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Discussion in 'China & Far East' started by TaiShang, Sep 14, 2015.
Buy assets my friend. paperless assets
China's problem? It's still outperforming everyone else
China economy worries overblown, consumption is just fine
Germans are alarmed. Jörg Wuttke, the man chairing the E.U. Chamber of Commerce in Beijing, said last week that China's "Wirtschaftswunder (economic miracle) is gone." And he should know. He represents thousands of European companies operating in China, which, one might suspect, provide him with valuable economic insights.
Herr Wuttke also says that China's "golden age [presumably economic golden age] is a distant memory." In his opinion, the "low-hanging fruit" of growth driven by infrastructure projects has been harvested.
So, what's left? Nothing, according to him, because China's household consumption and service industries are unable to compensate for weakening investments and export sales.
In his view, this dire situation is beyond repair. The economy is too closed and unreformed, he says. Beijing is also accused of excessive fears for "national security." And then the punch-line: "While China is renovating its house, the question for European companies is whether they will be in or out."
I believe Herr Wuttke's assessment of the actual state, and prospects, of the Chinese economy is erroneous. He is also complaining too much.
To begin with, he should give some credit to the Chinese. In less than 40 years they built the second-largest economy in the world from a crumbling, famine-ridden and deeply impoverished subsistence economy the size of The Netherlands.
To claim that there is no structural change is absurd in view of that remarkable trajectory of the Chinese economy. Private consumption is the main driver of economic growth; it currently accounts for one-half of China's GDP, and it generates nearly two-thirds of the country's annual gains in demand and output.
That is roughly comparable to the case of Japan, where household consumption represents about 60 percent of GDP. The big difference is that Japanese private consumption has been falling at an annual rate of 2.3 percent in the year to the second quarter, while China's consumer spending is booming.
Retail sales in China grew 10.5 percent in July (year-on-year) – with online sales soaring 37 percent in the first seven months of 2015. It is estimated that there are currently half a billion smartphone owners in China who are sophisticated enough to use them to hail a taxi, order takeouts and splurge online through the largest Internet shopping services in the world.
It therefore sounds odd to hear the German suggestion that China needs European expertise to digitize its banking and insurance businesses. The Chinese have that expertise already, as the Germans and the rest of Europe are now discovering, with China's top quality communications hardware and software coming to their markets at unbeatable prices.
Which brings us to China's service industries. That sector now represents more than 48 percent of the economy. In the first half of this year, the Chinese service sector industries attracted 63.5 percent of the country's inbound foreign direct investment (FDI). These investment inflows – a total of $68.4 billion – rose 8 percent from the year earlier, with the share of funds going to the service sector surging 23.6 percent.
The German observer might wish to note that along with pharmaceuticals, communications and electronics industries were the main recipients of inbound FDIs. Clearly, these are not unreformed, state-owned smokestacks.
Competing at home and abroad
And then think of those 350 million people expected to join urban lifestyles over the next four years. That, along with the rapidly growing "upper middle class" – millions of wealthy Chinese traveling in style around the world (the French have set up special services to cater to these Chinese visitors) – will carry the wave of rising consumption and an unrelenting growth of service industries.
China, of course, has a long way to go in modernizing its economy and industry. But it would be naïve to expect China to follow an imaginary blueprint of a totally open market economy with perfectly malleable and instantly adjusting labor and product markets. It is probably even too much to expect that China will copy the German and French models of (decaying) social market economies. China wants a social order "with Chinese characteristics" – whatever that means.
Here is perhaps a hint of what that could be. Beijing has just set up a 60 billion yuan fund to assist the functioning and the creation of small- and medium-sized companies - a sort of Chinese Mittelstand. Also, an astounding 10,000 privately-owned companies are reportedly being registered in China every day. And a large number of the seven million college graduates entering the job market every year are becoming start-up entrepreneurs.
These are the features of dynamic, innovative and competitive new segments of Chinese markets. They perhaps partly explain why the Chinese have been so good at developing powerful import-competing industries. How else can one account for China's steadily declining import numbers?
A steep 14.6 percent drop of the country's imports in the first eight months of this year could only be consistent with a deeply depressed economy. But that is not the case; the Chinese economy continues to grow at a steady rate of 7 percent. A 13.7 percent drop of China's imports from the E.U. is part of the same story. The only plausible answer is this: China is now producing at home an increasing amount of goods and services it used to import.
Particularly grating to Germans must be the fact that China is taking their Central European markets – traditionally the German economic and industrial hinterland. That's where China's much-maligned state-owned conglomerates are building bridges, high-speed trains, modern highways and power plants. During the annual summits that China holds in that region, the Central European governments are falling over each other to submit to the Chinese investment projects they complain the E.U. does not even want to look at.
And the Chinese are just warming up for their big 'Belt and Road' onslaught. In the first half of this year, China invested $7 billion – a 22.2 percent increase – in 48 countries that are part of this giant multinational project. Again, the job leaders here are large Chinese publicly-owned firms.
One of them, the China State Construction Engineering, just signed up last week a mega-project to build Egypt's $45 billion new administrative capital east of Cairo over the next seven years. Where is Europe here?
It is time for Germans to realize that China is not their captive E.U. market, where German companies consider it their "birthright" to act as exclusive product and service suppliers.
China needs no European advice on how to run its economy. Its reforms are difficult, but they will proceed – slowly and deliberately - in the way the Chinese have brought their economy from virtually nothing to the powerhouse it is today.
The financial sector – and the capital account, in particular – will be the most difficult project of economic reform that Beijing has had to deal with so far. The mistake of allowing a huge equity market bubble is an example of the painful learning process in managing China's increasingly complex financial system. Recent events have also shown that the exchange rate administration is another problem; if mismanaged, it can completely destabilize the Chinese economy.
Meanwhile, as mentioned in my earlier columns, China will fine-tune its economic growth with a more balanced mix of monetary and fiscal policies. Some of that stimulus is already under way. Public spending in the first seven months of this year rose 13.4 percent. An additional 1.2-1.5 trillion yuan ($190 billion to $240 billion) in public spending is also in the pipelines to support growth through already approved investment projects.
Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia.
It never amazes me that some western people who hold high position like this guy Herr can make such stupid remarks, even though ithey are his opinions.
EU have been declining for years so why would China want to copy the EU model? Quite laughable.
He is not alone. Look at this guy. And he even has the following to say:
A former union cabinet minister, Swamy had predicted earlier that the Chinese economy would collapse by 2020.
"I am glad that it is happening five years earlier," he said."
India in strong position to overtake China quicker than expected: Subramanian Swamy - The Economic Times
In the meantime...
It’s not the Chinese economy that’s on life support | Martin Jacques | Comment is free | The Guardian
The west’s bears have always well outnumbered the bulls when it comes to the Chinese economy. A new problem is all too often seen as an intimation of impending crisis, a hard landing, consequent social instability, and perhaps the eventual collapse of the regime. Dream on.
The bears, it goes without saying, have a dreadful record. After 35 years of extraordinary economic growth, China is still growing at 7% annually. True, that is lower than before, but still at a rate that dwarfs anything in the west.
One of the great weaknesses of so much western economic commentary is that it fails to look much beyond the next quarter’s, or even month’s, results. In contrast the Chinese understand where they have come from, where they are and where they need to go. Nor are they complacent: the Chinese leadership readily admits it faces quite new economic challenges.
It is instructive then to look at China’s global role since the financial crisis. When the western economies were on their knees in 2007-08, the Chinese economy rode to the rescue. Although the actions of the Beijing government were primarily motivated by self-interest – avoiding being dragged down by the crisis – they also had the effect of saving the western economies from a fate far worse.
Confronted by the near-collapse of their western markets, which accounted for around half of Chinese exports at the time, China embarked on a huge $586bn stimulus programme to boost domestic demand and offset the loss in demand for their exports. It worked. The Chinese growth rate continued to expand at around 10% and thereby provided a major boost to the global economy.
Furthermore, following those dark days, the Chinese have allowed their currency, the renminbi, to steadily appreciate, by more than 25% against the dollar since 2005 and considerably more against most other currencies. As a result Chinese exports have become considerably less competitive and have fallen. Meanwhile its current account surplus has dropped dramatically, from 10.1% of GDP in 2007 to 2.1% last year. Imagine the effect on other economies if the opposite had happened and the renminbi had been devalued by 25%.
The growing importance of the Chinese economy for the health of the global economy is illustrated by the fact that America’s GDP has grown by just over 10% since 2008, while over the same period China’s has increased by about 66%.
That said, the Chinese readily accept that the stimulus programme has led to a multitude of acute problems: chronic over-investment in industries responsible for infrastructure, excessive debt, a property market overhang and growing financial problems in local government.
They are also deeply aware that the stimulus has served to delay the most urgent economic challenge of all: a structural shift in the Chinese economy. As a result, Beijing has found itself fighting on two very different fronts at the same time: the severe short-term problems posed by the stimulus programme and the long-term imperative of a structural shift.
The rebalancing of the Chinese economy is making surprisingly rapid progress. In 2014, the share of services in China’s GDP was 48.2%, comfortably ahead of the 42.6% accounted for by manufacturing and construction, with the gap steadily widening. Despite the fall in the growth rate to around 7%, employment has remained buoyant: the reason is that the service sector absorbs relatively more people than manufacturing, since it is more labour-intensive, together with the fact that the working-age population is declining annually by 3 million.
There is also now much evidence that the Chinese economy is becoming increasingly innovative. Online shopping, led by
Alibaba, already accounts for more than 10% of retail sales and is growing at 40% per annum. China’s express delivery and internet financial services are world-class and in sectors such as advanced machinery equipment, electrical machinery and smartphones Chinese firms are rapidly catching up with the global leaders: Xiaomi, for instance, is now selling more smartphones in China than Apple. Nor should we ignore China’s energy revolution: wind, water and solar power now account for nearly a third of its total electricity generation capacity, a remarkable achievement.
The western preoccupation with headline GDP figures overlooks this deeper structural shift. Ultimately it is the ability of the Chinese economy to make the transition from a labour-intensive, investment-led, export-oriented economy to one based on value-added production and domestic consumption that will be crucial to its long-term future.
One of the great problems facing the Chinese leadership is that it is facing several serious challenges all at the same time. If it backtracks on restructuring and rebalancing to provide short-term economic stimulus and shore up the growth rate, this will only store up much more serious problems for the future. If it mishandles the debt problem China could conceivably have the hard landing that it has so skilfully avoided over the last few decades. In short, the new Chinese leadership is confronted with serious overload. Add to this China’s enormously ambitious infrastructure project, One Belt One Road, America’s blatant attempt to contain China and China’s more assertive foreign policy, especially in east Asia, and the danger of over-reach becomes apparent.
China’s leadership, unsurprisingly given the circumstances, has made one serious error: its ill-conceived and mistaken intervention to try to reverse the sell-off on the Shanghai Stock Exchange, from which it now appears to have largely backtracked. In the event, however, it was the resulting plunge in western markets that was far more revealing and significant. Its message was threefold. First, the west is concerned about the state of China’s economy. Second, it was a dramatic illustration of just how important China now is to the global economy, in many ways greater than the US. Even five years ago such an event would have been unimaginable: China has arrived big time. And third, it reminded everyone of the underlying fragility of the western economy, the fact that it has never recovered from the financial crisis, that the latter ushered in a new era of what Larry Summers has called secular stagnation.
The western world continues to depend on a life-support system, namely zero interest rates, combined with Chinese growth. What if the latter falters? That is why western markets have suddenly started panicking. In Beijing there is concern, not panic. Their challenges seem manageable in comparison.
Swamy is probably another indian. Economists like himr are really the laughing stock. It used to be accountants. Economists will tell you "yes, we are in a recession" when there is a recession. These guys don't even make any prediction because they can't. It's not an exact science. You can have a room full of economists and they would give you different opinions.
What the west fail to understand and to an extent some misinformed Chinese, is that the west have pulled out every trick used from the book and their economy does not grow much. QE, no to low borrowing rate, stimulus, stimulus, etc but the economy does not pick up much.
China is still the strongest manufacturer, still receive billions in FDI per month. On top of that China's manufacturing is not even close to peaking yet. We still have the servce sector that we are starting to tap into as well as consumption. Western China have not fully developed yet, so we have many projects in the coming years to boost consumption and provide steady employment for Chinese.
I am worried about North America personally as our growth is not looking good. We are beginning to resemble Serbia from the 90s.
Me one of them.
There is not a single country which can surpass China in the dynamic O2O/B2C/B2B online market.
Online service is so integrated into our life.
10,000 per day?!