China Passes Japan as World's 2nd Largest Economy (interest, benefits, investments)
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Of course China will be #1. They have near unlimited supplies of disposable cheap labor. There are no labor or environmental laws. Corps can basically get away with murder and keep their profits high.
That isn't so much the case anymore. Talk to any manufacturer doing business in China and you'll hear how difficult it is to now get affordable labor. One of my clients has seen labor costs increase by 25% annually for years on end, and have started diverting more and more of their manufacturing to places such as Vietnam, Indonesia, and India. What's more, with the plunge in the working-age population underway, labor will become increasingly scarce. Given the fact that the entire Chinese economy relies on the commodification of cheap labor, I don't see this going well over the long term.
I disagree. China will undergo many of the same ills America faced as it deals with environmental, labor, cultural, and economic issues (to name a few).
Actually the problems China faces make ours look rather manageable in comparison. The best analysis I read was in an issue of International Security about two years ago. The point the authors made was that China has about 5-6 more good years of it (That is, assuming the immense credit bubble doesn't pop) before the innate contradictions in the system begin to make themselves felt.
Actually the problems China faces make ours look rather manageable in comparison. The best analysis I read was in an issue of International Security about two years ago. The point the authors made was that China has about 5-6 more good years of it (That is, assuming the immense credit bubble doesn't pop) before the innate contradictions in the system begin to make themselves felt.
Mind elaborating please?
I agree, China's problems are a magnitude greater.
I agree, China's problems are a magnitude greater.
Sure.
1. China's manufacturing growth has almost exclusively been based on the availability of cheap labor.
2. China's labor is no longer cheap. Labor costs have been increasing 20-25% a year for a long time.
3. China's homegrown companies, unlike Japan and Taiwan, do not manufacture technically sophisticated products from scratch, such as iPod or TVs. In fact, roughly 95% of all tech manufacturing is the case where parts are shipped into the country, assembled, and shipped back out again as a finished product. So when labor gets expensive there really aren't going to be domestically based companies that can be relied upon to produce high-dollar products competitive on the international scene.
4. Despite all the manufacturing in China, 25% of the country's GDP is based on construction. Yet there is now a huge oversupply of both commercial and residential property available, as much as 8-10 years in some places, spurred on by malinvestment. You've likely seen the news stories of ghost cities, places that were built from scratch to house a population of 1,000,000, all the way down to working traffic lights, that have only a handful of occupants. So what happens to China when a) the property/credit bubble bursts on all this supply and b) 25% of the country's GDP simply doesn't have anything to build?
5. As a result of being a top-down command economy with apparatchiks having to answer to superiors, China's been cooking their economic books for years, so I don't really trust their gaudy growth numbers. If you really want to look at what's more likely, look at the growth of electrical production for China, a statistic that tends to track more accurately to true GDP growth. The rate of electrical production growth has been roughly 50% of what China has claimed its GDP growth has been. From year to year, the cumulative difference is quite a bit. So, much like the American property bubble, I think we're going to see China's economy going through convulsions as it goes from what it says its GDP is to what its GDP actually is.
6. As stated before, China's working age population will plunge radically over the next few decades as the true effects of the One Couple/One Child policy work their way through the system. China's economy is projected by the UN to lose roughly 200,000,000 workers over the next 35 years while the United States will add 50,000,000. Not only will China have fewer workers in place to support a much larger elderly population, but the radically smaller labor pool will have a corresponding effect on labor prices -- China's economic ace in the hole. Yet with highly proficient competitors in the West and Japan, in what way is China's economy going to compete?
Personally, I find all this disquieting. If you have watched the news lately, China has been much more aggressive militarily, rattling sabers over obscure islands occupied by Japan, Vietnam, and the Philippines, as well as expanding their exclusion zones. To me, these signify not flexing of muscle from a posture of strength, but an attempt to distract the Chinese populace's attention away from building economic pressure internally. It's what dictatorships do when they begin to run out of road. Would hate for that to be the case.
Actually the problems China faces make ours look rather manageable in comparison. The best analysis I read was in an issue of International Security about two years ago. The point the authors made was that China has about 5-6 more good years of it (That is, assuming the immense credit bubble doesn't pop) before the innate contradictions in the system begin to make themselves felt.
Interesting source.
This viewpoint is rapidly gaining traction in International Relations/Political Economy, though you likely know this if you are engaging with poli-sci journals.
All I'd add to your (correct) information is to highlight the additional point that Chinese manufacturing adds very little "added value" to the products they make (clothing, Apple stuff, laptops). China may earn about $5 from an iPod and $25 from a Macbook, for example. You alluded to this, but I thought clarification would be helpful for others.
Well, there's a second point of interest.
Chinese scientists under-perform relative to their American counterparts. China produces a huge amount of STEM graduates, but innovation is virtually non-existent compared with the EU or USA. Funding is inadequate, but the education is also second-rate at the university-level.
All I'd add to your (correct) information is to highlight the additional point that Chinese manufacturing adds very little "added value" to the products they make (clothing, Apple stuff, laptops). China may earn about $5 from an iPod and $25 from a Macbook, for example. You alluded to this, but I thought clarification would be helpful for others.
That's because China is providing the hands to assemble the product. There's virtually no value being added. The components are made elsewhere, then given to the Chinese laborer to assemble. It's pretty much the equivalent of burger flipping. How much should someone really expect to flip a burger? Anyone can do it, so the price of the work goes to the lowest bidder.
I don't think you can base a sound 1st world economy around this type of work in 2014. I'm sure the Chinese government is trying desperately to distance their country away from these types of industries. They are looking more towards assembling jets and other high value items. They have high hopes, and only time will tell how far they can progress. I know they build quite a bit of high value items in China, but the question is, how many are or will be lining up to buy?
I personally avoid Chinese products when I can. I've been burned enough to know better. I'd rather pay more for something I can trust to satisfy it's intended purpose.
China's 'growth rate' rivals what its best manufacturing facilities produce. A very smart and respected Stanford MBA school economics professor told me (in 2005 or so) that there is absolutely no basis to believe China's reported growth rates of the past 10 years. I believe he would say the exact same thing today.
Let me phrase this issue in another way. If you're a well to do family in the world's most sizzling economy for the past 20 years and your future growth prospects look so illuminating that it's conceivable you'll overtake the United States one day, why, oh why, would you be jonesing to buy as much property in the US as possible? I'll tell you why. It's a house of cards. And, in time, the table will shake.
A bit Disneylandish, there. China has lots of dollars because of its trade surpluses with the US. They invest them in dollar-denominated assets because there isn't anything else to do with them. There is nothing more to it than that.
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