Enlarged postate,
I love your name. Welcome to the site. Mine isn't a narrative; it's an explanation.
Chinese Progress in their Move from a Government Financed Economy to a Private Economy
by fulltimestudent 28 Replies latest social current
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William Penwell
William, may I ask, what you see (or, think you see) in China, that leads you to call China a 'repressive' regime?
We can only go by what is reported to us in the news media. Just two examples in recent memory, according to what I have read from different news sources, the news media in China is controled by the Central Chinese government that no negative pictures are allowed to be published and public protest are banned. I call this repressive. We don't have to go to far for Russia, in the last winder Olympics and their ban on gay rights. Again you may not agree with this life style but I would say that was repressive.
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enlarged postate
Thank you. As an econ dude, I'm sure you've heard of Lewis turning points and their effects on growth. This is happening in China. Couple that with malinvestment (which you've covered) and an aging population, and it seems to me the question becomes whether the landing will be hard or soft, short or long, and when.
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DJS
Enlarged,
Good points. Since you are a newbie, you might wonder why the post. I've been an econ prof, and reading some of the posts about the Chinese phenomenon over the past year has led me to post an occasional econ primer. Basic stuff to try and help the members understand that economics is very complicated. You present other issues of concern which contribute in making economic planning and projections very, very challenging. Thanks. Looking forward to your input. You win the most creative screen name award, hands down!
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fulltimestudent
DJS: I'm pulling for the Chinese. And the Russians. And the Liberians . . .
I'm sorry I cannot take the time (at the moment) to contribute more to this thread. There's only a couple of weeks until the end of the semester and the start of the examination period. So I've got all sorts of things to complete, plus a personal matter that's taken a bit of time. So most of what I've been posting is sort of like hit and run.
So in connection with your comment above, DJS, I'm sure this is what everyone wants, the opportunity for all to live a reasonable life.
I'll try and post something in response to your points also.
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DJS
FTS,
Thank you again for your contributions to this topic and to this site. You make it smarter. Economics is wildly interesting and complicated. I think sometimes a few think that those of us who try to bring a rational mindset to the topic are anti-China. Nothing could be further from the truth. I'm for the planet and everyone on it getting their acts together.
Ultimately China has been doing what nearly every other capitalistic government does - a combination of rational and irrational economic choices and decisions. The human toll caused by job loss, etc., their own poltical careers, egos, etc. sometimes get in the way of what would otherwise constitute sound economic policy. Keynes suggests government gettting out of the way (cutting taxes and spending) when the capitalistic juggernaut is rolling and when it isn't (recessions when capitalism is often impotent) governments should spend, spend, spend. China is following that model to some degree. The EU has recently followed the exact opposite strategy - cutting government investment and spending during a recession - in large part due to pressure from Germany and the other haves. How is that working out for them? The recession is lingering, even threatening to pull the Germans, who depend more on exports than do the Chinese - albeit higher end stuff - along with it.
Your OP suggests the Chinese are trying to follow sound economic policy more closely to compete mano a mano in the capitalistic econoimic global marketplace. Good for them. I hope they make it, but history - and their own social issues looming out in the not to distant future - suggests the Chinese miracle will take a bit longer than they - and many on this site - expect or desire.
But time wili tell. 1.6 billion doing anything halfway right are going to make a splash.
Again, thank you for your excellent educational OPs.
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fulltimestudent
A hit-and-run exercise.
DJS, I want to quickly take issue with this point in a previous post:
The housing boom is showing signs of having finally run its course. The boom was fueled by the 600,000 or so Chinese who had expendable income but with nothing to do with it (the Chinese stock market sucks the big one). Buying housing, and speculating that there would be buyers for it at a large profit, resulted in entire cities being built, many of which are not inhabited. Not houses or subdivisions. Entire freaking Cities. Got that? ENTIRE UNINHABITED CITIES. Got that????
Really? ENTIRE UNINHABITED CITIES. A little hyperbole is justifiable, but huge hyperbole brings one's ideas into question.
I suggest to you that if you dig a little deeper you will likely agree that this is a furphy.
Think for a moment, the Chinese government figures say that now approximately 50% of the population live in cities. I dont' know the precise figures, but when Mao died and the CPC changed course, the figure may have been 20% urbanised.
Working backwards off current population figures (about fourteen hundred billion -1,400,000,00) and claimed as steady at the moment that means roughly 700 million Chinese live in cities, (say) 250 million when Deng took the lead (I say lead, because, in spite of popular western opinion, Chinese leaders do not have unfettered power).
So if 350 million people have moved to cities in 30 years, that requires housing the entire population of the USA in the said 30 years - allowing 3 people to each housing unit, an average of nearly 4,000,000 new homes per year.
Some 12 years ago I worked on a project with an architectural/town planning office that had a contract to design a new city in China for a population of one million. He understood a number of these were being planned each year. Cant vouch for that, but that was his statement.
If you're attempting to plan new cities on that scale, it would be normal to have some errors of judgement, and some areas would have slower uptakes than others. And that I suggest is the source of this story.
Can you come up with just one city that is uninhabited, so that we can examine it?
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DJS
FTS,
I referenced the Leslie Stahl 60 minutes piece on the uninhabited cites months ago in another Chinese miracle OP. This is real, vetted and reported by 60 minutes. You can view the video online if you wish. A transcript of Ms. Stahl's conversation with a Hong Kong based financial analyst is below. I watched the show in amazement. You should know by now that I don't post stuff I haven't vetted. This addresses everything I stated. No hyperbole at all. China IS doing many amazing things, and I am their biggest fan. Once again, I will state that a rational academic approach to all things China is necessary to truly understand that there are many issues looming. I hope they succeed wildly and avoid all of the landmines.
C hina's real estate bubble
China's economy has become the second largest in the world, but its rapid growth may have created the largest housing bubble in history
- The following script is from "China's Real Estate Bubble" which originally aired on March 3, 2013, and was rebroadcast on August 3, 2014. Lesley Stahl is the correspondent. Shachar Bar-On, producer.
For three decades, China had been nothing short of a financial miracle: a state-controlled economy that managed to navigate its way out of the tatters of communism to become the world's second largest -- deftly managed by government policies and decrees. But now, many in the financial world are looking nervously at China.
That's because one sector Chinese authorities concentrated on was real estate and construction. And as we first reported in March last year, that may have created the largest housing bubble in human history. If you go to China, it's easy to see why there's all the talk of a bubble. We discovered that the most populated nation on Earth is building houses, districts and cities with no one in them.
Lesley Stahl: So this is Zhengzhou. And we are on the major highway, or the major road. And it's rush hour.
Gillem Tulloch: Yeah -
Lesley Stahl: And it's almost empty.
Gillem Tulloch is a Hong Kong based financial analyst who was one of the first to draw attention to the housing bubble in China. He's showing us around the new eastern district of Zhengzhou, in one of the most populated provinces in China - not that you'd know it. We found what they call a "ghost city" of new towers with no residents, desolate condos and vacant subdivisions uninhabited for miles, and miles, and miles, and miles of empty apartments.
Lesley Stahl: Why are they empty? I've heard that they have actually been sold.
Gillem Tulloch: They've all been sold. They've all been sold.
Lesley Stahl: They've all been sold? They're owned.
Gillem Tulloch: Absolutely.
Owned by people in China's emerging middle class, who now have enough money to invest but few ways to do it. They're not allowed to invest abroad, banks offer paltry returns, and the stock market is a rollercoaster. But 16 years ago, the government changed its policy and allowed people to buy their own homes and the flood gates opened.
Gillem Tulloch: So what they do is they invest in property because property prices have always gone up by more than inflation.
Lesley Stahl: And they believe it will always go up?
Gillem Tulloch: Yeah, just like they believed in the U.S.
Actually, property values have doubled and tripled and more -- so people in the middle class have sunk every last penny into buying five, even 10 apartments, fueling a building bonanza unprecedented in human history. No nation has ever built so much so fast.
CONTAINING CHINA'S REAL ESTATE BUBBLE
Lesley Stahl: How important is real estate to the Chinese economy? Is it central?
Gillem Tulloch: Yes. It's the main driver of growth and has been for the last few years. Some estimates have it as high as 20 or 30 percent of the whole economy.
Lesley Stahl: But they're not just building housing. They're building cities.
Gillem Tulloch: Yes. That's right.
Lesley Stahl: Giant cities being built with people not coming to live here.
Gillem Tulloch: Yes. I think they're building somewhere between 12 and 24 new cities every single year.
Unlike our market driven economy, in China it's the government that has spent some $2 trillion to get these cities built - as a way of keeping the economy growing. The assumption is "if you build it, they'll come." But no one's coming.
Lesley Stahl: Wow. This is really completely, totally empty and it goes up -
Gillem took us to this shopping mall that's been standing vacant for three years.
Lesley Stahl: Can I find this all over China?
Gillem Tulloch: Yes, you can. They've simply built too much infrastructure too quickly.
Lesley Stahl: But I see KFC behind you. I see Starbucks over there. I see some other very recognizable American franchises coming in here. At least they-- does that mean they have faith that this is going to ignite?
Gillem Tulloch: No, these are all fake signs. Just to get potential buyers the impression of what it might look like if they moved in.
Lesley Stahl: They're not real? So I see KFC didn't-
Gillem Tulloch: They haven't--
Lesley Stahl: Buy this space or rent this space?
Gillem Tulloch: No, they haven't.
Lesley Stahl: Starbucks?
Gillem Tulloch: No.
Lesley Stahl: They just put the sign up?
Gillem Tulloch: That's right.
It's all make-believe -- non-existent supply for non existent demand.
Lesley Stahl: Look at that. Swarovski. Piaget. They're hoping for high end too.
Gillem Tulloch: H&M. Zara.
Lesley Stahl: And it's all Potemkin.
Gillem Tulloch: Yeah.
It's surreal and it's everywhere. Like the city of Ordos in Mongolia built for a million people who didn't show up. And no, you are not in England. You're in Thames town -- a development near Shanghai built like an English village.
Gillem Tulloch: And it was finished, I think, around five or six years. And it must have cost close to a billion U.S. dollars. And you'll see, it's still standing there empty.
Lesley Stahl: Well, I heard that there is some industry there or some business, one business there.
Gillem Tulloch: Marriage.
Lesley Stahl: Wedding pictures!
And what's more uplifting than a wedding -- or 10? You can see these empty developments on the edge of almost every city in China.
Lesley Stahl: What about the idea that China is urbanizing? People are flooding into cities by the hundreds of millions. And that this really is a smart move: build the housing to accommodate the urbanization process.
Gillem Tulloch: Well, so people are being moved into the cities. But that doesn't necessarily mean that they can afford these apartments which, you know, cost $100,000 U.S. or whatever. I mean, these are poor people moving into the cities, so they're building the wrong sort of apartments.
And what's worse, to build all these massive cities, they've had to tear down what was there before, clearing rice fields and displacing by some counts tens of millions of villagers. On the edge of Zhengzhou, Gillem and I came upon a strange sight.
Lesley Stahl: I'm just watching what they're doing, these-- do you have any idea?
Gillem Tulloch: I think they're trying to recycle the bricks.
These villagers were salvaging what's left of their homes, bulldozed to make room for more empty condos, already encroaching in the distance.
Lesley Stahl: There are all these empty apartments over here. Can they conceivably move into those up-scale places?
Gillem Tulloch: Most people in China live on about less than $2 a day. And these apartments probably cost upwards of $50,000 or $60,000 U.S. So it's very unlikely.
Lesley Stahl: What will happen to them, do you think?
Gillem Tulloch: I mean, they'll be forced to relocate somewhere. I have no idea where they'll go.
These are the immediate casualties of the building boom. And there's another problem: analysts warn that all this building has created a bubble that could burst.
Lesley Stahl: So if the bubble bursts, who's left holding the bag?
Gillem Tulloch: There are multiple classes of people that are going to get wiped out by this. People who have invested three generations worth of savings -- so grandparents, parents and children - into properties will see their savings evaporate. And then, of course, 50 million construction workers who are working on all these projects around China.
The prognosis of a bubble about to burst isn't only coming from financial gloom-and-doomers. We heard it from the most unlikely source.
Lesley Stahl: Are you the biggest home builder in the world?
Wang Shi: I think. Maybe.
Lesley Stahl: You may be?
Wang Shi: Yes. Only the quantity, not quality.
Wang Shi is modest, but his company, Vanke, is a multibillion dollar real estate empire, building more homes than anyone in China. He was born on the frontlines of communism, and joined the Red Army. But he secretly read forbidden books about capitalism, so that when China liberalized its economy, he rushed to the frontlines of the free market. Even he thinks today's situation is out of control.
Lesley Stahl: Are homes in China too expensive today?
Wang Shi: Yeah.
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fulltimestudent
FTS: William, may I ask, what you see (or, think you see) in China, that leads you to call China a 'repressive' regime?
William Penwell: We can only go by what is reported to us in the news media. Just two examples in recent memory, according to what I have read from different news sources, the news media in China is controled by the Central Chinese government that no negative pictures are allowed to be published and public protest are banned. I call this repressive. We don't have to go to far for Russia, in the last winder Olympics and their ban on gay rights. Again you may not agree with this life style but I would say that was repressive
Thnx for responding William. and OK. now we can discuss your comment:
First,
We can only go by what is reported to us in the news media.
Yes, but as you go on to discuss, 'media' can be biased, because, as you suggest, the Chinese media is because it its 'government-controlled.' And, I agree, (and most days of the week, I read the web-based editions of the three web-based Chinese newspapers. Here they are:
http://english.peopledaily.com.cn/
http://www.globaltimes.cn/index.html
http://www.chinadaily.com.cn/ and for a USA edition: http://usa.chinadaily.com.cn/
Edited to add: Clumsy fingers hit the wrong button, so I'll continue on a second post.
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fulltimestudent
If you'd like to check out Chinese TV, http://english.cntv.cn/ will give you some material in English.
You'll note some other differences. Chinese media is (IMO-grin, and at least in English editions) offering more of a world view. (In contrast, in the Anglosphere, the media tends to be insular-again IMO).
Another difference, its a bit more serious than anglosphere media, which tends to try too hard to be 'cool' and often becomes just frivolous. I guess, because they have to be, since it must have popular appeal, and if no-one buys their media, they are out of business. SO are they really free?
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William Penwell: public protest are banned.
Professor Kerry Brown ( at Sydney University - http://sydney.edu.au/china_studies_centre/en/staff/kerry-brown.shtml ) said recently that (in a special talk) that there ae 200,000 to 500,000 public protests a year in China.
Some are handled peacefully, some less so. But your own TV (in your own country) will often show violent confrontations between demonstrators and authority.
Have I challenged your view of China?