast to a long history of disgruntled uprisings and violent government suppression, and, finally, what many view as the inevitable supplanting of the US when China finished atop the Gold medal count. It turned out, there was more to the story. There was the overspending and under-reporting on cost, the discovered lip-syncing of the opening song, the forced cheering and state monitoring of crowds, the erratic gymnastics judging , and finally, the cheating by using underage girls to win the showcase event – women’s gymnastics. As the story goes, China rose from the ashes over a 30 year period by adopting the governance and economic lessons of the West, finally unleashing the power of 1 billion people to topple the United States, and is now on the cusp of becoming the next global power. Perhaps, like the Olympics, the real story has not yet been told.

    There had been a Chinese tv show called Snail House. It serves as a microcosm of Chinese society today. The main actors were two sisters who become “fangnu,” or mortgage slaves, with the episodes centering around their quest to meet their monthly payments. Officials brought the show to an abrupt end when one sister slept with a corrupt Communist Party official to in order to make payment ( 1). Skyrocketing home prices, corrupt party officials, censorship, and an increasingly confrontational and disgruntled society are all under-reported facets of the China story.

    In real life, couples making the equivalent of $40k in the US are buying $700k homes, according to the work by Kynikos Associates, while stories of maids and taxi drivers quitting their jobs to flip pre sales rights to condos are common. Across China’s 8 major cities, the price to rent ratio has ballooned to 39.4 times versus a peak of 22.8 prior to the US housing crises. Couples are getting divorced in order to purchase two properties, said the head of the leading residential real estate brokerage firm. Loan sharks have been setting up auctions, where people gather to bid for the right to capital so they can turn to the housing market to speculate. Units are sold with no walls, appliances, and units sit empty and uninhabitable. Prices in many areas exceed those in the US, despite that one merely leases the underlying land from the People’s Republic of China, who in 70 years, retains rights. Land speculation has pushed prices up a staggering 800% since 2003, according to the NBER. State owned enterprises, from food producers to railroads have purchased 82% of local government land auctions, while paying 27% higher than equivalent prices in the second market.

    The government has built 30 billion square feet of office space for 1 billion people, with enough supply to provide the equivalent of a 5 x 5 private office for every man woman and child, said Jim Chanos. The building continues with another 200 million square meters planned for this year, according to Mark Hart of Corriente Advisors. Pivot Capital notes that China has built nearly the same number of roads as the United States, despite roughly 1/10 the number of cars, the same number of bridges but 1/7th the number of rivers. They built a city for 1 million people, which is abandoned, and constructed the largest mall in the world, which is 95% unoccupied. The investment in fixed capital has exceeds 50% of GDP, above levels seen prior to the Japanese peak in the late 80s, and the Asian Tigers in the mid 90s, and subsequent crises. The result is a disproportionate number of single males who have migrated to the cities to seek an inflated numbers of construction jobs. Meanwhile, an estimated million college graduates are homeless on the city outskirts, caught in a government web that needs to keep the construction industry humming to avoid social unrest.

    The mania has spread like a virus beyond national borders, with mainlanders driving prices across the world to stratosphere heights. In Hong Kong, a 1,476 square foot condo recently sold for $37 million, or $25,000 square foot, magnitudes higher than in New York City at the height of the housing bubble Easy bank credit is the culprit. Mortgage interest rates are less than 1%, many issued with floating rates and some of them financed by Swiss banks. Chinese students are buying $500,000 beach-front homes in Australia (1) , and up to 50% of the luxury properties in Vancouver, Canada, (1) by some estimates . The loans are secured with down payments of 30% or more, the saying goes – secured by other inflated property is the reality.

    Chinese demand for infrastructure commodities such as steel, copper, cement, etc., has been behind the strength in global mining companies from Brazil to Australia, with up to 65% of steel sales from the three major global steel producers going to China, despite stock piling and idle Chinese mill capacity. Total excess steel capacity will reach 200 million tons this year, more than the EU’s and Japanese entire production this year. The PBOC has been engaged in the ultimate “Texas Hedge,” enhancing their exposure to the industrial materials sector. China Investment Corp, the sovereign wealth arm of the PBOC, has spent countless billions to purchase stakes in industrial mining companies across the world, while simultaneously negotiating high-risk questionable investments with corrupt countries from Afghanistan, to Congo, the Sierra Leone, and many others. In all, China and 43 corresponding African nation have set up joint committees that convenes to discuss economic and trade issues, according to the WSJ.

    Credit exceeded 140% of GDP in 2009 and was well on its way to the 200% crises levels seen in the US in 2008 and Japan in 1991. This is an ominous sign given that rapid credit growth was the single best predictor of financial crises in a 140 year study of 60 financial crises by the US National Bureau of Economic Research (1). Chinese debt levels are listed at just over 20% of GDP, but if one were to add in local debt, total debt would closer to 70-80% of GDP, versus the United States’ near 90% of GDP says Victor Shih, professor at Northwestern University. This operates under the grand assumption that the published figures are believable, and with a long history of accounting gimmicks that stem back to the Asian crisis of 1997, corruption rampant, there is the possibility these are conservative figures. The real question what is priced into the market. The US debt situation is well known, while the consensus on the Chinese government’s fiscal health is much different.

    Chinese banks’ allegedly conservative lending standards have given way to a credit growth surge climbing at an alarming 20-30% per annum. Recently, Fitch has uncovered evidence that banks have understated the amount of bank lending, “many banks continued to secretly shift loans off the books, creating a pervasive understatement of credit growth and credit exposure,” says Fitch’s Charlene Shun. Her calculations show credit exposure was understated by 28% in the first half of the year, or 190 billion, as banks reclassified liabilities as investments. The debt is being hidden in Local Investment Companies, “shell entities which borrow from Chinese banks and invest in fixed assets,” says Corriente Advisors. Much like in US pre-crises, Banks have been undergoing de facto securitization, repacking loans to companies engaged in land speculation into wealth management products, which are then resold to customers. These transactions are then booked as investments rather than liabilities. China has taken great pride in the pay practices at State Owned Enterprises, such as banking executives, whose salaries remain in the 200-300k range. But recently, there are questions over whether this practice of systematic underpayment has created a culture of corruption. It’s worth noting that there is little way of deposit guarantees by the PBOC, historically a risk factor in bank runs.

    There’s mounting evidence that the dubious Chinese fiscal picture and corruption has spread beyond the government accounting, SOE’s, and banks, and into the company level in non finance companies as well. ForensicAsia takes a picture of the fiscal health of non financial companies on whole, then uses as a baseline the composite fiscal health of companies prior to past crises, such as Scandinavia in 1990, Mexico in 1993, and Thailand in 1996. “Gearing exceeded 100% of shareholders equity and returns on equity were around 10% or below on the eve of crises,” says ForensicAsia. The composite score also takes into account working capital, quality of earnings, and balance sheet governance. The threshold is typically 25% of companies showing signs of weak financials. Chinese companies on whole are showing signs of excess leverage, low returns on equity, and a heavy reliance on equity offerings and debt issuance. Price signals to companies and entrepreneurs were distorted by the massive government stimulus, with companies responding by gearing up for worldwide growth when much of Europe is in retrenchment and the US mired in slow growth. So long as the flood of IPOs and credit flows freely, the corporations look healthy. Like Warren Buffet said “It’s only when the tide goes out that you learn who’s been swimming naked.” Australian companies, which are heavily cyclical and with a large share of mining companies, are also reaching pre-crises levels with stressed fiscal conditions.

    Not only are companies showing symptoms of questionable balance sheets, fraud is beginning to surface. There are stories of former company employees now conducting audits to verify financial statements. Many Chinese firms are raising capital in the US under dubious circumstances, using take unders of bankrupt US companies to skirt listing standards. Once highfliers Rino International, Fuqi International, China Sky, Orient Paper, and more are trading with seemingly extremely cheap PE’s of 4 or 5 with strong earnings growth. Investors are beginning to doubt the numbers. It begs one to wonder about the underlying businesses in Shanghai exchange issues where the accounting standards are much weaker.

    The strong currency reserves is deemed a safety net, but if history is any guide, it may be more of a curse, than a blessing. The last two times a country has held such a large reserves were the United States in the 1920s and Japan in the 1980s. Meanwhile, the consensus among economists and the US congress is that the Remnimbi is under valued, and there is bipartisan support to bring action, perhaps tariff’s. The Smoot Hawley Act of the 1930s, following the credit surge of the 1920s, was one of seven factors that lengthened the depression, according to a UCLA study (1). China’s commerce secretary noted that margins on exports are 2%, so any Yuan appreciation in excess will create large problems for the export industry. Meanwhile, China’s manufacturers can’t easily increase prices as they must compete with the likes of Vietnam, Pakistan, and India, whose wages such industries as textiles are one third the level. Productivity advances are not an option as they’ve relied on low margin high volume processes.

    Like today, the US pressured Japan to appreciate their undervalued currency in the 1970s and 1980s. When Japan buckled, signing the Plaza Accord of 1985, depreciating the dollar against the yen and Germany’s deutsche mark, it ultimately leading to a spectacular bust. There is the question of how such a revaluation will impact China’s reserves position. Effectively, the US is asking for a hair cut on the debt owed to China. “Any movement — even a gradual one — causes a significant change in the value of its reserves, which reached $2.5 trillion in March, roughly half of its GDP. If they have a 10% revaluation against the dollar, that’s the equivalent of 5% of GDP, which is a big amount to lose,” notes Wharton’s Franklin Allen. Indeed, “the Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan,” said Rickards, formerly of Long Term Capital Management.

    The consensus is that it’s a given the Yuan is undervalued. But with such a large consensus expecting an appreciation, one begins to wonder how much of the money has flowed into or kept in China in expectation of an appreciation, leaving the currency vulnerable on the event. Government officials have voiced concerns that “hot money” has flowed into the country in anticipation of a revaluation, with money begin disguised as Foreign Direct Investment and trade, said Yi Gang, director of State Administration of Foreign Exchange earlier this year. China appears stuck in the middle – either the Remnimbi appreciates crushing the export industry or the hot money flows reverses in vacuum-like fashion.

    Prior to the Asian flu in 1997, Russia had been experiencing strong growth by selling raw materials to the Asian Tigers, who had been engineering their own real estate bubble. When the credit dried up, Asian currencies began crashing, and Asia stopped buying raw materials from Russia. This provoked an unexpected Russian default the following year. China’s strength has been exporting to Europe and the US, who are now mired in debt and seemingly destined for slow growth. Europe remains their largest export market, and the recent depreciation in currency, means a subsequent rise in goods sold. There seem strong parallels – Asia in 1997 compares with Europe in 2010, as Russia in 1997, compares with China in 2010.

    It takes more than a large population to become an economic power. In particular, it takes the right political and business environment. The World Bank scores countries on ease of doing business, taking into account ability to attain permits, protect investors, enforce contracts, tec. The G8 countries hover near the top of the list, with the US ranking 5th and France the lowest of the G8s, at ranking 3th(1). China, allegedly the next major economic power, ranks 89th, below El Salvador, Pakistan and Serbia, not a ranking that portends the next great economic power. “They want everything, but give nothing,” said JP Morgan’s Jamie Dimon. Speaking to the ever pervasive element of corruption, a survey by YouGov showed that in China, “93% of business owners say guanxi, the networks and relationships is necessary to succeed in business,” while entrepreneurs in India and the US frequently say that success comes in spite of the regulations of the state.

    Since the 19th century’s Open Door Policy, when President McKinley adopted policies to encourage trade with China, the West and its businesses have been lured by the temptation of populous, previously closed economies, often to become victims when governments pull the rug out from under foreign companies in favor of domestic, often government-connected companies. This typically occurs after foreign companies invest large amounts capital into plants and training, share proprietary business processes, and reveal technology. The pattern is to rule the companies violated laws, regulations, or fair competition, then turning those markets over to domestically companies, often linked to the government. The PBOC recently for the first time invoked an anti-trust laws against Coca Colas billion dollar buyout over of a local juice maker. GE’s Jeffry Immelt recently said “they won’t let us win,” and “I really worry about China.” Immelt went on to say that world’s largest manufacturer was seeking business elsewhere in countries that do not want to be “colonized” by China. Foreign companies are required to share stakes of new business ventures with local companies, at the risk of seeing an ally later becoming a competitor after technology has been transferred. Pfizer had a local partner in the H1N1 virus market. Following the purchase of Wyeth, the Chinese government forced the company to hand over it’s stakes in the valuable swing flu virus market to a local Chinese company, adding insult to injury by negotiating the rights to send Chinese scientists to the US to be trained in the manufacture of virus that could possibly be used in other industries. Indeed, this intellectual property theft is being branded shanzai, or bandit culture, and a source of pride amongst company heads. The question of whether the allure of China’s market and foreign investment will continue under this regime.

    China’s business model of building for the sake of building constitutes one of the largest misallocation of capital the world has ever seen, one 30 years in the making. The government has traded its citizens’ standard of living for buildings, pollution, and power. In a gigantic feedback loop, the government is rewarded for the misallocation with widespread admiration for it’s GDP growth with investments from foreign companies, but an economy dependent on construction, cheap currency, duped investors, and an obedient society willing to sacrifice a commensurate standard of living. However, things are beginning to unravel. The property bubble is beginning to prick with volume off 80% since April, says the head of the leading Chinese residential brokerage firm. Demand for exports are falling, political risks from the US and the world are increasing, suicides are making headlines, and workers are striking. ”The probability of social unrest and the level of intensity of the violence are directly proportional to the dependence of the citizens upon the state for their well-being,” notes Fred Jones of Jutland Capital Management, and there is no major economy more dependent than China on economic central planning. Perhaps “this time is different” and a centrally planned economy reportedly directed by 25 people has it all figured out. Or perhaps, as with the Olympics, the rest of the story has not been told.

  16. whskyjack says:

    DMR

    From the CIA fact book
    US
    Area
    total: 9,826,675 sq km
    country comparison to the world: 3
    land: 9,161,966 sq km
    water: 664,709 sq km
    arable land: 18.01%
    permanent crops: 0.21%
    other: 81.78% (2005)

    China
    total: 9,596,961 sq km
    country comparison to the world: 4
    land: 9,569,901 sq km
    water: 27,060 sq km

    So China and the US are comparable in size with the US having better land. So it is not as over simplified as you claim.
    As to population they are a billion more than us so it will take more than one east coast corridor.

  17. whskyjack says:

    China has a lot of modernization to do in a very short time, their agriculture is a hundred years out of date in some parts of the country. James Fallows showed pictures of a trip he made to the interior. For him it was a farm scenery picture but to me it showed people shocking wheat into piles for it to be thrashed. The last time that happened in the US we were still using horses to pull the machinery.
    Yet the industrialization in China has created a greater demand for farm products. To support this demand they are going to have to import costly grain and drive up the domestic prices too. This is going to creat a lot of unrest in the areas not benefiting from all the industrialization.
    What did Mao say about the peasant?

  18. cognos says:

    Being a “bear on china” is pretty silly.

    It will not be THAT hard for them to move to $20,000 GDP per
    capita. That’s 5x the GDP from here. Growth will continue for quite a while.

  19. Dan B says:

    Economies are significantly influenced by demographics. We forget that simple fact at our peril.

    There is a very good book called The Fourth Turning by Strauss and Howe. It was referenced by John Mauldin a couple weeks ago in an issue of Outside the Box titled “Global Aging and the Crisis of the 2020s”. The issue of Outside the Box included a recent article by Neil Howe, co-author of the cited book. The article of course mentions China and includes these comments, “Consider China, which may be the first country to grow old before it grows rich. For the past quarter-century, China has been peacefully rising,” thanks in part to a one-child-per-couple policy that has lowered dependency burdens and allowed both parents to work and contribute to China’s boom. By the 2020s, however, the huge Red Guard generation, which was born before the country’s fertility decline, will move into retirement, heavily taxing the resources of their children and the state.

    China’s coming age wave—by 2030 it will be an older country than the United States—may weaken the two pillars of the current regime’s legitimacy: … ”

    I recommend reading the rest at http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2011/01/12/global-aging-and-the-crisis-of-the-2020s.aspx

  20. another take on the PROC ‘Scene’..

    http://dailybail.com/home/wikileaks-china-gdp-numbers-are-man-made.html
    ~~

    “…Or perhaps, as with the Olympics, the rest of the story has not been told…”

    HistorySquared, nice thought-piece~
    ~~

    DeLusional,

    w/this: “essential for the future battery fueled cars”, remember, ‘Batteries’ don’t, in your context, “fuel” anything..see http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Batteries+electrochemical+energy+storage

    they’re, just, a ‘tank’..

  21. DeDude says:

    HistorySquared;

    Thank you for a great piece covering all the big concern about China. There is no doubt that China has a lot of problems kept under the surface and that those will to some extend put a brake on any “straight line up” predictions. They have also had their share of capital misallocations. But the same can be said for a lot of other countries. At this time I would not invest in China because to many negatives have not been priced in yet; however, I would certainly not bet on any major doomsday scenario of economic, social or political collapse either.

    I have always wondered why it is that we can look back on the majority of “negative outlook” reports a decade later and see that they were way to pessimistic. Two things come to mind when you look at those decade old “doomsday” reports that never panned out in reality. One is that they often fail to include the “positive counter forces” and focus only on the negative. The other thing is that they fail to bring in the fact that governments can see the same trends and problems mentioned in the reports, and will develop counter policies to stop the doomsday scenario from playing itself out.

  22. Greg0658 says:

    China rising as the new kid on the block .. historically China is the oldest people on the planet .. they invented gunpowder .. but they needed what the West had ie: new world industrial technology .. bigger picture I hope things work out that they* got what they needed – that being apprenticeship training of their people and new tech .. Americas history bigger picture is/was last untamed/unclaimed land on earth as startup stock (400 years – wow you’ve come a long way baby)

    *now for what America needs

  23. Jaycm says:

    There was misinvestment and inflation in postwar Japan too. There always is, when a country goes through three industrial revolutions at once.

    The gripping hand is that China still has hundreds of millions who live in dire poverty, which means trillions of dollars’ worth of opportunities to make real, productive investments that pay big. A few boondoggles here or there won’t make much difference.

    Which is not to say that the profits are available to be claimed by us round-eyed devils. The Chinese are mostly keeping the good stuff to themselves (and to a narrow, plugged in subset of themselves). But from the Chinese perspective, the gains are likely to be permanent and the problems temporary.

    Except for the environmental problems, which could ruin the whole party.

  24. Greg0658 says:

    ever wonder if there a pool in Alpha Centauri on how many years it takes for Earth to self distruct past shipwreck day – housed in Area51 :-| .. ya think someone is gonna make 20121221 pay off with a _?_ them dang chuckers in Alpha Centauri :-)