Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

China dream alive and kicking (economy ripe for collapse)
The New Australian ^ | June 2002 | S.P. Seth

Posted on 07/13/2002 7:28:41 AM PDT by spycatcher

Return to The Front Page

China dream alive and kicking

by S.P. Seth

Tiawan: Taipei
TNA News with Commentary
No. 339, June 2002

A new book The China Dream: The Elusive Quest for the Greatest Untapped Market on Earth, provides an analysis of the unrealized hopes of foreign investors and businesses regarding the limitless scope of the mainland China market.

In his review of Joe Studwell’s book in the Far Eastern Economic Review, David Murphy comments that, “From the 19th-century English writer, who wistfully hoped that Lancashire's cotton mills would boom if every Chinese was persuaded to lengthen his shirt tail by an inch, to today’s car manufacturers, who hope that one in 10 Chinese will buy a car, businesses have dreamed of making it in the Middle Kingdom.” Still, the potential and promise of the mainland “El Dorado” is spell-binding, reinforced by official growth “statistics.” The statistics do not tell the whole story; the murky side is carefully hidden.

According to Nicholas Lardy, an expert on the mainland economy, “The official data overstate the pace of economic expansion ... if for no other reason than over the past decade there has been an extraordinary buildup of unsold and unsaleable inventories. While these inventories are counted as part of output and thus contribute to growth of gross domestic product, they are not utilized for either consumption or fixed investment. The real resources that have gone into the production of these goods has been largely wasted.”

Take one example. “On average from 1990 to 1998, annual additions to inventories absorbed 42 percent of incremental output,” much of it reflecting “the continued production of low-quality goods for which there is little or no demand.” Considering the mainland’s padded statistics, one must be very skeptical.

The economic rot, though, is much wider. The mainland banking system is crisis-ridden and corrupt. In an open political system, it would in all probability have collapsed by now, considering that half to two-thirds of all bank loans are nonperforming and growing.

High-level linkages between the perpetrators of such fraud, however, result in disinterested investigations. According to the Far Eastern Economic Review, “China Construction Bank has been involved in financing the information-technology business activities of President Jiang Zemin's eldest son.” Still, banks like these control US$900 billion in individual savings. If people knew what was going on, there would be an instant run on the banks, which would bring the Chinese economy to a halt.

In a broader sense, any discussion of the mainland economy without taking into consideration the social context is extremely misleading. As Alvin Toffler observed when interviewing Japanese Prime Minister Junichiro Koizumi, “The central risk for the world over the next 30 years will be the mainland. This is because the changes that the government in Beijing is trying to bring about are of such great magnitude. The population of the mainland is so big that these changes will naturally create domestic turbulence.”

In a meeting with the mainland’s State Development and Planning Commission, Toffler was told, “We have 900 million first-wave peasants involved in agriculture. We have a second-wave urban industrial population of 250 million to 300 million involved in manufacturing. Finally, we have 10 million third-wave people with computer and Internet access.” Even with the best scenario for economic development, the relative income mix of the vast population is not likely to change significantly.

In other words, the overwhelming majority of people will continue to live on the land. But land and jobs are shrinking in rural areas. According to Jiang Xueqin, “Across the mainland, people are losing their land to expanding cities and attempts to make tiny farm plots more efficient by merging them into large agribusinesses.” Land confiscation is a serious issue in the countryside, and has sparked large-scale riots. The worst culprits are almost always local officials.

Jiang quotes a local community leader to sum up the people’s feelings: “What's happening is land transfers to a few rich people. The government has had a long-standing policy of letting a few people get rich first.” One can only imagine the pervasive sense of helplessness and frustration among the peasant masses. This is because there are no effective channels for political or legal redress open to them. No wonder grain production is falling steadily. Last year, it reportedly decreased by 1.9 percent, following a 9-percent drop in 2000.

At the same time, unemployment is alarming. The state-run China Daily has put the number of jobless at 132 million — 120 million of them in rural areas. The real figure is obviously much higher. It is expected that this will only get worse following Beijing’s accession to the World Trade Organization.

Despite all the razzle dazzle of big coastal cities, there is widespread poverty. According to World Bank estimates, there are 200 million very poor people in central and western China living on the equivalent of less than one U.S. dollar a day.

If the poverty bracket were raised to include also those living on or below US$2 dollars a day, the number of poor would be much higher.



TOPICS: Business/Economy; Editorial; Foreign Affairs
KEYWORDS: chinadream; chinastuff; chineseeconomy; clashofcivilizatio; economiccollapse; overseasinvestment; zanupf
Navigation: use the links below to view more comments.
first previous 1-2021-4041-47 next last
To: AIG
Re #19

We are talking about the numerical proportion and its impact. Yes, China is a large economy. I am just saying that 20% of Chinese economy, the export sector, is more crucial than the number 20% suggests. It is where most of net hard currecy comes out. The domestic sector may be big in numbers but they may not have robust foundations. As you may know, the pace of development in economy is not uniform along all sectors. Export sector is usually most competitive, and other sectors are slowly catching up, such as finance. It is natural in an economy like Chinese. You cannot change everything overnight at the same speed across the board. Especially, if Chinese financial sector is weak, external financial shock can inflict serious damage in Chinese economy, or any other economy in East Asia.

21 posted on 07/14/2002 12:51:34 AM PDT by TigerLikesRooster
[ Post Reply | Private Reply | To 19 | View Replies]

To: Arleigh
Do you know the (possibly apocryphal) story about how Cut & Shoot, TX got its name? Your post made me picture a Chinese tot saying "We better get out of here, Mama, there's gonna be some fightin' and starvin'!"
22 posted on 07/14/2002 1:07:49 AM PDT by 185JHP
[ Post Reply | Private Reply | To 14 | View Replies]

To: AdamSelene235
"OTOH, street level free market capitalism is simply raging out of control. Its pretty cool actually. Everyone wants to start a business, everyone wants to get rich. The average man in the street is a hard core capitalist."

Sounds like my kind of place. I'll bet in many ways China has a more Capitalistic culture than we have.

23 posted on 07/14/2002 1:11:40 AM PDT by Truthsayer20
[ Post Reply | Private Reply | To 12 | View Replies]

To: AIG
Re #20

As a matter of fact, S. Korea's exposure to America these days is 20 % of all export volumes. Chinese portion is increasing, eclipsing American portion. It is true that, at the moment, the prevailing thought is that China will continue to grow as she did in last decade or so. But we all know that, even the growth comes in waves. Japan had its near-linear growth up until 1990, and stalled. S. Korea and other Asian contries went into same serious downturn in 1997. America claimed that it does not suffer problems of these economies. But it created its own financial bubbles bigger than any previous bubbles combined. In later part of 90's, China and America were the rage. But as in previous economies, the projection of growth is based on the assumption that it will contiune the same pace as previous years. We all know that it peaks at some point and retreats. S. Korean and Japanese businessmen suffers from the same euphoria as American businessmen, "China will grow unabated." They will push and push until they hit a wall. The same thing happened regarding America until quite recently. Businessmen all over the world could not imagine the American economy runs into serious problem. Businessmen are just susceptible to hypes and group-think as any ordinary folks.

24 posted on 07/14/2002 1:13:49 AM PDT by TigerLikesRooster
[ Post Reply | Private Reply | To 20 | View Replies]

To: ShayAllen
Did you know that about 1 or 2 years ago the Los Angeles Times had an article decrying the possibility of Capitalism in mainland China , saying that capitalism would bring vast amounts of pollution ( in essence an ecological nightnmare ) to China with it's billions of people.

Not surprising from the commie LA Times , eh ? - voa -davidk 7/13/02

25 posted on 07/14/2002 1:15:06 AM PDT by voa-davidk
[ Post Reply | Private Reply | To 3 | View Replies]

To: TigerLikesRooster
I do not doubt what you say, but so what? Exports are a proven strategy to develop one's economy. Look at Japan, Korea, TAiwan, etc. All export-based economies for the most part. But China's got a large domestic economy too which is growing so that's an additonal attraction about China that other E. Asian countries don't have as much.
26 posted on 07/14/2002 1:34:44 AM PDT by AIG
[ Post Reply | Private Reply | To 21 | View Replies]

To: TigerLikesRooster
Sure, all economies hit their saturation points, but with just a $1,000 per-capita GDP, China's still got a long way to go. Every economy's got its growth curve and China is still in the exponential growth phase while America, Japan, Europe, etc. hit their maturity phases long ago. China's just got a lot more room to run.
27 posted on 07/14/2002 1:38:55 AM PDT by AIG
[ Post Reply | Private Reply | To 24 | View Replies]

To: AIG
RE #26

I am not talking about Chinese economy in the future when its domestic economy is well-established. But its domestic economy now. Any serious financial crisis can damage both domestic and export sectors. With sound financial sector and no state-sector bleeding the rest of economy, China can have self-sustaining domestic economy. But I do not think China is there yet. Hence, the vulnerability.

28 posted on 07/14/2002 1:43:22 AM PDT by TigerLikesRooster
[ Post Reply | Private Reply | To 26 | View Replies]

To: TigerLikesRooster
It's hard to move from a 100% communist to 100% market financial sector very quickly. Even despite China's banking problems, foreign investment in China this year will be the highest it's ever been. I remember during the 1997 Asian financial crisis also that China was about the only economy in the region not to be affected due to the non-convertibility of its currency. It would seem that China's economy is more insulated than vulnerable to external shocks.
29 posted on 07/14/2002 1:49:58 AM PDT by AIG
[ Post Reply | Private Reply | To 28 | View Replies]

To: TigerLikesRooster
Probably what holds China back from reforming its banking sector more quickly than otherwise is that those banks are needed to continue to provide money to China's state sector, so that workers are not laid off in a too-quick manner. If workers are laid off at a moderate rate, then China's overall economy can absorb them. But if workers are laid off too quickly, China's overall economy can't absorb them so there might be social unrest, which doesn't serve China's long-term interests or America's.
30 posted on 07/14/2002 1:53:59 AM PDT by AIG
[ Post Reply | Private Reply | To 28 | View Replies]

To: SteamshipTime
btt
31 posted on 07/14/2002 1:58:49 AM PDT by Cacique
[ Post Reply | Private Reply | To 2 | View Replies]

To: Truthsayer20
Sounds like my kind of place. I'll bet in many ways China has a more Capitalistic culture than we have.

Its another planet. Pity about the government, it simply must go.

Anyway once they ditch the Party, stand back for a massive deflationary shock state side, especially unskilled labor and manufacturing-wise.

It will probably take them another 20 years to match our technology, if they play their cards rights. Right now, they haven't figured out how to make a car engine that runs more than 30,000 miles (no small task).OTOH, labor is so cheap and folks are so enterprising, you don't need to. At 20,000 you just pull over into an alley, and some budding young capitalist will happily tear the whole car down on the sidewalk and rebuild it that day. Tax-free of course. The communists simply haven't managed the degree of mindless tax obedience that the IRS has.( The fiscal burdern of government is currently 2X lower in "Communist" China than in the US).

32 posted on 07/14/2002 9:54:28 AM PDT by AdamSelene235
[ Post Reply | Private Reply | To 23 | View Replies]

To: AIG
Re #30

Chinese government tried to push too fast ahead while holding onto vast territory and population. Apparently, the expectation of population and some ruling class is running ahead of what can be realistically done. It is the case of "Chinese irrational exhuberrance". People and institution do not change as fast as equipment and factory do.

33 posted on 07/15/2002 7:31:40 PM PDT by TigerLikesRooster
[ Post Reply | Private Reply | To 30 | View Replies]

To: TigerLikesRooster
What exactly are you talking about? I'm in China now and I don't see any signs of any imminent collapse. On the contrary, China's a lot more vibrant, thriving, and optimistic these days than most other places in the world. When I walk down a Shanghai street, it even makes Manhattan look slow and boring by comparison. On a fundamental economic basis, China's got all the ingredients to become an economic superpower -- labor, land, infrastructure, brains, capitalist culture, etc. Sure, China's economic path won't be a straight line up, but in developing economies do usually grow faster than already-developed countries because the big per-capita gap between these two classes of countries causes aggregate economic demand in developing countries to be that much more greater. As we speak, China is the #1 market in the world for cell phones, will hit #2 in PC's by next year, is #1 in elevators, light bulbs, air conditioners, refridgerators, and is predicted to be #2 in cars by 2010 and #1 by 2020. Ask any major corproation today where their fastest growing market is and it's likely to be China. The First World's markets for many products are already saturated so China's growing demand is the best thing in the world.
34 posted on 07/15/2002 10:46:46 PM PDT by AIG
[ Post Reply | Private Reply | To 33 | View Replies]

To: AIG
Re #34

If you asked the same questions to people in Thailand and Malaysia around 1994 and 1995, they would have answered the same way. More vibrant than ever. No sign of any danger in horizon. I have no doubt that things look the way you described in the streets of Shanhai. That was the way it looked in Seoul in 1996 and in NYC in 1999. All the troubles were behind. Only the bright future. But I knew that Korea was having some problems starting 1994. It was the matter of time. It hit eventually, in the way worse than I expected. I thought that America will be in trouble after 1996's Greenspan's "Irrational Exhuberance speech. Looks can be deceiving. It does not take a financial genius to figure it out as long as one is not blinded by hypes.

35 posted on 07/15/2002 11:21:12 PM PDT by TigerLikesRooster
[ Post Reply | Private Reply | To 34 | View Replies]

To: spycatcher

36 posted on 07/15/2002 11:26:48 PM PDT by Dec31,1999
[ Post Reply | Private Reply | To 1 | View Replies]

To: TigerLikesRooster
Having a financial crisis here and there doesn't mean the country as a whole is going to be down forever. Since the bottom of the Great Depression, US GDP has risen almost 200-fold and the Dow has also risen by about 200-fold. Instead of paying attention to financial crises here and there which are inevitable but not fatal, you have to look at the long-term trends given the resources a country has.
37 posted on 07/15/2002 11:29:27 PM PDT by AIG
[ Post Reply | Private Reply | To 35 | View Replies]

To: TigerLikesRooster
Probably, 20-30 years ago, Korea's per-capita GDP was the same as China's today. But in 2-3 decades, look at how far Korea has come. If anything, China's got everything Korea has in terms of exporting capability but also a much larger domestic market. Politically, most E. Asian "tigers" followed a one-party, authoritarian path of economic development as well. Given a choice between democratic Russia and India and authoritarian E. Asia, it's obvious which path China prefers.
38 posted on 07/15/2002 11:33:34 PM PDT by AIG
[ Post Reply | Private Reply | To 35 | View Replies]

To: AIG
Do you doubt that China is the biggest market for cell phones now? You don't have to trust China's figures. You can trust Nokia's. The Koreans are particularly big in China's cell phone market these days, incidentally.

Slavery gives a nation obvious advantages.

39 posted on 07/15/2002 11:35:25 PM PDT by Dec31,1999
[ Post Reply | Private Reply | To 19 | View Replies]

To: SteamshipTime
Someone posted on this forum that the Chinese will assign 400 people to milk a single cow and report full employment

Let me guess... they called the legislation that authorized the hiring of the 400 government milkmaids the "Dairy Security Bill" and touted it as a legislative victory over potential Himontereyjacking and other forms of cheese terrorism.

40 posted on 07/15/2002 11:36:41 PM PDT by piasa
[ Post Reply | Private Reply | To 2 | View Replies]


Navigation: use the links below to view more comments.
first previous 1-2021-4041-47 next last

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson