Posted on 01/03/2008 10:01:04 AM PST by charles m
China’s economic growth is due to oil, mostly imported. When the oil dries up, so will China.
Note that China's GDP was recently adjusted way, way down for purchasing power parity (ours was too, but not anyway near so much proportionately).
I.e., we just had the baseline of China's GDP for comparison to exports go way, way down. If exports are not adjusted (for purposes of example), the proportion of China's GDP due to exports would be significantly higher.
I have no problem with a re-examination of export volume to go with the PPP adjustment to GDP, but this one smells.
I’m not an economist (call me a layman), but from what I know about China’s economy, it thrives on the small profits made in producing finished goods from imported raw material; a model where the value addition is a very tiny percentage of the overall transaction.
Now, the Chinese model is of hundreds and thousands of factories making small profits, and these profits, on aggregation, becomes a significant portion of the economy. This model is extremely dependent on exports.
From the pictures supplied in the article, I can see that government spending and investment form large chunks of the economy. But, aren’t these amounts directly going towards establishing those factories that I mentioned? Can salaries be paid with money set for investment, in as sustainable a manner, as the profits from those companies?
If you know better, please tell me why this picture is wrong. Thanks!
I need to read this when I have more time
Give me a break. Exports/imports calculations are based on exchange rate GDP conversions, NEVER PPP. The World Bank’s downward adjustment of China’s GDP by PPP has no bearing on exports/imports data.
***”significant, because the trickle down effects on the economy from that business tend to remain within the domestic economy and grow the domestic economy even more.”
Other than it was taught as a “multiplication effect” (At least as taught to us years ago), not a trickle down which is usually used in conjunction with Reaganomics, we are in complete agreement. That’s semantics-
It’s not only Lenovo’s, it’s also Cisco routers/switches/access point etc etc etc. The consumer in China consumes a lot and most of that is spent on essentials like food, water, shelter……….. The component of their economy that is industrial and technologically based is heavily export dependent! A lot of the capital development is even financed through foreign investments.
***“ It also means that a lot of money that people think we are pumping into China’s economy is really being pumped into the economies of the countries that supply them with the components they assemble.”
It all goes back to why Freidman is correct in stating that trade deficits are more or less meaningless. Another topic the media like to zoom in on because it has a perceived negative interpretation by the layperson, and they can baffle you with big numbers and charts and graphs spanning some arbitrary time period (Usually a span chosen to show the greatest variance) which in the end means nothing.
*** “ China makes money on high volumes with relatively low profit margins”
True.
But the bottom line remains that the argument in this article is false. China is very dependent on exports, at least for now, and even there we agree that China is trying hard to change this.
I've spoken to vendors when we were looking for a new contract manufacturer to build circuit boards for our company's products.
They told me that most large volume, commodity type production was getting sent to China, and that after things got set up and running well, they were seeing good results in terms of reasonably few manufacturing errors.
Our quantities were too small and since a lot of our products are used in the defense industry, export regulations made having our boards produced in China impractical if not impossible. However, it was interesting to hear how much business they saw moving there.
There didn't seem to be any shortage of work for domestic contract manufacturers either. Our biggest problem was finding a manufacturer that was willing to do short product runs and prototypes. Most didn't want to bother with us, probably in part because our products tend to be very complex and have to be manufactured to to withstand operating in rough environments.
I would have thought that there would be more companies wanting to take on low volume, high margin work to avoid competing with cheap foreign labor, but it seemed like the opposite was true.
But the bottom line remains that the argument in this article is false. China is very dependent on exports, at least for now, and even there we agree that China is trying hard to change this.
I don't think the point of the article was that China isn't dependent on exports, it was more an argument about the degree of dependence. Since we are currently pretty dependent on cheap imports from China keeping inflation down, I kind of wish that the numbers showed that they were more dependent on us.
I'm also not sure that I agree that China is trying to reduce their dependence on exports. I think what they are mainly trying to do is reduce their dependence on importing components to produce those exports. If they increase domestic production of the electronic components, the net effect would be that a greater percentage of their economy would be dependent on exports, not a lesser percentage.
When you have a large population of poor people and a half-decent legal system/law and order, you can achieve massive relative growth easily and quickly, especially when you leverage technology (computers/internet/etc.)
Trade is nice - trade is great. It gives their generals and politburro US currency to send their kids to school at Harvard and buy condos in Manhattan, along with some leverage over the US gov't by buying bonds and proping up the currency. In this way, trade for them is a big deal. But in terms of their own economic growth, the star of the show is their domestic market. Why do you think even Google is bending over backwards to get a foothold?
Foreign Direct Investments. FDI for short. Correct. This is the primary source of their "growth".
China’s economy is like S. Korea, Germany (post war), Japan (post war); an economy that bets on exports to grow industrially.
That is the primary basis for their attraction to the FDI. They set up their factories to ship back to the West...so they can realize the labor and regulatory cost savings.
To the extent they actually induce the FDI sources to shut down indigenous Western production...and weaken their industrial infrastructure with reverse economies of scale...so much the better for the Communist master planners.
Their domestic consumer does not have the “money” to buy a Lenovo laptop; he does not have the money to buy the products produced there.
Agreed. The "Party" is the basis for a vast amount of the consumption being asserted. They issue the cell phones and computers and apartments...and pay for the schooling, and broad-band connections etc. But none of that is gratis. The Party expects loyalty...and service.
Primary source of China’s FDI comes from Hong Kong and East Asia, not the West as you seem to imply.
“completely blows away the analysis of an international bank (UBS’s) highly trained Harvard PhD economist”
What - am I supposed to go on my knees and genuflect in the direction of cambridge”
BWAHAHAHAHAHAHA. Harvard bean counters have ruined this country in the last 30 years but let me give another example that you should be able to fathom.
‘’’’’’’’’’’’’’’’’’
PHOENIX - Who says you can’t have your cake and eat it, too? All it takes is the New Math invented by the Harvard leftist “voodoo economists,” led by Jeffrey Sachs of the Harvard Institute of International Development (HIID). And the greasing of the palms which helps make the unpalatable digestible.
During the 1992-1994 Yegor Gaidar-orchestrated “reforms,” inspired by these heavy duty Harvard liberals - read “commies” - “these guys were able to carry on the biggest privatization in the world without creating a single private enterprise,” a free market Russian economist Larisa Piyasheva seethed in a just-completed book by Anne Williamson, “How America Built the New Russian Oligarchy.”
(Lest you forget, Gaidar was that “western darling” who was supposed to lead the “backward Russians’” on their road to capitalism and prosperity, under the tutelage of the HIID. Instead, this former ‘aparatchik’ had led his nation to corruption and ruin before being fired in 1994).
How is that possible? Williamson, who has covered Russia since 1987 for a myriad of U.S. publications, ranging from the Wall Street Journal to the SPY magazine, explains in her hard-hitting book due to be published soon by Farrar, Straus and Giroux:
“What GKI [Russian investments’ committee] did was to value all state property at 150 billion rubles at 1991 prices and to divide that figure by a population of 150 million, leaving a share worth 10,000 rubles to each individual, the voucher’s face value. Two thirds of the 150 billion whole was immediately excluded from privatization entirely [a private perch reserved for the Yeltsin aparachiks’ personal gains. TiM Ed.]. The remaining third was then divided again. Again, one half of that third was excluded. The remaining half of the third was the property privatized in 1992-94, but it too was divided.
Small property - mostly municipal holdings - was auctioned for cash. Only what remained of the last division was subject to voucher privatization as it had been defined. However, of any single property privatized by voucher, 46% went to workers, 5% to management, 29% was sold at cash auctions and the remaining 20% - at a minimum - was left in the state’s hands, meaning that at the end of the privatization process the state’s largest shareholding dwarfed others’ claims and therefore was the controlling shareholder of any “privatized” Russian asset.
The program had indeed put in place an expensive, time-consuming, distracting and destructive paper chase at the conclusion of which the government stood still mighty as the largest shareholder in any single allegedly privatized enterprise.”
If the preceding comes as a surprise to you, as it may to many readers who have exclusively relied on the establishment media as sources of information on Russia, then you ought to line up in front of the nation’s bookstores when Ms. Williamson’s book becomes available. Just as some brain-dead Americans did last on Mar. 23 so they could catch a glimpse of Hollywood’s (also mostly brain-dead) stars arriving for the Academy Awards presentations.
For, the “Financial Crime of the Century” - the plunder of Russia’s assets following the end of the Cold War by the New World Order (NWO) sharks and hyenas - will make a far more interesting a story than the high-tech sinking of the “Titanic.” Even in monetary terms Russia’s disaster was a bigger story. According to Vladimir Zhirinovsky, the leader of Russia’s Liberal Democratic Party, it was a $400 billion heist.
“I didn’t know the conservative Economist was propaganda”
Conservative? Have you honestly ever read the Economist? It is the leading US bashing rags out there.
“Or is everything with which you disagree “propaganda?””
My claim was based on fact - that China is the #2 exporter in the world.
Do you dispute this?
“When the oil dries up,”
Listen very carefully - oil will one day be a nuisance.
I’m disputing your characterization of this article as “propaganda,” and have illustrated why I don’t think you understand what the word actually means.
“I have no problem with a re-examination of export volume to go with the PPP adjustment to GDP, but this one smells.”
bingo
It has been before, more than once. It might be again.
Nothing changes what I said - and post 20 explains it best.
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