I am indeed a Taiwanese-American of Chinese ethnicity. I thought everyone knew that.
Anyway, your points about China may be true. However, you neglected to mention something very important: China's strengths. You cannot look at a minor fault and claim China's economy is falling apart. You must look at the whole picture. After I demolish your arguments, I will itemize China's formidable strengths.
1. I have no idea what you are talking about regarding China's export sector.
China's exports are higher than ever. What's wrong with a 13.8% export growth in November (see below) when you are already the world's largest exporter?
Since China's export base is the world's largest, 13.8% additional growth beyond that base will yield a huge absolute number. China's exports are somewhere around $1.5 trillion (see Table 4:
https://www.uschina.org/statistics/tradetable.html). 13.8% of $1.5 trillion will yield an annual growth of $207 billion. Seems like a healthy economy to me.
China export and import growth slows, surplus narrows | Reuters
"China export and import growth slows, surplus narrows
By Langi Chiang and Nick Edwards
BEIJING | Fri Dec 9, 2011 11:10pm EST
(Reuters) - Growth in Chinese exports and imports slowed in November, further evidence of the faltering demand abroad and at home that is pushing Beijing towards a more explicit pro-growth policy.
Customs data on Saturday showed exports expanded 13.8 percent year on year in November, the lowest in nine months, but it was the most sluggish performance since November 2009 when the traditionally volatile month of February is stripped out.
...
The surplus turned out to be $14.5 billion, narrowing from October's $17.0 billion and the same level as in September."
2. Let's pretend that China is a company. When a company is making an average of $15 billion in profits every single month (see blue highlight above), that is a healthy company. Therefore, it is obvious that the Chinese economy is very healthy.
3. The Hang Seng is probably performing poorly because of the economic problems in the U.S. and Europe, which affects Chinese exporters. Also, the Chinese government popped the real estate bubble early; which is good for China's economy, but not for stock market investors.
In other words, I fail to see why you think the Hang Seng affects China's real economy of manufacturers. The stock market goes up and it comes down. Who cares? I only care about China's economic fundamentals (e.g. export growth, trade surplus, etc.).
4. China Railways wants more money. What's the problem? You can't build railroads for free. Massive infrastructure projects (like dams, railroads, or airports) require a huge upfront cost. China Railways is asking for more money because China is building a nationwide high-speed rail network that is supposed to be completed by 2020.
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Now, let's look at China's strengths.
1. China has $3.2 trillion in foreign exchange reserves. In other words, China has plenty of money to pay its bills for the next few decades. The story gets even better. China has invested its $3.2 trillion and it earns interest or invested returns.
2. China has been consistently profitable for the past decade (and longer). China earns roughly $200 billion in its annual current account balance (e.g. total trade in goods and services). In other words, $200 billion dollars in net profits is being injected into the Chinese economy every year. This is part of the reason that China's economy has boomed at 10% for thirty years.
The trade surpluses are still happening every month. The Chinese economic party will continue unabated. It might slow a bit to 8%, but that's because China's economy is now a monster $7 trillion. It's hard to grow at 10% when your economy is that large.
3. China's economy continues to increase in productivity. Alternatively, you can say that China's economy keeps becoming more efficient. How does China do that? Well, it's actually pretty simple. China produces and consumes hundreds of thousands of new CNC (Computer Numerically Controlled) machine tools each year. Of course Chinese factories become more productive with an annual massive influx of advanced CNC machine tools.
4. When China builds railways, it frees up the old rail network for exclusive use to ship freight. The freight rail network no longer encounters bottlenecks and it requires a lot less fuel to ship by rail than by trucks. Once again, China's economy becomes more efficient.
5. China has invested a lot of money into research and development. Improvement in Chinese technology has led to massive increases in production. For example, Chinese super-rice hybrid technology has led to a quadruple or quintuple increase in rice production (for the same hectare) in the last four decades. China's economy keeps booming because of technological advancement.
I could keep going on and on about the returns on China's investment in education, trade, licensing, joint ventures, shift into production of higher-value products (e.g. ARJ-21 regional jet planes, upcoming COMAC C919 mid-size jetliners, and building satellites for foreign customers), building more-efficient coal plants with 41% efficiency and shutting down less-efficient old ones with 25% efficiency, etc.
I've already spent 30 minutes answering his post and I would rather not spend another hour beating the issue to death. China probably has the strongest economy in the world right now. It is just silly to claim that China is facing serious economic problems.
The Chinese currency keeps appreciating relentlessly. That should tell you China's economy is growing stronger, not weaker.
China's Yuan has appreciated over 30% during the last six years from 8.27 yuans to 6.30 yuans per U.S. dollar (see
CNY, Chinese Yuan Exchange Rates Table - x-rates).
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If you want an example of a country that is in serious decline, look at this one. They can't pay their bills because they run huge annual trade deficits and their debts are beyond their ability to pay.
Is rupee depreciation the new normal?
"
Is rupee depreciation the new normal?
Hindu Business Line - Ritesh Jain - 1 day ago
Unless we control inflation and reduce the supply-side constraints, the rupee is expected to depreciate further against the dollar.
India has been relying on capital inflows to fill the current account deficit and this strategy had worked successfully in the last decade. Over the last three-four years, India has slowly and cautiously opened its doors to debt capital by raising caps on ECB/FII/FDI debt investment.
Coupled with the increasing interest rate differentials between India and the developed world, there was a sizable increase in debt capital inflows into the country in the last couple of years. Though these inflows seem to have compensated for the almost dried up inflows towards equity this year, there could be challenges, going ahead. How? Read on.
India's overall external debt outstanding as of June-2011 was $317 billion, an increase of 38 per cent in last two years. The short-term external debt increased at a much faster pace of 62 per cent (in absolute terms) during the same period and it now constitutes about 21.6 per cent of total external debt.
However, a much worrying fact is that the total external debt maturing within the next one year, short-term and long-term debt (with residual maturing of less than one year), is about $137 billion, as of June 2011, constituting about 43.3 per cent of the aggregate external debt one of the highest witnessed in last decade;
and 43.5 per cent of India's total foreign currency reserve (see table).
Additionally, a sizable portion of India's external debt is believed to be financed by European banks, which were the most active lenders to emerging Asia, much higher than the US or Japanese banks put together.
Thus, with the ongoing re-capitalisation needs of European banks, it is likely that these banks will be less forthcoming in refinancing Indian corporate debt. What makes matters even worse is that between March 2010 and June 2011, when the short-term forex repayment obligations have more than doubled, India's foreign currency reserves have grown by just 13.14 per cent over the same time frame.
Dollar liability
The rupee has remained fairly stable (except during Lehmann Brothers crisis) and confined to the 44-48 range against the dollar. This was supposed to be a new normal and with India's GDP growth recovering to 9 per cent in a short span after the crisis, the rupee was expected to appreciate vis-a-vis the dollar by market participants and economists alike. Though inflows and outflows on the currency front were more or less matched during this period, what changed was that short-term credit funding by Indian corporates was taken in dollars instead of rupees.
Further, some corporates converted their rupee liability to dollar liability. With interest rate differential between the RBI repo rate and Fed rate reaching the highest level in recent history, corporates were led to believe that either the rupee would appreciate or the interest differential on their liabilities conversion would more than offset rupee depreciation, if any.
However, contrary to general belief, the rupee depreciated 10-12 per cent against the dollar. In fact, the rupee was so weak that it depreciated 8-10 per cent against currencies such as the euro and the yen.
Import issues
India remains a net importer of goods in foreign trade, with about a third comprising inelastic oil imports. A sharp depreciation in the rupee in recent times would pose a challenge for the import Bill. With a foreign currency reserve of $311 billion, as of September 2011, and import value of about $35 billion for the month, India now has the lowest import cover of 8-9 months; this is the lowest in the last decade.
The elevated inflation, rising wages and increased capital costs during the last three years has diminished India's competitiveness. Further, with slowdown in the global economy, a slowdown in exports growth is inevitable.
The currency depreciation will put pressure on inflation. Sticky inflation and lack of infrastructure will slow down the productivity gains. An interesting point to ponder at this juncture would be having attracted reasonable amount of foreign money with 8-9 per cent GDP growth, now, if the new normal GDP growth gets closer to 6-7 per cent, will that impact funds flow into the country?
Strained liquidity
The central banker's ability to intervene in the currency market remains strictly limited as we are running close to the lowest foreign currency reserves in terms of import cover in the last decade.
We believe that a sizable portion of external debt maturing in the next one year would require to be rolled over domestically, as global risk aversion would make the dollar availability limited and will, in turn, put pressure on the rupee liquidity. Any move by the RBI to support the rupee would put further pressure on the already strained liquidity. Along with all these factors mentioned above, a heightening risk on the current account deficit front, the best for the rupee seems to be over and we are in a new normal where unless we bring inflation under control and reduce the supply-side constraint, the rupee is expected to depreciate further against the dollar."
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Off-topic:
To clarify, my avatar (to the left) of the Three Gorges Dam was chosen because of the three cool pools of whitewater against a green backdrop. I couldn't find an identical picture without the Xinhua logo, so I had to settle for the picture with Xinhua on it. I've never given it a second thought until today. I want to state that I have nothing to do with Xinhua.
My first choice was China's first thermonuclear explosion, but I thought Indians might get upset. I picked a less controversial logo.
