RSS Output
French    German    Spain    Italian    Arabic    Chinese Simplified    Russian

Letters by a modern St. Ferdinand III about cults

Gab@StFerdinandIII - Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands.  Cults everywhere:  Islam, the State, the cult of Gay and Queer, Marxism, Darwin and Evolution, 'Science', Globaloneywarming, Changing Climate, Abortion....a nice variety for the human-hater, amoral, anti-rationalist to choose from.  It is so much fun mocking them isn't it ?

Tempus Fugit Memento Mori - Time Flies Remember Death 

Back     Printer Friendly Version  

Bookmark and Share

Saturday, August 2, 2014

China's next phase - if it fails, it is bad news for the world economy

The myth of the inevitable rise of China.......

by StFerdIII

 

MIT Professor Robert Solow’s work on the US economy – which has become a textbook economics lesson – explains that innovation has accounted for more than 80% of the long-term growth in US per capita income, with capital investments accounting for only 20% of per capita income growth. In other words, the United States and the rest of the post-industrial, developed world owe their epic rise in living standards to the underlying “social capital” that properly incentivized innovation, entrepreneurship, and thus technological transformation over the last two centuries.

The People’s Republic of China is running up against its debt capacity; and its consumption-repressing, credit-fueled, investment-heavy growth model is nearly exhausted. History suggests that China’s “miracle” could dissipate into a long period of painfully slow growth or terminate abruptly with a banking crisis and sudden collapse. That said, China’s modern economic transformation has defied historical precedents for decades. However unlikely, China could surprise us again. Miracles will happen in the Age of Transformation.

What happens next depends largely on the economic wisdom and political resolve of China’s reformers, who must find a way to gradually deleverage overextended regional governments and investment-intensive sectors while simultaneously rebalancing the national economy toward a more sustainable consumption-driven, service-intensive model. The trouble is, their efforts may prove too little too late to slowly let the air out of a massive debt bubble. Even rapid productivity growth from “new economy” sectors may not be enough to overcome the debt equation.

The lesson here is powerful. It is not enough just to mobilize resources and direct investments to the “right” sectors as China’s central planners have been doing for the last few decades. Once the basic building blocks of economic development are at hand, they still need to be used creatively, effectively, and productively.

China’s State Council is responding to slowing economic growth with more of the same: (1) government spending on railway expansion and shantytown renovations (which may or may not be productive) to replace decelerating private sector demand, (2) “targeted” interest rate cuts to encourage additional credit growth (which will almost certainly be unproductive), (3) last-minute bailouts to prevent corporate defaults (which they told the world to expect a lot more of in 2014), and (4) tax breaks for small and medium-sized enterprises (which remain seriously disadvantaged relative to larger public or state-owned firms).

Since the State Council’s announcement in early April and Premier Li Keqiang’s subsequent guarantee that 2014 economic growth would top 7.5%, the so-called “mini-stimulus” has led to another surge in lending activity, slightly better real GDP growth (7.5% YOY in Q2 compared to 7.4% YOY in Q1 – according to the highly questionable National Bureau of Statistics).”

Source

 

China has amassed some $10 Trillion [maybe $20 Trillion?] of new debt to finance infrastructure building of everything from cities to rail and canal systems. It is a sum of money it can never pay back unless it keeps growth rates at 10% or so for generations. At some point China needs to create a system that rewards domestic innovation, supplied by private capital. In a one-party totalitarian state, that transformation is hard to imagine. 


Article Comments:

Related Articles:

Cult of China & myths

8/24/2015:  More than 10 years debunking the China myth.

9/1/2014:  China's Communist Corruptocracy - eventually they all fail

8/2/2014:  China's next phase - if it fails, it is bad news for the world economy

4/20/2012:  Chimerica and the real exchange rate problem

4/17/2012:  China Myths

4/9/2012:  The Great Wall and maybe a not so great idea?

4/7/2012:  China and its 2030 'water' deadline.

2/27/2012:  A research factoid on China's Water Problem – Civil unrest?

11/18/2011:  China's great water issue.

11/12/2011:  China going bankrupt ? $ 8 Trillion in new, fresh debt ?

11/9/2011:  Confucius say: 'No water means thirsty humans and a powerless state'

4/26/2011:  IMF - China to surpass the US in economic size by 2016

12/2/2010:  The China Mirage

5/11/2008:  We have seen this China before.

11/6/2007:  China's market bubble and its inevitable demise.

5/29/2007:  Blame China! [or some other evil foreigner]

1/1/2007:  The China Syndrome - selective capitalism should not hide the obvious future conflict with Beijing

7/28/2005:  China’s Currency and Fixed Exchange Rates

12/17/2004:  The Liberal View of Asia and Globalization:

12/15/2004:  The Realistic View of Asia and Globalization:

12/15/2004:  East Asia and China