Strikingly, Japanese exports to the US were down some 37% yoy, losing some 26pp since the 11% yoy contraction in July. But we cannot highlight strongly enough how truly mindboggling Japan’s collapse in exports to China are. Last July they were expanding at a 16% yoy pace. Now they are contracting at a 35% yoy rate! This is a phenomenon throughout the region. Hence despite the notoriously manipulated Chinese GDP data showing a shocking slowdown in GDP growth to 6.8% yoy, I would eat my hat if the Chinese economy was doing anything other than contracting right now. Albert Edwards Societe Generale
The steepness of this slowdown is likely to have a significant impact on much of the rest of Asia, which relies heavily on demand from China. Only this week a Singapore based economist friend of mine sent me this in an e-mail:
At S'pore's port container terminal (the busiest in the world), a third of the cranes are idle. There are some companies saying they have inventories stretching 6 months out. December's plunge in Asian exports was due to the shutdown of electronic companies during the Christmas period because of the pile up in inventories.
Basically there is still far to much we don't know about what is happening in China, like, for example, the seasonally adjusted quarter on quarter rate. Barclays Capital economist Peng Wensheng estimates that after taking into account seasonal adjustments, the Chinese economy barely grew at all in the fourth quarter compared with the third quarter. My feeling is that he is most probably right. Most of the consenus analysts are therefore very probably well behind the curve. Like Daiwa Institute of Research, JPMorgan Chase & Co. and Citigroup Inc. who while they all today reduced their estimates for China’s growth in 2009 remained at remarkably high levels. Daiwa cut to 6.3 percent from 7.5 percent; JPMorgan to 7.2 percent from 7.8 percent; and Citigroup to 7.6 percent from 8.2 percent. This seems to me to be the next best thing to living in "cloud cuckoo land".
Basically it seems to me that few people other than professional macro economists and bank analysts (and far from all of these if the truth be told) really realise what the implications of such a dramatic decline in year on year GDP actually means. If the quarter on quarter rate of expansion was very low indeed, possibly verging on the negative then - guessing a bit, you know what they call back of the envelope stuff - this means output must have been moving in the October-December period somewhere in an annualised 0 to 2% range. This means we may well see quarter on quarter negative growth in 2009 in China, and that the possibility of a technical recession of two consecutive quarters of negative growth must be over 50% at this point. It wasn't so long ago that the consensus was saying that annual GDP growth which was as high as 6% would be tantamount to a recession!
It is really very frustrating to find that with all the trillions of dollars at issue, and a whole army of China watchers, virtually no one seems to be trying to derive monthly and quarterly rates of movement from the official statistics.
The OECD do at least seem to be aware of this problem and they do have a lead indicator for China (which includes items like cargo handled at ports, Enterprise deposits, Chemical fertilizer production, Non ferrous metal production, a Monetary aggregate M2, and Imports from Asia. Below I have a chart which compares this indicator for both Spain and China. Since Spain, as we know, is having a very strong contraction at this moment in time, it gives some sort of reference point. What is so striking is that it appears China is now slowing much more rapidly than even Spain, and GDP may, looking at the steepness of the recent month on month drops,have even started contracting in November. This is obviously all shell shock stuff.
Societe Generale economist Albert Edwards is one of those who has been drawing our attention to the rapid decline in China's GDP (although I myself had a go here) and he uses one very interesting "proxy" (an indicator which can serve as a rough and ready substitute for something else, in this case movement in GDP) - electricity output. If you look at the 3 month year-on-year moving average for electricity output in China (see chart below) you will see it is already falling, which means that (in all probability) China's GDP is falling, which is just wow!
The history of using electrical output as a convenient proxy where we simply don't have very adequate data has a long and reputable history - going back to the pioneering work of US growth theorist Edward Dennison in the 1960s - but in case you feel that the correlation may not be a good one, here (see below) is a chart from Edwards which shows China GDP and electricity output compared. The fit is obviously not a perfect one, but that isn't the name of the game here, what should be evident is that a drop in electrical output as large as the one we are seeing in China at this point will be reflected in a very sharp reduction in GDP output.
Which takes me on to my next point, how reliable is Chinese data? Well, perhaps I am going to surprise some of you here, but I would day that for my purposes it doesn't really matter, since what I think we need to know is the rate of contraction (or expansion) in Chinese GDP, and not its absolute level. What matters to the rest of the world is not expecially how rich - or poor - China actually is (from a macro economic analysis point of view that is), but how rapidly it is expanding - or contracting - and what the rate of export and reserves growth is. The rest is interesting, but from a nuts and bolts point of view, it constitutes what Boris Vian used to call froth on the daydream. If the official data is rather inaccurate, then it is not unreasonable to assume that the inbuilt biases are the same from one time period to the next (the same point applies to the existence of the so called "informal economy"), and so my message here is - arrived at on the basis of looking at one economy after another in rapid succession - how much we can learn from how little, if only we know what we are looking for that is. This electrical output picture is also to some extent confirmed by China's manufacturing purchasing managers index, which has been contracting for some months now, and to an extent which begins to be compatible with GDP contraction, given the dependence of China on manufacturing activity.
Well China isn't quite in Great Depression mode yet, but manufacturing activity - which forms the core of the Chinese economy and accounts for 43% of all activity - is already very close to a technical recession, and phew, it wasn't very long ago that the Chinese economy was registering double digit growth. So the turn around is gigantic. The "close to technical recession in manufacturing industry" call comes from the people over at CLSA Asia-Pacific Markets, who compile the China purchasing managers index, and they base their judgement on the fact that their Chinese manufacturing index has now been registering contraction for five consecutive months.
Export Slump
China is an export driven economy, and you can't simply switch from external to internal demand as a driver at the click of a finger (or mouse, if you make your financial transactions online). Another economist who mailed me this morning said this:
"I don't cover China so unfortunately, my views on that country are not very informed, but I do agree with your point about the China internal consumption argument. In my opinion, the belief that domestic consumption will take over from exports as a growth engine is nothing more than myth. Perhaps I'm misunderstanding the argument, but when factories and the export sector, in general, are bleeding jobs, it would be rather odd for internal consumption to take off at this point in time."
So what is happening to exports? Well, China’s exports fell the most in nearly a decade in December, with shipments down by 2.8 percent over December 2007. That compares with a 21.7 percent increase a year earlier. Over the whole of 2008 exports were up by 17.2 percent, a reduction on the 25.7 percent gain registered in 2007, and suggesting that the drop in the last two months of the year may have been very sharp indeed. Exports to the European Union, China’s biggest export market, fell 3.5 percent in December from a year earlier. Shipments to the U.S. dropped 4.1 percent. Imports dropped even more sharply - by 21.3 percent, meaning the trade surplus failed to fall, and at $39 billion it remained the second-biggest on record.
And China's declining imports are also being felt elsewhere, since in Japan's December trade report (which was out this morning, and was a complete horror story) we find that exports to China were down 35.5 percent year on year.
So to some up, while it may well be true that China is not (yet) entering the Second Great Depression, I am arguing that China is really going to be one of the worst case scenarios in the current global recession, and that consensus thinking still has a very very long way to go in catching up with events in the China case.
27 comments:
Your argument seems a bit weak since you made no mention of the massive stimulus package the Chinese government came up with and is in fact already in usage for the past couple of months. Surely nearly $600B will drive up the Chinese economy and sustain it throughout this global recession. Export oriented businesses will metamorphose to service and supply the domestic demand in infrastructure based materials and services as required by the massive projects the Chinese government is currently undertaking.
Hi,
"Your argument seems a bit weak since you made no mention of the massive stimulus package the Chinese government came up with and is in fact already in usage for the past couple of months."
Your right, I didn't. I'm not really a China specialist, and I am just trying to get some sort of triangulation of what is happening in China, to help see the global impact, rather than drilling down too far in China itself.
There has been quiet a lot of comment going the rounds about how much of this total is real money, and how effective this spending will be. Remember we are talking about a complete shift of focus for this economy away from the export driven setors and increasing capacity invesment to meet the export market. This is massive, and I doubt two things:
a) that the switch over can be carried through in the necessary time horizon (ie there are rigidities in any economy)
b) the age structure of the Chinese population is that favourable to a consumption driven economy (Modigliani's last paper was on this).
"Export oriented businesses will metamorphose to service and supply the domestic demand in infrastructure based materials and services as required by the massive projects the Chinese government is currently undertaking."
Basically I'm just not sure this will do the trick. But at the end of the day the proof of the pudding is in the eating, and the main point of this post is that up to now it simply is not working, China is moving headlong into recession, and at a very rapid pace. Frighteningly so.
Come on Edward, you got to give them a break. They only approved and launched the stimulus package 3 months ago, which was by itself less than 2 months after the crisis began to hit China's export based manufacturers. There are pretty smart people in the Chinese government, but they're not shamans or prophets.
This is exactly the strength of a centrally planned economy which is different from the free wheeling, invisible hand model of western capitalism. The Chinese government does not need to debate about it too much. They know what to do in order to inject money into their economy in order for the economy to survive so the regime to survive. There are no objections. They are doing what needs to be done and they have enough cash to pull it off. The massive projects and massive amounts of money poured in will trickle down to just about every segment of the Chinese economy and revitalize it again. The Chinese are known masters in practicality, invigoration and flexibility.
Actually China's government economists saw it coming and the plans were in the offing for the past few years, they just didn't expect it to happen so soon and with such a tidal wave. But when the wave did hit them, they already had ready made "drawer" plans to meet the soaring tide. It was clear that China cannot keep its competitive advantage in low cost labor intensive manufacturing for export for the long run, neither can such an economy serves the common good of the Chinese populace in the long run. The middle range goal is have at least 40% of China's population defined as middle-class by 2020.
See this article in the NY Times -
http://www.nytimes.com/2009/01/23/business/worldbusiness/23yuan.html?_r=1&ref=worldbusiness
I don't think there is so much surprise here actually. All China's neighbors are doing much worse. If what's happening in the rest of Asia is any indication, then the Chinese are trailing them in a matter of a half a year or something. Or maybe their statistics are wrong.
Hi,
"This is exactly the strength of a centrally planned economy which is different from the free wheeling, invisible hand model of western capitalism."
Well, this is simply an empirical question isn't it, and we are about to see. I am merely making a forecast, and that will now be either right or wrong. Either way we will be better able to calibrate just how adequate the Chinese model is for handling this type of situation.
Well, this is simply an empirical question isn't it, and we are about to see.
I don't think this is an empirical question since their economy is no more centrally planned than many other economies. Their economy is more regulated on average, but this does not amount to central planning.
And basically this region seems to be culturally predisposed to having exports driven high saving economies. It's difficult to get these people to spend enough. China's problem is that it's too big to allow it to tread the same path as other East Asian tigers. On the other hand, to the best of my memory nothing else seems to have ever existed in that region.
The stimulus package may provide some relief, but, first, its full impact, won't take effect until the beginning of the next year. It takes time to put such a huge package into action, while they appear to be on the way to shed a sizable amount of the GDP in this quarter already.
Second, the package can't change the fundamental reality that it's a huge economy which is chronically over-saving and over-exporting. In fact, even in the middle of this crisis, they seem to be still trying to devalue the yuan and subsidize exports.
Hello Nobody,
"I don't think this is an empirical question since their economy is no more centrally planned than many other economies."
Sorry, what I mean was an empirical question was what the final growth rate will be: ie whether or not we see a 2 quarter recesion in China in 2009.
"In fact, even in the middle of this crisis, they seem to be still trying to devalue the yuan and subsidize exports."
Well, my feeling is that, like the Russians, they will finally give in on this and let it float more, in which case we will see the value of the currency drop I think, which will be good for exports, but won't make them popular either in the US or Europe.
Hi Eduard
I am not sure who do you have in mind when you say that their currency will drop, Russia or China? If it's China, then I am not sure the yuan is going to fall. At least, the last time I read something about China, their trade surpluses kept growing. I think their trade imbalance vs. the USA is just another bubble, a trade bubble of sort, that's still refusing to deflate. Given a certain protectionist mood now on the rise in the US, I would say China is persisting in this exports thing to its peril.
"I am not sure who do you have in mind when you say that their currency will drop, Russia or China?"
I'm talking about China. Russia is already down a lot, as we have been seeing (it fell again today, they can't put a floor at the moment and they are eating reserves fast).
"At least, the last time I read something about China, their trade surpluses kept growing."
Yep, well this is because imports have crashed even more than exports. No sign of domestic demand pulling imports in :)
"Given a certain protectionist mood now on the rise in the US, I would say China is persisting in this exports thing to its peril."
Well, I agree with the clash with the US being likely, but my suggestion is that they will prefer this to a clash with millions of jobless Chinese. Russia's unemployment btw, was up 800,000 in December (this is nearly twice the US rate of increase, and proportionately more than 3 times as big. India was up 1 million in December. We have no real idea about China, but obviously a lot more.
Watch out for Tuesday's PMI, that will tell us a lot.
"China is persisting in this exports thing to its peril."
Well my feeling is (and it was Modigliani's too) is that they can't do too much about this. They are stuck with it, and the planet is stuck with the imbalance it represents, since they can't realistically go back 30 years and undo the one child per family policy.
Frankly I hold them very much responsible for the current mess. They contributed a lot to creating these trade imbalances and their savings were instrumental in unleashing the lending and consuming binge in America. They have been basically financing a great part of these bubbles. I was always finding this mind boggling, that while facing their overheating economy and trade imbalances they did not think even for a moment about the most natural solution to all this, which is letting the yuan to appreciate.
"Frankly I hold them very much responsible for the current mess."
Well, I understand this view, and I've been arguing - amicably - with Brad Setser about this for years. If you look at say the Czech Republic you will see that previously they were soaking up the overheating by allowing the koruna to appreciate, but now that exports have slumped it has been sinking rapidly, and all I am warning about is don't imagine if they do let it float it will rise. More likely to sink, especially if they allow capital exit at the same time. The we will get to see just how long you can hang on to $1.7 trillion in reserves.
This is a complete logical twist. You're either a fool, or indecent hypocrite. Your accusation is equivalent to the drunk driver who caused a fatal accident accusing the bartender for selling him the bottle of whiskey in trying to wash away his responsibility. If this is the so-called western logic, your hemisphere is indeed in far bigger trouble... alas you're doomed.
Edward, with all due respect, I hardly think you show that you're equipped with the tools to make any type of forecast at this stage (not to mention about the Chinese economy). I believe that you need to dig deeper into the "Chinese model" because your analysis appears to be highly superficial. You even missed out on the classical definition of a recession in any given economy. Although I don't agree that such a definition for a recession should be applied across the board to any given economy. What the Chinese are embarking upon has never been attempted in human history. This colossal undertaking is often misunderstood by western commentators.
Consider this - Western people normally think and analyze in terms of another quarter and another year. The historical perspective is of such that compares decades as normally the furthest as in "the worse financial downturn in three decades". The Chinese however have a much wider span of time and historical perspective. They tend to think more in centuries and even millenia. The Chinese government itself has a working policy plans for 5 years at a time, and than for the decades ahead. The actions they can take are swift and encompassing, as they have repeatedly shown with quelling down the riots in Tibet, successfully pulling off the Olympics, handling the Sichuan earthquake and the massive relief work involved and finally coming up with the enormous stimulus package to change the Chinese economy yet again.
In light of such achievements, western governments appear inefficient, petty and incompetent.
Hello again Illan.
"Edward, with all due respect, I hardly think you show that you're equipped with the tools to make any type of forecast at this stage (not to mention about the Chinese economy)."
Well thank you for your opinion, but can't we let the facts on the ground judge this. I have made quite a concrete "call" - that the Chinese economy probably contracted (it may well have been a near thing) in Q4 2008. It is also very possible that the Chinese economy will continue to contract in Q1 2009 - although at this point I am less sure of that.
Chinese growth will be close to zero in 2009 as a whole. I am using a methodology based on detailed study of other export dependent economies - Germany and Japan - and on the impact of the credit crunch in eastern Europe, and in particular Russia.
My feeling is that the government stimulus package will help brake the fall, but the fall is so strong that it will not turn the situation around. We are seeing something similar in Spain at this moment. It isn't the size that matters (ie in China all numbers are bound to be very big, but the proportions of GDP etc). I mean, maybe you dislike the law of gravity, but you can't defy it completely.
I think I was the first to come out with this call explicitly. My material is published on RGE global monitor, and the same day I came out with it Nouriel Roubini published an editorial confirming the analysis. (It sure is something to make Nouriel look like a "bull" on China). This doesn't make me right or wrong, but I am just trying to situate you. Now we will mark to market the forecasts and see who is right and who is wrong. I feel quite comfortable at the moment, since I have a very substantial analysis to back it all up.
"The Chinese however have a much wider span of time and historical perspective. They tend to think more in centuries and even millenia."
Well this is a very different question. I am offering a short term perspective, and am simply talking about 2009. I don't claim to know anything about what things will be like centuries or even millenia ahead. I don't even know, given the pace of technical change, whether there will be what we now call a human species at this point, although I would be interested to see what Chinese researchers have to say on that topic.
What I do know, as Keynes pointed out, is that I won't be here.
The farthest ahead I am prepared to talk about is 2020, and from my perspective given the enromous break in the Chinese popultaion pyramid, economically speaking they will be in very serious trouble indeed. It is as if they had climbed the tree and then sawn the branch off from under them. Doubtless, on a millenium long perspective this all makes perfect sense, but I simply worry what is going to happen to them starting 2020.
"If this is the so-called western logic, your hemisphere is indeed in far bigger trouble... alas you're doomed."
Well, this post was simply about electricity consumption in China, and a methodology for evaluating whether or not the Chinese economy was contracting in the short ter. Maybe it would be better to leave the issues of hemispherical thought, philosophical logic and doom for another day, although in the United States they do call Nouriel Roubini "Doctor Doom".
Ilan Carmel said...
This is a complete logical twist. You're either a fool, or indecent hypocrite. Your accusation is equivalent to the drunk driver who caused a fatal accident accusing the bartender for selling him the bottle of whiskey in trying to wash away his responsibility. If this is the so-called western logic, your hemisphere is indeed in far bigger trouble... alas you're doomed.
Ilan
When I am saying responsible I am talking about technical responsibility. No moral or whatever connotations. It's not an accusation. I would just say that for a government that tends to think in spans of decades and centuries, the Chinese government has been surprisingly short sighted. You just can't industrialize a one billion strong nation through exports driven expansion. This worked for Taiwan and South Korea. It was at some point straining US Japan relations. But in China's case it's pretty much technically impossible because of its huge size. It was bound to end in some sort of crisis.
Second, in my view, you are giving too much credit to the government's policies. It's true that China was growing at a remarkable pace, but I would attribute much of this success to cultural factors that come to play at the individual level. The Chinese government has just never impressed me with its policies.
Three, you should show more respect to people you are talking to. Because you may actually be talking to a person with who you were dropping acid on techno parties in Tel Aviv many years ago. A person who once even saved your computer, for which he was presented with a disk of trance music. This disk is actually still living in my collection of electronic music. Dir Balak, you maggot
:D :D
That last comment you quoted was actually meant to Nobody, not to you.
You might have a point about the Chinese economy contracting in the last Q and might be even the current one. But what does it mean? Shouldn't the performance of the market be calculated over a minimal stretch of 3 Q's? Didn't the Chinese economy maintain at least 9% growth last year overall?
As I said before, the stimulus package is not a quick remedy. It cannot compensate immediately for the sudden slump in exports, which is the backbone of Chinese economy. Indeed, maybe they should have seen it coming. Obese western societies wallowing in excess consumption and debt financed by Chinese savings cannot last long. The Chinese economy needs time to correct these missteps.
I think that your comparison to Spain is entirely wrong because the two countries economies are entirely different. I also disagree with you because size does matter and so do a plethora of additional elements you just don't take into account. It is wrong and misleading to look only at the numbers. You seem to completely disregard history, culture and other factors which I believe are crucial to understanding what's happening and making intelligent prediction as to the future (even when it's the near future). Perhaps that's one of the maladies of contemporary western economists. But I wonder how come western economists, who are so addicted to their numbers, did not do the very basic math and screamed out loud to the obese Americans that they cannot keep on buying $1M+ houses on mortgages when they make $60K+ a year?
The Chinese however have a much wider span of time and historical perspective. They tend to think more in centuries and even millenia. The Chinese government itself has a working policy plans for 5 years at a time, and than for the decades ahead.
I don't know in what time spans the Chinese government is thinking, but much of the Chinese pain is self inflicted. And I am not talking necessarily only about this mindless copy pasting of the South Korea/Japan model of development without consideration for the huge size of the Chinese econonomy. The Chinese government has been for decades subsidizing carbon fuel consumption until energy intensive patterns of production and consumption have become deeply ingrained. Yet, it's plain obvious that instead of subsidies such a big country should have had the highest fuel taxes in the world from the beginning to prevent a combination of high growth, a sizable economy and low energy efficiency setting off a global energy crisis. China would have messed herself anyway (and the rest of us), either because of a failure of its export oeiented model of development or because of an enery crisis its explosive energy consumtion would have caused in the end. These people either don't think beyond their five year plans or chronically fail to factor the country's huge size into their calculations.
This is not to say that China is finished or something, but cultural factors and the experience of other countries in the region suggest that China will find reorienting its economy onto the internal market challenging. And as Eduard mentioned the demographic clock is ticking, China has largely used up its demographic window, the dependency ratios are about to start worsening and fast. Those expecting to see China replaying the story of Japan/South Korea on its gigantic scale will not see it happening.
Hi again Illan,
"That last comment you quoted was actually meant to Nobody, not to you."
And no offence was taken, even by Nobody I don't think.
"Obese western societies wallowing in excess consumption and debt financed by Chinese savings cannot last long."
You do have a rather Manichean view of the world, don't you? I mean I think it simply doesn't work reversing the signs on the standard equation USA=Good China=Bad. This is a complex world, and we need more complex thinking.
"I wonder how come western economists, who are so addicted to their numbers, did not do the very basic math and screamed out loud to the obese Americans that they cannot keep on buying $1M+ houses on mortgages when they make $60K+ a year?"
Well again, you can't simply put all "western economists" into one sack. I don't really specialise in the US economy, so I wasn't saying much about that, since I try not to talk about things I know very little about (although I am talking about China, aren't I, and I freely admit I don't know as much about China as I would like to, but largely because the kind of data I tend to work with simply isn't available), but I had been saying this loud and clear about Spain for years before the bubble burst.
One of the things which sort of irks me is that some people assume that just because you try to warn people that they are headed for problems, they try to suggest you have a down on their country, when really the opposite is the case, I may be right or wrong, but really my intention is to try to help.
If you could see the insults I have had over the years on the Romanian or Italian blog, and both these countries matter to me, I don't want to see them go down the tubes.
OK, anyway, very interesting discussion going on here. Please carry on. We will see the latest (Jan) PMI on Tuesday.
Nobody
I fully agree with your emphasis on energy. I do think this is very important. Keep plugging it. I simply have only time for so much. Today I am trying to put some more together on Russia, although again, Tuesday will be the big day. I really think the VTB GDP indicator is very helpful, so at least that bank is good for something :)
Nobody,
"The stimulus package may provide some relief, but, first, its full impact, won't take effect until the beginning of the next year. It takes time to put such a huge package into action, while they appear to be on the way to shed a sizable amount of the GDP in this quarter already".
I fully agree with this prognosis.
So, here's the deal about China - the CCP has managed to bring out hundreds of millions of people out of absolute poverty in a mere 30 years of consistent pushing exports and regulating the yuan. This is an achievement that is second to none and often is ignored by western observers and commentators, who themselves mostly never been even close to the experience of absolute poverty (unlike my parents-in-law).
I have no reason to show humility because I believe that I do understand China and it drives me nuts to hear all sorts of drivel from western commentators who just get it so wrong.
" chronically over-saving and over-exporting". - what does this mean? The Chinese are saving for old age and for medical purposes because the state does not, and so far couldn't also, provide them with ample plans, such as those you enjoy. They are exporting because they need the foreign currency reserves (i.e - need to make money). Are you implying here the Chinese are less of human beings than you are since they don't deserve to have retirement funds, proper health care funds or even make money in the way you are entitled to?
They yuan should stay as low as possible, the Chinese government should continue with the tax rebates to exports and other incentives and should push Chinese exports as much as possible. The Chinese people are human beings with equal rights to make money like the Germans, Australians and Italians. With foreign currency reserves there's also additional Chinese investment, as well as investment overseas together with growing consumption on the scale that no economy has ever experienced. But first thing first - export, export and more export as much as the rest of the world will be willing to buy.
"When I am saying responsible I am talking about technical responsibility. No moral or whatever connotations".
There's no responsibility at all. Not technical and not moral and not spiritual or metaphorical. You ask the Chinese to be your guarantor in order for you to get a mortgage and you blame them because you defaulted on your payments and the house was foreclosed by the bank? Again, what kind of logic is that? Who forced you to take the mortgage in the first place if you cannot afford it? So, who's irresponsible here?
"It's not an accusation". ...ahhmm, it sounded like one..
"I would just say that for a government that tends to think in spans of decades and centuries, the Chinese government has been surprisingly short sighted. You just can't industrialize a one billion strong nation through exports driven expansion".
But this is exactly what the Chinese government did. Do you have any idea what the Chinese economy was like in 1979? Their entire GDP was around $30B. That's the reason the eyes of the world are looking at China in amazement.
"This worked for Taiwan and South Korea. It was at some point straining US Japan relations. But in China's case it's pretty much technically impossible because of its huge size. It was bound to end in some sort of crisis".
What you are saying about China has no grip in reality, I'm afraid. I suggest you come over to China and see for yourself.
"Second, in my view, you are giving too much credit to the government's policies. It's true that China was growing at a remarkable pace, but I would attribute much of this success to cultural factors that come to play at the individual level. The Chinese government has just never impressed me with its policies".
I believe that in China the government is everything. The government penetrates into every aspect of life (as scary as it may sound to westerners). But it's not necessarily a bad thing. In addition, you're correct, there's also the cultural factor which is basically Confucianism with its emphasis on hard work, frugality, saving, obedience and respect to parents as well as the government. however, without the government laying the foundations for sustaining such Confucian practices, they would have been useless. In the same way these were useless in moving forward Chinese society during the 30 years of hardcore communism that preceded the open door policy. If anything the past 30 years are a correction to the historical accident of communist policies.
Still, I believe that fortunately we have the communist party in China that is in firm grip of the reigns of power and is upholding "Socialism with Chinese characteristics".
If you want an extreme example of how different reality a government can create for people who basically believe in Confucian ideals - see N. Korean Vs. S. Korea. I rest my case.
Sorry for being impolite, perhaps it's just your ignorance... John?
Ilan
For starters, all your apologetics of the CCP can make sense only if you can show that in the absence of the CCP, the Chinese would have failed. We have a few Chinese countries and sizable Chinese minorities in many countries and the Chinese are doing well everywhere with and without the CCP which points to the cultural factor at the personal level as decisive and not to the party.
They yuan should stay as low as possible, the Chinese government should continue with the tax rebates to exports and other incentives and should push Chinese exports as much as possible. The Chinese people are human beings with equal rights to make money like the Germans, Australians and Italians
This is not a matter of rights. It's a matter of what's technically possible. It's a matter of practicality. Incidentally here is something that I wrote to Itai five years ago. I am not willing to and see no need to elaborate.
The situation between America and China now is almost the same one that was produced a few decades ago between Japan and America. At some stage maintaining a big trade deficit with Japan became problematic for the US due to the sheer size of by then quite developed Japanese economy. The Americans may be frustrated seeing how the falling dollar has no impact on their trade deficit with China because the yuan pegged to the American currency went down following the dollar but China will have to reconsider its economic strategy anyway because its impossible to industrialize a country of one billion people by orienting its economy on export.
Are you implying here the Chinese are less of human beings than you are since they don't deserve to have retirement funds, proper health care funds or even make money in the way you are entitled to?
This is a technical blog that deals with economic issues. I would advise you to save this kind of arguments for forums or something. The absence of this stuff in your comments won't make you look very smart here but it will definitely make you sound less stupid.
Sorry for being impolite, perhaps it's just your ignorance... John?
Or perhaps the low quality of your comments. Nevertheless your apology is accepted. Just don't persist with this thing because I can restore the balance in no time.
Hey John,
Again, your comments show an utter misunderstanding and miscomprehension as to the experience that Mainland China stands for. Consider the state of China when the CCP took it over in 1949 from the Republicans (Guomingdang). Consider the state of China when Deng Xiaoping inherited it from Mao’s administration and the ways in which the administrations of Jiang Ziming and Hu Jintao have consistently followed this enormous undertaking of modernizing and enriching China. In my opinion, the last three administrations are beyond doubt the best China has had in more than 200 years. It would be silly to compare the developments of Chinese communities overseas to the development of the Mainland, because, as some of us believe, size does matter. I hate to repeat myself, but just look again at the example of north and south Korea with their completely different regimes and the paths they took, although the culture, language and ethnicity is the same. And this is another example of Confucian people.
Oh John, but it is a matter of rights, because that’s what the Chinese believe. Chairman Mao said after winning the civil war: “The Chinese people have risen up” and Mainland China has been following this motto ever since. I, for one, believe that if more than a billion Chinese believe it’s technically possible, than it’s probably possible even if Mr. John disagrees (with all due respect to Mr. John’s well learned opinions). This is a core issue which dives down to the Chinese psyche their sense of “face” and correction of past humiliation. Perhaps the reason why you get China so wrong is because you underestimate this feature in the Chinese collective consciousness.
What you wrote to Itai a few years ago is irrelevant for this argument as well as erroneous. You are comparing the incomparable. Apples are apples and oranges are oranges.
Mechanical, technical, professional or otherwise, you are not the moderator, censor or even owner of this blog, so you are hardly in the position to “advice” people to shut up, even if you really don’t like their arguments or the formats in which they present their arguments. You also contradict yourself because throwing out wild accusations, in fact biting off the hand that feeds you, which seem to carry a sense of antagonism against China, can hardly be regarded as “mechanical”.
You may see me as “stupid” (another highly “mechanical” term, no doubt), but at least I have the guts to stand up to what I believe in and express my opinions openly without having to resort to hiding behind online pseudonyms while engaging in public masturbation.
Amicably yours,
Ilan Carmel
Ilan Carmel said...
It would be silly to compare the developments of Chinese communities overseas to the development of the Mainland, because, as some of us believe, size does matter. I hate to repeat myself, but just look again at the example of north and south Korea with their completely different regimes and the paths they took, although the culture, language and ethnicity is the same. And this is another example of Confucian people.
There is nothing silly about checking the performance of Chinese and other minorities elsewhere. I once had a hobby of drawing charts and tables that show how economic indicators of South East Asia are a direct function of the share of ethnic Chinese in the population. Like this one. This shows that you don't even have to have a Chinese government. It's people that count, not governments.
And the example of North and South Korea only proves my general point. If you have a dead poor country packed with Chinese, Japanese, Koreans or Vietnamese you are bound to have double digit growth rates as long as you are not engaging in cultural revolutions, great leaps forward and other Communist excesses. I take it for granted. It's enough that the government is not rocking the boat too hard. Korea by the way is a very good example as any other country in the world that would have tried its economic model would have wrecked itself. Such things work in that part of the world because people rock, not because of the governments.
If you can point to one "Confucian" country that while avoiding Communism has failed to become an economic tiger, I would be ready to consider your CCP point. But the thing is that there exists none. In the absence of such examples your argumentation is reduced mostly as to what you think could have happened without the CCP or arguments like 'just think how big China is". Not really convincing. Unless you can really come up with some good examples proving your point, I see no reason why anybody should attribute to such a corrupt and incompetent institution as the CCP a success the Chinese people owe entirely to themselves. To redeem the party of its bloody past? You should try harder.
As far as the CCP is concerned it had to address two major challenges, both are result of China's huge size. You keep repeating how everybody else is failing to take into account the size factor but you are the first one who does not understand its implications. The first challenge to address required preventing the economy from going onto binge exporting which seems to be some feature inherent to these Confucian societies. The danger was obvious; the failure to deal with this thing would have either provoked a violent protectionist backlash in the best case, or, in the worst one, a structural imablance on the global scale. The second challenge was energy. Such a big economy can't grow fast without triggering a global energy crisis. These are the two challenges that were up to the CCP to handle and the CCP has miserably failed to address both. When I say it has failed it does not mean the CCP ignored them or failed to improve on them. The CCP has aggravated the situation through its short sighted policies and outright mismanagement. Of course, the Chinese rock in China just as they do in any other part of the world, but the CCP sucks big time.
PS
I am not John
By the way, the situation on this blog starts looking like something I am seeing on Arab blogs all the time. You come to a blog and hardly see any comments besides a comment here, a comment there. Suddenly a post comes with an explosion of dozens of comments. You immediately know - this is a couple of Israelis debating something.
China is not an export-led economy, no matter how many times people say it:
http://www.economist.com/finance/displaystory.cfm?story_id=10429271
http://www.allroadsleadtochina.com/index.php/2007/10/01/is-china-export-led/
http://chirony.wordpress.com/2009/04/10/financial-turmoil-revives-china-haters/
Hello Frost,
"China is not an export-led economy, no matter how many times people say it:"
Well, I think this is a proposition that remains to be tested. No many how many times people say one thing or the other, empirical data will decide. This is not a moment for dogmatism, it all depends on the theoretical model you are applying. So, just to be clear let me say it just one more time:
"On my view, China IS an export lead economy"
Now let the test begin.
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