PBS: The Coming Collapse of The Chinese Economy

Discussion in 'Business & Economics' started by Michael, Dec 14, 2008.

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Will 2009 see a collapse of the Chinese economy?

  1. Yes

    3 vote(s)
    21.4%
  2. No

    11 vote(s)
    78.6%
  1. Michael 歌舞伎 Valued Senior Member

    Messages:
    20,285
    A talking head was calling the collapse of the Chinese Economy. I wish I could remember who he was, but, he had just returned from a 5 month visit of the mainland and did a lot of touring around the farmstead. His point was the 100 million "floating" Chinese returning to the farm and unable to make ends meet, aka, food. This then leads to the next revolution. His premise was the Communist government staked it's legitimacy on maintaining high level of economic expansion, which is not going to happen in 2009-10.

    Anyway? Will 2009-10 see another Chinese revolution?

    MII
     
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  3. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    NO. Here is part of why:

    "... Many investors think that the U.S. economic crash will lead to a dramatic drop in U.S. orders of emerging-market products, which will cause those economies to drop off. ... But that’s a mistaken assumption. And here’s why.

    In Brazil, for instance, exports account for a mere 13% of gross domestic product (GDP). In China, exports are just 10% of GDP. So some contraction in U.S. and European orders can easily be counterbalanced by fiscal and monetary stimulus in these countries.
    ... And most emerging markets economies have plenty of fiscal and monetary maneuvering room. Leading the pack is China, which accounted for some 27% of global growth last year, and which has continued to use both fiscal and monetary tools to keep itself on a solid growth path.

    It recently slashed interest rates again, down to 6.66% (a lucky number in the Chinese culture, meaning “things (are) going smoothly”). With record foreign reserves of $1.9 trillion, China also approved a “fast and heavy-handed” $586 billion stimulus, mainly in housing and infrastructure, to be implemented through 2010. And the Chinese yuan will drop almost 7% vis-a-vis the U.S. dollar to cushion losses in trade. It has also lowered taxes on investments in capital goods. And in a key move that’s been almost totally overlooked by the media, China has made huge market-oriented reforms in agriculture.

    China has just allowed its 780 million farmers to rent, transfer or utilize as collateral their rights to their lands and eliminated all taxes on agricultural production and to farmers. This will allow for a massive increase in the scale of production by consolidating companies. In this way, China will keep its 120 million hectares dedicated to agriculture exclusively, with no possibility of urbanization, while at the same time allowing the millions of small farmers to sell out, and get capital to move to the cities. This will not only increase the productivity of Chinese farming dramatically by allowing for economies of scale to work and attracting billions in investments, it also will create a huge incentive for these millions of farmers to move to the cities, boosting housing and infrastructure demand.

    Brazil’s plans are very similar to those of China. ..."

    From: http://www.moneymorning.com/2008/12/15/latin-america-outlook/
     
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  5. kmguru Staff Member

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    11,757
    Not a chance. I think the talking head believes in his own hype. Most westerners do not understand Chinese strategies because they are not used to that type of thinking a la Sun Tzu....
     
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  7. S.A.M. uniquely dreadful Valued Senior Member

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    If the guy was so smart, he would have predicted the US recession, which the Chinese have been preparing for since the last decade [see their gold bullion and infrastructure development, as well as their future investment, all with ME and Soviet countries]
     
  8. Michael 歌舞伎 Valued Senior Member

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    Wow I didn`t know China`s exports were just 10% of GDP. The talking head was suggesting that it may be a problem with the people`s perception of the Communist government as the millions of farmers turned factory workers return with nothing to farms that can not sustain them. They may decide Communism is a failure IF they don`t see double digit growth.

    I voted no though. I think China will do well. Possibly it could even help facilitate a more open government.

    RE Gold, I read Japan has a LOT of gold. I wonder if this is true?
     
  9. S.A.M. uniquely dreadful Valued Senior Member

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    72,825
    I had this discussion with Billy earlier

    http://www.sciforums.com/showpost.php?p=2013819&postcount=104
     
  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    23,198
    correction on China vs Japan's holding of US treasury paper:

    China now has slightly more than Japan. No1 and No. 2 spots flipped about 2 months ago.
     
  11. S.A.M. uniquely dreadful Valued Senior Member

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    72,825
    They're holding up the dollar.
     
  12. 2inquisitive The Devil is in the details Registered Senior Member

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    3,181
    The figures listed for gold reserves per country by "Globalfirepower" are a complete myth. The US holds more gold reserves than any individual country, 8,133.5 metric tons as of Sept. 2008. Globalfirepower is a blog, bogus, and has attributed mythical numbers to the "CIA factbook". Here is a link to the facts:
    http://www.answers.com/topic/official-gold-reserves#Officially_reported_gold_reserves
    BTW, these figures are from the World Gold Council, but you have to join that website to access the tables.
     
    Last edited: Dec 18, 2008
  13. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    23,198
    From the "see also" link of your link on The United States Bullion Depository:

    "Commonly called Fort Knox, is a fortified vault building located near Fort Knox, Kentucky which is used to store a LARGE portion of United States official gold reserves, as well as from time to time, other precious items belonging to, or entrusted to, the United States of America.

    The United States Bullion Depository holds about 4,603 tons (4,176 metric tonnes) of gold bullion (147.399 million ounces[1]). It is second in the United States only to the Federal Reserve Bank of New York's underground vault in Manhattan, which HOLDS about 5,000 metric tons of gold in trust for many foreign nations, central banks and official international organizations. ..."

    I.e. One must distinguish between "holds" (has physical control of) and "owns"

    I think the US owns about 4,500 tons of gold – At fort Knox is "a large portion of United States official gold reserves" – and not all the gold even at Fort Knox belongs to the USA. Almost all of the gold at the FED's Manhattan vault, I believe is NOT owned by the USA, only held by the USA.

    After the Brentwood’s fixed exchange rate system was established, when nation A had net trade debt to nation B, the stack of gold in the Manhattan designated as belonging to A was diminished and B's was increased. Actually workers physically moved the gold bricks. I do not think that is done any more. I believe they just make changes in the owner’s ship books. Also many, if not most, nations now have abandoned the B.W. fixed exchange rates, so I think that not even much "change of ownership" on the record books is routine. I.e. a nation like the USA, with dropping (on the multi-year time scale) value of its currency due to chronic trade and other deficits )(like FDI, individual transfers, etc) tend not to losses ownership of its gold, but have the decrease in its currency value reflected in the exchange rates. (It is almost as if, until extreme situations, everyone has forgotten about the physical gold. - this is part of why its official value had increased only slightly from the B.W.'s 35$ / Oz.)

    As your article also mentions, if the official gold were marked to market, say 750$/oz then the US and other large owners would be selling. If one did sell significant amopunts, all would be forced to quickly follow and the price of gold would surely fall to less than $100/oz very quickly. No one wants that, so there are agreements that limit the amount each nation cal sell annually. (In the last year England has been selling nearly its full permitted limit - part of the reason why the "gold bugs" who predict gold at $2000/oz soon have been so wrong. I do not have actual facts, but think when inflation corrected; gold like most other minerals is getting cheaper every year in real terms.)

    What I would like to see is a table showing the foreign debt, the percent covered by OWNED gold, and the percent covered by non-gold foreign reserves, for the major countries. I bet the USA, because of its huge and growing debt is near the bottom and Brazil is near the top - I already know Brazil has foreign reserves well in excess of its foreign debt - I.e. is a "creditor nation" and the USA is the world's greatest "debtor nation" but it would be nice to have the actual numbers in one table.

    Can anyone find this table?
     
    Last edited by a moderator: Dec 18, 2008
  14. S.A.M. uniquely dreadful Valued Senior Member

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    72,825
    Could not find it in terms of god, but is this useful?

    Please Register or Log in to view the hidden image!

     
  15. 2inquisitive The Devil is in the details Registered Senior Member

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    Billy T,
    All the gold at Fort Knox belongs to the USA. Over half the gold held by the Fed 'is owned' by the USA. At today's gold prices, the Fed has over $220 billion of 'US owned' gold. Priced at a valuation of $42.22 per fine troy ounce, the Fed has $11,041 million of US gold, plus $8,426 million of 'earmarked' gold held for international accounts. In the US, over 70% of 'foreign' reserves are held by the Fed in the form of gold, the rest in foreign currency. In Brazil, almost all 'foreign' reserves are held in currency, mostly dollars. Are those US dollars 'held' by Brazil 'owned' by Brazil or the US?

    Please Register or Log in to view the hidden image!

     
  16. spidergoat pubic diorama Valued Senior Member

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    54,036
    Yes, China will be particularly hard hit by the recession. They are already laying people off. That Chinese guy during the Olympics that stabbed a tourist and jumped to his death was one example. His factory closed and he lost his apartment. China's stability is based only on it's recent expansion in exports.

    Exports are a mainstay of China's economy; by one measure they make up 40 percent of the gross domestic product.

    Foriegn investments are falling, millions of migrant workers are finding themselves unemployed, and the Chinese people are under increasing pressure from pollution and the repression of their police state. Things are going to hit the fan soon.
     
  17. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Messages:
    23,198
    And your reference text continue with:
    "While some experts dispute that figure, analysts say the slumping demand for Chinese goods is likely to pull down the nation's growth rate ..."

    Certainly China's GDP growth will drop a percent or two, - most estimate sill above 8%, which is widely regarded as required to provide jobs to the 10 million new workers entering the labor force each year.

    Your reference provides zero information as to the source of this 40% of GDP is exports claim and not anything about what the "by some measure" might be.*

    I have not seen any recent estimate higher than 10%. Considering the fact that shipping capacity is barely growing and the Chinese GDP has been growing at about 10% annually for several years the 40% as exports is even inconsistent with the shipping capacity (unless they are only exporting dense, high-value items like gold, now)

    Summary: Claim that 40% of GDP is exported is nonsense. No wonder neither you nor your reference even try to support that claim. Exports as a percentage of GDP is actually falling as domesting consumption grew 22% in 2007 and 18.8% in 2006. In a few years exports will be only about 5% of GDP, both because of the rapid growth of domestic consumption and the shrinking ability of US and EU to buy.

    I bet you can not find even one reputable study that claims even 20% of China's GDP is exports.

    -------------------
    *China, like India, is still mainly an agriculturally based nation – feeding 1.35 billion people. If you ignore everything normally part of GDP, but the high tech products produced in the country then 40% is plausible but most of the computers and cell phones etc. are sold domestically so even then 40% is very hard to believe, even if that is what the “by some measure” is defined to be.
     
    Last edited by a moderator: Dec 20, 2008
  18. kmguru Staff Member

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    11,757
    Chinese are smart but not that smart. I know. Their smartness comes from working like ants - superb collaboration. Give then a project, hundred Chinese will jump in to complete it before its time.

    What they lack is the understanding of other cultures and thinking. They did not see it coming because the boss did not tell tem it is coming. The boss probably ran a math model based on western parameters the same one we used....

    they are not exactly out-of-box thinkers just like we are!
     
  19. kmguru Staff Member

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    11,757
    http://www.chinadaily.com.cn/bizchina/2008-12/16/content_7311035.htm
     
  20. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    23,198
    I and Foreign Affairs do not agree. See: http://www.sciforums.com/showpost.php?p=2124369&postcount=53

    Yes their growth will slow. (The IMF estimates it will be 8.5% during 2009.)

    Yes a tiny fraction (<1%) of their populaton will lose their jobs in 2009, but it has been Chinese policy for several years, to slow the urban influx by making many new large cities in the interior. BBC has a informative series called "White Horse Village" which told of the destruction of the rural center with that name and the modern city going up where it was. To get the locals to at least accept the destruction of their ancient way of life, the CCP promised new modern schools (and did build them), but the children of the CCP officials and experts building the new city filled them up. Local children ride the bus to neighboring rural schools and sit three to a desk. - Some are "more equal than others" seems to still be true in modern China.


    In 2009 China may have the highest GDP growth rate relative to the USA ever! (If say US rate is -3%) i.e. a "spread" of 11.5%!

    The same F.A. article expects China's GDP to be greater than the US's in about three decades. Here I disagree with F.A. as I expect the US to be in deep depression with negative growth for about a decade. Thus China should pass the US in not much more than two decades, say 2030.
     
    Last edited by a moderator: Dec 21, 2008
  21. John99 Banned Banned

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    22,046
    yeah but you would be long dead and buried by then.:shrug:
     
  22. kmguru Staff Member

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    11,757
    Not if China grows double digit while USA loses by double digits....:bawl:

    I think, I finally figured out. For many years, USA did grow its productivity. Now we grow our productivity on paper by outsourcing or more like importing products from overseas. In the meantime the there are too many unproductive people in the supply chain that suck the money without contributing much. So, the middle calss starts shrinking rapidly.

    How long before we become like Mexico?
     
  23. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    Almost true. (I plan cremation.) but I have four gradchildren living in the USA. All of my earlier efforts to get the US on a different path, including years ago writting the book referred at website under my name, were for them.

    Now, I think there is nearly zero chance US/EU depression can be avoided, so I mainly chronical the slide down. Normally in the last year or so I place adjectives "inevitable" or "unavoidable" in front of "depression," but Obama is quite inspirational and very intelligent. His Cabinet selections could not have been better. His stimulus plan is wise, very much like China's, and has none of the obvious stupidity of the various changing versions Paulson's had, under which Paulson has spend all of the first half (350 billion dollar) with at best zero effect. (Probably negative effect on the US and some help to China via continued FDI like GWB's tax relief for the rich made.)

    There were two fundamental problems with Paulson's plans:
    (A) It treated only a symptom of the problem, not the cause.
    And
    (B) There were no restrictions on how the money given to financial institutions could be used.

    Here is how it was used:
    (1) Just held on the books to make the end of year statement looks better.
    (2) Invested outside of the US where the yields are much greater (mainly negative effect on the USA as they become stronger competitors.)
    (3) Paid as bonuses to the CEOs and other high up in management.

    Fortunately, just a few hours ago good documentation for (3) is now available. See: http://news.yahoo.com/s/ap/20081221/ap_on_bi_ge/executive_bailouts

    Where you can read in that AP study:

    "... The AP compiled total compensation based on annual reports that the banks file with the Securities and Exchange Commission. The 116 banks have so far received $188 billion in taxpayer help. Among the findings:

    _The average paid to each of the banks' top executives was $2.6 million in salary, bonuses and benefits.

    _Lloyd Blankfein, president and chief executive officer of Goldman Sachs, took home nearly $54 million in compensation last year. The company's top five executives received a total of $242 million.*
    ...
    Facing increasing concern by its own shareholders on executive payments, the company described its pay plan last spring as essential to retain and motivate executives "whose efforts and judgments are vital to our continued success, by setting their compensation at appropriate and competitive levels.
    ... Dec. 16 {Goldman} reported its first quarterly loss since it went public in 1999. It received $10 billion in taxpayer money on Oct. 28. ..."

    On (B) I have already posted documentation several times. The most galling and very recently was when Citi got a second helping (20 billion more as I recall), they promptly went and bought a large toll road company in Spain for 18 billion (again as I recall. -The exact figures and source are in post I have made within the last 40 days.)

    They probably needed to keep 2 billion to give bonuses to the executives who found this good Spanish investment for them. (Hard work as most are in China or Dubai)

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    :shrug:

    ------
    *242-54= 188 million to be shared by the four or an average of 47 million dollars each. - Nice pay for turning in the first negative quarter in the history of Goldman!
     
    Last edited by a moderator: Dec 21, 2008

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