China

[FlyerInHi]

I think the smooth straight line growth is definitely a lie by China. But growth over 5 years or 10 years is accurate because you cannot lie very long about math.
Multinational corporations do their research and they want to invest in China. They would lose confidence quickly if there were negative growth.

What China has done well is keeping on investing in infrastructure which has improved productivity. We are not investing much in the West so our infrastructure is crumbling.

[FlyerInHi]

Wow, China completes the dredging for a new city in Sri Lanka. The western media keep mentioning the port that China took over in lieu of debt, but people of Sri Lanka are grateful for the investment.

Imagine a modern city on a beautiful island in the middle of the Indian Ocean, in the middle of the busiest trade route. So much potential for trade, tourism, entropot, banking, etc….

As someone who loves development and tech, I salute China for the projects they are bringing to the world. Don’t like China? Do better than China and show how much better. Otherwise, it’s all empty talk.
https://www.scmp.com/news/asia/south-asia/article/2182461/chinese-firm-completes-14-billion-land-reclamation-works-sri

[gzz]

OCRenter, Bloomberg’s front page has a long article by a China bear. It is the same stuff from 5-10 years ago, which the author admits he was wrong about.

The basic problem for China is the after effect of 1 child. Two generations of that means one kid can have 4 grandparents and two parents to support with no siblings or cousins. The result is a massive savings rate that isn’t allowed to be invested abroad, so negative real interest rates. Despite being “socialist” they don’t have anything like Medicare or Social Security for the elderly.

When you have negative real rates, you get investments that are profitable for the borrower even though it doesn’t produce positive real returns. Some of that investment has positive social returns. But a lot of it is just pollution and cheap exports of pastic Wal Mart junk.

Despite these issues, they still have plenty of growth ahead due to low wages and a skilled workforce.

Northern EU and Japan have had negative real rates (even negative nominal rates) for a while too. However, it is only slightly negative and only on AAA assets. And they can enjoy much higher rates abroad. China’s “financial repression” puts the average Chinese in the position of saving at 3 or 5%, often in risky assets, with 6-10% inflation. Some goes to impressive and needed infrastructure, but a lot goes to white elephant projects and propping up corrupt state owned enterprises. Or real estate speculators. Or hyperpolluting bitcoin farms.

[FlyerInHi]

I used to be a China Bear because I read too much of the Western press. I was disabused of my misplaced beliefs when my friend who was an executive in Shanghai bought a luxury apartment in the early 2000s. He moved back to HK around the same time and bought in most every new real estate development. He flipped many of his contracts for mucho dinero. Needless to say he’s sitting pretty now. No crash whatsoever.

If people are going to predict a China crash, they need to identify a reasonable timing, otherwise what they say is totally meaningless.

These are promo material of Colombo port city that China is building. Can’t help but be awed by the technology and audacity.

I believe that in 30 years, there will be hundred of billions of new wealth. It’s a Buddhist country in the middle of the indo pacific trade route. Buddhists are peaceful people and they don’t have the baggage of Muslims.
I don’t see any debt trap at all. It’s going to be all win-win for Sri Lanka, China and the world. Might be a wonderful tropical island for tourism, finance, tech, trade retirement, with easy access to all the modern amenities. A new Singapore and Thailand combined.

https://youtu.be/cFt8W2Wrjlw

Mini documentary from the Economist from 2016.

[Myriad]

Well, China isn’t really going to collapse like some of the bears say, but there will be many people who will be negatively impacted by the changes in the next decade. I think a bigger issue for China is the demographic changes and the dominance of the SOE – which economically will be negative.
As for the US-China, some type of trade deal will get done. But as long as China continues with it’s technology vision (2025) and challenging the tradition status quo of open ocean and air commons, the US/Japan and allies will be in a semi-Cold War. Unless something materially changes, I suspect we’ll see the creation of parallel banking system, technologies, and sphere of influence.
China can keep dumping money in places where there’s no economic benefit – primarily geo-strategic, that’s their prerogative. But the a shift in capital (& manufacturing) to SE Asia and India instead of China will definitely impact China’s growth rate. It’ll start looking like US growth rates in the 90’s (3-4%). We’ll see if China can get past the middle income trap.

**Based on what’s happening in Germany and Japan, the real growth rate in China is probably close to 0% at the moment. Orders all falling off a cliff in those countries.

[FlyerInHi]

[quote=Myriad]Well, China isn’t really going to collapse like some of the bears say, but there will be many people who will be negatively impacted by the changes in the next decade. I think a bigger issue for China is the demographic changes and the dominance of the SOE – which economically will be negative.
As for the US-China, some type of trade deal will get done. But as long as China continues with it’s technology vision (2025) and challenging the tradition status quo of open ocean and air commons, the US/Japan and allies will be in a semi-Cold War. Unless something materially changes, I suspect we’ll see the creation of parallel banking system, technologies, and sphere of influence.
China can keep dumping money in places where there’s no economic benefit – primarily geo-strategic, that’s their prerogative. But the a shift in capital (& manufacturing) to SE Asia and India instead of China will definitely impact China’s growth rate. It’ll start looking like US growth rates in the 90’s (3-4%). We’ll see if China can get past the middle income trap.

**Based on what’s happening in Germany and Japan, the real growth rate in China is probably close to 0% at the moment. Orders all falling off a cliff in those countries.[/quote]

That says it all.

SOEs are bad for China. Real growth rate is 0%. Capital is fleeing China.

China is failing so bad that instead of letting them fail, we are complaining how unfair they are. Their management sucks so bad that we are worried about state directed industrial policies such as Made in China 2025.

Remember, our fundamental belief is that State planning never works. If our ideas are so good, why don’t we implement our superior ideas and show the world how we can outdo China in contributing to world growth. People want to see roads, bridges, phone networks, schools for their kids, products they can enjoy.

I’m willing to take a bet. In 20 years housing in Columbo Port City will be more valuable than real estate in American cities such as Tampa. If you take a look at old pictures of Dubai, or Doha in the 1990s you can see that “build it and they will come” does really come true. That is plenty economically beneficial and it takes vison to build and bring to fruition.

[Myriad]

SOEs are bad for China – they’re a very inefficient use of capital and resources. Other Chinese companies could do the work better.
0% growth – well maybe on this quarter, but at least there’s data behind it. http://si.wsj.net/public/resources/images/B3-CZ321_Dshot_NS_20190125032836.png

Didn’t say capital was fleeing China, just that more investment is looking at places other than China. Plenty of news from HK, Taiwan, etc, where companies are expanding or moving manufacturing out of China as quickly as they can.

Sri Lanka, they have debt @ 77% of GDP – it’s all ok until you currency drops and your debt is in another currency.
https://www.channelnewsasia.com/news/asia/sri-lanka-struggles-to-repay-record-foreign-debt–pm-11107460
Their PM says they have problems paying.
Will China be ok – sure. But India is unhappy with what’s going on. Just proves that there will be competing spheres of influence in Sri Lanka too (Colombo vs Trincomalee)
Hopefully with everyone playing around there, another civil war isn’t started again – it’s only been 10 years.

[ocrenter]

[quote=gzz]OCRenter, Bloomberg’s front page has a long article by a China bear. It is the same stuff from 5-10 years ago, which the author admits he was wrong about.

The basic problem for China is the after effect of 1 child. Two generations of that means one kid can have 4 grandparents and two parents to support with no siblings or cousins. The result is a massive savings rate that isn’t allowed to be invested abroad, so negative real interest rates. Despite being “socialist” they don’t have anything like Medicare or Social Security for the elderly.

When you have negative real rates, you get investments that are profitable for the borrower even though it doesn’t produce positive real returns. Some of that investment has positive social returns. But a lot of it is just pollution and cheap exports of pastic Wal Mart junk.

Despite these issues, they still have plenty of growth ahead due to low wages and a skilled workforce.

Northern EU and Japan have had negative real rates (even negative nominal rates) for a while too. However, it is only slightly negative and only on AAA assets. And they can enjoy much higher rates abroad. China’s “financial repression” puts the average Chinese in the position of saving at 3 or 5%, often in risky assets, with 6-10% inflation. Some goes to impressive and needed infrastructure, but a lot goes to white elephant projects and propping up corrupt state owned enterprises. Or real estate speculators. Or hyperpolluting bitcoin farms.[/quote]

https://www.bloomberg.com/news/articles/2019-01-17/forget-the-trade-war-china-is-already-in-crisis

Thanks for the tip, I believe this is the article you mentioned. I don’t think the author is really saying he was wrong, but merely all signs pointed to a bust but that was delayed by creation of an even bigger bubble.

Lots of points the article mentioned. You touched on it as well, which is the amount of real estate speculation is absolutely unprecedented. I think I read somewhere around 60% of Chinese wealth is locked into real estate, so a real estate crash there would doom maybe even the PRC itself as an entity.

Bottom line is there has to be a reason why such draconian tightening of controls on all aspects of daily life started over the last few years, those in the know understood the country is on very shaky grounds financially and that’s a recipe for revolutions if they didn’t firm up their grip on the populace.

[ocrenter]

[quote=Myriad]

**Based on what’s happening in Germany and Japan, the real growth rate in China is probably close to 0% at the moment. Orders all falling off a cliff in those countries.[/quote]

That I believe. Late last year there was a lot of talk about 1.6% growth rate. If that was real, then things moving to 0% is not surprising at all.

[FlyerInHi]

[quote=ocrenter][quote=Myriad]

**Based on what’s happening in Germany and Japan, the real growth rate in China is probably close to 0% at the moment. Orders all falling off a cliff in those countries.[/quote]

That I believe. Late last year there was a lot of talk about 1.6% growth rate. If that was real, then things moving to 0% is not surprising at all.[/quote]

I think China reported 6.8% for 2018.

Like I said before, they cannot lie by much more than 1% or 2% otherwise it’s too hard do make up and the math will not add up.

Anybody who understands revenue knows that… if you lie about your revenue this quarter, you need to make it up in following quarters. With double entry accounting, if you report higher sales, you also have to report higher cash or accounts receivables.

[FlyerInHi]

Myriad, investments other than China is great for China. It’s Chinese companies going out onto the world as one Chinese leader (forgot which one) advocated. Whole industrial zones in SEA are being developed by Chinese companies.

About Sri Lanka and debt. If history is guide, China, unlike western lenders, never demanded loan repayments that trigger currency crisis. They will convert debt to equity and double down on their assets, or generously write off the debt (like they will do in Venezuela).

About SOEs, they are tools of stability and sort of a public good. China is worried about unemployment and how automation and AI may disrupt the labor market at internet speed. They are slowing down reforms to wait and see.
Incidentally, we are not equipped to handle 4th industrial revolution disruptions in the West. In a period of unprecedented prosperity, we have Trump and Brexit and xenophobia all over Europe. Imagine the polical upheaval mass unemployment will create.

More fundamental question, if SOEs and central planning are so inefficient, why are we losing sleep over Made in China 2025? China is entitled to make their own mistakes.

Don’t get me wrong, I’m not in love with all things chinese. But I love the development China has offered the world. For example, China and Japan are competing to build subway systems in Vietnam. They are competing to build insfrastructure in the Philippines, etc…. remember, competition is good and may the best win.

As a tech enthusiast, I love Chinese innovation. For example they are building a high speed rail from Beijing to the winter Olympic village. Where in the world can you take high speed rail directly from a capital city center to the central plaza of a world class ski resort, and walk to your hotel? Amazing! They will democratize an expensive sport and build a new business model in recreation.

I still remember my economics professor who was a very smart guy. He said ideology does not matter. Look at the real output in goods and services that create wealth and make people’s lives better.

[FlyerInHi]

[quote=ocrenter]

https://www.bloomberg.com/news/articles/2019-01-17/forget-the-trade-war-china-is-already-in-crisis

Thanks for the tip, I believe this is the article you mentioned. I don’t think the author is really saying he was wrong, but merely all signs pointed to a bust but that was delayed by creation of an even bigger bubble.

Lots of points the article mentioned. You touched on it as well, which is the amount of real estate speculation is absolutely unprecedented. I think I read somewhere around 60% of Chinese wealth is locked into real estate, so a real estate crash there would doom maybe even the PRC itself as an entity.

Bottom line is there has to be a reason why such draconian tightening of controls on all aspects of daily life started over the last few years, those in the know understood the country is on very shaky grounds financially and that’s a recipe for revolutions if they didn’t firm up their grip on the populace.[/quote]

I just read the article. Of course the author was wrong. It’s like predicting the financial crisis of 2008 and nothing happens until 2025.

The author then goes on to say that the China crisis he’s predicting won’t be like 2008 or the Asian crisis of 1997. How is that going to result in revolution?

But I agree with the author on one point. Why the trade war if China is already in crisis? They can’t possibly be a worthy competitor, can they?

On trade, Trump will lose…. China will agree to some reforms they already identified for themselves but delayed. China will agree to buy US agricultural commodities — Such an irony because, in free markets, commodities should be freely traded regardless of provenance. Government to government agreements are as anti-market as can be; George Will wrote an interesting article about that.

[Myriad]

[quote=FlyerInHi] But I agree with the author on one point. Why the trade war if China is already in crisis? They can’t possibly be a worthy competitor, can they?

On trade, Trump will lose…. China will agree to some reforms they already identified for themselves but delayed. China will agree to buy US agricultural commodities — Such an irony because, in free markets, commodities should be freely traded regardless of provenance. Government to government agreements are as anti-market as can be; George Will wrote an interesting article about that.[/quote]

Yeah, we ‘ll see how crappy a deal Trump negotiates. Though if it’s just buying commodities, why even bother doing a deal. There’s almost no realistic way for China to close the trade gap using state purchases.
http://si.wsj.net/public/resources/images/B3-CZ055_Dshot_NS_20190124025436.png

Better off to have the 25% tariff – why give money to your rival to arm their military against your own – it just doesn’t make any sense. The trade war is just a facade, as long as the technology and geopolitical issues exist, it’s really a partial cold war.
Free trade and free markets only work if no one is planning a major regional contingency against each other. Even then, there are almost no true free markets among the G7/G20.

[FlyerInHi]

I so agree, it’s not about free market or ideology, but about geopolitics. We only worry about China now because they are threatening our dominance.

From a competition standpoint, China is good for the world because they are providing an alternative to the American model. If American ideas were sure to create greater wealth, nobody would follow the Chinese model. The thing is that the world is not so certain that the American way is the best way.

I had lunch with a friend from NYC and we were talking economics. Like China, we have a lot of SOEs also, for example transport authorities around the country. Imagine Caltrans as a massive construction company that can innovate and bid for jobs all over the world. Would we not be better off?
My friend was saying how NYC has large autonomous authorities that are make-work organizations but are insular and backward. They do not innovate and still use tech from the 1970s. So the buses and subways are shithole dirty.

On trade, the USA is so hopelessly hooked on cheap products that even a 25% tariff will not affect the trade deficit which will keep on rising. Things we don’t buy from China, we will by from Vietnam. And Vietnam will turn around and buy Huawei and other Chinese products.

[The-Shoveler]

Sarcasm on
Yes anyone who oppose the central gov should be made to disappear.
Death penalty used for most crimes keeps the riff raff out as well.

[Author]

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