Guest Post: China's Runaway Chariot

Tyler Durden's picture

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hedgeless_horseman's picture

Proportions and portions, bitchezzz!!!!

66Sexy's picture

I suppose being able to get away with mass producing ghost cities in the outskirts, propping up empty building rentals to keep prices up, keeping real estate values vacumed from real market forces, creating crappy, shoddily built buildings with no construction standards, and mindlessly polluting the environment (without regultaion) would boost ANY countries GDP.


No wonder corporate america loves china...

TruthInSunshine's picture

But I am junked by many when I claim Bernanke has saved his cruelest voodoo for China?

China is not part of the official establishment.

They are being given a choice by the establishment right now: Float your currency, or we'll squeeze your masses with inflation of a debilitating sort; and, so far, it has been just a taste of what could come.

Yes, China, you will see spikes in unemploment, and dislocations in your industrial base, as you lose some of your competitive advantage of cheap labor...but you'll have to figure that one out on your own, as it's a political question, and not an economic one, as far as we consider it.

Ragnarok's picture

Much like the Tsar was, he wouldn't play ball so he was overthrown.

trav7777's picture

yeah; they intend to make China eat the deflation.

It's like the teaser loan of all this liquidity, now you get the balloon payment at the end

Jason T's picture

Just grow more food.. problem solved.  Pay the farmers more money and hell, I'll be a farmer.  

Get nuclear to desalinate water ..water problem solved.  

Almost Solvent's picture

Wait a minute, how can China central planners not have full control over a few billion people?

Makes no sense, this article must have missed something.

China will overtake the US in only a few years.


NOTW777's picture

MSM praises china as a miracle when it appears to be another ponzi scheme

How can workers making $6,000 a year afford food and other consumer prices that are higher than prices paid by Americans making 8 times as much?

NOTW777's picture

how about a donald trump reality show exploring the empty cities and malls


empty malls and towns continue to get built, regardless of final demand. The truth is that the Chinese economy is heavily dependent on massive credit and lending expansion, fixed-investment (in factories, power plants, etc.) and real estate.

Alcoholic Native American's picture

need moar chicken feet, everybody help out and eat all the big juicy breast at KFC.

vxpatel's picture

mmm tough, dry chicken feet...and McNuggets

JW n FL's picture

Hungry People ='s Angry People....

Rodent Freikorps's picture

Only temporarily. Then they become dead people.

hannah's picture

"A 10% rise in food prices in a household that spends 10% on food (a typical upper-middle class U.S. household) results in a "statistical noise" 1% increase in the family budget."

this isnt necesaarily true. if i am maxed out oncredit and i am skipping payment of one or two bills a month (i.e. i dont have the cash to pay all my bills each month) and my food bill goes up 10%...well now i might now be able to pay 3 bills fully...everyone acts as if americans are flush with cash. any increase cost in anything can push maxed out people into the abyss.

also who came up with only a 10% increase for america...apparently you dot do the food shopping.....



TruthInSunshine's picture

None of that changes the simple math that things that have inflated make up a far higher proportion of total expenditures for a typical Chinese household vs an American or even western one.

Also, Chinese do not use credit, even for large purchases. They are culturally a cash purchase society, so they can't delay the full and true pain of the type of inflation spoken of through credit gaming.

Segestan's picture

As the world communist revolution marches on someday the western naive love affair for China will face cold hard reality....

King Durian's picture

Fantastic article, the author really drives a clear analysis home.

Kina's picture

Any data coming from the Chinese is always faked, even if it is good data, they have an aversion to stating the truth even when it does no harm.

Success always over stated, problems vastly understated. China only lets on about 'minor' issues when they reach the stage of massive problem. When they first talked about having to control inflation you knew that it was the a big problem.


My wife (HK Chinese) is complaining about the mainlanders flocking into HK and buying up 'cheap' stuff there.


This has implications for Australia which has its own particular problems now, on top of its private debt levels.




We do not even know yet and can not know - it’s not possible for anyone to know - what the damage bill is going to be, we are only going to know as floodwaters subside," said. "There may be some tough choices."

Her determination to cut in other areas to fund relief and rebuilding in Queensland was labeled "dangerous" by Reserve Bank board member Warwick McKibbin as news emerged of tumbling export earnings and a stalling of the Queensland economy.

"Look at the size of the Queensland economy relative to Australia. At the moment a fair chunk of it has just stopped," Professor McKibbin told The Age...

"If you look at the infrastructure damage and all the networks that have been broken, a hit to the economy of 1 per cent is not out of the question."

A 1 per cent hit to the economy would cost $13 billion.

Trade figures released yesterday showed coal exports slid 5 per cent in November as the wet weather gathered pace.

More than 40 mines have been affected by flooding and the Port of Gladstone has abandoned exports.

ANZ economist Katie Dean said much worse was to come with about 75 per cent of Queensland coal production already stopped.

"Our initial estimate is the floods could drive a 25 per cent fall in coking coal export volumes and around a 9 per cent fall in thermal coal export volumes in January," she said. "This could see exports alone strip 0.5 percentage points from GDP in the quarter."

Australia's trade surplus is expected to slip into deficit.

Forecasters at Rabobank sliced 8 per cent off projected cotton exports. Australia is one of the world's biggest producers. Cotton price futures jumped a further 2 per cent after earlier jumping by the maximum of 4 per cent permitted on the Chicago exchange.

Petrol price commissioner Joe Dimasi warned of soaring prices for ethanol, traditionally a cheap additive to fuel.

"Motorists may find that fuel pumps which carry ethanol-blended fuel are closed or out of order," he said.

Professor McKibbin said the entire economy would be weakened by the floods and would need government support.

"Queensland is not a little island sitting out there somewhere north of Newcastle," he said.
"It's integral. People in Queensland won't be buying as much from the south as they otherwise would, so there will be a decline of trade within Australia and there will be a decline in our exports to the rest of the world - there will be a permanent loss of wealth."




Overall consumer confidence: down 6%

Good time to buy household item: down 4%

Family finances next 12 months: down 6%

Economic conditions next 12 months: down 16%

Economic conditions next 5 years: steady



And the  AUD is .9903 ?

TruthInSunshine's picture

Any data coming from the Chinese is always faked, even if it is good data, they have an aversion to stating the truth even when it does no harm.

I am not trying to offend anyone, as all cultures have good and not so good qualities, but try negotiating a contract, and then having the contract honored, with and by a Chinese company. You will need tons of patience, persistence and a lot of Excedrin, too.

I've never found anyone more willing to disregard the plain & clear meaning of the words they crafted and inserted into a contract, simply because doing so serves their pecuniary interest. It's the ultimate Twilight Zone experience.

Spalding_Smailes's picture

How China Really Works... ( VICTOR SHIN - Elite China Politics and Political Economy )

True, I haven't posted for a long time, sorry loyal readers. Anyway, wikileak provided even some fodder for the discussion on elite politics in the form of a cable on how China really works. As seen below, top leaders are close to various business interests, and princelings are powerful. I would say the assessment below is more or less true. Moreover, at the local level, local leaders are close to various real estate companies and construction contractors, who help finance their promotions. Now, we can understand why imposing strict monetary policy that would cut off credit to SOEs and real estate developers may be difficult to do. 


WikiLeaks: China's Politburo a cabal of business empires

China's ruling Politburo is a cabal of business empires that puts vested
interests over the needs of the poor and curtails media freedoms to avoiding
having shady business deals exposed in the press, according to a leaked US
government diplomatic cable.

Peter Foster
By Peter Foster, Beijing 9:00PM GMT 06 Dec 2010

The damning description of China's secretive leadership machinations also
described how the descendants of China's Communist revolutionaries - known
as "princelings" - derided officials from less august revolutionary
backgrounds as mere "shopkeepers".

The assessment of what motivates China's opaque top-level decision-makers
was relayed to Washington in July 2009 in one of the 250,000 cables
published by the WikiLeaks website.

"China's top leadership had carved up China's economic 'pie,'" the US
embassy contact said, "creating an ossified system in which 'vested
interests' drove decision-making and impeded reform as leaders maneuvered to
ensure that those interests were not threatened." The US embassy contact
also asserted there were no "reformers" within the top Communist Party
leadership, only competing factions that sought to protect their business
empires from attack by in-coming leaderships.

The source said that it was "well known" that former Chinese premier Li Peng
and his family controlled China's "electric power interests" while the
country's security tsar Zhou Yongkang controlled the state monopoly of the
oil sector.

The wife of China's premier Wen Jiabao, a popular figure in China often
affectionately referred to as "grandpa Wen" for his feelings for the common
man, is said to control China's "precious gems" sector, while Jia Qinglin,
ranked fourth in the Politburo, has "major Beijing real estate

Further down the political food-chain, the desire of local officials to
protect current business interests also explained China's reluctance to rein
in rising inflation and take steps advocated by international economists to
re-orientate its economy more towards domestic consumption.

"They [local officials] always supported fast-growth policies and opposed
reform efforts that might harm their interests," the contact said, adding,
"As a result, the proponents of "growth first" would always be in a stronger
position than those who favored controlling inflation or taking care of the
poor." The assessment also said that economic self-preservation was one of
the key reasons why China's leaders were so resistant to increased media

"Vested interests were especially inclined to oppose media openness, he [the
contact] said, lest someone question the shady deals behind land
transactions." China's reluctance to engage in political reform is to be
highlighted this week when Liu Xiaobo, the dissident author of the Charter
08 petition for greater rights in China, is awarded the Nobel Peace Prize
"in absentia" after being jailed in China for 11 years for challenging state

The perception inside China that the country is run in the interests of a
Party elite is also growing, with an online poll last February by the
state-run China Daily finding that more than 90 per cent of Chinese believed
that the new rich had achieved their wealth through political connections.

The web of commercial interests also forces China's modern rulers to act by
consensus, with the current President Hu Jintao likened to the "Chairman of
the Board or CEO of a big corporation", juggling factional interests, unlike
the autocratic figures of Mao Tse-tung or Deng Xiaoping who could rule by

The man tipped as China's next leader, Xi Jinping, was selected, not for his
leadership qualities but, the contact said, because he "maintained a
non-threatening low profile and had never made enemies" and could be relied
upon not to wage political vendettas through anti-corruption investigations.

"The central feature of leadership politics was the need to protect oneself
and one's family from attack after leaving office. Thus, current leaders
carefully cultivated proteges who would defend their interests once they
stepped down," the contact said.

In the past in-coming Chinese leaders have consolidated their position by
instituting crackdowns, with Jiang Zemin, the former president, shutting
down a number of businesses owned by the associates of his predecessor, Deng
Xiaoping, when he came to power in the early 1990s.

A similar process was observed in 2003 after Hu Jintao took office, with
several high-level figures in Jiang Zemin's Shanghai power-base facing
investigations and purges that analysts said were aimed at curtailing the
power and influence of the Jiang faction.

The contact also outlined the scornful factionalism that divided the scions
of the old 'red' families - those with revolutionary lineage whose fathers
and grandfathers fought to bring the Communists to power in 1949 - and those
who had risen up the Party ranks, so-called "shopkeepers".

China's current leaders, President Hu Jintao and prime minister Wen Jiabao,
both fall into the latter category, while the putative next leader,
57-year-old Xi Jinping, is the son of a revolutionary hero Xi Zhongxun and
often referred to as a 'princeling'.

The US embassy contact said that China's princelings felt they had a "right"
to the fruits of the revolution, recalling one family deriding those without
revolutionary pedigrees by saying: "While my father was bleeding and dying
for China, your father was selling shoelaces".

CrashisOptimistic's picture

"A 10% rise in food prices in a household that spends 10% on food (a typical upper-middle class U.S. household) results in a "statistical noise" 1% increase in the family budget. In a family budget with 40% devoted to food, a 10% increase in food meaningfully crimps household spending. A doubling of food prices would be catastrophic."


THIS is why there is no US inflation, sports fans.  THIS is why the Fed can print.  Rents Are Not Going Up.  Until they do, we don't have inflation, and sorry gold guys, this is simply the way it is.  The same math applies to gasoline and health care.  Rents are all powerful in the CPI equation -- because that's reality.

The Fed can print because of this.  

Only one thing can stop all this from continuing.  And it will.  Oil is the world's alpha asset.  

ExpendableOne's picture

Aye, who cares that eggs and milk cost a bit more if your no longer sending in the mortgage payment...

Calmyourself's picture

Not sure how much rental proeprty you own but my unit prices are going up..  My costs go up tenants costs go up..  Oil is an input, plowing, lawncare etc..

JR's picture

The utility companies, and other government monopolies, decide what profits they want, and game the system accordingly.  Utilities for operational purposes are government entities in that government protects their monopoly. 

Case in point:

My kilowatt usage is low; I am seldom home, and, I economize.  I recently was notified by my utility company that it was raising my cost per kilowatt hour—an increase only charged to low users. The reason for the increase, according to the company, was to help spread out the costs for the high users.  The real reason, of course, is that the utility starts with its intended profit and assigns the rates accordingly.

The more you try to get away from them, the more they chase you.

In the 1930s, customer service at gas stations included numerous, uniformed attendants checking the oil, cleaning the windows, filling the radiator as well as pumping the gas…

The large scale chains used the oil embargo and the high prices of 1973 to put the nail in the coffin of classic service.  The high gas prices reduced recreational driving causing a marked decrease in overall fuel consumption, i.e., chain profits.

The chains let the service attendants go, and have never looked back. By 1982, self-serve stations became the “norm” with 72 percent of all service stations going self-serve.

Profit increases, service and quality decreases—that’s monopoly.

SunSword's picture

> The utility companies, and other government monopolies, decide what profits they want, and game the system accordingly.

Well and there is truth to that, but it is more complicated. Utilities are often told by state goverments to hire people, and forbidden to collect bills from "the poor". For example, in certain states as soon as it gets cold (a date in November) some people simply stop paying their utility bill. And state law prevents the utility from doing anything until it gets warm (a date in April). At which point the person signs up for a payment plan. They then make partial payments until November, then stop paying again and the whole cycle starts over.

Now as it happens this is prevalent in certain neighborhoods but you would be surprised how many sleezy so called wealthy people do the same thing. You, in effect, are paying for your freeloading neighbors.

Also remember that the utility has to pay to trim tree branches, replace poles, fix wires, maintain equipment -- and that the expectation is 100% support. People get pissed off when that power is not coming out of the socket. But. When a utility asks for a rate increase to fund maintenance, most of the time they only get a fraction of what they asked for. Thus they have to hold things together with bailing wire and duct tape.

Basically utilities are captives of state governments. Because -- they can't move. They can't outsource. And they have to do whatever the state tells them to do. For a single example: -- in a certain major city the utility had to sell one of their buildings to the public school district for one dollar. But then because they still had critical infrastructure (phone circuits, SCADA wiring) on one floor, they then had to lease back one floor from the city for several hundred thousand per year. This is a single example. There are many more.

Salinger's picture

Margaret Brennan of Bloomberg and her co-anchor Scarlet Foo on Bloomberg TV encouraging all of us to learn more about China in the context that China is not stealing jobs from America but are actually creating jobs in America. They both feel badly for folks who have been impacted by jobs that have gone offshore but they actually said that is good for them personally as stuff they purchase is less expensive.


This is the same Margaret Brennan who a couple of weeks ago laughed at the idea of the constitution being read in the House.


She now has a union guy on and is clearly harassing him - she goes on to say the problem is that the US is not competitive 


Hopefully the video will not be cut like the last time when she and Ian Bremmer laughed at the constitution.

topcallingtroll's picture

Yes...all going according to plan. Lift the peg or your economy and government collapse. Either option sounds pretty good to me.

JR's picture

“Jobs go where the markets are.  I never apologize putting a factory in China if my growth is in China.”

This is the voice of the man who now will head the President’s new Council on Jobs and Competitiveness.

Speaking of competitiveness, Jeffrey Immelt’s GE—a Too Big to Fail $80 BILLION bailout recipient—apparently wants to make U.S. based Boeing more competitive by sharing jet technology with China, perhaps leading to greater competitiveness by a police state economy with the U.S. military.

The one characteristic one notices about Immelt is that he is an unapologetic internationalist and insider banker who has no more patriotism for the U.S. than he has for China.

“I think there is a sense of arrogance and entitlement here, a complacency in the United States,” says Immelt.

Entitlement?  Just because you’re an unemployed taxpayer?  Just because your work has been shipped to a lower wage foreign power?  Just because your tech job has been handed over to a Bill Gates’ import who will work for less? 

Look up Immelt’s arrogant duplicitous view of the country where he lives and has the full protection of the American heritage of property rights and you’ll find the trail disgusting and near treasonous, such as: “You’re going to have to look people in the eye and say, ‘We’ve got to shut this factory and move it to China,’ … then in the afternoon, go out in the community and connect with people.”

There’s no doubt who Immelt is: the question is “WHO IS OBAMA?”

trav7777's picture

Immelt must have been lookin in the mirror when he talked of arrogance and entitlement.

It's only the PROLES who are "entitled" when they ask for $20/hr for a job that some chink will do for $1/hr until he drops dead or highdives into the parking lot.

The executive class DESERVES their compensation.

Oh regional Indian's picture

For a pumped up on no work economy, look no further than Japan. The road repair crews are always out, repairing perfect roads. Perfectly. bridge repair crews are always about, repairing perfect bridges, perfectly.

Since they were a small place, they did not build more, they just keep rebuilding. And they exported the hell out of the world with their perma-weak currency.

Very similar game, different scale is all. China can start a huge Chinese Development Bank and start loaning money to countries with the caveat that they can only buy chinese gods and services.

Watch that happen and the can gets kicked, a long ways.

There will be war before that transpires, but I'm sure all this aid they are doling out still works this way. buy our stuff, give us raw materials.


Quantum Future's picture



That is alraedy happening via the Chinese trading houses mainly in the BRI(C) infrastucture mega projects using technology sold or licensed from the shortsighted profit driven Westerners....

Dapper Dan's picture

No income tax or property tax in China?  I have more questions.

Do ya think maybe that all of those brand new city and towns that the ChinComs are building are for very rich non ChinComs? to move there at a later date?  (is that to many (too)? question marks?  How about now?

Oh God now I am really confused. 


chinaguy's picture

Come 2015 - 2020 the "one child per family" generation comes on line - their two parents and four grandparents have ALREADY bought the kids a house.....the new OCPF generation doesn't need to buy one and demand falls through the floor for expensive residential...ain't no two ways about it

buzzsaw99's picture

Screw stability, I hope the Chinese leadership is overthrown.

topcallingtroll's picture

Amen brother. I got so mad during tianamen that i wanted to go.down there and kick some peoples army ass. Fortunately i am too much of a coward.

Rodent Freikorps's picture

YAF Remembers Tank Man & Tiananmen Square Massacre June 4 1989.wmv


Atomizer's picture

ZH Title Revision: China's Runaway Rickshaw

alter ego's picture

China knows the play they are right now.

Even though the establishment is putting pressure on them to de-peg the Yuan from the US Dollar, they are not going to do it.

I believe that they prefer to star a War in Asia to get the resources they need before they obey the order from the powers-that-be.

This is not going to end pretty.

China is running out of time to beef up their military strength to confront US and other countries.

What we are witnessing right now is economic warfare and I think we are running out of time until we see a real one.


TWORIVER's picture

Seems that PM's are being used for their original purpose as a store of value. For some they need to transfer taht value into food at these high prices. makes sense as to why PM's flat vs rallying food.

chinaguy's picture

SSEC + 38.29 (1.43%)...not a massive decline

SmittyinLA's picture

It boggles my mind with China's $600B a year trade surplus with the US how many shit securities they buy and how little Nebraska farmland they buy.


20 years from now when their hundreds of millions of state factory employees attempt to retire on their FNM  & US treasury securities I suppose they be asking the same questions.

High Plains Drifter's picture

They know they can buy all of the US farm land they can stand but they also know it would be a problem to keep it, if the shtf.

SmittyinLA's picture

It boggles my mind with China's $600B a year trade surplus with the US how many shit securities they buy and how little Nebraska farmland they buy.


20 years from now when their hundreds of millions of state factory employees attempt to retire on their FNM  & US treasury securities I suppose they be asking the same questions.

DisparityFlux's picture

It maybe that the Japanese own Nebraska farmland.  In the early eighties, during their economic boom, they were buying cattle ranches and real estate all over America.

KTV Escort's picture

I'm a regular traveler to China since 2007, and clearly the "build out of empty malls and towns" mantra is overstated, but all in all this is a good article. I've been lucky to spend time with several families (in Shanghai, Guangzhou, Zuhai) and they indeed manage by multiple earners living, happily, under one roof. Chinese hospitality is second to none.

DisparityFlux's picture

In America, we are emptying our built out malls of retailers and consumers, and households manage by having multiple government entitlement beneficiaries under one roof.  American hostility is second to none.

Spalding_Smailes's picture

Nice Blog -


I can't wait to buy China stocks cheap after the slowdown ... Long term, great future.

High Plains Drifter's picture

No property taxes and no income taxes?  Mandarin class, here I come.