China’s growth: An economic miracle built on sand? (Not necessarily)

Dror has written another provocative post about China’s economy that is well worth a read, even if I don’t completely agree with him. It’s about an issue many of us reflexively shy away from, i.e., the true sustainability of China’s boom, and the West’s refusal to acknowledge the possibility that much of the boom is smoke and mirrors. As Dror points out, there seems to be something irrational about leading economists writing in all seriousness about a recovery, for example, in China’s real estate industry when so many huge half-built and empty new structures dot the skylines of most of its cities (Chongqing seems to take the cake for this one but Beijing seems determined to catch up). And yet new malls and luxury housing are still being built left and right. Should they count as proof of China’s booming construction business and overall growth? In manufacturing, over-production and sometimes really bad production (dry wall and melamine toothpaste) are often par for the course, though on paper the results may look impressive – people are employed, factories are busy, production is rising.

On the other hand, China’s manufacturing has gone far beyond shoes and toys and they now make most of the electronics we’re buying, and increasingly the more complex items like sophisticated semiconductors. Many of their factories are truly world class (and I know, many are not). They seem to be serious about correcting their environmental mess (if not, they’re doomed). The infrastructure improvements in many Chinese cities are as impressive as America’s. And while I agree with Dror that consumer spending won’t start until the masses are assured they don’t need to save every cent for healthcare and education costs, there’s still a massive amount of money being spent here by a rising middle class. While the dream of 1.2 billion customers is exactly that, a dream and a fantasy, even if it’s just 400 million customers it can be one of the world’s most robust markets.

We all know the downside, the environment, the impossible problems, the corruption and the crimes of the government. But there is still enough change and progress that is real here to justify a lot of attention from the West, and everywhere else. As I quoted James Kynge in an earlier post:

It must be said that from a global perspective, China’s emergence is of enormous economic benefit. The value created by the release of 400 million people from poverty, the migration of over 120 million from farms where they perhaps raised chickens to factories where they churn out electronics, the quantum leap in educational standards for tens of millions of children, the construction of a first-class infrastructure, the growth of over 40 cities with populations of over a million, the commercialization of housing and the vaulting progress up the technology ladder have helped unleash one of the greatest ever surges in general prosperity.

Before anyone jumps on the quote with evidence to the contrary and the laundry list of reasons why China cannot succeed, please go back and read the entire post – this is one of many quotes, and all those problems are acknowledged. Kynge is not looking at China like a wide-eyed and naive child, and he sees much of what Dror sees. But he believes China will continue to “shake the world.” And “shaking the world” is not necessarily a good thing; in fact, it can be pretty awful. But China has the leverage, the tenacity, the ambition and the government coffers (and government protectionism) to shake the world for many years to come, so I suggest we get used to it and think about how to deal with it rather than denying it.

A part of me says those husks of buildings looming over us and the warehouses full of unbought refrigerators and dysfunctional state-owned businesses that employ millions of unnecessary workers – it all has to catch up with them and plunge them into a far worse crisis than they expect. Like China’s recently collapsed “modern art” industry, I see many, many of bubbles in Chinese construction and manufacturing. The structural deficiencies in the Chinese system are as deep and as many as the structural flaws in the Three Gorges Dam. But at least for now, the dam keeps operating, and China does too.

Fragile, improbable, sometimes absurd – yet in its own surreal way China “works,” no matter how much of its success is built on corruption, protectionism and/or Western self-delusion. If you write it off and conclude it is not a real, dynamic and ever-present force in global economics and politics, you do so at your own peril.

______________

Richard Burger is the author of Behind the Red Door: Sex in China, an exploration of China's sexual revolution and its clash with traditional Chinese values.

The Discussion: 98 Comments

It may be sand.. but it is a lot of sand! ;-)

May 28, 2009 @ 12:27 pm | Comment

Richard wrote:

“the laundry list of reasons why China cannot succeed”

Succeed at what? At growing economically? The demographics are such that there’s no way they won’t grow, bar a major catastrophe (environmental or medical). Granted, political problems might also theoretically do them in… but this is probably the most politically apathetic nation I’ve ever seen. (Much like the ancient Romans after their brutal civil wars; absolutely everyone with the slightest inclination to disobey had been physically eliminated by 27 BC, when Octavian and his party remained standing alone.)

However, if you define success in any other terms apart from economic growth (those factories and building sites), there is almost no way China will succeed. Right now even countries like Portugal arguably have more soft power. The cultural production of tiny Hong Kong vastly outclasses that of all mainland China (journalism, movies, social studies, art dealing etc.) It’s very sad, but there aren’t many countries which are more culturally and spiritually desertified than China.

If some world-class writers or philosophers come out of China (and not of the kind who live in France or the US and of which the Chinese themselves have never heard of) they will probably come long after we’ve all been dead, us who comment on this site. It takes many generations to recover from totalitarianism, because:

C’est la contemplation qui donne espoir
Source des idées, état incontournable
Aux tous gens qui n’ont aucune envie
De vivre sous l’empire des mensonges.
Sans elle, on n’achève même pas entrevoir
La vérité des choses, leur vraie forme et figure
On est perdu dans un travail fou, désespéré,
Comme tout homme presque noyé
Se battant contre des grandes vagues
Obéissant aux lois dont on ne comprend rien…

May 28, 2009 @ 12:33 pm | Comment

Echo, good point – and it’s that vast amount of sand that makes them so formidable.

Poet, you raise some great points, but don’t write off the economic growth as not being significant. And yes, all I am writing about here is economic success, in response to what Dror was writing about. I can see all the reasons for being cynical about many aspects of this success, and yes, they have a long way to go before they compete in the soft power arena, but if you’re watching China’s wheeling and dealing with the rest of the world, watching it protect its interests and watching it buying up companies, you can’t deny that there’s a powerful force at work here and that its influence must be factored into any discussion of global strategy and relations.

About artistic success, success in creativity, ideas, philosophy, etc. – well, that’s another post, and that subject is open to even more debate than that of economic success.

May 28, 2009 @ 12:46 pm | Comment

If you think that CH companies and manufacturing have won enough success until now, just wait until the social/political system eventually evolve (is that possible?) until it becomes more palatable for international tastes.
Much would not be needed. Just rule of law, not so controlled press and more finesse when dealing with dissidents, and of course the DL :-P
(I really think they lost a big PR opportunity in BJ Olympic Games, maybe it was asking to much of them too soon. Would one day be no longer too soon for them?)

Higher status, and benefits, markets would open up for CH brands. Cooperation in high technology joint developments would be more possible.
Penetration of CH capital in multinational and strategic foreign companies would be much easier. And they do have the cash!
(just yesterday news came on the radar about a CH brand interested in Opel. Nice move, but I think too soon yet, I am putting my bets on FIAT & Co)

Also the second form of “the china price”, i.e. I can only sold you my products on the cheap (even with same quality) because my political/social system stinks to you would disappear.

May 28, 2009 @ 12:47 pm | Comment

The empty looking new buildings are not really empty. I have an apartment in Guangdong which I do not live in or rent out. It is just one of my investment properties. Many people in China do the same.

I am tired of this debate on whether China will collapse. Books have been written on the Coming Collapse of China. How about we put our money where our mouth is? If you think that China will collapse, like Dror does, go short Chinese stocks. And if you think China will grow more prosperous, like I do, buy Chinese stocks and properties. Then we see who will laugh last.

May 28, 2009 @ 12:51 pm | Comment

“However, if you define success in any other terms apart from economic growth (those factories and building sites), there is almost no way China will succeed. Right now even countries like Portugal arguably have more soft power. The cultural production of tiny Hong Kong vastly outclasses that of all mainland China (journalism, movies, social studies, art dealing etc.) It’s very sad, but there aren’t many countries which are more culturally and spiritually desertified than China.”

I’ve never heard a more self-centered rant. Basically you are saying the standard for success is however you defined it. And by the however convoluted way (in which i have no slightest interest in) you defined it, China comes dead last in there world and therefore is one pathetic mess of a nation. Now let’s keep that megalomaniac impulse in check and acknowledge that ultimately China’s success is defined why however Chinese aspire to accomplish.

As for the topic at hand, simply pointless trying to dispute every single points. From my experience I’ve learned long to ignore such “big think” proclamation regarding China, such as “China’s economy is build on sand”, etc. Because for all the complexity and China’s large size, I for one have simply stumble across TOO many of these big claims about China that’s back up with laughable mix with of “macro-indicators” and anecdotes. Remember, there was even a whole book (cough coming collapse cough)and see how that turned out. I recognize the pattern and I simply consider such article as internet trolling.

May 28, 2009 @ 1:03 pm | Comment

@Serve
” Many people in China do the same.”
Hhhhmmm…If too many people do that, that is a sign of a housing bubble.

Empty apartment? Maybe you could rent it to some of the expats here…

But if you prefer it empty, may I suggest a decoration, just to keep the ghosts happy. :-)

http://tinyurl.com/cv7tn5

“If you think that China will collapse, like Dror does, go short Chinese stocks.”
That is a good statement. Although many times the stocks do not match pace with economic development.
You may find reading the old good Kostolany interesting.
http://en.wikipedia.org/wiki/André_Kostolany

Hhhmm.. Maybe we could create the PDMCIHF (Pecking Duck Managed China Investment Hedge Fond) here

May 28, 2009 @ 1:06 pm | Comment

Let’s make one thing clear: I did not say that China will collapse. My post is not about fortune telling. It is about the fact that at the moment, China is a fat and unhealthy kid and in order to become a healthy and productive adult, it has to change many of its habits. In order to do so, it must take an honest look at itself, and at the moment, it isn’t. Nor is the western media.

@serve: buying apartments for the single hope that the price would rise, regardless of real demand, is called speculation. It’s fun for a while, but it also means that the economy is wasting a lot of time and energy on building things that are not really needed. Since each nation’s time and energy are finite, this means that other parts of the economy (R&D, education, healthcare) are not getting the time and energy they deserve because people are speculating in other fields. And why are people speculating? Why does the government encourage this speculation? Because they fail to look honestly at their situation and make the necessary, painful, changes. So, they would rather stick to short term growth at the cost of long-term collapse.

May 28, 2009 @ 1:15 pm | Comment

It’s like a fat kid that doesn’t understand how come he should stop eating only chocolate. But it tastes so good!

May 28, 2009 @ 1:17 pm | Comment

eco, very funny.

Serve, we’re talking about empty buildings that are truly empty – no residents, no doorman, locked doors. Mainly half-built structures. Surely you’ve seen some of these? And the empty malls that have lost retailers and restaurants? If you’re in doubt, we can meet and I can give you a brief tour.

Anyway, please don’t feel you have to debate. This isn’t punishment. And Falen, I agree, it’s become somewhat tiresome to read more predictions of the “coming collapse of China,” but Dror’s post is about something more than that, i.e., whether or not Westerners are seeing the real China and whether they haven’t in a sense been brainwashed.

May 28, 2009 @ 1:18 pm | Comment

@serve: one of the most incredible examples of the process mentioned above can be seen in China’s manufacturing industry. During the last 15 years, lots of speculative investment went into China’s manufacturing industry (either as conscious speculation or due to ‘real’ demand based on unreal currency value). Because of this fact, many parents sent their kids to work in factories and encouraged them to skip university. For a while, those kids made 10 times the salary of their parents and were happy with their factory job. Today, many of them are out of work, and did not even finish high school.

May 28, 2009 @ 1:24 pm | Comment

Richard and the others,

I do not live in Beijing. Here in Hangzhou, I have not seen any empty shopping malls. There are many apartments being built, most of which are far from the city center, so I don’t bother to visit them. The ones that are a short taxi ride from the West Lake are all sold out. They are worth millions of RMB now.

The apartment I own is in a sleepy part of Zhuhai. Maybe it’s speculation. Still I can spend a few winter weeks there every year. If I get bored, Macau is a few minutes away by car. If I need to do serious shopping, a boat ride to Hong Kong takes a little more than an hour.

Buying multiple properties is not necessarily speculation. Sometimes people just want to have a second home, a beach house, a country house, a cabin in the woods. It is more consumerism than speculation.

May 28, 2009 @ 2:03 pm | Comment

Serve, I’m not saying everywhere you look there are empty buildings. But there are sure a lot of them (though maybe not in Hangzhou), yet the construction continues as if there will be endless buyers. In Chongqing and other cities that were on a fast pace to mega-development, this is a huge issue. And as I’ve written before, the inevitable collapse of the many needless luxury malls, already in progress, will exacerbate the dilemma of too much developed land and not enough tenants, like the surplus washing machines and TV sets.

May 28, 2009 @ 3:49 pm | Comment

@dror

excellent article, and i couldn’t agree more. as you say i think economic collapse is certainly not necessarily on the cards for china, but the fact certainly remains that china’s economy is as imbalanced as the us’s and their stimulus appears to involve increasing their over-capacity, not re-alining the economy to a more sustainable level. you correctly point out that property speculation is one of the most destructive things that can happen to an economy as it increases the cost of a basic need and moves money that could be better invested elsewhere into an unproductive asset. it enriches the few at the cost of the many, as the us and the uk are now finding out on an epic scale.

@falen

whilst i understand you feel irritated by resident poet’s post, there is a great deal of truth to it. there is very little culturally produced by china these days, compared to KMT China, let alone its extremely rich classical heritage. going on from that ideas of development don’t just include GDP growth, but can also take into account education, healthcare and freedoms. Amartya Sen is a well known proponent of such views

http://en.wikipedia.org/wiki/Amartya_Sen

May 28, 2009 @ 3:50 pm | Comment

@Serve – “The empty looking new buildings are not really empty. I have an apartment in Guangdong which I do not live in or rent out. It is just one of my investment properties. Many people in China do the same.”

Dude, what your basically saying is that “lot’s of people make stupid investments, and I do too”. If you own a property which continues to increase in value, but which you derive no economic benefit from and nobody else does either, then you and everyone else who is investing beside you are engaging in speculation. Essentially your expecting a rise in price simply to somehow manufacture money for you. One day the price is going to top out on properties in Guangdong, and then it’s going to crash. I sure hope you didn’t buy that property recently, and didn’t take out a loan to do so!

May 28, 2009 @ 4:11 pm | Comment

Oh, and re: empty buildings, the main buildings in Pudong in Shanghai had an average of roughly 25% occupancy back in 2004, so if Chinese property is defying gravity, it has been doing so for a very long time. However, obviously closed-down buildings is a different matter.

May 28, 2009 @ 4:20 pm | Comment

@Serve: FOARP gave a good answer but I should add that “Buying multiple properties” is indeed “not necessarily speculation”. But, buying multiple properties which produce a lower yield than the average bank interest rate is speculation. Taking a loan for such a purchase is close to madness. Sure, if you are lucky enough to get in and out at the right time you can make money from it, but the economy as a whole suffers, and eventually someone is stuck with an asset worth much less than he paid for. Then, the buyers default on his loan, the bank is stuck without money, and the government needs to pour even more public money in order to bail out the banks and the RE industry. So, the damage to society as a whole is compounded. As pointed above, over-investment in certain industries also means that lots of young people are being trained in professions that are no really needed.

May 28, 2009 @ 4:30 pm | Comment

Getting a mortgage in China is not easy. There are no sub-prime loans here. The majority of home buyers, myself included, use cash. Actually you put cash in a bank account and then visit a developer. You find something you like, you swipe your ATM card, and the apartment is yours. It’s very simple, like buying stuff in a supermarket.

There are perils in owning multiple properties. Thnnk John McKain. He couldn’t remember how many he has and lost a presidential election.

May 28, 2009 @ 4:40 pm | Comment

@Serve & Dror
“Taking a loan for such a purchase is close to madness. ”
“buying multiple properties which produce a lower yield than the average bank interest rate is speculation”
“Taking a loan for such a purchase is close to madness. ”

Just listen to US, we have a “lot” experience with it.

By the way do as we say, not as we do!

;-)

May 28, 2009 @ 4:42 pm | Comment

@Serve – That’s weird, because I knew a lot of people in Shenzhen who did buy multiple properties with loans back in 2006-2007, many of them with only very average incomes (~2-3000 RMB a month). All of them said it was because they had good connection with their lender. And yes, a real estate industry which produces real estate simply for the purpose of having it bought by speculators and not to be lived in is a definite sign of a bubble, what happened in the U.S. is a startling example of that.

May 28, 2009 @ 5:02 pm | Comment

@serve: I am very familiar with the way in which apartments are being bought and sold in China. Maybe one day, I will write about it. Trust me, what goes on in China is much worse than America’s sub-prime crisis.

May 28, 2009 @ 5:24 pm | Comment

Totally O/T, but what’s the bet that at some point in the next 30-40 years, I’m going to hear a North Korean tell me that although Kim Jong-Il made mistakes, he was a good leader because he made the DPRK strong?

May 28, 2009 @ 5:46 pm | Comment

by the way @ecodelta: “Just listen to US”.
I am not American.

May 28, 2009 @ 6:01 pm | Comment

@Si

At the risk of deviating from the main topic again, I must point out the absolute ridiculous statement that there’s “great deal of truth” and that there’s “very little culturally produced by china these days”. I can’t even begin to fathom the sheer arrogance that is only superceded by the utter ignorance of such proclamation. Too flabbergasted to know where to even begin…

May 28, 2009 @ 6:07 pm | Comment

@Dror

It was just a samll joke Dror. All critics usually are directed to the US and it was also a wordplay US-us.

@FOARP
“although Kim Jong-Il made mistakes, he was a good leader because he made the DPRK
strong?”
Hitler also made Germany strong, until it met someone stronger. Had he not invaded France or at least just Poland, and the major conflict had been prevented, he would have gone as one of the greatest statesman in Germany history. Maybe at the same level as Bisckmark or even higher.

Something strange going on in Korea. A power struggle? The dear little leader looks rather ill…
Hope the do not try to pull a Hitler like move. Even when defeated, the damage would be great. North Korean people have suffered more than enough already, even more than the Chinese.

For some views about the CH-NK relationship have a look, and interest of CH in keeping business as usual, no matter the suffering of the NK people, have a look at this.

http://tinyurl.com/o9a4ba

I agree with some of his opinions completely.

May 28, 2009 @ 6:19 pm | Comment

@ecodelta: “Hitler also made Germany strong, until it met someone stronger”. Do you think Germany could have developed thus far if it kept Hitler on all her bank notes and decreed that he was 70% right, 30% wrong?

May 28, 2009 @ 6:30 pm | Comment

Well, you could begin by providing a list of current mainland China residents who are culturally significant figures… and then we could compare them to a list of Portugal’s or Thailand’s dudes and debate :)

I’m in no way hostile to China, I wish nothing but the very best to each and every single Chinese citizen. My native language is neither English nor French. I’m not a Westerner. I’m in no way racist and I love Hong Kong so much (and I appreciate some corners of Macau so much, too bad about the casinos) that I couldn’t possibly be suspected of Sinophobia. My next holiday will be in Taiwan! Of my own choice of course – it’s not as if the KMT forces me at gunpoint to spend my money there! Taiwan is great – and last time I checked Taiwan was very, very Chinese.

No, Falen, the problem is not mine. I don’t have the slightest incentive of any kind (tribal allegiance, bad experiences, racism, superiority/inferiority complexes) to criticize China.

It’s just that China is the kind of country that has a mass-murderer on each and every one of its banknotes, and where free speech is impossible (therefore truly creative, ground-breaking thought highly unlikely – not to occur, but to be published, propagated, debated).

Sorry about your blood pressure going up and sorry about being so blunt on your blog, Richard – a place deserving of the utmost civility – but hey, isn’t candid truth kind of, um, an important thing?

It got Socrates stoned to death though, so that’s why I hope and pray Richard’s database won’t ever be hacked into! Ooh! To think of those human flesh search engines!

Actually I got scared. I think I’ll go back to writing poems nobody understands.

P.S. Speaking of the relative value of cultures, what do you think of this cover?

:)

http://metamental.info/Images/DOFC.jpg

May 28, 2009 @ 6:53 pm | Comment

@falen

i am going to make one more comment and unfortunately have to leave it there as i will be away from a computer until next week by which time the debate will have undoubtedly moved on. i acknowledge my comment was a bit throwaway so apologise if i came across as a bit arrogant.

nevertheless, i stand by my comment that “very little culturally produced by china these days”. i feel that this is due to the hidebound nature of the political system which reaches into the artistic world. whilst there is some interesting music being produced on the fringes of the chinese scene, i cannot help feeling that much of post 1949 modern chinese literature and all of modern chinese film is godawful. to clarify, when i say china i mean mainland china. taiwan and hk have produced excellent films of world class quality. whilst my chinese is not fantastic i can deal with lengthy articles and books with the help of a dictionary, and would welcome the opportunity of getting my teeth into some really great writing as a way of reenergising my chinese studies. if you could recommend some books (and if there are links online that would be great) i would certainly happily check them out. i thoroughly enjoy reading books from other cultures and nothing would give me greater pleasure than to come back on here and issue a grovelling apology for underestimating the recent cultural output of china. if you could assist me here i would genuinely appreciate it.

May 28, 2009 @ 6:54 pm | Comment

@foarp

“Totally O/T, but what’s the bet that at some point in the next 30-40 years, I’m going to hear a North Korean tell me that although Kim Jong-Il made mistakes, he was a good leader because he made the DPRK strong?”

i will take up that bet, if the attitude can reasonably said to be a prevailing one at the time rather than the attitude of some random nutcase. what sort of time scale do you want and what would be the wager? as it is probably going to be 30-40 years, perhaps you could purchase me a zimmerframe or 2040-2050 equivalent?

May 28, 2009 @ 6:59 pm | Comment

I do not understand why should anyone worry about the Chinese economy? The softer cultural / spiritual aspects may be lacking but that usually has little to do with economy.

It is a matter of perspective, but I think China will be a super power bigger and faster than most of the world believes. In most countries corporates are seen as vultures and the environment is anti industry. China, on the other hand, affords very good business environment coz the government truly understands industries’ value. So not only is it business friendly but also infrastructure is superb and getting better. I rather belive the markets that are going to collapse are Japan, Korea etc. Whatever they can do or produce China can do it cheaper and faster coz it does not have to go thru political deliberations etc.

May 28, 2009 @ 7:12 pm | Comment

I wrote: “It got Socrates stoned to death though.”

I meant “sentenced”, not “stoned”. He was of course given a cup of hemlock.

May 28, 2009 @ 7:50 pm | Comment

Let’s go down our tick sheet:

1) ‘Made country strong’

Mao: Check
Kim: Check

2) Lots of chicks

Mao: Check
Kim: Check

3) Ruthless crushing of domestic opposition

Mao: Check
Kim: Check

4) Policies resulted in millions starving to death

Mao: Check
Kim: Check

5) Brainwashed population

Mao: Check
Kim: Check

6) Personality cult

Mao: Check
Kim: Check

7) Taught foreigners a lesson

Mao: Check
Kim: Check

8) Developed nuclear weapons

Mao: Check
Kim: Check

9) Ruled into senile old age

Mao: Check
Kim: Check

10) Sponsored terrorism

Mao: Check
Kim: Check

11) Rubbish fashion sense

Mao: X
Kim: Check

It seems that Kim has surpassed even Mao. But seriously, Si, since that is the prevailing opinion in China Re: Mao and in Russia Re: Stalin, it’s a pretty safe bet that if North Korea is still on the map in 30 years time, Kim will be well remembered.

May 28, 2009 @ 8:43 pm | Comment

@Resident Poet – So you can’t get stoned on hemlock?

May 28, 2009 @ 8:44 pm | Comment

China succeeds on its own terms I guess, which is to keep as many idle hands busy as much as possible. Bubbles, subsidies, dubious loans, speculation- who cares, as long as the migrant in his dusty coat and hard hat is pouring concrete everything will be fine. Resource demand in China doesn’t mean the economy is “healthy” or anything of the sort, it just means a lot of stuff is getting built (anyone else here about this 300 million RMB giant Mao head under construction in Hunan? I wonder what the IRR is on that thing).

@Serve the People, how is the West Lake waterfront looking these days? When I was living there a few years ago, they rebuilt it. Twice. In the same year. I guess that sort of goes towards the point I just made.

The whole mainstream debate over China’s ultimate success is mostly over an idea of “China” that exists in Western pundit heads, an economic wet dream if you will. Of course, given how well so many of these pundits read the situation in their OWN countries, I’ll take their opinions on a place they’ve probably never even been with a grain of salt. And besides, I get tired with the intellectual laziness and the inability to make simple socio-economic connections.

Exhibit A: “China is stealing our oil!”
Exhibit B: American car companies look to China as key growth market

China won’t collapse (where all the people supposed to go, anyways?). But it will get slapped in the face by energy and environmental issues, of that I have no doubt. I don’t know where this attitude came from that African countries are just going to roll over and strip themseves bare for the pleasure of the Chinese, but I found quite a bit of wariness of the Chinese in southern Africa. And who could blame them really? Look what Europe did to them!

May 28, 2009 @ 8:51 pm | Comment

Oh crap,

Anatole Kaletsky just proclaimed this the ‘great depression that never was’:

http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article6374863.ece

Prepare for a good ten years of the hardest recession ever. It’s not that he’s not a smart guy, it’s just that every time he makes a prediction like this he gets proved wrong.

May 28, 2009 @ 9:04 pm | Comment

@Dror
“…and decreed that he was 70% right, 30% wrong?”

Hhhhmmm…… 75% right 25% wrong.

Of course gypsies, jewish, slavic, polish and other “minor” races would not agree with that error distribution.
Mentally ill, handicapped and persons with ‘deviated’ behavior would not agree either.

Lest consider us fortunate not having to discuss that today. Some others are not so lucky.

Shalom aleichem Dror

May 28, 2009 @ 9:36 pm | Comment

@Writer from hell

Was that an ironic post?

May 28, 2009 @ 9:43 pm | Comment

@FROARP

“2) Lots of chicks
Mao: Check
Kim: Check”

I want to be a dictator too!!!

May 28, 2009 @ 9:45 pm | Comment

. . . the smiley next to ‘developed nuclear weapons’ was intentional by the way 8)

May 28, 2009 @ 10:49 pm | Comment

The major thing to consider is that over a million WALMART slave-workers will die when the 3 Gorges goes, and my best best is with this upcoming typhoon season.
There is already a building resentment against the CHICOM government, and with luck, they’ll overthrown them then.
Why is no real public attention paid to this: Their schools were deprived of concrete in order to build the 3 Gorges AND a massive nuke bunker that exploded at about the same time of that earthquake, according to the Internet. Which caused which, then, the explosion or the earthquake?
And when the 3 G’s goes downstream, our own country will resort to rebuilding its factories, traffic will be north-south & not overseas, we’ll rebuild Mexico & invade the Commies in South America, clean up the drug trade, make Cuba into a Hawaii, and pay off off Social Security with the immigrants’ new job taxes.
Since WALMART was just an economic war upon the dollar, as soon as their Economic Manchurian Candidate, Obama, gets dragged to SCOTUS, we just won’t pay that Trillion$ we borrowed from the CHICOMS. http://www.rickhyatt.freeservers. for how I would know.

May 29, 2009 @ 12:00 am | Comment

Fire turns sand into glass…

(fixed link – please use html so comments don’t get goofy – thanks!)

May 29, 2009 @ 1:57 am | Comment

Ooookay.

I tend to be in the middle of the “China’s economic miracle will continue to boom!” and “China will collapse!” opinion spectrum. I think China has a lot going for it economically, and I also strongly agree with those who point to the unsustainable aspects of its growth model, the environmental catastrophes and the inherent difficulty of supporting such a huge population.

I have to disagree with the negative assessments of China’s arts and films over the last few decades. I think there are some damned fine Chinese filmmakers and some world-class artists – even if that whole modern Chinese art scene was a bubble for a time, it doesn’t take away from the great work that inflated it in the first place.

And Rick – anyone who drops the term “CHICOM” in a post I cannot take seriously. Really, now. You’ve got to be kidding.

May 29, 2009 @ 3:42 am | Comment

@Dror,

Yes there’s lots of speculation in China’s market as it is the problem with China’s capitalist society, as they have too much money but don’t have an opportunity to buy foreign properties or assets. IE Chinese can’t buy US stocks, Chinese companies are often rejected from buying foreign companies. Although it started to ease, it is still hard to do so. I reject the idea that China allows speculation to occur as they have controlled the price of their currency vs the US, prices of basic items like food are relatively stable. China couldn’t control home and real estate prices as price of real estate rise despite China raising interest rates. At least real estate price is stabilizing and not having heavy swings up and down.

May 29, 2009 @ 5:21 am | Comment

either spam or someone’s lost his mind

May 29, 2009 @ 6:55 am | Comment

May 29, 2009 @ 7:01 am | Comment

I meant “sentenced”, not “stoned”. He was of course given a cup of hemlock.

Actually, hemlock can get you very stoned, but I wouldn’t recommend it. Stick to the weed, no chance of OD.

May 29, 2009 @ 7:22 am | Comment

. . . the smiley next to ‘developed nuclear weapons’ was intentional by the way 8)

May 29, 2009 @ 7:51 am | Comment

@pug_ster: You cannot single out one aspect of the economy. It’s one system. Either there’s balance of there isn’t. The CPC wants to control everything and avoid any surprises. It cannot be done. China’s market is way too big and cannot be centrally managed efficiently over a long period of time.

In a free market it is normal for prices to fluctuate and for disruptive changes to occur regularly. Free societies have the ability to adjust to such changes peacefully.

As for food prices – you might recall that just before this crisis began China suffered from serious inflation and people were starting to get anxious. If the USD really falls in value over the next few years, this will get much worse since a big part of China’s savings is in USD.

As I have pointed out elsewhere, quantitative easing (printing more money) punishes savers by decreasing the value of their money. In our case, America is printing more money, but since the savers who sponsored its debt are in China, the Chinese people are going to be the ones who pay the price.

That’s what it means to be a superpower – you can get into debt and then print your way out of it and let someone else pick up the tab!

May 29, 2009 @ 8:28 am | Comment

I asked the wise folks here a question: Have you short sold any Chinese stocks lately? No yes answers so far.

@PB: The West Lake’s water fronts haven’t changed much in the last 5 years. There are some new businesses though. On the east side a Hyatt hotel opened a few years ago. There are three Starbucks stores nearby, within 200 meters. Ferarri and Porsche have showrooms on the south side.

May 29, 2009 @ 8:56 am | Comment

@Serve: I think invest in Chinese stocks. I have enough indirect investment in this country. I’m putting my savings in other places.

May 29, 2009 @ 9:41 am | Comment

@otherlisa

Absolutely China has some fabulous film makers, painters, sculptors. My point was, in terms of quality if not necessarily quantity, it is roughly equal to… Portugal or even Romania. (Seriously, take a look here: http://www.nytimes.com/interactive/2008/01/18/magazine/20080120_ROMANIAN_FEATURE.html , there’s a long feature article as well. Huh, Romania. Who knew?)

It is very tricky – many would argue it’s impossible – to “rank” artistic or cultural output… nevertheless, I have a very strong feeling that China punches far, far, far below its weight.

For me, Russia before and after 1917 is an obvious parallel.

But you may disagree and I fully respect your viewpoint. I’m fully aware that my opinions might be more driven by my ignorance than by an actual state of fact.

I just don’t think so right now :)

May 29, 2009 @ 10:24 am | Comment

Resident Poet: OK. I am gonna be juvenile once and play your game. I nominate Jet Li from mainland China. Now it’s your term to name dudes from Portugal, Thailand and Romania. Then we will argue who has the most soft power.

Dror: I am not asking whether or not you have invested in Chinese stocks. My question is whether you’ve SHORT SOLD Chinese stocks. I assume you know the difference. Otherwise I will be happy to explain it to you.

May 29, 2009 @ 11:40 am | Comment

I hope you all understand that when it comes to literature it is all subjective. To me, the greatest literature ever produced by humanity is Art of War by Sun Tsu and On the Origin of Species by Charles Darwin.

May 29, 2009 @ 12:01 pm | Comment

Dror: Trust me, what goes on in China is much worse than America’s sub-prime crisis.

Please tell me you are not serious about this statement. If you are serious, then you have no clue about Chinese family financial structure, or the overall capital structure of today’s China.

Let me begin by giving you a 5 year period chart of the The Shanghai A-Share Stock Price Index
http://www.bloomberg.com/apps/cbuilder?ticker1=SHASHR%3AIND
The market was at an all time high at 6395.757 in 10/16/2007, a bubble, and subsequently from that point went to 2940.592 in 06/04/2008. A 54% decline, and this is still before financial crisis. What you notice is that 54% decline did not in anyway, as it would have in USA, create a systemic risk.

How is that possible? One immediate explanation people come up with is that Chinese stock market has a relatively small total market value compared to the whole Chinese GDP, but there is flaw to the explanation when you compare the Chinese scenario with other countries. The main reason is that bank cannot lend money to ordinary Chinese investor, that is all the excessive capital that created the bubble in the first place is NOT LEVERAGED. Hell, most ordinary Chinese investor don’t even have access to margin account when they invest. So what happened during this boom-bust cycle is elite Chinese capitalist manipulating the market through pump-and-dump, information flow control, and other market manipulation methods that is unbeknown to me. They effectively the lure the average middle class Chinese investor to take their money out of their mattress and put it into the market hoping for a lucrative return. This is the only way to make average Chinese citizen to take their money out to the surface. In the end, it was just a massive wealth transfer scheme. The elite took the saving money from the average Chinese, money which they are not going to spent anyway.

Now let’s look at the Chinese real estate market. This sector also when through a boom and bust cycle that has “trapped” a lot of average Chinese investor’s money. It is, however, fundamentally different than American sub-prime mortgage crisis, simply because there is no sub-prime mortgage lending in China. This is all thanks to relatively rigid and dull Chinese financial market, as opposed to the dynamic and vibrant American financial market. In other word, their financial sector is shielded from the crisis simply because of its backwardness. The majority of the house purchase in China are one lump sum payment, which are black money comes from source the government has no way of tracking. Some borrow money from their relatives, most well to do Chinese family today still maintain some family network, although not as extensive as the feudal era.

May 29, 2009 @ 12:08 pm | Comment

The Economist magazine points out a study showing that China’s nationwide power production is much, much lower than it should be according to official GDP and output statements and projections. Can’t produce without power! Are Chinese factories setting up big wheels for FLG members to run around in for mechanical power?

May 29, 2009 @ 1:19 pm | Comment

Resident: My point was, in terms of quality

Serve: I nominate Jet Li

Um, Snap!?

May 29, 2009 @ 2:57 pm | Comment

This is as subjective as it can get, but no different that most opinions here anyway:

If you have 2 sinking boats, one with all current European movie directors on it and the other with Feng Xiaogang alone, and I can only save one. I would save the latter one. OK, hopefully a couple UK and Russian directors are not on the sinking boat… Just so that you know, the opinion at least isn’t an uninformed one — I watch a lot of films each year, including quite some European ones.

Come to think of it, if I have to choose not watching any Chinese films, or any Hollywood films for the next 2 years, I will choose not to watch any Hollywood films. To me, the difference is kind of like UFC and boxing. Boxing still reaches a far wilder audience and pays a lot more, but UFC is a lot more interesting.

May 29, 2009 @ 4:32 pm | Comment

Damn, there’s a blast from the past – Nanheyangrouchuan! What have you been doing with yourself?

May 29, 2009 @ 4:42 pm | Comment

My point was about mainland China.

I’m not sure you noticed, but Jet Li spent (almost) his entire professional life in HK and the US. Do you really think there would be a Jet Li without the HK movie industry?

The Shaolin Temple, which was his real debut, was a HK production by the way, Once Upon A Time In China and Fist of Legend likewise, and for the past 10 years he’s mostly been in Hollywood.

So my point stands.

(Historical note: HK is a part of China only since 1997.)

May 29, 2009 @ 5:45 pm | Comment

For some people, it has really become a popular “sustainable” talk that the growth which has been going for 30 years is “unsustainable”. A blind man can get the bull eye, sooner or later, if he keeps shooting as time goes by.

May 29, 2009 @ 6:06 pm | Comment

@Serve: I do not invest in Chinese stocks. Long, short, or otherwise.

@Fobtacular: Thanks for the comment. I said that what goes on in China is much worse than the sub-prime crisis, I did not say that China has/will have a sub-prime crisis. To paraphrase Tolstoy, every unhealthy economy is unhealthy in its own way.

Let me start by pointing out that the US sub-prime crisis was not the cause of the current crisis. It was a symptom and not the malady itself. As for the details, in the US, too many people who wanted an apartment got easy loans. In China, too many people who want an apartment could not (and still cannot) afford one since prices were driven up by speculators. In the US, the buyer-apartment ration is considerably lower than in China (i.e. the average number of apartments sold to a single buyer). And so, an apartment in a first or second tier Chinese city costs like an apartment in a major US city, even though the average income of a Chinese city dweller is fraction of his US counterpart.

For lack of other alternatives, the RE market has become the investment avenue of choice in China. So, as you pointed out, families invest all their cash in this market as if it was savings account. During the last five years, China’s “emerging middle class” bought every piece of real estate they could put their hands on, regardless of location, decoration, or relation between price and average yield. The phenomena is so extreme that individuals even bought shops and offices without any intention to lease them out.

The problem is that an apartment or a shop is not really a savings account, and when property prices go down these people will lose a few generations of savings in one go. Then they’ll get angry. That’s why the CCP would not let the bubble burst and is now pouring money into an already overheated real estate market. Sadly, this type of anesthetic willl note cure China of it’s illness. It will only delay the pain and make the situation worse. It’s like giving baijiu to a freezing man.

As for systemic risk. Saying that the current crisis does not pose any real threat to China’s financial system is like saying that Hu Jintao is the people’s president of choice. In both cases, we’ll probably never know. The Chinese government has been pouring billions of dollars into local banks and other strategic industries, either directly or through its sovereign wealth funds or the banks themselves. The fact that we have have little information about the way it happened, does not mean it did not happen.

I don’t think you could compare America’s stability to China. It wouldn’t be fair. America has an incredible ability to absorb shocks, and the current crisis is a perfect example. Just imagine what would happen in China if a few large banks go bankrupt, together with several other key industries. In fact, China and the US are now experiencing one single crisis which both share. In the US, it does not pose a serious threat to the country’s political and geographical structure. In China, it does.

For god’s sake, in China, even letting people access youtube is considered a systemic risk…

May 29, 2009 @ 6:21 pm | Comment

@ justice: a country with “5,000 years of history” is not judged over 30 years. I do not know about others, but when I point out problems in the current model, it is in order for them to be fixed and for China to continue to grow. Nothing is determined. It’s in the government and people’s hands.

May 29, 2009 @ 6:24 pm | Comment

@Dror,

US has the ability to absorb shocks but at a cost to its deficit. China definitely doesn’t want its banks to fail and the government is going to provide the banks with liquidity if necessary because they can always sell of its bonds.

If the Chinese use the homes as a savings account, so what? They have to pay at least 20% down when they buy. Then what does an average American own? More than 20% of American Homeowners are underwater in their mortgage loan.

May 30, 2009 @ 2:12 am | Comment

Meanwhile…

May 30, 2009 @ 3:46 am | Comment

@pug_ster: Everything has a price and nobody is saying that America is in ideal shape. Still, when it comes down to bare fundamentals, the current crisis poses a more severe threat to China than it does to almost any other country.

20 years ago, the Chinese people were very angry. One of the main reasons for that anger was inflation (the loss of value of one’s savings). Today, a good chunk of the savings of the Chinese people are invested in local RE. The value of these savings has gone down considerably during the last year, and must go down much more in order to reach its true value. This means that the savings of the Chinese people are once again under serious threat. Add to this the fact that another big chunk of these savings are invested in American debt (and denominated in USD). The US is now printing more and more dollars, so if/when the USD collapses, the savings of the Chinese people will take another hit. etc. etc.

May 30, 2009 @ 8:13 am | Comment

Resident Poet: So now not only the actor has to be Chinese. to count as a Chinese success story, he can only appear in movies shot in China, produced by a Chinese company, with no non-Chinese colleagues, and distributed by Chinese distributors. Have you heard anything called globalization? I am still waiting for your Portuguese, Thai, and Romanian cultural icons.

Dror: So you have not shorted any Chinese stocks. You can talk the talk, but not walk the walk.

May 30, 2009 @ 9:20 am | Comment

@Dror

I agree with your analysis.

What would happen is (successful economic system) China let the RMB become fully convertible?

I believe it would initially rise then at the first sign of a crisis, the wise Chinese people would rush to the bank to convert all their rmbs into dollars or euros producing the “coming collapse of China.”

As long as the rmb hides behind the Chinese Wall and refuses to come out to play, I believe it is nothing but an economic paper tiger.

May 30, 2009 @ 10:03 am | Comment

@Serve: In fact, my talk is very consistent with my walk. China is currently the best place to make money and the worse place to save money. Hence, my long term investments are not in China, and in the short/medium term, I am here making good money, mainly in the real estate and infrastructure sectors.

Besides, I did not say that China will collapse tomorrow. In the short/medium term, the fact that most people don’t understand what’s going on here means CN-related stocks will go up. The stock market reflects people perception of reality. It does not reflect reality itself.

In addition, I am not a day trader and normally don’t invest in individual shares (only ETFs, commodities, and currencies).

May 30, 2009 @ 10:41 am | Comment

Probably Portugal’s greatest cultural icon is Jose Saramago (he got the Nobel for literature, among other countless prizes).

But I’d much rather compare Jet Li to Cristiano Ronaldo :)

May 30, 2009 @ 11:52 am | Comment

@Resident Poet: I’d say it’s Fernando Pessoa. Much more significant than Saramago, though much less appreciated.

Jet Li is indeed better compared with Ronaldo. Beating people up on film does not count as a contribution to humanity in my book.

May 30, 2009 @ 11:55 am | Comment

@Dror

I’m with you on Pessoa vs. Saramago, but I thought the discussion was limited to people alive today.

Antonio Lobo Antunes is also a very interesting writer…

May 30, 2009 @ 1:08 pm | Comment

@Serve
“…am still waiting for your Portuguese, ”

I like Madredeus

http://tinyurl.com/nykzxm

By the way Saramago is nobel price Laureate.

How many Nobel prices are Chinese? I only can find 6 and all of them do not live in China. Why is that so? Why so few?

Tsung-Dao Lee, Physics, 1957 – Chinese American
Edmond H. Fischer, Physiology or Medicine, 1992 – Swiss-American (born in China)
Daniel C. Tsui*, Physics, 1998 – Chinese American
Gao Xingjian, Literature, 2000 – French Emigre
Chen Ning Yang, Physics, 1957 – Chinese American
Samuel C.C. Ting, Physics, 1976 – Michigan-born Chinese American

Well 7. I forgot the DL ;-)

May 30, 2009 @ 1:40 pm | Comment

At least in patent ranking things are improving. 5th position from what can I find.

1 JP
2 US
3 SK
4 EU
5 CH

2006 data.

Maybe a side effect will be IP property will be taken even more seriously in CH…

May 30, 2009 @ 1:45 pm | Comment

@Ecodelta – Just in case anyone is wondering, the number of patent applications is no way WHATSOEVER to measure inventiveness. Instead it is usually a measure of a) how easy it is to get a patent, b) how many companies wish to use patent portfolios to eliminate competition. Case in point, despite the equal importance of each market in terms of sales etc., the last company I worked for made 4,000 patent applications per year in the US and virtually zero in Europe – why? firstly because the applications were of an extremely obvious nature (and many of them were not even new) and were unlikely to be accepted by European patent offices, and secondly because there was a high risk that such activities would constitute anti-competitive behaviour under EU law. The same company made 8,000 applications in China.

Likewise, these stats hide important differences – firstly, the ratio between true patents and utility models (so-called ‘mini patents’ which are of less inventive value and receive a lower level of protection) is 1:3 in China, whereas the US and many European jurisdictions do not allow utility models. Even the true Chinese patents are generally accepted to be of extremely low value, and would not be accepted by other patent offices.

This is not to say that China has nothing in the way of inventiveness, but the number of patent applications made is no way of measuring this. Even a straight measure of R&D spending would do a better job.

May 31, 2009 @ 6:25 am | Comment

I’m curious about property laws. In Taiwan those massive cookie cutter housing complexes need only sell 1/2 of their residences to break even, because of land use laws that tremendously favor developers, the cultural habit of buying housing no matter how stupid the investment, and tax laws that keep people from selling homes. In Taichung about 1/3 of all homes are empty but developers make big $$. Is there zoning or other controls that have similar effects in China? What about taxes? All those empty buildings may actually be making money for the developers, if the government has arranged the system in their favor.

May 31, 2009 @ 10:07 am | Comment

Hongkong is on life support from mainland central government, it’s a ponzi scheme at best, there is no way for it to compete with neighboring provinces and it really has nothing to compete. The only fate of Hongkong is going back to be a fishing vilage. To mainland China, Hongkong’s role as being the only connection to West is ending.

May 31, 2009 @ 11:11 am | Comment

@serve

“Dror: So you have not shorted any Chinese stocks. You can talk the talk, but not walk the walk”

If everyone in China thinks that the stock market is a reflection of the true fundamentals of the economy, you are heading down the path of a serious crash landing in the future.

In fact, if you are schooled on the subject of economic bubbles, you would realize that a historic and successive stock rallies precedes a devastating crash. The Nikkei stock index reached all-time high in 1989 before the bubble burst with horrific ferocity. The same happened in the 1987 Black Monday Stock Crash. Dow Jones peaked at a historic 2722 points in Aug 1987 before a single day collapse of 508 points on Oct 19, 1987.

As John Maynard Keynes brilliantly put it, “The market can remain irrational longer than you can remain solvent.” The undying faith in stocks as an indicator of economic optimism and prosperity may well be a recipe for disaster.

May 31, 2009 @ 11:55 am | Comment

@FOARP
I am aware of the missuses of the patent system as a way to block competitors or secure competitors on the market.

Still, although it is a faulty measure of true inventiveness it considers that it shows an improvement in the situation in CH. At least a patent system is in place,
not a bad start after all

I am also well aware of the low research i+d budgets in CH and their tendency to copy foreign technologies. But when you have fallen back well behind it is more effective to copy what is already done rather than invent all the way back to the first places in technology.

But not a few of the knockouts products tomming from CH reveal truly invectiveness, copying modern technologies ad processes is not so simple as pressing the button of the xerox machine.
(yes foreign outsourcing companies helped a bit, sometime they got a good surprise..)

Eventually we will see more surprises coming out from CH. They have the people. Lots of young graduates looking for a way o earn their daily bread, the need to catch up at the technology level and good pile of dire problems that require novel solutions.

And…. Need is the mother of all inventions.

Stay tunned for what may come in the future…

May 31, 2009 @ 1:28 pm | Comment

Damn!

….block competitors and secure market position

….I consider that is shows…

May 31, 2009 @ 1:30 pm | Comment

Can I nominate FengXiaoGang to be the most watched movie director ever lived in this planet? He beats the living sh1t out of all the Portuguese diretors combined … LOL

I mean really? Portugal?! really? I mean no offense I think they are a wonderful country and all that but someone seriously thinks Portugal has more “softpower” (whatever that means …) than China? Shouldn’t you at least add something like “more softpower among China-hating-no-matter-what male Caucasians?

May 31, 2009 @ 3:05 pm | Comment

@ FOARP

“Damn, there’s a blast from the past – Nanheyangrouchuan! What have you been doing with yourself?”

I do post on china law blog as “another anon”. I’ve been busy working on a very interesting project involving water filtration. Other than that, drinking good wine, eating good food and avoiding Chinese girls.

Bah mantou!

May 31, 2009 @ 3:17 pm | Comment

@MoneyBall

Small Portugal? Yes, small but…

Just a little bit of history. Small Portugal opened the route to east Indies, and doing that opened the route for the following west powers to Asia. Spanish, Holland, British…. and eventually US.

Ever heard of Vasco de Gama?

It provoked Spain to attempt to find a different route to Asia… towards the west. What happened afterwards his well known history. A new continent, ….place of birth of the US. Ever heard of that country lately?
Quit a small thing…

Magellan, was commander of the first fleet that made the first travel around the world. It opened the route from Mexico to Asia. Ever heard of The Galeons from Manila? A lot of silver from Potosi (Bolivia) reached this way to China, and Chinese goods started to flood into west markets…. bringing the attention of other western powers….

http://en.wikipedia.org/wiki/Manila_Galleon

Zeng He travels could have been magnificent, and their naval technologies even superior, but no comparison on the impact down the road with what was started by small Portugal.

And what about Brasil? Do you know what language is spoken there? Brasilian? What is the origin?

And if you Visit Africa, you may also find that Portuguese is spoken there.

Be careful with small things.
Don’t make the same mistake of Chinese Scholars counseling their emperor.
“Those western barbarian small kingdoms are far away and so powerless like small seagulls, take no heed of them”

May 31, 2009 @ 3:35 pm | Comment

Sad thing that to find more about Zheng He travels we are limited to wild especulations.

The travel reports were destroyed and the ships too. :-(

Fortunately that didn’t happen here. Lot of documents about our travels can be found in the “General Archive of the Indies”

http://en.wikipedia.org/wiki/Archivo_General_de_Indias

We didn’t burn them… and full sizes copies of the old ships can be visited. :-)

May 31, 2009 @ 3:43 pm | Comment

Tickets anyone?

http://es.wikipedia.org/wiki/Archivo:SantaMariaPalos1.jpg

Not as impressive as the treasure ships… but it is there to visit.

May 31, 2009 @ 3:45 pm | Comment

@serve

“Dror: So you have not shorted any Chinese stocks. You can talk the talk, but not walk the walk”

If everyone in China thinks that the stock market is a reflection of the true fundamentals of the economy, you are heading down the path of a serious crash landing in the future.

In fact, if you are schooled on the subject of economic bubbles, you would realize that a historic and successive stock rallies precedes a devastating crash. The Nikkei stock index reached all-time high in 1989 before the bubble burst with horrific ferocity. The same happened in the 1987 Black Monday Stock Crash. Dow Jones peaked at a historic 2722 points in Aug 1987 before a single day collapse of 508 points on Oct 19, 1987.

As John Maynard Keynes brilliantly put it, “The market can remain irrational longer than you can remain solvent.” The undying faith in stocks as an indicator of economic optimism and prosperity may well be a recipe for disaster.

May 31, 2009 @ 4:03 pm | Comment

@zhaoleban

“Hongkong is on life support from mainland central government, it’s a ponzi scheme at best, there is no way for it to compete with neighboring provinces and it really has nothing to compete. The only fate of Hongkong is going back to be a fishing vilage. To mainland China, Hongkong’s role as being the only connection to West is ending.”

The rest of China, including Shanghai, did not have something that Hong Kong has which is crucial to economic success: the rule of law and an independent judiciary.

You may argue that cities like Shanghai has been successful but contrary to the common perception, i don’t think it would surpass Hong Kong as a financial hub? Why? Shanghai and the rest of China do not have a proper legal framework based on common law like the former British colony. Furthermore, the rest of China is far from a position to allow free flow of capital and undertake capital account liberalization.

May 31, 2009 @ 4:19 pm | Comment

I’m not going to get into this debate about Portugal. I made a comparison with Imperial Russia and I think that’s fair enough. Russia before 1917 produced two Tolstoys, Chehkov, Musorgsky, Borodin, Rimsky-Korsakov, and Dostoevsky. The only scientist of note was Tsiolkovskii, and he was ignored under the Tsars. In spite of the insanely long and obsessive post on the China Daily thread listing all China’s ‘inventions’ (including golf, football, the steam engine and beer, apparently), little has actually been achieved by mainland Chinese scientists under the current government.

May 31, 2009 @ 5:54 pm | Comment

Golf?

May 31, 2009 @ 6:11 pm | Comment

Richard… I think we need a new post on China’s cultural/scientific output vs. other countries. Your place of mine?

May 31, 2009 @ 7:50 pm | Comment

Dror, I don’t even have time to read my own comments at the moment. Want to put up a guest post? Email me. (And anyone else who’s interested please do the same.)

May 31, 2009 @ 8:59 pm | Comment

Haha… I am working on two other posts for TAM. Will see what I can do.

May 31, 2009 @ 9:25 pm | Comment

@Michael Turton – The situation on the mainland is similar to the way you describe Taiwan. Large blocks of flats will be built, with most being sold before the building is even finished. In fact you will sometimes see unfinished buildings being torn down, not because of lack of sales or structural factors, but because in the intervening months since building commenced funding/permission/sufficient interest has been obtained for a larger building to be built and sold. Many of these flats will then stand empty as investment properties.

The main difference (I guess, I know little about Taiwan property law other than zoning is pretty strict – hence the rice paddies in central Miaoli) is that there is still no private ownership in the PRC, only rights for use, with much land being reserved for particular uses, although developers will often ignore these rules and try to get them re-zoned post-development. As far as I know, residential land is still leased from the government on 70 year leases, and no-one knows what’s going to happen when the first of these leases starts to run out. However I don’t know what the 2007 land reform law has done about this. From what I can gather from a brief read-through, nothing, but you can check this out yourself:

http://www.law-lib.com/law/law_view.asp?id=193400

May 31, 2009 @ 9:37 pm | Comment

@FOARP/Michael Turton: It’s still 70 years lease for residential use and 40 years lease for commercial use. But there’s a lot of mischeif in between, and many consumers have no idea or don’t care what they’re buying to commercial land means “serviced apartments” or strata titled office space which are being sold for investment purposes.

As for the land, it is normally not cheap, which is another absurdity – the government claims that RE prices are too high, but these prices are derived directly from land prices which are set by the government (normally through auctions).

May 31, 2009 @ 10:40 pm | Comment

@ecodelta,

You said “Be careful with small things”, fair enough, what about the big things? We’ ve gotta be careful with small things like Portugal but can so easily dismiss a big thing like China? where is the logic?

I dont have a problem with Portugal, I’m sure they had their time in history, so did a lot of other peoples even the Arabians. I have mad respect for Portugal… maybe not true but I know I’d be very cautious to pass a simple statement like “even Portugal has more softpower than China” when it comes to a whole people with their thousands of yrs history, not that I dont have the shallow knowledge to draw the comparison, but because I ‘m an EDUCATED and RESPECTFUL person! Only a 10 yr old would say something like “Kobe owns LeBron”! I can’t believe a silly and childish statement like that are ferociously defended by so many supposedly knowledgable and fair-minded western posters here. That’s why I stopped coming to this place regularly.

June 2, 2009 @ 6:57 am | Comment

For big chunks of time CH isolated itself, making itself irrelevant to the world, and blissfully ignoring what was going on beyond its borders… at is own risk!

Its relathionship to foreign entireties was not a few time in history very condescending, overbearing, even preventing an effective diplomacy against foreign powers… with terrible consequences.

And that is what I was my the point of my critic. It is a constructive, not destructive critic. What I felt when reading your post was ignorance and shortsightness. Maybe I misread.
But anyway, I would never use you argumentation even with Lichtenstein.

My point is that we must look beyond our border, physical and mentally.
Be careful with big things of course,… but also with small ones, you never know

Is China big? Yes. But for most of the time in history here, it has been irrelevant to us. Seems it is changing lately. Hope for the best.

” I ‘m an EDUCATED and RESPECTFUL person!” No need to say it so loud ;-)

“Kobe owns LeBron” ???

June 2, 2009 @ 7:19 am | Comment

I don’t understand how anyone with an ounce of brainpower can claim that Portugal currently has more soft power than China. Can anyone here name one Portugal director here off the top of their head? How about any Portugese film’s within the last 20 years. Anyone know of any famous Portugese companies? What’s the name of the Portugese President? What big international celebrities are from Portugal? (Off the top of my head I can think of Nelly Furtado and Christiano Ronaldo, that’s about it). I just love how some people here use Vasco de Garma/Magellen to evoke Portugal’s old glory days as an indication of Portugal’s awesome “softpower” without realizing that those people have been dead for quite sometime now. Clearly these people don’t know what softpower is. More than anything else softpower is a case of “what have you done for me lately”. When most foreigners think of the US they don’t think of the founding fathers, Abraham Lincoln, Thomas Edison, they think of Coca Cola, Levi’s, Nike, Hollywood movies, the NBA, Hip-hop music, MickeyD, Disney World, the list goes on and on….

June 2, 2009 @ 10:16 pm | Comment

China will collapse. They use fake numbers, they are oppressive, the government can and does prop up industries, they’re closed and don’t let outsiders look at “the books,” they can print Yuan as much as they want because who can tell and they can pump their fake, manipulated currency into Chinese companies. Gee, how hard is it to be successful if you prop up entire industries? More than 840 million Chinese live on $2.00 or LESS per day. What will happen is this: some Chinese will enjoy SOME level of success. Most will not. When there are over 900 million living in abstract, 200 million living in somewhat barely tolerable conditions and 100 million just falling below what is middle class…how long before they start to hate the 100 million or so that may be living fairly good lives? This is what causes total fear in the government of China. They will rise up and demand better lives. But…they won’t get it. Think of it this way: China’s economy is only about $4.4 trillion…yet they have a population of over 1.3 billion. They would have to have an economy of $60 trillion to even come close to good living standards.

India is where it is at. China has been cursed and their day of falling back into nothingness is at hand. The west knows this, which is why the West is focused on India.

June 5, 2009 @ 11:54 pm | Comment

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