Tuesday 7 May 2013

China - Politics and Slowdown





Much is being made of the refusal of China to accept David Cameron on a trip to China due to his meeting with the Dalai Lama. Also there is talk of CIC not being allowed to invest in UK Infrastructure projects.

Diddums, sometimes you have to stand up for yourself and China does not cover itself in Glory with its aggressive occupancy of Tibet. China has after all as much right to Tibet as Saddam Hussein did to Kuwait.

As for the Infrastructure projects, with so much quantitatively eased money slushing around the system at the moment I can't for a minute believe that other funds won't step in where China fears to tread, unless the underpinning economics are too bad; in which case CIC was not the answer anyway.

More interestingly for the global markets are the graphs above. China's industrial growth has deteriorated since the huge stimulus pushed into the economy post the financial crash. This stimulus was 100% of GDP. Retails sales are falling and imports growing, good for the West but less good signs for China as a whole as the trade balance which provides its economic strength begins to falter.

There are big changes ahead to the global economy as china begins to start its descent from insane growth levels back down to more believable levels. Demographics also are pushing China into a more moderate phase as the workforce begins to shrink. China's growth and power has a still a long way to rise, but the curve is catching up with it. Sooner or later there will be a huge asset bust in China which will prove a big hiccough - but the impact that will have on its politics will be interesting to see.

19 comments:

Kynon said...

Clearly there is no sign of any slowdown in the production of spam...

Jan said...

Are the spammers Chinese since they are ultra keen today?

I haven't clicked on any of them in case they do something nasty to my laptop.

Nick Drew said...

it is a bit wearing, isn't it ?

Jan - that must be the right view to take

hovis said...

Talking of China whats the settles opion here on the increasing convertibility of the Yuan which is (still allegedly) going to take place?

http://ftalphaville.ft.com/2013/05/07/1488982/china-yuan-to-really-do-this/

Andrew Zalotocky said...

China must inevitably reach the end of its period of catch-up growth. Plus there's the asset bubble, the aging population, massive corruption, and the traditional tension between the coastal cities that benefit from export trade and the impoverished peasants of the interior. Interesting times indeed.

My guess - and that's all I've got - is that China will end up in the middle-income trap. Reaching Western levels of wealth requires an economy that can still generate innovation after catch-up growth has been exhausted. That means entrepreneurs being free to experiment with new ideas and being able to keep the proceeds of their work. That in turn requires fairly free markets, low levels of corruption, and a reasonably effective rule of law. China has some of the first, and neither of the other two.

CityUnslicker said...

Andrew - I sort of agree, but China has very hard workign smart people, something that is missing in most of the world; especially the West. This will help them to innovate technologically which is all that really matters.

However the other events you mention, especially demographics mean it will be hard for themt o build the internal demand needed to sustain western levels of development.

Indeed, its proving beyond Western countries to sustain our levels of demand!

Blue Eyes said...

I have to agree with AZ. China lacks some of the fundamental things which gets countries to high levels of development. A question the Economist asked a few years ago: "will China get old before it gets rich?" and their conclusion was that China's demographics are against it, if I recall correctly. According to the Economist, people in China save too much because there isn't a state welfare/pensions system, and there isn't a state welfare/pensions system because it could never work in a one-child-per-family system.

Also, as soon as the amazing rate of growth starts to tail off, the middle classes will stop supporting the tyrants in the Party. Maybe after ten to fifteen years of turmoil things might start to look a little better.

Andrew Zalotocky said...

CityUnslicker, there are creative and innovative people in every country. What decides whether they can live up to their potential is whether that country has a reasonable (not perfect) level of the rule of law and reasonably low (not zero) levels of corruption.

If those conditions aren't met then innovators can't bring their innovations to market without them being stolen by some corrupt pig with connections who doesn't really know how to exploit them anyway. Corruption means that innovation gets wasted, and China has a massive corruption problem. The key difference between China and the West is not in hard work. If that was all that mattered then China would be way ahead. The key difference is the ability of entrepreneurs to defend their innovations against predators long enough for those innovations to have a disruptive effect on the status quo, and that is all about the rule of law and the absence of corruption (which in many ways are two descriptions of the same thing).

So I certainly agree that China has some very smart, hard-working people. I've met some of them in my professional life. What I'm suggesting is that the political structure will make it impossible for them to do all the things they are capable of. They will be smothered by corruption and bureaucracy and the need of the Communist Party to maintain one-party rule at all costs, and that's what will hold the nation back.

Electro-Kevin said...

Andrew - And that is why we must protect the rule of law and culture in the west. For all its faults it is better for innovation. Not to say that other systems aren't capable of towering achievements.

(These Chinamen are far clever than me for getting past this WV)

Ryan said...

Oh dear, suckered by the Marxist BBC's portrayal of China as being some sort of mighty economic dragon.

Average wages in Western Europe are £10 per hour. Average wage in the new industries of China is £1 per hour. How do I know that? Because I set up the contracts in China for doing work for my British company. How exactly can China get rich when its people are making 10x less money than those in the West? And that is the 300million or so working for Western interests - not the 1billion that still try to survive by living off the land.

What China has been doing to keep its currency low is print more money to buy US debt. That makes the yuan relatively cheap compared to the $. The US refuses to accuse China of being a currency manipulator because frankly it needs to offload its debt somwhere. What it means is that China now owns huge amounts of Western debt rapidly depreciating as the West prints money to pay the debt. Meanwhile the US has lots of Chinese currency that is of no use because it is not a reserve currency - it can only be spent in China. So what does the wise US investor do when he gets hold of all this Chinese currency? He spends it on Chinese real-estate and then builds a western hotel or factory on it. This is all fine as long as Chinese "growth" continues as 8% or so because the Ponzi scheme will keep on pyramiding upwards. That's why the Chinese are so keen on claiming that growth is still close to 8% even though my figures show a contraction in demand of up to 20% in some sectors of the economy. That is also why you still hear investment brokers talking up the Chinese economy. They want you to invest your savings in the bubble they created so they can take their cut, just as they did with the dot.com bubble.

As far the Chinese being smart, in my experience most of the clever electronic gadgets they make are designed in Germany, US or the UK. They take reference designs from chip makers and just implement them - all the real IP is coming from the West. They are just copy, copy, copy, same as the Koreans used to do. Most Chinese don't even get a high school education. It's all just part of the myth invented to keep the China investment bubble inflating.

Do you know that Chinese local councils by themselves have racked up debt equivalent to 2X total Chinese GDP? And there is a lot more debt out there. Bear in mind that Chinese GDP figures don't tell you much about how much money stays in China because China is an outsourcing economy and all the real money ends up in the US. Does that sound like a healthy economy to you?

Maybe you think the Chinese are outcompeting us in the West? They make electronic consumer goods and clothing. The UK hasn't made clothing since the 70s - it all got made in India, and consumer electronics was always the preserve of the Japanese and South Koreans until they got undercut by the Chinese. They aren't screwing the West nearly as much as they are screwing India, Turkey, Japan and Korea.

When the whole giant Ponzi scheme which is the Chinese economy inevitably collapses, we just have to hope they don't start blaming the West and firing nukes at us.

CityUnslicker said...

Ryan - all countries have potential disaster written on them, there is always a doomsday sceanrio; certainly we can all see many for the UK and EU countries. I have some faith that China will develop further although there is a crash baked in as there has been so much overspend on infrstructure.

Andrew - I accept your comments but note that Lenovo and Alibaba and other good tech firms are coming out of China. Like Korea, at first they do cheap copies; but in years to come they will innovate. China will get there.

As for korea being cheap copies - I raise you - Samsung.

Ryan said...

"note that Lenovo and Alibaba and other good tech firms are coming out of China"

Lenovo didn't "come out of China". It was previously IBMs laptop division which they sold to the Chinese. Currently Lenovo struggles to break even. The real money is made by Intel selling the processors to Lenovo of course, at a big fat profit.

Alibaba is an interesting example of Chinese accountancy. It has a valuation of $120bn but actually only has revenues of $4bn. This is typical of the Chinese Ponzi scheme bought into by US investment houses - Alibaba was originally financed by Goldman Sachs and Fidelity. It remains to be seen whether it will actually attract $120bn when it floats - next year I think.

"As for korea being cheap copies - I raise you - Samsung."

Um yeah, Cheap copies of quality Japanese makes designed by US chip houses. Make some nice adverts but lets face it their TVs are rubbish when you compare them in the shops to Panasonic and Sony. Samsung's smartphones and other leading edge kit are designed in the UK at Samsung Electronic Research Institute In Staines (they would rather you didn't know that). They don't do any real engineering at their massive factory in Suwon - I know because I've spent a whole week there trying to help the lazy bugger's out! Frankly they aren't up to the job.

I'm afraid you don't really know what you are talking about on this one CU. Fact is the West is still leading the pack by some distance. It's just that we have realised it doesn't always pay to fly the flag when you are doing high-paid work for the East.



assurance info said...

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SALISOFT said...

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""""""........

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""""".......

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Diddums, sometimes you have to stand up for yourself and China does not cover itself in Glory with its aggressive occupancy of Tibet. China has after all as much right to Tibet as Saddam Hussein did to Kuwait.
""""

Topographie Beni Mellal said...

"""""" More interestingly for the global markets are the graphs above. China's industrial growth has deteriorated since the huge stimulus pushed into the economy post the financial crash. This stimulus was 100% of GDP. Retails sales are falling and imports growing, good for the West but less good signs for China as a whole as the trade balance which provides its economic strength begins to falter.""""

cours PDF said...

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Agence communication said...

"" More interestingly for the global markets are the graphs above. China's industrial growth has deteriorated since the huge stimulus pushed into the economy post the financial crash. This stimulus was 100% of GDP. Retails sales are falling and imports growing, good for the West but less good signs for China as a whole as the trade balance which provides its economic strength begins to falter.
""