Will the Chinese Economy Save the World?
Like a pilgrim seeking the altar of St. Jude, patron saint of hopeless causes, U.S. Treasury Secretary Timothy Geithner journeyed to China in search of salvation. It is not spiritual healing that Geithner seeks but the most material form of assistance: sovereign loans to finance the growing debt of the United States, in the form of purchases of Treasuries.
Geithner symbolizes the collective desperation of elites throughout the crippled global economy, who look to China as the only and best hope for solving the global financial and economic crisis. And by focusing on specific economic data in a highly selective manner, analysts and economists are able to find glimmers of hope to salivate over. While the global economy overall will undergo collective contraction for the first time since World War II, the Chinese economy is expected to grow by at least 6% in 2009. Recent trends reveal some areas of increase in domestic consumption, such as purchases of automobiles. There has been in several instances an increase in manufacturing output, contributing to a rise in certain commodity prices as China's appetite for raw materials grows. However, look beyond the spin-doctors and a somewhat different economic picture emerges.
Where domestic consumption has increased, this has been in large part due to tax incentives being offered by the authorities in Beijing to stimulate demand. This is a short-term fix, and not indicative of a sustained trend. More importantly, China must maintain a very high rate of annual growth in order to keep employment levels steady. A growth rate in the range of 6%, a figure that would be considered miraculous in much of the rest of the world, is insufficient to prevent a rise in unemployment. Since the onset of the Global Economic Crisis, more than 25 million migrant workers have lost their jobs, as factories by the thousands that depended on export markets are shuttered.
Another question mark is the state of China's banks. Largely still controlled by the state, there has been a process of liberalization underway, and thus far the Chinese banking system appears to have weathered the economic storm better than most. However, only a few years prior to the onset of the global financial and economic crisis, China's banks were rife with corruption and mismanagement, leading to a vast accumulation of toxic assets on their balance sheets. In 2002, it was estimated that Chinese banks carried a half trillion dollars in non-performing loans; it is not clear what that number is currently, or how vulnerable Chinese banks are to their own nation's potential real estate bubble.
Much of the world is betting on the success of China's own stimulus spending program, which equals nearly $600 billion. However, despite the impressive aggregate size of the Chinese economy, per capita income still ranks very low, standing at 107 out of 179 nations, or about $2,000. The capacity of the economy to compensate for demand destruction in its principal export markets through comparable increases in domestic consumption does not appear to be sufficient enough to create a basis to hang the global economy on. What is more likely is that China will spend what it can, borrowing from its sovereign wealth funds and reserves, to inhibit the growth of unemployment so as to maintain social cohesion.
As for Geithner's agenda, his number one priority remains China continuing in its role as America's principal banker. Like large debtors everywhere, the U.S. Treasury Secretary and Obama administration actually believe they have China over a barrel. The U.S. was just a larger version of AIG or Citigroup in their framework; too big to fail, as China's major export market. For a time, it appeared that China's political and economic leadership reluctantly agreed. Recall the words of Luo Ping, a director-general at the China Banking Regulatory Commission, who told journalists back in February that, "Except for U.S. Treasuries, what can you hold? U.S. Treasuries are the safe haven. For everyone, including China, it is the only option. We hate you guys. Once you start issuing $1 trillion to $2 trillion [of Treasury bonds] we know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do."
Now, however, there are growing indications that a major reassessment is underway among China's principal economic policymakers regarding their country's huge investment in U.S. government debt, currently in the range of $1 trillion. A growing number of Chinese officials are on record as believing that the U.S. dollar will eventually lose its role as the world reserve currency. And while in the short-term China will continue to purchase U.S. Treasuries, its own domestic needs and financial limitations are likely to restrict those investments to a level that represents only a fraction of the vastly exploding U.S. government borrowing requirements.
Ultimately, China does not see itself as the St. Jude of America, but as a sovereign nation with an old civilization, downtrodden for the last two centuries by Western powers and Japan, but which is on the verge of emerging from the Global Economic Crisis as the preeminent world financial power. It therefore will make decisions on how it allocates its resources and financial reserves, not based on America's desperate borrowing needs to finance its profligate budget deficits, but on serving the supreme long-term national and strategic interests of the People's Republic of China.
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Nothing on the Chinese Students laughing at Geithner when he assured them last week that their assets in the US were safe.
Time to audit the FED folks. House Bill HR 1207
NO. but it's working hard to lower our standard of living.
Tainted milk, asbestos-sulfur filled drywall, poison toys, petfood, toothpaste, shampoo, candy, dairy, tableware, cadmium dyes, lead jewelry, pesticide frozen foods, formaldehyde furniture, counterfeit drugs… the list goes on and on
Even the people who grew poisoned food in the Jiuyuan River picked it and sold it to an unsuspecting village a few doors down making those people sick.
Now maybe the Chinese People don’t care about their neighbors, but Americans won’t put up with that crap and even though we may fuss and argue politically amongst ourselves, without going to jail I might add, when push comes to shove and the American People feel they are under attack they will ban together. It's not a particular cultural or race we share it's an ideology, and will eventually unite us all in the end.
If China wants to continue to sell their products here they are going to have to spend money on their people, because Americans not only believe in freedom, they believe in a fair shake. China’s going to need to start spreading their new found wealth on regulations and education otherwise they can continue to poison each other, but not us.
There’s a slue of bills in Congress right now waiting to up the standards of goods from China or no deal and under Obama you better believe the FDA will grow and lastly, just as a reminder, the US media loves their good clean food.
China has a long way to go before it rules the world.
The modernistic cities like Beijing and Singapore house about 10-15%of the population, the rest live at a level approximating Nigeria. It's per capita productivity is about 1/8 that of ours.
China doesn't have a local market capable of absorbing their manufacturing. Their economy is highly dependent on exports, and it has a long list of daunting stuctural problems.
I China getting ahead in the world? Yes, but let's keep it in perspective......
China does not want to rule the world. Never tried to. Remember why they built the Chinese wall? Because they wanted to be left alone!
OK.. now that we have removed the first of your misconceptions, let's move on to the next ones.
Singapore is not China. It is, however, a model for a working city of the 21st century. Quality of life is excellent, and the economics are sound. Singapore's long term existential problems originate from the fact that China is copying some of their recipes for success... so they are now competing against a working copy of themselves with 100 times the size. That's really hard to beat!
"It's per capita productivity is about 1/8 that of ours."
That's an advantage, not a disadvantage. If they have 1/8th the productivity, with four times the population it means that by the time they catch up to 1/2 of the US productivity, they will have achieved the same level of production we have. Wow... just think where they will be by the time they catch up to our productivity!
"China doesn't have a local market capable of absorbing their manufacturing."
Again, that's an advantage because they don't have a saturated market, yet. There is a billion people out there who all need a washer and a dryer. And you think they will import them from the US? Well, think again.
"Is China getting ahead in the world? Yes, but let's keep it in perspective......"
It's exactly the opposite. China is NOT ahead of the world, yet. But they have the potential to grow. And we, simply put, do not. You are right, it's not a fair fight. But they have the advantage.
The day the dollar loses it's reserve status is the day we officially become just another poorly managed banana republic. We'll have a major contraction in our standard of living and major political upheaval. It's coming.
If the United States cannot produce more that it consumes, why should the dollar remain? We need to be a country that can gainfully employ it's citizens like years back! We can no longer afford to consume with out production and good wages with benefits. Until corporate greed can lose its grip, we will never recover.
There will be no "recovery" without manufacturing being here, reinflating the consumption based economy is an excercise in economic folly. Of course, the chinese don't quite understand that because they enjoyed the short term gains...like the bankers in the US who sold them bad debt.
You would be surprised how well the Chinese understand that. You would also be surprised how they are looking for new markets and how they keep finding them.
:-)
What are the Chinese People going to buy making .49 CENTS an hour?
How will they survive if the US doesn't buy their junk if it's no longer cheap?
How will they survive Marshall Law if they protest for shorter hours (14/7) cleaner and safe working conditions and affordable housing.
The Chinese Gov is stock piling commodities, which is why oil is up. Regardless they are not Capitalist or even Socialist they are Communist and when push comes to shove the government shoves hard.
Protests by the Chinese workers happen every day and are brutally squashed by the government and kept out of the news.
The Chinese People need to figure it out without our help as our dollars only support their human rights violating government.
Re-tool American and let's start making things again, better things, with quality standards, safety and a fair and living wage. Remember, we're Americans, we can have anything we want, let's start wanting something good this time, not just for the Bankers and CEOs, but for the people.
Yes We Can
"they are not Capitalist or even Socialist they are Communist "
It's foolish to expose your ignorance, but... The people of China are no more "communist" than the Cleveland Indians baseball team are indians. There is a Communist Party, yes. The government may be totalitarian but this is not communism. There is a stock market and private capital accumulation is permitted.
Here is some information for you: In the Marxist theory when the stage of communism is met there is a withering away of the state (there is no government then because it's not needed). Think a second about that and enlighten yourself a bit. The word communism and government do not fit together and it is impossible for one person to be "communal" if you catch the drift. Native Americans lived a communal life, but did that make them marxist communists?
and the US isn't Capitalist or a Democracy or a Republic and Europe isn't Socialist
split hairs away
Chinese people do not make 48 cents an hour and there is not one China. If you look at the following graph
http://www.treasury.gov.au/documents/580/Images/Poverty_Inequality-5.gif
you can see that there is an income wave sweeping through Chinese society. Many people are close to or below poverty level, but many others are catching up to income levels of industrialized countries.
The people who have money are driving the economy of the nation and are pulling more of the poor up. It's a very successful bootstrap process.
"How will they survive if the US doesn't buy their junk if it's no longer cheap?"
Where else are you going to buy your junk? We are not going to produce it nearly as cheaply over here and you wouldn't have the money to buy it, if we did.
so for you profit (money) and the harvesting of human organs and human rights violation over people.
"How will they survive Marshall Law if they protest for shorter hours (14/7) cleaner and safe working conditions and affordable housing."
Very simple.. they won't protest on a level that will strain the state and there won't be Marshall Law. The average Chinese is quite happy with what they got now. Why? Because they have seen much worse in the past. To them this is all progress. That's what the party can build their "harmonious society" on.
"The Chinese People need to figure it out without our help as our dollars only support their human rights violating government."
I hope you realize that the Chinese people have figured it all out 3200 years longer than the US even exists. You are a funny but have little perspective for history.
"Re-tool American and let's start making things again"
Cool, now Americans have to go back to school and learn how to make things. Because right now a whole generation of kids fail high school and you are doing nothing about it. One can't make anything without education. The Chinese, by the way, know that.
:-)
yes the Chinese government gunning their people down in 1989 in a peaceful protest is something worth trusting.
Education in China is for the few not the many, education in China is no longer free.
Talk about perspective, better check your facts.
The Controlled Chinese Government Media is not open to the western world, but it sure is working on gullible people like you.
Are you waiting for the day when some American types something bad about the US government and Yahoo, Google and Cisco track that person down and let the government know exactly where they live then execute them. Rising up indeed.
It always amazes me how people keep looking for every possible sign of a demise of the Chinese Juggernaut, as if that would actually solve our own problems, which are much, much greater.
If one compares our medicare and social security shortfall with China's GDP, we have to face the fact that we are looking at a hole that contains several Chinese economies at once.
And our annual budget is about the GDP of China... and... it is growing faster, too!
:-)
This is just logics:, to reach an equilibrium with on the on hand china and the US on the long term, on has to pay the price in terms of prosperity and it wont be China.
This is rather poor "logics". It assumes that the world is a zero sum game and that, in order for someone to win, someone else has to lose.
Nothing could be further from the truth.
the problem with Geithner's plans is that they all involve having some magical source of unlimited funds. this is what rich kids learn when their parents raise them with the safety net of their fat wallets. rich kids NEVER feel that sense of desperation, that they are ON THEIR OWN, because there is always a bank acct somewhere to bail them out.
china is NOT going to bail us out, because they're not our rich mommy/daddy. they are a COMMUNIST regime, and have less regard for us than their own people.
the chinese will develop their middle class, to replace ours. they will become the new consumer market for the 21st century. the elites will cater to them, selling off every piece of america one corporation at a time, one acre of land at a time. all resources will eventually go to china to maintain their staggering growth curve, and we will be a banana republic.
this is what the elite view as their most profitable option. the people of america will become dumber and dumber, as the ignorant continue to breed while the educated realize the modern world is no place to raise a child. there will be no military invasion, as the elite will continue to sell all of our resources (steel, corn) to the chinese with free trade agreements. the american population will be reduced to a mass of non skilled laborers and a few elites within gated communities who operate the conglomerates.
Eventually the USA currency will lose the reserve status. The rest of the world OWNS YOU, so, why would they keep your currency as a standard bearer? They will not do so.
We're becoming slaves to China once again. At this point, instead of their producing our products that we buy in Wal-Mart, we might as well produce their products.
They won't buy our products.
They are buying mine... if they are not buying yours, maybe something is wrong with your products?
Your country just may produce products for them in the future. Their standard of living will certainl surpass your average in the future. It seems that most countries are going forward in creating better standards of living, quality of life and other good things, while you are GOING BACKWARDS and disappearing.
We just secured a contract from a company in India. We used to make things for US companies, but seeing they don't make much anymore you have to go where they are making things and they need your skills. For the time being this will work ok, but in the future India like China will improve their manufacturing skills and abilities and will no longer need us. Just a matter of time.............
Sheldon,
You've hit the problem without recognizing it. The issue of Geiuthner pleading for help from the Red Communists (have you missed this issue?) has everything to do with their (and others) cental bank monetizing our debt. Stop the train at this point and go back to elementary economics. We've consumed our way into this problem with the likes of morons like little George and greedy investment bankers, like Goldman (and you know the spell they hold over Treasury) and now we are victims. Were the Red Chinese unwitting fools or are they intelligent enough to have some plan in this? (we're still not certain about this) The only thing we know for certain is that this "train" will stop, and where do the indebted Americans go then. The trade deficits cannot be permitted to continue. (and that is where we should start) If America produced its own shoes, we'd have 400000 new jobs that would pay for themselves. Comparitive advantage did not include the arbitrage of wage rate differentials and/or manipulated currency values!
It seems like a no brainer for Americans, it's from the bottom up not the trickle down with a sponge theory fed to Americans. We need to produce goods to be able to afford to buy our food, homes, and healthcare. As you stated, just producing our own shoes would keep communities from being destroyed and stable again. Today, the NYT's ran an article warning against the US being protectionist in our trade policies. Unbelieveable, that this old BS is still being used on us after our companies have used every means possible to outsource jobs to chase the bottom dollar. All we have to show for it is indebtedness to China where they have no quaility control or enviromental standards. Poison baby formula, toothpaste, lethal drywall in our new homes, even poisoning imported honey to the US. Most of the water in their lakes and rivers are lethal. We let these companies sell us out and it's time we took back the reigns to take care of our country. I'm trying to buy less Chinese crap, means not so much consuming. If I do ,I look for safe, organic products that will last and be a better investment for me, our enviroment, and our country. That's smart trade policy, not junk produced by people who can't even afford the junk they make and wreck the environment. What happened to STANDARDS? Oh, that's right, they get in the way of bonuses for executives of these bottom feeder companies.
I would also like to add that the worlds Big Businesses do not care if we make shoes here. Our own Big Businesses do not care if we make shoes here. They care about making a profit off of the sale of said shoes. As far as they are concerned the cheaper the labor and all other associated costs the bigger the profit margins and therefore the bigger the overall profits.
And we have to have growth! Each quarter must be more than the last.
Business has no loyalty; it is all about the hunt for larger profits.
‘Nothing personal American, its just business.’
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