Is China Headed Towards Collapse?

politico.com:

The conventional wisdom in Washington and in most of the rest of the world is that the roaring Chinese economy is going to pull the global economy out of recession and back into growth. It's China's turn, the theory goes, as American consumers -- who propelled the last global boom with their borrowing and spending ways -- have begun to tighten their belts and increase savings rates.

Read the whole story: politico.com

Comments

[cr204]

03:10 PM on 11/13/2009

I’ve seen similar “empty” cities in China for the last 15 years. And over a few years, these cities have (so far) inevitably filled up.

The Tsinghua professor quoted in the original news report is exactly right in that regard. All of the previous rounds of physical infrastructure in China has paid off economically and socially.

There are two numbers which define China, and is far more important than GDP in any given year:

1) population: 1.3 billion and counting.
2) urbanization rate: 45% and climbing.

China’s urbanization rate will rise to 70% by 2035. If you do the math, that means 325 million Chinese currently living in rural villages will move to urban cities within the next 25 years.

And if you do the math again, that means:

- for every square foot of real estate currently in existence in China… it’ll be doubled over the next 25 years.

- it also means building 15 New York’s from scratch over the next 25 years.

[beyobi]

09:31 AM on 11/11/2009

Ah, Capitalism. How can you have infinite growth in a finite space?
If we really, really believe it will work it will work.
Good luck with that one...

[NeoconGal]

10:52 PM on 11/10/2009

If they are they will take us with them. But then no one forced our government to sell its soul to them.

[mediamarv]

07:14 PM on 11/10/2009

No.

It's from Politico.

Ignore it.

Thank you.

[SaltySaltillo]

06:39 PM on 11/10/2009

I realized when I read " Chinese collapse, of course, would have profound effects on the United States, limiting China’s ability to buy U.S. debt" that the journalist that wrote this article is just babbling and doesn't actually know anything about the subject matter...

The conventional wisdom is that finance is complicated and hard, but c'mon, think about it: China holds US debt because the USA has had a HUGE balance of payments deficit with China (meaning a strong Dollar relative to the Yuan has allowed the US to consume huge quantities of Chinese-made goods, in exchange for which the Chinese have accumulated a huge amount of US sovereign debt).

In other words, a collapse of the Chinese consumer markets and a dramatic weakening of the Yuan relative to the Dollar WOULD NOT limit the Chinese ability to finance US economic activity... on the contrary, it would put the US consumer back in the "driver's seat" again... not where we want to be, but at least it would give us the illusion of increased economic activity...

[NoMercy]

07:34 PM on 11/10/2009

Thanks for that very clear explanation.

[MarcusT]

11:28 PM on 11/10/2009

The Yuan is "pegged" to the dollar, not traded. :))

[SaltySaltillo]

12:18 PM on 11/11/2009

uh... no. Yuan was pegged until 2005. Since 2005 Yuan trades on a managed float, which you may view as a "peg" in more words, but there is a difference.

[Bluedanube]

06:34 PM on 11/10/2009

Politico must be suffering from projection.

[Bluedanube]

06:28 PM on 11/10/2009

Politico is projecting.

[piul05]

06:37 PM on 11/10/2009

Definitely.

[Hank007]

04:57 PM on 11/10/2009

Maybe if the Chinese, or anyone for that matter, could buy American goods instead of American debt, we would be a lot better off.

[bwenston42]

05:01 PM on 11/10/2009

We would need to make something here first.

[NoMercy]

06:32 PM on 11/10/2009

Weapons.

[erewon]

05:31 PM on 11/10/2009

China buys quite a lot of American intellectual property.
Hence it is very important to secure copyright and patent rights. There has been some significant movement in this direction, albeit not nearly enough.

[bwenston42]

04:55 PM on 11/10/2009

I am of the impression that investing in a sworn enemy of the United States is treason.

[NoMercy]

05:40 PM on 11/10/2009

Of which sworn enemy are you speaking?

Please quote.

[mullah]

07:10 PM on 11/10/2009

China and its communiststs. Duh!

[piul05]

04:55 PM on 11/10/2009

Is China headed towards a collapse?

I doubt it very much.

[NoMercy]

05:42 PM on 11/10/2009

Me too. The article cited a short-seller, not a sociologist or economist. The one deals with a business, the others with whole societies. I doubt China will "collapse" like a Lehmann or Enron.

[Imabachi]

10:04 AM on 11/16/2009

The Chinese are literally "eating" everything in their country. They, like us, are poisoning their streams, their air and their soil. You cannot "eat" and/or poison everything in your country indefinitely, without collapsing. You cannot continue adding millions of new humans every day to a planet of an ever increasingly and rapidly shrinking base of natural resources. And, to top it all is the looming Global Warming and Energy Descent. Now ain't all that a pickle of a problem? Everything else is just prattle.

[yappnmutt]

04:49 PM on 11/10/2009

what chanos and the other bears are not accurately measuring is the rate of absorption of the chinese population into the new paradigm of modernity. only 15% of the population has been absorbed into the new economy. the rate of absorption begins to grow exponentially once it reaches a critical mass. critical mass is the point where new participants create the demand for new infrastructure to tooth brushes creating the organic growth needed to minimize the importance of the current export dependent economy.

[NoMercy]

05:45 PM on 11/10/2009

I'm not sure "new paradigm of modernity" is a good way to express it, but "consumerism" might be. The Chinese have been suffering a mild recession of their own that doesn't even appear on our radars, because for us they were catastrophic, but compared to the way things are now, a recession in China is growth in the rest of the world.

[sposton]

04:41 PM on 11/10/2009

China has a different economy than the US or the West. Their per capita income if that of Albania the poor man of Europe. In absolute terms the Chinese government has been able to finance their manufacturing sector in a similar fashion that our government is - as the large debtor not expected to pay the principle - just the interest. Except China has a national bank and they owe most of this money to themselves. They have company and job creation with a sole purpose of making things for the export and making China rich in the process. Then the government "saves" an enormous part of this which allows them to accumulate a huge trade surplus. They can't afford to unpeg their currency form the dollar at this time because a huge export sector with slim margins would collapse overnight. Many companies in China are insolvent and they will never be able to pay back the debt they have accumulated but in the meantime they are employing people and cranking out products. The profit margins are extremely thin or nonexistent in many but not all companies. It is the American corporations that make incredibly much greater profit on those products when they are sold here. Will all of this collapse in some spectacular fashion? It is possible but it is also possible that the US of A will collapse even sooner.

[chlai88]

04:53 PM on 11/10/2009

That's right. I think the naysayers forget the thing that differentiates China from the US and that is, the savings rate which is much higher in China and debt rate which is much lower in China. WIth this, they have a buffer for any collapse. But of course, the Chinese economy is also not all sweet and dandy as there are large pockets of excesses in the form of overinvestment and centralized govt wastage.

[Rosewren]

04:37 PM on 11/10/2009

Below is a link to a very in depth article about the global economy and what is happening in China. It is interesting in light of this Politico article.

http://www.atimes.com/atimes/Global_Economy/KK10Dj01.html

[Paramendra Bhagat]

04:02 PM on 11/10/2009

The fundamentals in China are strong.

[Jimboy17]

09:26 PM on 11/12/2009

How do you know this?

[CelticMajic]

03:59 PM on 11/10/2009

Like Japan in the early 90's we attribute super powers to China. But China contains the seeds of their own downfall because of the contridiction between "capitalism" and "state control". The US on the other hand, if we only have the courage to rely on the power of the individual as opposed to the collective, will rebound continually, as we have after each setback. Rely on the government to save us and we will fail.

[NoMercy]

05:48 PM on 11/10/2009

What's wrong with relying on government to save you from Saddam's WMDs?