This page has been archived and commenting is disabled.
How The China Boom Unravels: One Person At A Time
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The dashing of youthful expectations of open-ended wealth and security for everyone with a college degree is highly combustible when combined with a popping real estate bubble and systemic corruption.
Those enamored of China's ability to build empty apartments, empty malls and empty train stations are missing the big story, which is China's boom is unraveling one person and one trade at a time. While the production of new subway systems and empty cities is definitely impressive, those focusing on capital projects are missing the erosion of faith in the China Boom story and the erosion of the foundations of the Boom Story: foreign direct investment, shadow banking, the real estate bubble and a central planning-dominated economy.
Central planning, booms and bubbles unravel in the same way: one person and one transaction at a time. The China Boom Story is falling apart not as a result of large-scale geopolitical crises but from the decisions of individuals.
Every wealthy Chinese who secures a non-Chinese passport and smuggles his/her wealth out of China is weakening the Boom, removing capital and perhaps even expertise and entrepreneurism.
Every individual who buys manufacturing equipment from Alibaba and ships the equipment out of China to a factory elsewhere weakens the workshop of the world story.
Every executive who decides not to invest capital in China, choosing to invest it elsewhere, weakens a critical pillar of the Boom.
Every Chinese household that decides not to gamble the family's entire savings on an overpriced flat is deflating the real estate bubble.
Every young college graduate who can't find a secure white-collar job and thus joins the millions of underemployed "ant people" living on the margins of the glitzy mall/Maseratis facade is living evidence that the Boom can't deliver what was implicitly promised by the Central Planners.
China's Ant People (1 hour video, BBC Four)
The conventional Western observer's enthusiasm for China's glitzy facade is matched by his abysmal ignorance of China and on-the-ground realities. East-Asian culture is centered around face, i.e. appearances and how they reflect, positively or negatively, on public image. Maintaining and burnishing appearances is more important than the substance, especially if the reality is negative.
This obsession with appearance/show is reflected in the glitzy exteriors of buildings, the jet-black-dyed hair of the ageing leadership, the ginned-up official statistics of perpetual growth, and perhaps most visibly in the typical product assembled in the workshop of the world: it looks great but falls apart long before its time due to low quality of key components. Only one component needs to fail to render the item useless junk that is hauled to the garbage dump.
This is the story few tell because it's not positive and actually requires long experience in China. A culture obsessed with first appearances simply doesn't provide much of a foundation for a long-term commitment to maintenance and built-in quality, the two essential parts of longevity and long-term efficiency.
The headline story is China's amazing rush into building X,Y,Z: today high-speed rail, tomorrow, thousands of wind turbines. What few care to examine is the maintenance requirements of every one of those thousands of wind turbines. Without obsessive attention to the quality of each component and regular maintenance of each turbine, those initially impressive thousands will dwindle to hundreds and then dozens of operable turbines as the years grind away at inferior components and a lack of maintenance takes its toll.
Those seeking a more productive knowledge of China might start with Evan Osnos' latest book, Age of Ambition: Chasing Fortune, Truth, and Faith in the New China. Here are excerpts from an insightful review of the book: Can't Buy Me Love: China's New Rich and Its Crisis of Values:
A growing segment of Chinese society now not only yearns to be well clothed and well fed but also feels a keen desire for truth, meaning, and spiritual fulfillment.Although Osnos does not explore it in depth, his book also suggests a link between many Chinese citizens’ quest for meaning and a set of gnawing worries churning beneath the frothy good times. The search for dignity is no mere embrace of New Age positivity.
It also reflects the fears and frustrations of a society laden with systemic risks: environmental devastation, bursting economic bubbles, the collapse of institutions hollowed out by corruption. Each of those threats has the potential to dramatically alter China’s course in unpredictable ways. The growing awareness among Chinese citizens of their society’s fragility has yet to translate into an overt political sentiment. But if and when that happens, it will come as a rude, and potentially earthshaking, shock to the ruling regime.
Yet for several years in a row now, the average starting salary of a college graduate in China has been less than that of an entry-level factory worker. Of course, after their families have sacrificed and poured their meager resources into the pursuit of an education, most college students find the thought of settling for blue-collar work after graduation inconceivable. In their desperate search for office jobs, graduates from rural towns and small cities congregate in cramped apartments and boarding houses in China’s wealthy coastal cities: “the ant tribe,” the Chinese call them.
Perhaps even more frustrating to China’s young and ambitious is a sense that the golden years of opportunity have already passed them by -- the impression that, in Osnos’ words, China’s boom was “a train with a limited number of seats.”
Increasingly, a young person’s success depends on his or her parents’ connections, and one can find considerable vitriol directed against the so-called second-generation rich (fuerdai) when stories of them crashing Ferraris and enjoying $12,000 dinners circulate online.
The dashing of youthful expectations of open-ended wealth and security for everyone with a college degree is highly combustible when combined with a popping real estate bubble, systemic corruption, the implosion of a shadow banking credit bubble and the impending global recession.
Yes, China's trade deficit with the U.S. just notched a record, but this is more likely to be a high-water mark rather than just another extreme on a trend that will march on unchanged for years or decades to come.
»
- 11110 reads
- Printer-friendly version
- Send to friend
- advertisements -
Sounds like Goldman Sachs has a foothold in China.
Nice Piece. I checked out the book Charles recommended on Amazon. What caught my eye was the one listed below it, China's Second Continent, about the massive Chinese investment in Africa...
Oh, Shit.
Ladies and Genitals,
The teleprompterer-er is about to unleash his Golf Strategy in Iraq and Sy-hic-iria. I think? Hic... Hic…;-)
Looney
It's all Chinese to me. ....China is a shit hole
Everyone seems to think the empty cities are examples of Keynesian stimulus gone wrong.
What if they are just a sensible back up plan so people have a place to live after the coming war?
Massive investment in Africa....to do what...extract more materials ti increase oversupply, or create more rubber shoes and cheap sunglasses, while paying your workers in Africa for cheaper so you can sell the items for cheaper? Super scary. In addition to basically meaning nothing, it's also moving capital outside of the Chinese economy because it goes to the workers in Africa.
This should end well.
Everywhere.
...EVERYWHERE?
It's only fair, heh? ;-)
Looney
It's so weird to read stuff like this right after the article on their new alternative to the SWIFT system...makes you wonder which narrative to believe. China new master of the universe, or China biggest disappointment ever. Some scary shit either way.
They're both true.
China is trying to go 1... 2... 6 in many ways. They're great at copying. But when you're copying you don't get the context or the knowlege that led up to that thing/process/idea in the first place. Hence, you get some rather screwy things like ghost cities with nobody in them and bullet trains nobody rides. You also get 21st centruy finance hitting a country where most of it's population lives like it's the 1800s. And yes, that is as dangerous as it sounds.
It's using quantity as a substitute for quality. It may work to some degree, but they're eventually going to run into the same problems as all centrally planned economies have run into.
(And the US is doing it's best to copy that failed model, along with Europe's failed welfare state social programs. Our future is bright.)
The US offshored most of its industrial base to China.
They may have problems, but at least they have all the jobs that used to be HERE.
It's just not that simple unfortunately, look to our great depression as an example.
Pretty sure they have most of the gold that used to be here to...
What good is having all of the jobs if the customers are broke?
~"Every individual who buys manufacturing equipment from Alibaba and ships the equipment out of China to a factory elsewhere weakens the workshop of the world story."~
~"The US offshored most of its industrial base to China."~
This part of it is an old story. The USA became the workshop of the world. Then, after WWII, it built Japan and Germany to become it and to compete head to head with the US. In the 1970s and 80s it did the same for China, (the alternative to this would not have ended well for anybody). And now it is happening to China, as Chinese capitalists go in search of less regulations and cheaper labor in Africa. The fact that it comes with Ebola and Jihadis doesn't seem to phase the Chinese. Staying at home can be very unhealthy for Chinese capitalists in the long run as well. Anyway, it's easier to be inscrutable in Africa. <(;-)
Listen. This here is an example of a non-tweet posting. Bad form.
I don't pretend to be an expert on China even though I am literally surrounded by it.
However, one thing I am pretty sure off, although I could be wrong. Anyone who wants to explain why China's problems are worse than the rest of the totally fucked up world, has a very very tall order to fill.
They should be in much better shape than the Americans, at least according to this:
http://www.pewglobal.org/2014/09/09/global-public-downbeat-about-economy...
Sometimes a picture IS worth more than 1000 words...
The more important question would be, does it matter? For you living in China I'm sure it does, but for me here in the USA I don't really care how much better off (or worse) the rest of the world is when SHTF. I'm only concerned about where I'm at and how I'm going to survive it. Cheerleading for different countries is fun, but ultimately pointless.
For people who might have some semblance of taking responsibility for their own circumstance, it might have a small meaning. They might use that information to make decisions on how they should act in the future.
Of course they are not hobos....
I'm saying cheerleading is pointless, not the information. There is a distinct difference between the two so please pay attention. Also the Hobo comment was weird and irrelevant (Unless your talking about my username, which is an old inside joke and has nothing to do with my occupation.)
You should spend some time improving your reading comprehension, I'm pretty sure most hobos have you beat in that department.
My comment was about your user name and people who think that Americans can never leave the US. I have not researched any of your earlier posts to derive any special meaning to focus my reading comprehension on...
I would rethink the expatriation route, Americans will not be popular around the globe after this falls apart, the last thing you want is to be the only one in town. I would focus more on relocating to one of the better states (if you don't already live in one) and call it good enough.
China’s $25 Trillion Debt Bubble Fracturing: Bad Loans Mount At Big Four Banks http://davidstockmanscontracorner.com/chinas-25-trillion-debt-bubble-fra... "China is so top heavy with government debt that its paper pile is two and a half times the size of its economy. Veteran China analyst Stephen Green at Standard Chartered calculates that China’s aggregate debt hit 251% of its GDP as of June. Its debt sits at about $26 trillion, which is more than the entire commercial banking systems of the US and Japan combined, estimates show." http://www.foxbusiness.com/2014/09/10/opinion-china-will-not-overtake-us/
"reflected in the glitzy exteriors of buildings, the jet-black-dyed hair of the ageing leadership"
WB, is it just me but I never see any chinese with grey hair. And almost no men going bald. Someone should investigate their genes.
China’s $25 Trillion Debt Bubble Fracturing: Bad Loans Mount At Big Four Banks http://davidstockmanscontracorner.com/chinas-25-trillion-debt-bubble-fra...
"China is so top heavy with government debt that its paper pile is two and a half times the size of its economy. Veteran China analyst Stephen Green at Standard Chartered calculates that China’s aggregate debt hit 251% of its GDP as of June. Its debt sits at about $26 trillion, which is more than the entire commercial banking systems of the US and Japan combined, estimates show." http://www.foxbusiness.com/2014/09/10/opinion-china-will-not-overtake-us/
"Maintaining and burnishing appearances is more important than the substance, especially if the reality is negative."
Like the Kardashians.
wait ... which one is it ... is china collapsing or taking over the world with russia ....
This ditty has been circulating the weibo since last year despite the Ministry of Truth's attempts to block it:
The people have money–you steal,
The people have women–you rape,
The people have homes–you tear down,
The people have words–you delete!
The people have woes–you perform,*
The people are wronged–you lock up,
The people have issues–you reject,
The people have doubts–you edit!
The people’s property–you take,
The people’s suffering–you flee,
The people’s pregnancies–you abort,
The people’s food stalls–you flip!**
The people curse you as bastards,
But you call yourselves officials.
* A reference to Wen Jiabo and other officials who use photo-ops like movie stars.
** A reference to a woman fruit seller who was roughed up by Guangzhou city police in front of her child.
You do know that Aladdin's cave is owned by Princelings and their companies (all discussion of this has also been blocked by the aforesaid Ministry).
I don't find this article inconsistent with Neal Stephenson's observation in one of his books some decade past, that the inevitable result of globalization was that the average worldwide wage was going to be what a Pakistani bricklayer makes.
Chinese white collar workers wages being, for the next few moments, above that of an average Pakistani brick layer. Only one way to go.
And yet there are people who doubt the wisdom of stacking Gold and Silver...how many days does that bricklayer have to work to buy an ounce of Ag you think?
been sayin this forever...byzantine era politics/corruption aint got shit on modern china..you think were in trouble....please take a look under the dress of this ugly ass nation...one enormous ponzi scheme...speaking of transfer of wealth by the 1%....china has gone to the head of the NEW math class little buddy
"So now the Emperor walked under his high canopy in the midst of the procession, through the streets of his capital; and all the people standing by, and those at the windows, cried out, 'Oh! How beautiful are the Emperor's new clothes! What a magnificent train there is to the mantle; and how gracefully the scarf hangs!'
"No one would admit that he could not see these much-admire clothes; because, in doing so, he would have declared himself either a simpleton or unfit for his office.
"'But the Emperor has nothing at all on!' said a little girl.
"'Listen to the voice of innocence!' exclaimed her father; and what the child had said was whispered from one to another."
China's spending about 15% of its GDP on its military annually and that can change to 50% or more easily; thus, the problem's solved. if modernity American style means perpetual wars, then the Chinese style can copy that too. Got Milk?
The debate continues as to how stable china really is. Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured massive amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need. Like a plane on autopilot China continued in the direction it had been on.
Now China finds itself in a credit trap. For years the people of China have had the habit of saving much of what they earn but the low interest rates paid at banks has not rewarded savers. With few investment options much of this money has drifted towards housing and driven housing prices sky high. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be very painful. More in the article below.
http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html
China is a slave empire, the question of wether it is exploding or imploding depends on which side of the equation you examine. If you look at the conditions - ecology, work hours, salaries, price inflation - life is in decline. Fortunately, when the slaves are treated as disposable units, it doesn't really matter. Chinese are "busy" replacing their broken slaves at such a rate that they not only have the highest population density on the planet, they're also a record exporter of immigrants.
If you look at industrial productivity - it is extremely high. Quality of the product may be low, but the price to quality ratio is superior. I'd rather buy 10 fake rolexes with a combined lifespan of 50 years than a single authentic watch that does the same thing for 100x more money. I was at a hardware store just recently. Saw a $150 drill press made in China. By the look of it, it would only last a few years, but being able to buy one for that much to me is amazing. I make custom jewlery so a drill press is essential to me. A decade ago I couldn't find one for less than $1000. Oscilloscopes? Same thing! $10K+ manufactured in Agilent in the US or a Chinese no name brand for $300? Sure, I'll go for Chinese, even if I have to calibrate it myself and wick excess solder off poorly made joints. Quality is low, but price-to-quality ratio is right.
Chinese slave owners are notorious for channeling money off shore. Bad thing? Maybe, but considering what they buy and how their money ends up spreading Asian influence, enriching people still loyal to Asia with valuable assets, it's not really a waste, but an integral part of economic expansion.
So, is their economy exploding or imploding? It's both. The part that's imploding is made of disposable and infinitely exploitable people. The part that is exploding is expanding outward, slowly infiltrating foreign nations, setting foot in your backyard so that one day others could follow in the footsteps.
All empires are based on slavery without even one exception. What you said about Chinese products can be what could be said about the American products in 1870s, and the Japanese products in 1950s.
Iron Ore prices at five year lows.
When the math meets the road: https://www.youtube.com/watch?v=4p5gf5by7UU
ghost cities....ghost government economic stats...symmetry
Grass is always greener on the other side of the fence.
I lived in China for 11 years, not like most foreigners but on the street level with normal people. The Chinese are just like anyone else, understanding them is no different from understanding your neighbors, co-workers, friends and family, and most normal Chinese are decent people. The system is another matter entirely, the boom released all the bad actors who went straight to the top, and the nature of Chinese culture allows them to abuse their positions. You wouldn't believe some of the stuff I saw. Once, some young guy in a new BMW almost ran over a woman, who then deeply apologized to him even though she was in the right. Another time some guy scratched his car when he hit an old man on a bicycle, whereupon he jumped out and beat and kicked the old guy senseless. In China it's not difficult to see people with position get away with murder--literally. Right now China is a pressure cooker and when the economy gets into serious trouble it will blow. Look at Chinese history, it's like a see-saw, up to the sky, then straight down, and more time down than up.