Author Topic: Why China is a house of cards waiting to fall  (Read 866 times)

Offline Dan

  • Moderator
  • Hero Member
  • *****
  • Posts: 3089
Why China is a house of cards waiting to fall
« on: October 14, 2011, 08:42:25 AM »
1. They are draining the aquifers in the north china plains that produce a very large percentage of their grains.
 
http://www.eoearth.org/article/Aquifer_depletion
 
http://www.financialsense.com/contributors/russ-winter/2011/08/17/the-dawning-of-a-global-water-crisis
 
http://adsabs.harvard.edu/abs/2004HydJ...12...81F
 
2. Their banks aren't writing off bad loans like they should. Thereby creating a massive easy money bubble which has been used to fund unneeded infrastructure projects whose primary purpose was to create new jobs and maintain social stability.
 
http://www.bloomberg.com/news/2011-08-17/top-stock-picker-jain-won-t-buy-china-banks-on-shockinghly-high-bad-debt.html
 
http://www.abc.net.au/lateline/business/items/201107/s3262000.htm
 
3. Increasing concerns about the reliability of accounting numbers on companies out of China
 
Too many links to post. Just google the words and see how much stuff comes up.
 
4. Rising labor costs
 
5. Rising inflation
 
6. Ever growing demand for more new jobs to be created.
 
7. Soon they will have to decouple from the US currency and that will kill a lot of their export demand.
 
You add all this up and you have an upcoming train wreck. No I am not predicting something apocolyptic. But it will look a lot uglier than with Japan has been dealing with for more than a decade. Simply put, China has some massive structural issues with it's economy that are all going to hit in a relatively short period of time.
 
Labor costs going


If you believe big government is the solution then you are a liberal. If you believe big government is the problem then you are a conservative.

Offline arpad

  • Hero Member
  • *****
  • Posts: 1273
Re: Why China is a house of cards waiting to fall
« Reply #1 on: October 14, 2011, 12:22:25 PM »
Ah. OK.

1) aquifer depletion/excessive water usage is a political problem. Here in the U.S. the "water rights" to various sources are coming under increasing scrutiny because the wastefulness of the farmers who get the water. They waste what they're paying substantially below market rates. Let the market determine the price of water and water wastage will become a thing of the past.

Reading the eoearth.org article I'm struck by how clearly the problem is political. The cost of deep drilling and deep pumping is such that only tax money could cause deep wells to be drilled across an area large enough to much impact a large aquifer. The article doesn't go into the funding of deep wells but that's the clear implication.

The solution is to start cutting government support, let marginal operations go under and make it clear that the policy's not going to change.

Whether the Chinese are up to the job is another question but the Chinese leadership does seem to have grasped at least some of the value of the free market.

2) and 3) and the corrupt nature of the Chinese judiciary are serious concerns and no argument about it. All amenable to solution if the Chinese have the will.

4) Nothing you can do about rising labor costs and nothing should be done about rising labor costs. In fact, it's that explicit proof of the rising level of Chinese prosperity.

5) Toxicologists have an expression so I hear - the dose is the poison. The rate, and the rate of increase, of inflation are what's critical. Slowly enough and the price of money stays reasonable. Too quickly and the economy's knocked on its ass. History suggests that's a pretty tough balancing act to manage.

6) The result of rising expectations that attend a rising economy.

7) Decoupling would put the Chinese government in the position of trying to defend the value of the yaun or allowing its value to be dictated by the market while maintaining the peg puts most of the burden of maintaining the value of the yuan on the U.S. As long as the value of the dollar doesn't change precipitously the Chinese government gets the benefit of the stability, and credibility, of the dollar at least for relatively short-term uses.

My concern about China lies in the transition from authoritarian rule to a more representative rule. I know no one's been talking about that but I believe as the Chinese economy expands - and it will as long as the Chinese leadership doesn't revert to communist, central planning - the Chinese people will find themselves with more and more control of their lives with the single exception of control of the government. As time goes on that exception will become harder to bear and result in a greater demand for representation.

At some point a watershed event will have to occur; either China will move clearly toward or away from representative government. That's my big concern with regard to China - that the leadership will choose the easy, obvious and disastrous course of trying to reenact Tienamen Square.

Offline Dan

  • Moderator
  • Hero Member
  • *****
  • Posts: 3089
Re: Why China is a house of cards waiting to fall
« Reply #2 on: October 14, 2011, 12:26:47 PM »
China's aquifier problem isn't political since the sole party is the state. It's a matter of not having enough water. If this goes as expected then within a few years they will need to important enough additional food from abroad to feed 120 million people for a year. They are already tapping the deep aquifers and they will be running out of them soon. Then inflation, food costs and likely social unrest will all occur. Not to mention the foreign currency drain this will cause.
If you believe big government is the solution then you are a liberal. If you believe big government is the problem then you are a conservative.

Offline arpad

  • Hero Member
  • *****
  • Posts: 1273
Re: Why China is a house of cards waiting to fall
« Reply #3 on: October 14, 2011, 12:33:50 PM »
China's aquifier problem isn't political since the sole party is the state. It's a matter of not having enough water. If this goes as expected then within a few years they will need to important enough additional food from abroad to feed 120 million people for a year. They are already tapping the deep aquifers and they will be running out of them soon. Then inflation, food costs and likely social unrest will all occur. Not to mention the foreign currency drain this will cause.
Dan, if the state's the sole decider about matters related to water use then the problem is exclusively political.

Politics doesn't go away in an authoritarian state. Politics is the only thing that matters in an authoritarian state.

Fact is, I was guessing that the government was the sole decider about water-use matters but I wasn't out on a long, thin branch. Even here in the U.S. government interference causes massive amounts of water to be squandered due to political considerations. In an authoritarian regime what else is there but political considerations?

My guess is though that the Chinese government won't turn to the solution that's worked so incredibly well raising the Chinese standard of living far beyond the wildest imaginings of any communist and even farther beyond the imagining of older Chinese. That solution is, of course, the free market.

Privatizing water extraction would allow reality to reassert itself and funnel the water to the most economically reasonable use not the most politically expedient use.

But I very much doubt the Chinese leadership is farsighted enough to grasp that truth and there's a good deal of irony in that belief.

Offline Dan

  • Moderator
  • Hero Member
  • *****
  • Posts: 3089
Re: Why China is a house of cards waiting to fall
« Reply #4 on: October 14, 2011, 12:41:27 PM »
arpad, the problem is economic. They will have to import a massive amount of food. That food will have a cost. That will lead to a lower standard of living an a reduction in their account surplus with respect to exports. Those are economic problems. These are things that will make the country less stable and make their production costs higher too.
 
China's position of dominance in manufacturing is keyed on their being the low cost provider. Higher food costs means higher wages. Higher wages means higher production costs. And as this happens the Vietnams and Turkeys of the world will start nipping at their heels. This event just makes that dynamic more dramatic and it makes the whole thing happen sooner.
If you believe big government is the solution then you are a liberal. If you believe big government is the problem then you are a conservative.

Online walkstall

  • Global Moderator
  • Hero Member
  • *****
  • Posts: 11839
  • Gender: Male
  • WYSIWYG
Re: Why China is a house of cards waiting to fall
« Reply #5 on: October 14, 2011, 02:44:27 PM »
Remember researchers hope their work will help develop drought-resistant crops for use by farmers, as drought is a recurring problem.   They now have drought simulators in the U S,  China and India.  There looking at two more being make in the U S soon.
A politician thinks of the next election. A statesman, of the next generation.- James Freeman Clarke

"Where is the $2,500 in savings Democrats and Obama promised me?"

Offline Dan

  • Moderator
  • Hero Member
  • *****
  • Posts: 3089
Re: Why China is a house of cards waiting to fall
« Reply #6 on: October 15, 2011, 03:36:28 PM »
It's not really a drought issue in north china. They are simply using more water than what is replinished by rainfall. Their is a limited shelf life to the current level of productivity on much of China's arable land. This is a long term competitive disadvantage that will only get worse each year.
If you believe big government is the solution then you are a liberal. If you believe big government is the problem then you are a conservative.

Offline Dan

  • Moderator
  • Hero Member
  • *****
  • Posts: 3089
Re: Why China is a house of cards waiting to fall
« Reply #7 on: October 25, 2011, 07:19:55 PM »
I read something that said China's debt problem was close to ours if you add up state, federal and local government. Our aggregate number is 93% of US GDP while China is around 80% of GDP.

The result of all that infrastructure spending for make work jobs the past few years.

China is a house of cards.
If you believe big government is the solution then you are a liberal. If you believe big government is the problem then you are a conservative.

Offline arpad

  • Hero Member
  • *****
  • Posts: 1273
Re: Why China is a house of cards waiting to fall
« Reply #8 on: October 26, 2011, 04:26:23 AM »
arpad, the problem is economic. They will have to import a massive amount of food. That food will have a cost. That will lead to a lower standard of living an a reduction in their account surplus with respect to exports. Those are economic problems. These are things that will make the country less stable and make their production costs higher too.
 
China's position of dominance in manufacturing is keyed on their being the low cost provider. Higher food costs means higher wages. Higher wages means higher production costs. And as this happens the Vietnams and Turkeys of the world will start nipping at their heels. This event just makes that dynamic more dramatic and it makes the whole thing happen sooner.
You can repeat "the problem is economic" all you want but if the government's in control of how much water's being pumped how's that not a political problem?

Heck, you don't even have to go to China to see that particular type of politics in action. Water's been a political flash point here in the U.S. since the 1800s and continues to be. Subsidized water rates send water to the politically-powerful agricultural sector which squanders it. Why not? They're not paying market price for the water so it's not valuable enough to make water-conserving technologies worthwhile. Why bother with drip irrigation technology when you can just flood a field with water most of which is wasted?

The irony to which I was referring is that the Chinese, having leveraged their way out of poverty via the free market, are balking at putting the free market to use on this problem.

I can see why the Chinese are afraid of allowing the free market to perform its magic but it's an example of typical, human shortsightedness.

Putting access to water into the free market would necessarily drive lots of farmers off the land. The demands of efficiency, partly answered by the economies of scale, would result in a further migration from the country to the city and China's already struggling with the demands of that move. Free market water access would accelerate that move as marginal and too-small farming operations would be driven over the edge. So China's swapping a shortsighted, and politically pain-free solution for a long-term but more immediately uncomfortable solution. Not particularly inscrutable.

By the way, what do you think will happen to the price of labor in Vietnam and Turkey once they start nipping at China's heels? Hint: look at South Korea and Japan.

Offline Dan

  • Moderator
  • Hero Member
  • *****
  • Posts: 3089
Re: Why China is a house of cards waiting to fall
« Reply #9 on: October 26, 2011, 02:02:52 PM »
Arpad, no matter how you slice it there is no way higher food costs are not negative.
If you believe big government is the solution then you are a liberal. If you believe big government is the problem then you are a conservative.

 

Powered by EzPortal