Chinese state “capitalism”
As I mentioned yesterday, Ying Ma came back to Cornell last night to present her take on “Chinese state capitalism.” I took notes on the presentation:
Basic overview: In the 1990s, China had an acrimonious relationship w. US. Politicians and commentators were constantly complaining about China’s stance on human rights & allegations of stealing military tech. Despite this, the US traded with China. Since 9/11, the US has focused on war on terror. By 2016, it’s expected that the Chinese economy will be bigger than the US. Currently, China has $3.2 tril in currency reserves.
Some commentators have revised their take on the Chinese system. (See also, Thomas Friedman’s China fetish.) After all, Beijing has a lot of big projects. They invest in rail, renewables, etc. Basically, some people have said that, without the fascism, it doesn’t look toooooo bad. I mean, at least their economy is growing!
But China has inefficiencies too. Though they did make a $300 bn high spd rail system in less than 7 years, it is rife with corruption, safety concerns and bribes. Though they had a huge economic stimulus, it had some unintended consequences. Most of it went to the state’s sector, which left a lot of small-medium sized banks and companies to feel squeezed. Now the government has to deal with inflation and local debt. (Some estimates put the local debt at more than 35% of GDP, while others say 2.4 – 3.1 trill or more than 50% of GDP.)
Ma said that this was all related to the real estate bubble in China. 23% of loans depended on land sales and the gov’t uses a rather brutal sort of eminent domain. China also suffers from overcapacity. Furthermore, the return on equity of state-owned enterprises are much lower than non-state (state equities – 8.16% vs. non-state – 12.9%, but when subsidies are factored in, the state return is really -1.47%). In fact, when the state has intervened the quality of growth has suffered. When they improve property rights, it grows healthier. When they intervene, quality of life is much different. From 89 – 02, Chinese wealth per cap grew 8.1% but personal income only grew 5.4%.
So, basically, it isn’t as wonderful as one might think. I asked Ying about the microblogging phenomenon in China. I had hoped it would promote more transparency, but Ying explained that the companies that host these platforms are not in the business of promoting democracy. In fact, it costs them a lot of money to censor, but Chinese companies are keen on following their regulations.
Even if Ying’s presentation had painted a picture of China as a healthy economic superpower, I don’t think anyone in the room would have wanted to live there after hearing about how they decreased 1.83 billion tons of CO2 annually…. by instating a one child policy.
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In other words, the Chinese didn’t make the trains run on time, even with all the executions. Res ipsa loquitur.
“By 2016, it’s expected that the Chinese economy will be bigger than the US.”
Expected by whom? GDP of China in 2010: under $6 Trillion. US GDP 2010: close to $15 Trillion. So, the Chinese economy is going to grow by over 150% in 6 years?
“Though they did make a $300 bn high spd rail system in less than 7 years, it is rife with corruption, safety concerns and bribes”
Those trains are also mostly empty. Despite enormous government subsidies, ticket prices are well out of range of what is affordable to an ordinary worker (an WAY out of range to the nearly 1 billion peasants). Like China’s ‘ghost cities’, these bullet trains are a Potemkin project.
“one child policy” Aside from the obvious human rights issues, and unintended societal effects (like having 20 million more men than women), this policy alone will be enough to put the skids on China’s economy and then keep it in neutral for decades. Like Japan, China has a rapidly aging population. Like all modern welfare states, the elderly are supported by taxes on current workers. The one-child policy in China makes this problem much more acute.
” Like all modern welfare states, the elderly are supported by taxes on current workers. The one-child policy in China makes this problem much more acute.”
You really don’t have to think very hard to realize just how China plans on “taking care” of their elderly non-working population. Somehow I don’t think even the Leftest Left in this country will applaud.
US GDP 2010: close to $15 Trillion. So, the Chinese economy is going to grow by over 150% in 6 years?
They may be assuming that Obama is re-elected and the US economy will shrink by 60%.
As it happens, I was in China last week. The American Airlines employees in Beijing airport all incapable of selling a ticket or getting an airplane boarded in any sort of reasonable manner. I was on a 777 with about 150 passengers (i.e., more empty seats than full ones), and it took them more than half an hour to get the passengers boarded. The employee at the ticket counter was completely non-plussed that I wanted to buy a ticket (I had traveled on a non-refundable/non-changeable ticket and wanted to return early). If what I saw is typical of how the Chinese operate, the US will be the largest economy for quite a while (provided we don’t re-elect Obama).
That should be “are all incapable”, not just “all incapable” in the second sentence of my second paragraph.
What seems to be a chronically unreported story about Chinese companies is that there has been an increasing number of them getting delisted from American stock exchanges. Here is an old link but the “more likely to follow” part has been true and is about to become to numerous to continue to ignore
The top reason is that the Chinese refuse to fulfill the “audited financial statements” requirement for getting listed in the first place.
The perceptions of the Chinese ecomony are heavily distorted by a lot of smoke and mirrors and a lot of shadow puppetry done for the benefit of the international financial sector.
The fact is that no one — most especially the Chinese Leadership — really knows what size the Chinese economy is or how fast it is growing.
The only thing that can be said with certainty is that it is not as large or growing as fast as advertised.
Reality will catch up with China at some point, as it always has. It is not that the Chinese leadership does not know this — it merely that they don’t care.
BTW, that $3.2 tril in currency reserves is hardly a major asset. A big reason why commodities have been in a “bubble” is because China and India have been hoarding copper, oil, and other commodities, largely as a way of hedging against the dollar. Their reserves include less than 1% gold. US has the biggest gold reserves in the world and custodies much of everyone else’s gold.
Once the money printing presses are turned on in earnest, probably in 2013, the China miracle will meet reality. In a world of paper money whose value gets diminished by hyperinflation, the countries with the most efficient economies that are self-sufficient for food and energy and protected by a real military will thrive. There is only one of those in the world and we are living in it.
We are heading for a very difficult period no matter what we do but we hold all of the important cards. If we can go back to thinking like Americans instead of global citizens, we win.
Kathleen, thank you for pointing me to Ying Ma. Looking forward to reading her book.
@OwenJ You’re right up until: “it merely that they don’t care.”
I think they care a great deal, but they’re desperate. They know full well a revolution is on the horizon, and their heads are, quite literally, on the line. They believe they need to maintain a 9% growth rate to stay in power. This isn’t possible, of course, so they’re faking it any way they possibly can.
The Chinese economy is still very much top-down, which means that the government still makes a lot of major resource allocation decisions instead of allowing free markets to decide. The high-speed rail is an example. Over the long term, this top-down approach cannot compete with a market-driven economy; the market-driven economy will be much more efficient. That’s why Communism/socialism fails so miserably. The trouble is, our economy is becoming more top-down and less market driven. That must change.