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Old 01-25-2011, 03:58 PM
 
Location: Sitting on a bar stool. Guinness in hand.
4,429 posts, read 5,937,078 times
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Just looking for some opinions on this article. I bolded some areas I found particularly interesting.

I'm personally wondering is China will have a the same situation as Japan did. Honestly though I don't know.

P.S. I copied and pasted the article just in case the link breaks.

Nouriel Roubini: Chinese Save, but Should Spend - Newsweek

Quote:
The traditional Chinese model of economic growth required the U.S. and a few other countries to be consumers of first and last resort, spending more than their income and running ever-larger trade deficits—so that China could be the producer of first and last resort, spending less than its income and building ever-larger trade surpluses. That model is now challenged, if not altogether broken, because the excessive accumulation of private and public debt and deficit by the U.S. has forced a painful deleveraging: the overindebted U.S. consumer needs to spend and consume less, import less, and save more to reduce debt. Indeed, as the U.S. trade deficit shrinks, the Chinese trade surplus has been sharply shrinking, too.

How has China been able to maintain its high—8 percent–plus—growth despite the collapse of its net exports? It did not do it by reducing its saving and consuming more; rather, it has boosted further fixed investment in real estate (commercial and residential), in infrastructure (roads, airports, bullet trains), and in manufacturing capacity, which already suffers from a glut. Fixed investment in China is now close to 50 percent of GDP.

But no country can be so productive that it can take, every year, half its GDP and reinvest it into more capital stock without eventually ending up with a huge excess capacity and a mountain of bad loans. Thus, China needs to radically change its growth model from net exports and investment to reduced saving and more consumption. There are, however, many structural reasons why the Chinese save too much and consume too little. (Consumption in China is 36 percent of GDP, about half of what it is in the U.S. and in emerging economies like India and Brazil.)


Mark Leong for Newsweek
Photographer Mark Leong's look at the country's white-collar underclass

China's High-Tech Underclass First, the Chinese save a lot because their social-security benefits are puny—a paltry $150 per citizen over a lifetime after retirement—and they need savings for old age.

Second, they also save because they want their children to attend private school and because public health care is poor, requiring a buffer for sick times.

Third, there is little of a social safety net in China now that the “iron rice bowl” system of cradle-to-grave public services has broken down. Now you need a buffer of precautionary savings in case you lose your job.

Fourth, the demographic consequences of the one-child policy have increased the need for savings for old age. The old social-security model of China—children taking care of old parents—is breaking down because of urbanization and the weight of the burden, with one child often having to take care of two parents and four grandparents.

Fifth, Chinese financial markets for household borrowing—to finance home purchases via mortgage debt and consumption via credit cards and personal loans—are underdeveloped, limiting consumption growth.

Sixth, the system of legal restrictions for migrant rural workers in the cities nudges them to save to manage financial insecurity. Conversely, rural farmers with few public services need to save to deal with uncertain and volatile income.

Seventh, the average citizen in China doesn’t save more than one in Hong Kong, Singapore, or East Asia: they are all Confucian savers, and tend to salt away a third of after-tax income. A big difference, however, is that a whopping 25 percent of savings in China is in the form of the retained earnings of the corporate sector, mostly state-owned enterprises (SOEs). In most private economies, those firms’ profits would become dividends that would increase household income and thus consumption. In China, they become retained profits that go into more capital accumulation and excess capacity. The Chinese policy of an undervalued currency and low cost of capital for public firms (and thus low return to savings for households) has implied a massive transfer of income from households (that thus can’t spend) to SOEs (that thus overinvest). Short of privatizing the SOEs or massively taxing their profits and transferring that income to households, savings will remain too high, consumption too low, and investment excessive. Yet the SOEs are politically powerful while households are impotent, so reform could prove a major challenge.
Clearly China needs to radically change its broken growth model in the direction of reduced exports, investment and savings, and increased consumption. But there are structural—and cultural—reasons why the Chinese save so much and consume so little. Radical policy reforms may take more than a generation to rebalance the Chinese economy toward a more sustainable growth model.

Roubini is chairman of Roubini Global Economics, professor at the Stern School of Business at NYU, and coauthor of Crisis Economics (Penguin, 2010).
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Old 01-26-2011, 12:58 AM
 
Location: Ohio
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Wasn't Roubini one of the architects of the current US fiscal mess?
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Old 01-26-2011, 07:12 AM
 
Location: Sitting on a bar stool. Guinness in hand.
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Quote:
Originally Posted by Mircea View Post
Wasn't Roubini one of the architects of the current US fiscal mess?
Believe he predicted the the economic collapse.

Granted he was in favor of pumping a lot of money into the economy and saving the banks. But it remains to be seen what type/if any damage this path will lead to. Though I see plenty predictions (here on CD and other places.) I believe this is still playing out (and will be for awhile) at this point so I'm sitting back and waiting for the endgame.

But again. I looking for comments on this particular article. If you disagree with Mr. Roubini don't attack him attack his thought process and explain why he is wrong on this issue.
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Old 01-26-2011, 02:42 PM
 
Location: Sinking in the Great Salt Lake
13,145 posts, read 20,362,728 times
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I'm confused... Are you saying the Chinese should be building a gigantic consumer culture based on overextending oneself to buy worthless junk?

Um.. that's been tried, and like many dead economic systems of the past, it only worked for so long. The Chinese are smarter than that.
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Old 01-26-2011, 05:58 PM
 
Location: Great State of Texas
86,068 posts, read 76,631,796 times
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Quote:
Originally Posted by Mircea View Post
Wasn't Roubini one of the architects of the current US fiscal mess?
No Congress was when they repealed Glass-Steagall.

Roubini is the one who was called a loon when he predicted the crash back in 2006.

http://www.nytimes.com/2008/08/17/ma...ssimist-t.html

"On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession."
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Old 01-26-2011, 09:09 PM
 
48,508 posts, read 88,448,132 times
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he chinese saved at such high rates because they remmeber not having ;more than say we do. Just has the greatest generation remmebered the great deopression, Also if you get sick in china the hospitals and providers want payment up front.
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Old 01-26-2011, 09:32 PM
 
1,964 posts, read 4,921,762 times
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It's hard to compare a third world country like China to developed nations like the US or those of the EU, or even Japan in the 1970's and 80's. While it's true that the huge balance of payments imbalance and associated buildup of dollar reserves can easily spiral out-of-control into asset or RE bubbles, we've got to also remember that huge swaths of China in outlying provinces are dirt poor with little infrastructure development and no special economic zones.

When we see images of wealthy hip Chinese rocking LV bags & driving CL Benzes, we're only seeing the very top echelon located in the coastal cities or Beijing. Hopefully if the master Chinese economic planners wake-up & smell the coffee of bubbles past, they'll take pro-active steps to redistribute savings accumulated by the SOE's to rural impoverished areas. or better yet, send that cash back stateside & maybe buy up all of our upside down mortgages..... JK!
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Old 01-26-2011, 11:39 PM
 
Location: Texas/Louisiana
143 posts, read 296,289 times
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They save but they spend it too. I don't know how you can keep track of all the buying/selling in the flea markets and underground markets. It seems an "outsider" always knows what is best for China. Things work a little different there. Focus on America. We have a lot of problems too.
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Old 01-27-2011, 05:34 PM
 
Location: Denver
1,788 posts, read 2,148,261 times
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Quote:
Originally Posted by HappyTexan View Post
No Congress was when they repealed Glass-Steagall.

Roubini is the one who was called a loon when he predicted the crash back in 2006.

http://www.nytimes.com/2008/08/17/ma...ssimist-t.html

"On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession."
Meh...I made those predictions in 2004. How could anybody, with an Econ background, not know that serious trouble was brewing...is beyond me.
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Old 01-27-2011, 07:06 PM
 
8,265 posts, read 11,195,775 times
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Roubini is funny he predicts a global economic crisis every year until he's finally right, then people are clapping and waving their hands at his wisdom.

Remember when in March 2009 when he was predicting the rising stock prices were dead cat bounce and S&P500 would go back under 600? S&P kept right on climbing and closed the year out over 1100.
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