Why China's Economy will be so hard to fix..

[JMS]

top 10 reasons...why China's economy is whacked and will be difficult to fix.

 

10)  Bloated State owned Companies.

9) Swelling public and private debt

8) Rise of nationalism offending folks China still depends upon for trade.. ever dwindling trade.

7) Massive over capacity in the real-estate and heavy industry markets

6) Capital Flight,  500 billion dollars have fled China for greener pastures this year.

5) aging population

4) Lack of innovation

3) Environmental degradation

2) Deep rooted corruption.

1)  China's stock market bust wiped out 5 trillion dollars worth of economic value.

 

Honorable Mention

----------------------

1)  2016 U.S. Chamber of Commerce Business Climate survey on China.  1 in 4 US companies are moving operations away from China.  77% feel less welcome than previous years.

2) Inconsistant regulatory interpretation and unclear laws.

3) 52% of US companies say the risk of getting Intellectual Property stolen is greater than in other countries.

 

 

 

Officially China's economy is still growing at 6.9%,  the lowest rate in 25 years.   Unofficially Chinese economists have never been known for their honesty or motivation to place accurate numbers on their economic growth.   To day some 3 dozen Chinese reporters are in jail for suggesting the 6.9% gowth rate is a tad high.

 

Everybody in the world is telling China she needs to embrace reforms.  Problem is when the going gets tough,  China consistantly reverts back to propping up their banks,  their stock market,   their companies.    Showing a systemic distrust for capitalism's need to not just reward success but to flee failure.

[zoony]

Bump

I actually was hoping this thread would garner more discussion. Personally i am quite worried about the potential impact a busted chinese economy could have on the rest of the world. They have bubbles everywhere and its all been propped up by the government for far too long. When it comes crashing down it will not be pretty.

OR

Maybe it never comes crashing down and maybe we all learn that heavy socialism > capitalism

[DogofWar1]

There's a lot of pressure, being the first response.  Gotta do it right, it could drive discussion as much as the OP.

 

China's inability to cultivate a consumer class is coming back to haunt it.  You can't have hundreds of millions still subsistence farming and expect your economy to be robust in the long term.  Small economic speed bumps might as well be mountains; they've avoided falling apart by just building and building and exporting and exporting and exploiting their populace.  They sidestepped their mismanagement all this time.

 

I'm too sleepy to type more. Sleepytime.

[Skin'emAlive]

Im not sure its an inability to cultivate a consumer class. Have you all been to a mall in China before? Its 7 floors of madness and there are about 2 or 3 of them every block. The real issue is that the costs of everything have gone up exponentially and the average salary has barely gone up a few cny. I think there will be some problems, but i have doubts that there will be a crash with the magnitude that people expect.

[JMS]

Bump

I actually was hoping this thread would garner more discussion. Personally i am quite worried about the potential impact a busted chinese economy could have on the rest of the world. They have bubbles everywhere and its all been propped up by the government for far too long. When it comes crashing down it will not be pretty.

OR

Maybe it never comes crashing down and maybe we all learn that heavy socialism > capitalism

 

 

I agree,  economic uncertainty is bad all around.    The Chinese don't seem to be willing to allow investors to lose money,  allow the markets to re-adjust if it means their leaders lose face,   and worse still they seem to be willing to take a page out of Putin's book and use Nationalism to prop up their political regime and deflect against a political backlash for the slowing economy.

 

It's a big mess and both Europe and the US are shackled to the Chinese Economy just like everybody else in the world.

[chipwhich]

I agree,  economic uncertainty is bad all around.    The Chinese don't seem to be willing to allow investors to loose money,  allow the markets to re-adjust if it means their leaders loose face,   and worse still they seem to be willing to take a page out of Putin's book and use Nationalism to prop up their political regime and deflect against a political backlash for the slowing economy.

 

It's a big mess and both Europe and the US are shackled to the Chinese Economy just like everybody else in the world.

 

It's lose. Lose. Lose.  You don't understand LOOSE.

 

The Chinese government foots the bill for the people.  The Chinese government controls the messaging.  I wouldn't trust any financial data out of China, nor would I buy a stock.  My cousin moved his Chinese bride from Xian.  She offers to get me anything from China, all fake, but they will make anything and have different levels of fake.

[JMS]

Im not sure its an inability to cultivate a consumer class. Have you all been to a mall in China before? Its 7 floors of madness and there are about 2 or 3 of them every block. The real issue is that the costs of everything have gone up exponentially and the average salary has barely gone up a few cny. I think there will be some problems, but i have doubts that there will be a crash with the magnitude that people expect.

 

I've never been to China so feel free to school me on the facts on the ground however,  I think China has a lot of big problems.

 

I think they started this economic boom with the government leadership in getting big necessary projects going.    That formula for success from the previous decades is not a grotesque problems.     They've got entire cities which are built which nobody will ever live in.    Their massive over capacity of real-estate which is a albatross hanging around their necks as is their overcapacity for manufacturing.   It's the worst characteristics from a centrally planned economy.    That coupled with the governments seeming unwillingness to allow any of their domestic investors to loose money means investors will never be taught the lessons of overbuilding.   stock market lost what 5 trillion dollars worth of economic  wealth,  and the central bank continued to pump money into it the entire time.

 

Right now it appears China is going the way of Japan..  a lost decade or two of economic growth.   It's hard to say exactly because China's economists aren't really releasing believable economic numbers..  The claimed 6.9% growth after all is 3 times what the US growth is this year even though it's the smallest growth for china in the last 25 years.   Problem is nobody believes it.   But is it 2% growth or -2% growth..  or is it worse?

 

So far no meaningful reforms seem to be underway.   To address the problem,  first you would have to admit their is a problem.

[JMS]

I have a very hard time understanding how we got into bed with Red China....

 

I mean isn't anybody else concerned with who the hell we trade with?    I mean back in 2009  China admitted they were using the organs of executed prisoners...    Then they said they would stop in 2015.    Only last month we find out they are executing prisoners of couscous like tibetans or futun gong to the tune of 1.5 million of their own citizens.    WTF...

 

http://www.voanews.com/content/china-falun-gong-harvesting-human-organs-huge-scale/3390235.html

[PeterMP]

China was always going to have issues.  First and foremost is the government.  From the way they've dealt with infectious diseases, like HIV, over the years to the more recent disappearing of CEOs.

 

https://www.theguardian.com/world/2003/oct/25/aids.china

 

http://www.cnbc.com/2016/02/01/chinas-missing-ceos-and-billionaires-having-a-chilling-effect-commentary.html

 

To the basic fact that the smallness of the world affects every economy-including China's.  If their wages start to grow, companies will leave their country.  I know somebody that works for a Pharma company, and her job is to find places to work with companies internationally to supply pre-cursors, and she started looking for places outside of China years ago.

 

They started leaving China years ago and moved into countries like Hungary just because of economics and concerns about the government.

 

For a large country, they also appear to be pretty natural resources poor.  Generally, I don't think there is a way to fix their economy.  Breaking into a real middle class economy is going to be very difficult now because the industry that you need to do so is going to leave before you can get there in terms of wages for the most part.

[Skin'emAlive]

They've got entire cities which are built which nobody will ever live in.    Their massive over capacity of real-estate which is a albatross hanging around their necks as is their overcapacity for manufacturing. 

 

Im not an expert in Chinese politics, but I've been around it enough to know a few things. One is that if you have real wealth, you eventually are part of the government. Its a big country club. Its why guys like Yao Ming and Liu Xiang have been seen at the political gatherings. That being said, as a wealthy Chinese, you have to put your money into something or the government will take it. The smart ones with connections learned of this early and put their money in real estate over seas in places like Singapore and San Francisco. For the others, they tried to build up cities close to home like Ordos. The misconception about these cities is that there are no people living there. That is false. Never forget that every notable city in China is probably more populated than every US city save for New York. There are still thousands living there, but they cant afford anything in those buildings. Why spend 24 cny for a coffee, when you could spend 4 cny for a canteen of food, some water, and an extra 6 cny for a bottle of baijiu if the day is right. Why open a store inside one of the new malls when the rent would kill any profit you might have made. Why spent 1500 cny for a pair of Nike's when you can get a rip off pair for 100. Its poor planning, but not necessarily over capacity.

 

The proposed solution has been to have more people. i.e. 2 child policy as of 2015. Buildings will eventually fill up. But will they be affordable?

[zoony]

Pbs recently did a documentary on the over the top nationalism coming from the youth of China. It was genuinely creepy

So when the **** really hits the fan, and these ultra nationalistic zealots are in the bread lines, will be lots of fun

[TimmySmith]

China is embroiled in so many lawsuits with regard to trade and product safety that they have removed most of their construction materials out of the US marketplace.  We have made their steel practically worthless in the US.  They need that money to fund their own infrastructure projects so they are dumping steel cheaply wherever they can.  Meanwhile they are still importing raw materials to make steel at the same clip while inventories are headed higher.  

[Skin'emAlive]

Pbs recently did a documentary on the over the top nationalism coming from the youth of China. It was genuinely creepy

So when the **** really hits the fan, and these ultra nationalistic zealots are in the bread lines, will be lots of fun

 

The people arent stupid. They know the status of the free nations. They also know where they stand. You see people like Angela Baby praising China's foray into the South China Sea because they have money and are being watched by the government. Saying anything less would be career suicide. The people just fall in. Its a better proposition than not falling in.

[Elessar78]

 

 

China's inability to cultivate a consumer class is coming back to haunt it.  You can't have hundreds of millions still subsistence farming and expect your economy to be robust in the long term.  Small economic speed bumps might as well be mountains; they've avoided falling apart by just building and building and exporting and exporting and exploiting their populace.  They sidestepped their mismanagement all this time.

 

 

The magic of the US economy is that we've convinced people here not to save their money. China, like Germany, is still a saver culture. Conspicuous consumption is still not the norm. Don't get me wrong, there are many Chinese who drive fancy cars and sport designer handbags, but I believe that's still the minority. 

 

Like all Communism, they know their grasp of power is tenuous which is why they have to jump back in when the economy gets rocky. 

[gbear]

I think China has had the sword of damocles held above it since the 1 child law.  Demographics are a bastage to work around, and that law made the issue every industrialized nation is dealing with right now a much bigger problem for them.

[tshile]

Loose face

Yes

[Elessar78]

I think China has had the sword of damocles held above it since the 1 child law.  Demographics are a bastage to work around, and that law made the issue every industrialized nation is dealing with right now a much bigger problem for them.

Geography tends to trump most everything else. The reality is that China doesn't have a lot of arable land, and not enough to support a huge population. 

[JMS]

 The misconception about these cities is that there are no people living there. That is false. Never forget that every notable city in China is probably more populated than every US city save for New York. There are still thousands living there, but they cant afford anything in those buildings. Why spend 24 cny for a coffee, when you could spend 4 cny for a canteen of food, some water, and an extra 6 cny for a bottle of baijiu if the day is right. Why open a store inside one of the new malls when the rent would kill any profit you might have made. Why spent 1500 cny for a pair of Nike's when you can get a rip off pair for 100. Its poor planning, but not necessarily over capacity.

 

The proposed solution has been to have more people. i.e. 2 child policy as of 2015. Buildings will eventually fill up. But will they be affordable?

 

 

 

I don't think it's a misconception.   I mean you could point to a misconception or poor planning if I happened to build 1 condominium building and couldn't get anybody to buy a unit... or one soccer stadium which has never hosted an event in years....   or maybe even 1 multi million person city which nobody lived in..   NOBODY... not a garbage man,  not a security guard,  not a handy man...  Problem is china reportedly has hundreds of multi million person cities which are ghost cities.....

 

It's hardly a controversial thing to say China has built hundreds of multi billion dollar multi million person ghost cities.

 

http://www.forbes.com/sites/kenrapoza/2015/07/20/what-will-become-of-chinas-ghost-cities/#56d222d8751b

 

What Will Become Of China's Ghost Cities?

 

 

 

The proposed solution has been to have more people. i.e. 2 child policy as of 2015. Buildings will eventually fill up. But will they be affordable?

 

Yes I agree that's their plan.   Some time in the next 20-30 years China will need urban realist ate capacity...  and that's why they are building it now.    Like that makes any sense.     What happens when you build a home and then nobody lives in it for decades..   It's not a new home 20 years latter.   Same with a city.    there is another explanation.

 

This happens when the government is trying to encourage economic growth and green lights ambitious projects because they get a smilie face on their civil servant report card for GDP growth.. and building a multi billion dollar city,,  or a hundred off them add to GDP growth even though the net effect doesn't help your economy one lick..

[JMS]

Pbs recently did a documentary on the over the top nationalism coming from the youth of China. It was genuinely creepy

So when the **** really hits the fan, and these ultra nationalistic zealots are in the bread lines, will be lots of fun

 

 I remember reading an editorial a decade or two ago predicting that the net effect of the China one child per family policy would be war.

That Chinese families so favor male children because male children perpetuate the family and take care of their parents they were much more favored even to the extent that female children were aborted in order to have the all important male child.

 

Net effect according to the story I read would be a shortage of women,  a surplus of male children unable to find wives;  and ultimately this means aggression and war.    Think the shortage of women and the large number of young men who can't find wives is now a documented fact.    

[JMS]

Geography tends to trump most everything else. The reality is that China doesn't have a lot of arable land, and not enough to support a huge population. 

 

China became a net exporter of food back in 2002.    They've figured out how to make foodstuffs without arable land but with test tubes and science experiments.    You can go down to your local American grocery store or fast food place and sample some of their faire.

China's problem isn't food production..  It's quality food production at an reasonable cost and for that they've relied on trade.

 

http://www.forbes.com/sites/jackperkowski/2013/04/25/feeding-chinas-population/#7ae84763700d

Feeding China's Population

[Skin'emAlive]

This happens when the government is trying to encourage economic growth and green lights ambitious projects because they get a smilie face on their civil servant report card for GDP growth.. and building a multi billion dollar city,,  or a hundred off them add to GDP growth even though the net effect doesn't help your economy one lick..

 

Yea, this is spot on. Its not transparent in China either. And yes the homes that are built now wont be optimal for people in 20 years. Heck, they wont be optimal for people in 5 years. Construction quality is notoriously awful just about everywhere. I guess my point earlier was just that I dont think there will be a grand fall.

[China]

Feeding China's Population article

 

From the article:  "Even with 500 million farmers, China has been unable to meet the country’s growing demand for grains, soy beans and other commodities."

 

"In the greatest urbanization movement the world has ever seen, approximately 260 million farmers have moved to the cities since 1978, and another 260 million are expected to move off the farms in the coming years."

 

So they'll be down to about a third the number of farmers they had in 1978 while the population will have increased by over 400 million people in the same timespan.  I supposed increased farming efficiency can help offset that somewhat, but that's a trend that is unsustainable.

[TheGreatBuzz]

I'm afraid this is going to make me sound like some kinda freak show, doomsday prepper nut but trust me, I'm not.

 

That said, seeing things like this really make me nervous.  I would not be at all surprised to see some sort of global financial collapse/global depression in our life time.  Can you name one major economy that you would point to and say "oh yea, strong as an ox?"  I can't.  And I feel like it would only take 1 to really fail to bring the rest down.  Now that doesn't mean that I stock up with years of food and such in case it happens.  I do keep enough items on hand to last at least several weeks and a "get out of town bag" packed up at all times.  Luckily this stuff is also part of my hurricane kit and needed because of where I live.  My wife and I even have discussed where we would go if things got really bad for a while.  Again, the only financial investments I have made in this are the same things in my hurricane kit.  But it is something I do worry about.

 

This is also all based on my 4th grade understanding of global economics. 

[JMS]

Yea, this is spot on. Its not transparent in China either. And yes the homes that are built now wont be optimal for people in 20 years. Heck, they wont be optimal for people in 5 years. Construction quality is notoriously awful just about everywhere. I guess my point earlier was just that I dont think there will be a grand fall.

 

 

Yeah soft landing or hard landing that's the question..   It does look like we are witnessing a fall though now.    They say their economy is growing at 6.9%  the slowest in 20-30 years.     But even their current Premier Li Keqiang doesn't believe their economic numbers..  we know from wikileaks he said even he doesn't trust their GDP numbers but suggested electricity consumption,  rail road shipments, and loans dispersed as more reliable metrics..

 

http://www.bbc.com/news/business-35341869

[JMS]

From the article:  "Even with 500 million farmers, China has been unable to meet the country’s growing demand for grains, soy beans and other commodities."

 

"In the greatest urbanization movement the world has ever seen, approximately 260 million farmers have moved to the cities since 1978, and another 260 million are expected to move off the farms in the coming years."

 

So they'll be down to about a third the number of farmers they had in 1978 while the population will have increased by over 400 million people in the same timespan.  I supposed increased farming efficiency can help offset that somewhat, but that's a trend that is unsustainable.

 

I guess my point was that China never had the grain or farm capacity to feed their population.   When they became a net exporter of food,  and they still export food today,   it wasn't their farms or traditional western food production methodologies...   It was stuff like pink slime and vats of protein additives.    It was chemistry and other offensive sounding though innovative solutions which lead to their success.

 

And yes the # of farmers means nothing.  US farmers are the most productive in the world and we heavily rely on automation as does China...

 

Again China imports grain and beef today,  mostly because when people can afford to buy quality food;  they won't eat the stuff china was calling food in 2003.    China is hardly alone in this though,  many of these chinese products have found their way into American's diets.   Can anybody say MacDonalds dollar menu.

 

I remember when my cat died back in the 1990's it coincided with a Pet food recall which effected many of the popular brands on the market at the time.    Some Chinese factory owner figured out he could increase the protein content of his mixture by adding poison to it.    Killed a lot of Pets here in the states and resulted in the largest pet food recall I can remember.    Think they shot that guy..

 

I remember when I was in the hospital and needed a Heparine drip and the doctor wouldn't give it to me because he said the Heparin was contaminated due to some chinese recall...

 

China has struggled with quality control no doubt as when I googled pet food recall  came up with a number of more recent ones I wasn't aware of.