Chinese Economics Thread

taxiya

Brigadier
Registered Member
There is really no reason to address haters and naysayers... especially because this is just part of the first steps toward China moving to become a fully developed nation.

The only useful measuring stick for China is measuring it against itself. It doesn't matter how rich China is relative to the US or how many in the middle class they have compared to other countries, what matters is how well China's economy is doing for its own people to fully urbanize in a sustainable way and to move up the technology chain and to improve the lives of the people. And in that regard, there is still a long task ahead.
Thanks for saying what I really want to say.
All Chinese should listen to it. Chinese should not live a life bragging how better their lives are than others. That is not one's own life. One's life is to better than one's parents and make one's children better than oneself. Competing with others is the very sign of lack of self-confidence and self-assurance, it is typical parvenu. I want China to be better for ever, but Chinese must remember her humble past not long ago, every person, every country has own ups and downs, be humble and moderate is not only a virtue but a necessity. Remember the old Chinese sayings "rich lasts no more than three generations", if being humble, that can last much longer, therefor the necessity.
 

Blitzo

Lieutenant General
Staff member
Super Moderator
Registered Member
An interesting article, not necessarily because of the statement about China's overall economic state, but about how perceptions and presumptions can drive panic.

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China is not the global economy's weakest link and won't cause the next GFC

The assumption that China is the global economy's weakest link and may lead to a recession is highly suspect, writes Anatole Kaletsky.
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It wont' be China that causes the next financial crisis. Steven Siewert
by Anatole Kaletsky

One question has dominated the International Monetary Fund's annual meeting this year in Peru: will China's economic downturn trigger a new financial crisis just as the world is putting the last one to bed? But the assumption underlying that question – that China is now the global economy's weakest link – is highly suspect.

China certainly experienced a turbulent summer, owing to three factors: economic weakness, financial panic and the policy response to these problems. While none on its own would have threatened the world economy, the danger stemmed from a self-reinforcing interaction among them: weak economic data leads to financial turmoil, which induces policy blunders that in turn fuel more financial panic, economic weakness and policy mistakes.

Such self-reinforcing financial feedback is much more powerful in transmitting global economic contagion than ordinary commercial or trade exposures, as the world learned in 2008-2009. The question now is whether the vicious circle that began in China over the summer will continue.

A sensible answer must distinguish between financial perceptions and economic reality. China's growth slowdown is not in itself surprising or alarming. As the IMF noted, China's growth rate has been declining steadily for five years – from 10.6 per cent in 2010 to a
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of 6.8 per cent this year and 6.3 per cent in 2016.


This deceleration was inevitable as China advanced from extreme poverty and technological backwardness to become a middle-income economy powered by external trade and consumer spending. It was also desirable, because rapid growth was hitting environmental limits.

Even as the pace of growth slows, China is contributing more to the world economy than ever before, because
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is $US10.3 trillion ($14.2 trillion), up from just $US2.3 trillion in 2005. Simple arithmetic shows that $US10.3 trillion growing at 6 per cent or 7 per cent produces much bigger numbers than 10 per cent growth starting from a base that is almost five times smaller. This base effect also means that China will continue to absorb more natural resources than ever before, despite its diminishing growth prospects.

HIGH ANXIETY
Yet China is causing high anxiety, especially in emerging countries, largely because financial markets have convinced themselves that its economy is not only slowing, but falling off a cliff. Many Western analysts, especially in financial institutions, treat China's official GDP growth of around 7 per cent as a political fabrication – and the IMF's latest confirmation of its 6.8 per cent estimate is unlikely to convince them. They point to steel, coal and construction statistics, which really are collapsing in several Chinese regions, and to exports, which are growing much less than in the past.



But why do the sceptics accept the truth of dismal government figures for construction and steel output – down 15 per cent and 4 per cent respectively, in the year to August – then dismiss official data showing 10.8 per cent retail-sales growth?

One reason can be found in the financier
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concept of "reflexivity". Soros has argued for years that financial markets can create inaccurate expectations and then change reality to accord with them. This is the opposite of the process described in textbooks and built into economic models, which always assume that financial expectations adapt to reality, not the other way round.

In a classic example of reflexivity, when China's sharemarket boom turned into July's bust, the government responded with a $US200 billion attempt to support prices, closely followed by a small devaluation of the previously stable renminbi. Financial analysts almost universally ridiculed these policies and castigated Chinese leaders for abandoning their earlier pretenses of market-oriented reforms. The government's apparent desperation was seen as evidence that China was in far greater trouble than previously revealed.

This belief quickly shaped reality, as market analysts blurred the distinction between a growth slowdown and economic collapse. In mid-September, for example, when the private-sector Purchasing Managers' Index came out at 47.0, the result was generally reported along
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: "The index has now indicated contraction in the [manufacturing] sector for seven consecutive months."


In fact, Chinese manufacturing was growing by 5 to 7 per cent throughout that period. The supposed evidence was wrong because 50 is the PMI's dividing line not between growth and recession, but between accelerating and slowing growth. Indeed, for 19 out of the PMI's 36 months of existence, the value has been below 50, while Chinese manufacturing growth has averaged 7.5 per cent.

Exaggerations of this kind have undermined confidence in Chinese policy at a particularly dangerous time. China is now navigating a complex economic transition that involves three sometimes-conflicting objectives: creating a market-based consumer economy; reforming the financial system; and ensuring an orderly slowdown that avoids the economic collapse often accompanying industrial restructuring and financial liberalisation.

SKILLFUL JUGGLING
Managing this trifecta successfully will require
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– and that will become much more difficult if Chinese policymakers lose international investors' trust or, more important, that of China's own citizens and businesses.


Vicious circles of economic instability, devaluation and capital flight have brought down seemingly unbreakable regimes throughout history. This probably explains the whiff of panic that followed China's tiny, but totally unexpected, devaluation of the renminbi.

The renminbi, however, has recently stabilised, and capital flight has dwindled, as evidenced by the better than expected reserve figures released by the People's Bank of China on October 7. This suggests that the government's policy of shifting gradually to a market-based exchange rate may have been better executed than generally believed; even the measures to support the sharemarket now look less futile than they did in July.

In short, Chinese economic management seems less incompetent than it did a few months ago. Indeed, China can probably avoid the financial meltdown widely feared in the [northern hemisphere] summer. If so, other emerging economies tied to perceptions about China's economic health should also stabilise.

The world has learned since 2008 how dangerously financial expectations can interact with policy blunders, turning modest economic problems into major catastrophes, first in the US and then in the eurozone. It would be ironic if China's Communist leaders turned out to have a better understanding of capitalism's reflexive interactions among finance, the real economy and government than Western devotees of free markets.

Anatole Kaletsky is chief economist and co-chairman of Gavekal Dragonomics and the author of
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.
 

AssassinsMace

Lieutenant General
I think it's more about how they thought it was impossible for China to even be at this stage. The question is if Western economies had 1.3 billion people to take care of, would they be as successful as they are now? If you look at Greece as a barometer of problems in the EU, they're basically spending beyond their means to keep up with their social programs that the citizens don't give up an inch. Now add a billion people to that system. Now turn the tables and can China build an adequate government social safety net for its citizens? People are more resistant to give up what they had. China's advantage is Chinese citizens don't have anything to lose in the first place.
 

montyp165

Senior Member
I think it's more about how they thought it was impossible for China to even be at this stage. The question is if Western economies had 1.3 billion people to take care of, would they be as successful as they are now? If you look at Greece as a barometer of problems in the EU, they're basically spending beyond their means to keep up with their social programs that the citizens don't give up an inch. Now add a billion people to that system. Now turn the tables and can China build an adequate government social safety net for its citizens? People are more resistant to give up what they had. China's advantage is Chinese citizens don't have anything to lose in the first place.

These types of people and social systems that constantly promote consumption and self-centeredness without real productivity or constructive economic activity invariably creates the situations that Europe or even the US is now facing, while at the same time attacking anything that could be a possible constructive alternative to overcome such problems due to ideological conceits.
 

Brumby

Major
Looks like Communism with Chinese Capitalism is paying off big time.:D China's middle class continues to grow meanwhile here in the US the opposite is happening. Where are all my doubters, naysayers, and haters at that didn't believe in the CPC ways? I rest my case.

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Before you pop the champagne it might be worthwhile considering a different read into the numbers. We are witnessing the biggest transfer of wealth in world history and that is from the general population of China to an elite sector of the economy and they are called members of the CCP. Yes Communism is paying big time (literally) with Chinese capitalism. It makes Wall Street pale in comparison. Who do you think are controlling all the state owned enterprises which is the driver of the Chinese economy? Conversely, how is it that in one generation the Gini coefficient for China has gone backwards from being the most equal to the least in Asia? In a rising tide, the elites took the major share (that is being generous in description) and the numbers is a testimony of that fact. Where are the 99 percenters? I guess protest carries risk in China.
 

montyp165

Senior Member
Before you pop the champagne it might be worthwhile considering a different read into the numbers. We are witnessing the biggest transfer of wealth in world history and that is from the general population of China to an elite sector of the economy and they are called members of the CCP. Yes Communism is paying big time (literally) with Chinese capitalism. It makes Wall Street pale in comparison. Who do you think are controlling all the state owned enterprises which is the driver of the Chinese economy? Conversely, how is it that in one generation the Gini coefficient for China has gone backwards from being the most equal to the least in Asia? In a rising tide, the elites took the major share (that is being generous in description) and the numbers is a testimony of that fact. Where are the 99 percenters? I guess protest carries risk in China.

By that logic the total economic resource pool in China would have remained exactly the same as it was back in 1979, just like North Korea if it were merely elites siphoning resources from the population. On the contrary, the total economic valuation of China has increased by several orders of magnitude, of which even the poorest have benefited from compared to pre-reform economic structures. Elites taking a large percentage from economic growth =/= static economic conditions for the population, it's all relative factors which do not correspond to 'no economic improvement for the masses'. China has still much work ahead, but there is every reason to celebrate the achievements made thusfar, and quite frankly China's prospects at this point are looking much brighter than the US for that matter.
 

Brumby

Major
The trick is manipulating people into thinking just being able to protest is good enough. But if it does nothing, it's as good as being able to do nothing.

Would you be recommending such an approach to the CCP? This would be a win win for the CCP for being more accommodative but in effect doesn't carry any downside as per your reasoning.
 

Blitzo

Lieutenant General
Staff member
Super Moderator
Registered Member
Before you pop the champagne it might be worthwhile considering a different read into the numbers. We are witnessing the biggest transfer of wealth in world history and that is from the general population of China to an elite sector of the economy and they are called members of the CCP. Yes Communism is paying big time (literally) with Chinese capitalism. It makes Wall Street pale in comparison. Who do you think are controlling all the state owned enterprises which is the driver of the Chinese economy? Conversely, how is it that in one generation the Gini coefficient for China has gone backwards from being the most equal to the least in Asia? In a rising tide, the elites took the major share (that is being generous in description) and the numbers is a testimony of that fact. Where are the 99 percenters? I guess protest carries risk in China.

I think the rise in inequality associated with the rise in China's overall wealth was very much a story that resulted from the growth of the late 90s and the 2000s -- whether the rise of the middle class is also associated with a rise in inequality since the late 2000s onwards to now and the future is another matter.

I'm interested in what the latest Gini coefficient will say for China... I've been doing some searching lately and a few places have said that wealth distribution may have seen some improvements recently.
That said, I'd be interested in seeing how the other major institutions rank it in coming months and years... and different publications calculate Gini differently (and also differences in defining "middle class" such as the difference between the Allianz definition and the Credit Suisse)

EDIT: also, the way I'm reading your post makes it sound like China is undergoing "wealth transfer" (where wealth from the poor are channeled to the rich) rather than "wealth growth" (where the wealthy and poor all become richer). I think that is being rather disingenuous, as the rise in wealth in China has definitely influenced all parts of the country. Of course, it has not resulted in equal growth of wealth for all parts of the population and the country, but that was always accepted as part of the initial sacrifice -- to make some parts of the country rich first and then the others. The question is how much more growth in wealth certain parts of the population may have experienced compared to less growth in wealth in others, and how it is quantified.... and how to further deliver future growth to make wealth distribution more equal.


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China tops for middle class, latest Allianz global wealth report says
BY
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| OCTOBER 7, 2015 4:31 AM | UPDATED 1:30 PM

China's emergence as an economic powerhouse has left the country accounting for more than half of the global middle class, on the back of broad gains that have offset rises in income inequality elsewhere, said the latest annual global wealth report by Allianz SE.

The Allianz Global Wealth Report 2015 at the close of 2014, China had roughly 570 million people in the middle class — defined by Allianz as people with net financial assets, including bank deposits, securities, insurance and pension funds, but not real estate, of between €6,100 ($6,837) and €36,700.

That would be almost three-fifths of a global middle class that Allianz said topped 1 billion people for the first time at the end of 2014.

Arne Holzhausen, an economist with Allianz and one of the authors of the 2015 wealth report, in a telephone interview called China's “amazing story” the driving force behind the rise in the fortunes of the global middle class in recent years.

The report showed net financial wealth of all private households around the globe topping €100 trillion or the first time at the end of 2014.

The middle class's share of that wealth stood at roughly 17%, up 10 percentage points from 7% at the turn of the century, said Mr. Holzhausen. Over that same 14-year period, the share of the “wealth upper class” dropped to 80% from 92%, the report noted.

The widespread distribution of China's growing wealth stands in contrast to rising inequality in the U.S., with the report showing the U.S. Gini coefficient, a measure of wealth distribution, at a samplehigh of roughly 85%, up four percentage points since the turn of the century and well above the global average for 2014 of under 65%.

By contrast, China's Gini coefficient stood at 52.23%, the lowest of 16 countries from Asia and Latin America the report sampled.

The report also noted that the combined financial wealth of China's citizens topped that of Japan for the first time.

The wealth distribution trends of the past 14 years in China, the U.S. and elsewhere won't necessarily continue, said Mr. Holzhausen. With income inequality under a spotlight now in the U.S., the current moment might prove the “high point of inequality” there, he said. Meanwhile, the slowdown of China's economy now could likewise slow the spread of wealth there, he said.

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The full Allianz global wealth report is here:
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