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Out Of The "Hard Landing" Pan And Into The "Crash" Fire - Are Things About To Get Even Worse For China?

Tyler Durden's picture




 

Over the past week one of the more hotly debated and market moving topics was the resurgence of speculation that China may be on the verge of a "hard landing." To a large extent this was driven by renewed concerns that the country's debt load, especially at the local government level, will be a substantially greater hindrance to growth and hence, concern than previously thought. This was paralleled by concerns that Chinese growth will likely slow down substantially more than previously expected, even as inflation remains stubbornly high. The result: a move wider in Chinese CDS in the past week whose severity was matched only by a similar move around the time of Lehman, when the world was widely seen as ending. Concerns that delusions about decoupling are precisely that (courtesy of 3 out of 4 BRICs printing a contractionary sub-50 ISM also led to the biggest drop in the Hang Seng index since 2001, after it tumbled 22% in Q3 as fears that a Chinese slow down would impact all developing economies with an emphasis on East Asia. Yet if a Hard Landing is all it took to disturb the precarious balance in which China always somehow always ride off into the sunset having rescued the entire world, we wonder what would happen if the market started expressing concerns that a Hard Landing is the optimistic case, and nothing short of a Crash Landing may be the baseline. Because according to the Economist, which informs us of a very troubling development out of China in which foreigners may be about to face a new entitlement funding tax for all domestic workers beginning October 15, and hence a surge in overall labor costs, then a "Crash Landing" may well be in the cards for the world's biggest marginal economy.

In "The Coming Squeeze", the Economist writes that the "cost of expatriate labor in China may be about to soar." The reason - a new tax levied on foreigners to fund the perpetually weakest link of Chinese society: its entitlement programs. "Officials have now unveiled some detailed rules which seem to require foreigners as of October 15th, to pay into China's public scheme that provides pensions, health care and unemployment benefits. The likely costs of the new measures are unknown. It is possible, but not certain, that foreigners will face stiffer taxes than locals. All that is clear, says KPMG, a tax consultancy, is that the law will squeeze both expats and their employers."

By this point a major red flag should have gone off: with international employers sourcing a key portion of the labor demand pool in China, a tax provision such as the one envisioned, which sees both foreign workers and foreign multinationals, would result in a surge in labor equivalent costs for what was once the cheapest labor market in the world (yet one which as Zero Hedge discussed several months ago may be poised to hit parity with the US in a few short years). Yet while natural labor supply/demand imbalances would have taken a long time to fully materialize, a government tax levy would have an immediate impact, and hit MNC bottom lines very hard. The net result would be a crunch in corporate bottom lines. The logical consequences would be scaled layoffs to preserve profitability, and a shift to a US-style labor relationship in which corporations extract a pound of productive efficiency flesh from their workers in exchange for the "privilege' of having a job. It is only logical that employees of domestic companies will demand comparable treatment and a prefunding of their own social safety net as the push for another Welfare State goes into high gear. One need only look what happened to Chinese auto companies two years ago when the domino effect of rising salaries forced most to increase their employee wages substantially or else face a disruptive (to put it mildly) work climate.

Needless to say, foreign workers met with a much more restrictive tax regime will also flee the country in droves, relocating to more tax-friendly havens, especially since as The Economist writes, "foreigners are unlikely to benefit from unemployment insurance, because it fhtey lose their jobs they typically lose the right to live in China. The rules suggest that pensions may be portable, but do not say how exactly this will work - and it is difficult for retired foreigners to obtain permanent residency in China.

Two other big red flags result from the implications of this move, which fundamentally is nothing short of a government-induced push to stick foreigners with the check for the country's non existent safety net:

1). China is very actively starting to consider having a safety net, which implies that even the government no longer has much faith in the export-driven mercantilist model (aka the symbiotic, or stated-better, Mutual Assured Destruction with the US model). Whether this is due to ongoing economic turbulence in which China can no longer rely as much on the US and global consumer is unclear, but we are fairly confident it is a significant factor.

2). China is now taking a much more hardline approach vis-a-vis international corporations, and foreign labor in general. Without doubt this is driven by the push to promote domestic corporate interests which China is seeing as not benefiting proportionately. The Economist agrees with this:

The climate for foreign firms in China is starting to feel frosty. Costs are rising, regulations are growing more burdensome. Local competitors are playing rough. Some, like Cosco, a shipping giant, have brazenly tried to renege on contracts. Others have used their political allies to squeeze out foreign partners. One Westerner reveals that two foreign firms on whose boards he serves have recently been forced to leave the country shedding their assets in fire sales. China is much too big and booming for foreign firms to ignore, and plenty of multinationals are doing splendidly there. But this latest turn of the screw may not be the last.

Some would say that it would be economic and political suicide for China to proceed with this plan. But when things start to turn ugly, as they have in the past several months, centrally-planned (not to mention hard line communist) economies have been known to make less than rational decisions. China would not be the first, nor, judging by rising expectations that our own Fed Chairman may soon resume exporting outright inflation to China yet again via yet another monetary stimulus, last.

 

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Sun, 10/02/2011 - 13:55 | 1730987 Tense INDIAN
Tense INDIAN's picture

hard landing...hard landing....everyones only talking about China....how about the INDIA SLIDE....back to 1991...or 1947!!!!

Sun, 10/02/2011 - 14:28 | 1731063 DormRoom
DormRoom's picture

actually it's the opposite.. less risk of  hard landing.

 

higher labor wages increases domestic demand! Furthermore, a greater safty net, encourages less savings, and more consumption.  Why save for a uncertain future, if you know the State will help.

 

China knows export demand collapse is coming, and pushing policies towards domestic consumption to offest this.

 

Also, this helps resolve some of the strutural problems with USD being the reserve currency, and the Triffin dilemma (global current account imbalances)

 

Sun, 10/02/2011 - 14:34 | 1731071 akak
akak's picture

Keynesian cluelessness at its finest.

John Retard Keynes: puting the "dismal" in "the dismal science" since 1937.

It's just too bad he didn't confine his buggery to younger men, but decided to do his level best to screw the entire world in the ass.

 

higher labor wages increases domestic demand!

Hey, I know, let's just raise the minimum wage to $1000 an hour, and make EVERYONE rich, automatically!
So easy, even a Princeton caveman can do it!

Sun, 10/02/2011 - 14:39 | 1731087 DormRoom
DormRoom's picture

strawman argument.  Never said to increase wages by that much.   Increase enough so you get higher marginal propensity to consume, or a shift in household income constraint line, which leads to more aggregate demand.   Supply side response: produce more, increase prices.   New equilibirum point, higher prices, and more produced. labor and capital hug it out.

 

 

Sun, 10/02/2011 - 14:42 | 1731104 akak
akak's picture

Please take your Keynesian witchdoctory and stick it up your ass.

Lord Keynes would have been happy to help with the process, but alas, "in the end", .......

Sun, 10/02/2011 - 14:49 | 1731119 DormRoom
DormRoom's picture

ad-hominen attack.

Sun, 10/02/2011 - 14:57 | 1731140 akak
akak's picture

If the (paper) butt-plug fits .....

Sun, 10/02/2011 - 18:22 | 1731553 Kayman
Kayman's picture

DormRoom

akak's derision aside, the marginal cost of production in China, of which you speak, must be set against the MCP of other countries.

And unless you believe in infinity, Economies of Scale always run into Diminishing Returns.

Mon, 10/03/2011 - 00:18 | 1732272 Dick Fitz
Dick Fitz's picture

I added DormRoom to my list of "moronic and incompetent poseurs that I should just ignore for the sake of my blood pressure and sanity" a few weeks ago. He thinks he knows economics, but just can't seem to figure out why the things he was taught aren't working IN THE REAL WORLD! Well, it's because the things he was taught, and the models he cherishes so dearly, aren't realistic and fail to account for HUMAN ACTION!

Without a stable, standard monetary unit, a stable, just legal system, and a deep respect for and decisive protection of civil liberties/property then economies will always fail, and the residents of that system will suffer.

Too bad DormRoom has spent hundreds of dollars (or worse, hundreds of thousands of dollars) for an education that has no basis in reality- it's like having a PhD in the meaning of the TV series "Lost"- there wasn't one, and it just annoys people that actually have real world knowledge.

Sun, 10/02/2011 - 18:08 | 1731517 Hacksaw
Hacksaw's picture

Haven't you learned you can't argue with a tea bag moron. They believe that 99% having less so the 1% can have more will create jobs because the rich create jobs out of the goodness of their hearts. After all, we all know Goldman is doing God's work. Looks like China is about to make the oligarchy pay out the nose. It won't be as nice over there as it is here when the corporations refuse to pay. Over there they'll start disappearing when they evade their taxes. I wouldn't want to be a plant manager for a multinational in China in the future.

Mon, 10/03/2011 - 00:26 | 1732281 Dick Fitz
Dick Fitz's picture

Hacksaw, you must be new here.

We believe that the .1% is screwing the 99.9% and is using their total capture of the governmental regulatory system to make their rape of the economy "legal".

The people that start businesses, and work their asses off to get rich, they DO deserve their wealth, because they DO create jobs for everyone else. It's that .1% that isn't creating wealth but instead using the legal system to rape the rest of us (while getting obscenely wealthy in the process) that we aim our ire.

Don't lump the legitimately wealthy in with the pirates and rapists on Wall St.

Sun, 10/02/2011 - 14:31 | 1731072 Motley Fool
Motley Fool's picture

You are such a fucking tool.

Sun, 10/02/2011 - 14:42 | 1731106 Cynical Sidney
Cynical Sidney's picture

taxation and enlarging social programs does disencourage saving and provide an incentive for more spending, but it will not save china from a hard landing. domestically china faces a number of fiscal and social challenges.

it's also tied to the international trade so much so that if the US and/or europe goes, china will go will it

Sun, 10/02/2011 - 14:49 | 1731124 DormRoom
DormRoom's picture

I never said China would escapse a hard landing.. but if the policies are properly implemented, there would be a lesser risk of a  hard landing.  But it'd be a Herculean task.

Sun, 10/02/2011 - 15:21 | 1731180 mynhair
mynhair's picture

'properly implemented'

Nice cop out.

Sun, 10/02/2011 - 15:17 | 1731162 Popo
Popo's picture

I'm not sure I understand the conclusions of this post. 

Taxing foreigners to pay for social services will indeed suck for the foreigners -- but it will be a windfall for China.

The article concludes that in the long run this will come around and bite China in the ass.

That hasty conclusion seems to ingore the prior little tidbit where China fleeces multinational execs for billions of Yuan.   "Tyler" concludes that this will drive out MNC's.   LOL?   No it fucking will not.  Let me tell you something about doing business in Asia (because I'm here, and you're not).  MNC's will take endless lengths of Chinese cock up their asses for the privelege of doing business in Asia.  There are few other options, and the Chinese know it.   Why else would companies stick around when their IP is being stolen,  and their US companies are withering away?   Because despite the regular ass-reamings administered by the Party,  it's still net profitable to stick around in the PRC.

This article sucks.  Figures.  The data comes from a corporate friendly, BBC derivative brit-rag.  What's their point?  If you create an unfriendly business environment for foreign execs, the MNC's will pack up and go back to manufacturing in Albany?   Or wait... I know... maybe they'll all squeeze into Vietnam and crank that nation's economy up to 1000% employment. </sarc>

Yes, China is going to crash.  But not because they're fleecing executives from other countries.  The problems are internal.

Sun, 10/02/2011 - 15:22 | 1731183 GeneMarchbanks
GeneMarchbanks's picture

Absolutely. MNCs are at the end of the rope they'll have to comply with the Commies. It'll make for an unholy alliance of Biblical magnitude.

Mon, 10/03/2011 - 00:47 | 1732296 bakken
bakken's picture

Yep.  The worst is the poor Chinese will have 300million people deadly short of usable water in 5-10 years!  That is reality, this other stuff is all smoke and shit.  China is very really doomed by their geography.  They can not send people to Africa fast enough to escape this.   If they try relocation, imagine moving 300 million people to new homes 1,500 miles away.  It will be a cataclysm.  Just keep ypour eyes on progress of the "Grand South/North water diversion"...ummm, it is not going well.  CHINA FAIL big time.

Historically, China loses about half its population during major dynasty changes(check it out)>>>>>This epic fail will be more than enough to topple the Communist dynasty.  Don't count on the next crew being any friendlier!

Sun, 10/02/2011 - 15:51 | 1731244 Oh regional Indian
Oh regional Indian's picture

Indeed Brother Tense, you spesk the truth. India is a house of cards pretending to be a Bric.

Living in Bangalore, the epicenter of the boom, and having witnessed two booms firsthand in the US (.Con and housing), I can say, without a doubt, same exact process, only in double quick time.

The coming implosion of the Indian middle class as the west takes a huge hit, is going to be epic and difficult. In the last five years, Indian's have moved all over the country, IT jobs are fluid and pay your relocation. 

I know China has many of th esame issues, but they have a humongous, best in the world manufacturing base  and the Indian technical Skill base. Our only plus was English.

Now it won't matter so much anymore.

ORI

My 9/11 Photo analysis

Mon, 10/03/2011 - 00:56 | 1732311 bakken
bakken's picture

As a non-Indian I have a different opinion.  India has always operated very close to disaster, but has managed to survive intact even if shabby, with out extensive government involvement.  The Chinese will collapse as a nation with out the millions of secret police, censors, spies and Army militia which interfere with life in China.

As only a visitor, I believe that India can MUDDLE through and survive somehow.  China can not deal with a break down in organs of force, violent anarchy is the result which usually causes millions of deaths in a regime change.

Things look bad, but believe in yourselves.

Sun, 10/02/2011 - 16:56 | 1731395 Schmuck Raker
Schmuck Raker's picture

India does not sell ad space, China does.

It is not currently an objective of TPTB to demonize India.

Now please hush, so I can return to shorting Sensex in quiet anonymity as before. ta

Sun, 10/02/2011 - 14:07 | 1731021 PulauHantu29
PulauHantu29's picture

An ATM that dispenses gold instead of cash is the latest gadget for investors in China.

China's first gold ATM will start operating during the Chinese National Day holidays, and will dispense blocks of gold in different sizes. "After the outbreak of the financial crisis, everybody in China became very enthusiastic to purchase and invest in gold," Zheng Ruixiang of the Gongmei Group told Reuters.

The company plans to operate 2,000 gold ATMs across the country.

Similar machines have been introduced in Europe, the Emirates and Las Vegas, but for China the ATM is the first of its kind.

Sep 28, 2011 - 11 hours ago by Andrew Moran -

http://www.digitaljournal.com/article/312073#ixzz1ZIiovJIl

 

Sun, 10/02/2011 - 19:30 | 1731691 Schmuck Raker
Schmuck Raker's picture

Viva Las Vegas !

What's the premium like?

The article you linked mentions you can use CCs, and the purchase limit is $157,000.

[snap] That gives me an idea...naw, that would be wrong.

Sun, 10/02/2011 - 14:09 | 1731030 NumberNone
NumberNone's picture

China has lots of people but a wafer thin layer of population that is of interest to International employers.  International companies have continued to move inland as the talent pool becomes too thin and expensive along the East Coast.  As China starts implementing safety nets and regulations this may actually be good for US workers as jobs might come home...barring North Korea waking up that an entire country of slave laborers might be of interest to multinationals looking for the next place to pay people pennies for their efforts.  

Mon, 10/03/2011 - 00:58 | 1732313 bakken
bakken's picture

Hey!  FoxConn  PyongYang!!!!

Sun, 10/02/2011 - 14:34 | 1731037 GeneMarchbanks
GeneMarchbanks's picture

This seems according to plan, I see no reason to be surprised here...

Chinese like the corporate concept as long as it serves the Communist regime. Deglobalization full speed ahead.

Sun, 10/02/2011 - 14:19 | 1731052 akak
akak's picture

Given the results and ramifications of the US economy's so-called and (formerly) much touted "soft landing", one has to wonder just how bad a pre-admitted "hard landing" for China might actually and eventually be.

Sun, 10/02/2011 - 14:25 | 1731060 Dapper Dan
Dapper Dan's picture

If China and India are toast,  Brazil is the destination then, besides I don't know any point breaks in Asia.

Move over Floripa Groms I'm dropping in on ya!

Mike Whitney has a good article about China,

http://www.counterpunch.org/2011/09/30/cracked-china/

From article

The unsupervised expansion of credit is at the heart of all financial crises. China is no exception. The impending implosion in China is likely to send tremors across the global economy pushing Europe and the US back into recession.

Sun, 10/02/2011 - 14:46 | 1731118 akak
akak's picture

The impending implosion in China is likely to send tremors across the global economy pushing Europe and the US back into recession.

"Back into recession"!

(presumably from depression)

Tell me another funny!

Sun, 10/02/2011 - 15:58 | 1731261 Oh regional Indian
Oh regional Indian's picture

Anyoen even THINKING of putting money in Brazil, should read a little bit about it's latest President.

Get to know Dilma

And female politician's in such positions of power are frightening, because, in rising like that in a man's world, you know at their core they are really insecure and had to have "paid" a price. I know enough to be speaking from direct experience at the highest levels of Power.

ORI

My 9/11 photo anlysis

 

Sun, 10/02/2011 - 22:03 | 1732030 o2sd
o2sd's picture

Female politicians are like Poolan Devi.

Ruthless.

 

Sun, 10/02/2011 - 14:31 | 1731073 ArrestBobRubin
ArrestBobRubin's picture

Oh boy, there goes the eurozone bailout... yeah as if that was going to happen. Even if it turns out the Chinese are flush, they know full well there are much better investments than the eurozone.

There is no bailing this thing out. For quite a while now it's just been been a matter of good fiat after bad :-)

At this point, only fools and those who're clearly benefitting way too much from a truly despicable and Malthusian status quo are the only ones down with continuing to even try. At your and my expense of course. Privatize the profits, socialize the costs. The Money Power can't lose. At least for now, under these rules. But times, they're a-changing.

The rest of us: be sure you know where all the emergency exits are located, begin to sharpen the tynes on that Pitchfork in the garden shed, and break out the axe handles. If not the whole axe.

Mon, 10/03/2011 - 05:23 | 1732443 merizobeach
merizobeach's picture

"Even if it turns out the Chinese are flush, they know full well there are much better investments than the eurozone."

 

Unless their view is something akin to: (i) a solution to unloading a trillion of those dying USD for (ii) an investment into sovereignty wherein they will repo countries out from under their peoples (much like what the IMF, ECB, et al have gained proficiency at over the years).

 

If the CCP really begins teetering on collapse, I'll expect foreign wars to ramp up nationalism and mobilize problematic portions of society into conscription.  Mongolia will be an obvious target for annexation; the only thing stopping them now is that Russia wants to do the same.  Taiwan will be an obvious target.  The Korean Peninsula would be an obvious potential hotspot.  If China has learned anything from American foreign policy in the past century, then false-flag operations should already be a card in their deck too.  (Though I suspect they may not really understand how to effectively employ it.)  Conversely, if the USGov really starts losing their grip (for example, loss of the reserve currency status or the onset of hyperinflation), then I would anticipate armed conflict with China as their act of desperation of last resort; meaning though that it is still firmly on the table, but truly as a last resort--war with Saudi, or an occupation of Saudi under some false flag guise of protecting the monarchy might score a notch less desperate than picking a fight with China--if the CCP were at such a hypothetical time not also teetering on collapse themselves.  As an aside, I think such a teetering or collapse of either superpower might doom Taiwan, or at least give them a good curb-stomp.

Sun, 10/02/2011 - 14:34 | 1731076 YHC-FTSE
YHC-FTSE's picture

Wishful thinking. This taxation on foreign corporations taking advantage of lax labour laws (There's irony) has been on the cards since at least 1997, when I heard about it the first time. So it seems they finally found the balls to implement it. Whether you stupidly call it "entitlement tax", or more accurately corporation tax, income tax, or labour duty, it won't make the smallest dent in the profits of foreign firms. The disparity between fixed costs in China and the West is still in the "Fuck me, that's cheap!" stage of their economic evolution. 

 

As the article says, multinationals are still doing a roaring trade there, even squabbling amongst themselves for the biggest piece of the domestic/export pies. It's about time they contributed meaningfully to their host nation's people, and not merely by bragging about how many kids they employ in their sweat shops. The workers who made these corporations billions in profits get a safety net, and the fly-by-night foreign operators, who are the worst culprits when it comes to China's QAA will be forced to go elsewhere if they don't like the paperwork. Maybe this will even help America's economy by forcing American firms to source their employees in the US. 

Sun, 10/02/2011 - 14:37 | 1731093 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

American workers back to the factories! (Patriotic marching music in the background).

This is said only half in jest. It's going to be interesting going forward because the model of overconsumption is coming to an end. Imagine the Chinese driving as many SUVs as Americans. Ecological disaster.

The American economy needs to move back toward production.

Maybe we can continue to overconsume but do it with bits and bytes, not brics and mortar. And by bits and bytes, I do not simply mean online pornography.

There are those who say that thought is negative entropy. A better life and a better world do not simply mean a fatter rear end and a garage full of junk. That's the road running down to death.

We need to follow the road leading to life ... as well as liberty and the pursuit of happiness.

 

Sun, 10/02/2011 - 14:50 | 1731127 Amish Hacker
Amish Hacker's picture

It's currently fashionable to talk about government regulation as if it were a universal evil, but China is still in the early stages of its development. Only government can address issues like mine safety, air and water pollution, workers' rights, food inspections, child labor, and so on. Industry will always avoid dealing with these issues because they hurt the bottom line. Unfortunately, the Chinese government hasn't done a good job of creating and enforcing standards either, and these latest tax moves seem ill-advised and wrong-headed, especially if the idea is to "stick foreigners with the check for the country's non existent safety net."

No question that many aspects of Chinese society would benefit from an effective helping hand from government. But the problem with creating a lot of "free" benefits is that the safety net quickly turns into a hammock, and the helping hand becomes just another handout.

Sun, 10/02/2011 - 14:53 | 1731133 YHC-FTSE
YHC-FTSE's picture

Nicely put

Sun, 10/02/2011 - 15:06 | 1731145 akak
akak's picture

Only government can address issues like mine safety, air and water pollution, workers' rights, food inspections, child labor, and so on. Industry will always avoid dealing with these issues because they hurt the bottom line.

A popular if misguided and dangerous fallacy.

The marketplace can and WILL address ALL matters of concern to participants --- if it is allowed to do so.  Having the power of government on the side of big business to suppress and attack that process unfortunately has a long and sordid history.

Show me a so-called "failure of the marketplace", and I will show you the hand of governmental interference, favoritism, cronyism and monopolism every time.

Sun, 10/02/2011 - 20:31 | 1731390 YHC-FTSE
YHC-FTSE's picture

Yeah, multinationals are such angelic entities that if we would only leave them alone to get on with their exploitation, everything would be hunky dory. 

 

Show me a "success of the marketplace", and I will show you regulations that are enforced and implemented on every participant to protect consumers and promote fair play. You know what happens when you have no rules, as during the Bush years? The weakest get the shit kicked out of them, politicians get bought, and a handful of multinationals end up making everything under different brand names like modern day feudal serfdoms. Sounds familiar? It should be - look around you. The idea of regulating the markets is popular because it is backed backed by more than a century of case studies on corporations that break every ethical, moral, & legal code to increase profits.  I'm not saying corporations are bad, just that their motive is obviously profit above and beyond all other considerations so you should bear that in mind before running with ignorance, and criticizing a well made argument.

Mon, 10/03/2011 - 00:28 | 1732280 TGR
TGR's picture

Actually the market is indeed taking care of alot of the negative conditions alluded to in the previous post. Consumer backlash is what it's called, and corporates in China in order to export to the EU and US now typically require at minimum that factories attain certain certification in order just to be able to be considered as suppliers.

These certification bodies, as well as Western corporates sub-contracting factories in China and elsewhere in Asia, perform regular spot checks to ensure compliance. Thus, if a factory employs underage labor, for example, it is immediately blacklisted when deemed non-compliant.

 

 

 

Mon, 10/03/2011 - 07:19 | 1732504 YHC-FTSE
YHC-FTSE's picture

I understand what you say, but ceteris paribus does not exist in real life. Under perfect conditions, where each consumer is aware of the provenance of every product they consume, by information provided by a free and incorruptible mainstream media, as well as being protected by an ethical supply chain, then yes, the market dictated by the consumer tends to take care of itself.

But real life is not like that at all. It takes years of campaigning by passionate advocates for fairness and the rule of law to get the public's attention, only if they are very lucky and it's akin to closing the barn door after the horse has fled. Too fucking late. Even when you manage to catch the public's imagination, most consumers don't give a shit as long as the product works and it's cheap, just as most importers don't give a shit as long as they make a decent profit and any negatives can be hushed up for as long as their margin is unaffected by public sentiment. From small timers to multinationals, the bottom line is always profit, and they will subvert government officials, the media, and the public to get their way because they are allowed to do so. Such a concept as conflict of interest does not seem to exist in American politics.

 

What I really don't understand after all these years of blatant and monstrous cases of Ponzi schemes, dangerous products, unethical employment practices, slave labour, and consumers being poisoned and even killed by US corporations and multinationals (Ever seen Erin Brockovich?), people still have faith in their corporations and advocate having less regulations to hamper them. If you keep repeating your mistakes expecting a different result, it's called mental illness.

Mon, 10/03/2011 - 15:05 | 1734076 akak
akak's picture

 

What I really don't understand after all these years of blatant and monstrous cases of Ponzi schemes, dangerous programs, unethical employment practices, slave labour, and citizens being poisoned and even killed by US and foreign governments (Ever seen of the little scam called WAR?), people still have faith in their governments and advocate handing ever more power over to them. If you keep repeating your mistakes expecting a different result, it's called mental illness.

Mon, 10/03/2011 - 17:20 | 1734658 YHC-FTSE
YHC-FTSE's picture

:). Touche. However, I am not advocating handing more power to governments. They have that already, whether we like it or not. They exist, whether we like it or not. What I advocate is a government that is uncorrupted and incorruptible, that enforces laws already on the statutes to protect the public, not the corporations. Probably an impossible dream, but doing essentially nothing and turning a blind eye: Relying on the good will of the corporations, honesty of the media, fairness of the legal system, and enthusiasm of the general public for ethical causes, is imo, naive.

If a system is so corrupt that it is beyond repair, it might indeed be best if you started from scratch as you so often advocate. 

Mon, 10/03/2011 - 01:15 | 1732326 StychoKiller
StychoKiller's picture

..., politicians get bought,...

 

Kinda shoots yer entire argument in the azz!  Either Govt is useful for "regulating" problems, or it's actually contributing to evil!

Mon, 10/03/2011 - 06:53 | 1732482 YHC-FTSE
YHC-FTSE's picture

Does it? What exactly don't you understand by "Enforced and implemented on every participant"?

Hey if you happen to live in a Banana republic, where your politicians are bought wholesale by corporations and foreign (Israel) powers, that's your problem to solve, not leave alone to get worse. 

Mon, 10/03/2011 - 06:22 | 1732460 criticaster
criticaster's picture

Yawn...

We have an expression in the UK: "you're a mug"

It means that you have no idea that you are being treated like a bitch and you just keep on sucking it up.

Of course markets have to be regulated. What do you think commercial law is all about? If you have no laws and no standards then bad money drives out good. All these free-market dogmatists are obviously blind to that situtation. Look where the repeal of Glass Steagal got us my friend. Dishonest people took advatage of the lack of regulation to line their own pockets at our expense. Bad money has driven out good. And the whole time people like you are running around shouting "let the market sort it out!". Well that doesnt work if the market itself is rotten and f*cked does it?

Markets are great when they are in liquid and fungible items. They are great when information flows easily and more or less equally to all participants. They work smoothly when there are no large assymitries of power (i.e. when you cant manipulate the market). I could go on. But the point is not all situations at all points in time are like that at all. That is the mistake of free market dogma. Not all markets are created equal.

Yes, right now markets are being manipulated and governments are interfereing in ways that you no doubt disagree with. But they are not doing so because the market is over regulated. They are doing so because it is falling apart and they are sh*tting themselves. They are interferring precisely to maintain the free market illusion for the participants because the whole thing was so un-regulated that it was allowed to rot to the core.

 

Sun, 10/02/2011 - 14:52 | 1731130 fdisk
fdisk's picture

China "Crash Landing" Complete and total nonsensical Horse ShIt crap

China has about another 10-20 years to generate over 7% (8-9%)+ GDP growth.. On Domestic compsumption alone.

Keep moaning.. Chinese Stock Market performance it's a different story.

Sun, 10/02/2011 - 14:55 | 1731138 b_thunder
b_thunder's picture

Chi-Coms have stolen/acquired/reposessed/hacked their way to enough technology know-how, that they feel they don't need foreign firms on their soil, competing with the communist party bosses-owned domestic companies.  Still owning shares of western companies that do business in China?  Goo luck!

 

 

Sun, 10/02/2011 - 15:03 | 1731148 fdisk
fdisk's picture

"Still owning shares of western companies that do business in China?"

Dude, there is no serious Biz on the planet who didn't do Biz in China.
Most US/Europe Manufacturing is in China.. Let's cry about Greece
some more and brag more about Bank Collapse, Meltdown, Revolution and other BS terms.. As of now GOLD has more chances to drop to 1350, than DOW to
800. Or they gonna meet those targets together?

Sun, 10/02/2011 - 14:55 | 1731139 IronShield
IronShield's picture

Wow, this is amazing.  I was very close to making a move to that area and will now reconsider.  I am still going over in the next couple of weeks but will ask some hard questions while there; more than what I orginally intended.  Though I am upset with the way I see things going in the Western world, I can deal with them (and am already prosperous here).

China on the other hand can ill afford to drive Western Intellectual Capital away.  Aside from killing any further expansion of their economy (they are already marginal at copying so, with such a move, you can forget about anything revolutionary) they would have no chance of coming to parity with the West; and maybe, as I reflect, that is a good thing.  Also, from an infrastructure perspective, they are far behind the West and will be for many years to come.  

So, I can have clean air, water, safe food, relative safety, decent education, access to all modern conveniences (reliable electricity, fuel, internet, etc...) OR I could be in China where I would be taxed to support their local chaff?  Yeah, uh, NO, f*ck NO.

Sun, 10/02/2011 - 15:10 | 1731157 moskov
moskov's picture

It's funny there are so many doom and gloom about China's hard landing.

China is the biggest creditor in the world and if the worst of the worst comes, then China still has massive cash and liquidation for funding its internal consumption projects. There are so many restrictions and infrastructure projects have been put in place due to the central government's concern of overheating. If the demand of export was drastically cut off, as the world's largest manufacturing power and largest populated country in the world.The domestic demand will rise like rocket if China cut the income tax and VAT tax dramatically.

Chinese CDS is stupid because China would only default after US default and China itself is the biggest lender of the world even top the World Bank. China's industrial capacity has already ensured they don't have to trade their products and goods in US dollars.And eventually the EU will only have to trade in RMB if EU would want to sell their products to China.

 

China has also become the world's 2nd largest importer of goods, so if EU and USA want to regain their manufacturing for selling to the rest of the world, only China has the market to swallow them up in a short town, check out the car sells and luxury goods sells in the world you would understand.

 

A bunch of Wall St. hedge funds want to beg on China's crash, 3 trillion dollar of exchange reserve and biggest centralised government. They must be so naive.

Sun, 10/02/2011 - 15:22 | 1731184 Ramboy
Ramboy's picture

It's the first entity in modern history people are rooting for to crash led by "I hate Beef & Broccoli" Chanos.

Sun, 10/02/2011 - 22:29 | 1732085 chindit13
chindit13's picture

China still has massive cash and liquidation for funding its internal consumption projects

I suspect you are equating foreign reserves with the proverbial treasure chest of idle cash just sitting in some bureaucrat or apparatchik's office waiting to be deployed if needed.

Sorry, wrong.  FX reserves are largely just the revenues from selling products overseas.  These products might well have been sold below the cost of manufacturing.  Exporters then turn the dollars into the PBoC, who prints brand spanking new yuan and takes the dollars in return.  Absent gains from the RE bubble, corporate China might well have been operating at a loss for years.  Frankly, I doubt they even know.

China is printing faster than Bernanke's elves can pour ink into the printers, and loaning money faster than Angelo Mozilo on his best day.  Do you believe that Chinese banks' credit committees are so much better than IndyMac and WaMu that they can lend out 45% of Chinese GDP in six months and not make massive mistakes?  Do you think empty cities and 60 million empty apartments don't deteriorate over time and don't destroy capital the same way war destroys capital?

Mon, 10/03/2011 - 00:49 | 1732300 Dick Fitz
Dick Fitz's picture

"Do you think empty cities and 60 million empty apartments don't deteriorate over time and don't destroy capital the same way war destroys capital?"

I think that's where 90% of the "China will be fine" crowd fail. They think that this wonderful 9%+ y/o/y growth has been in PRODUCTIVE areas, when the reality is that a large part of it has been in non-productive, depreciating, non-capital, deteriorating "urban expansion" that is more of a liability than asset. Repeat after me- LARGE, NON-PROFIT DRIVEN, UNRESPONSIBLE COMMITTEES CANNOT CREATE VALUE!

Unless someone is consuming capital with a clear idea of creating future revenue with said capital, the project is bound to fail. The larger the capital expenditure, the larger and more spectacular the failure.

When the credit bubble in China bursts (and the recent pullback by PBoC means that new money is not being printed to support the numerous unproductive ventures, leading to a BIG burst in the bubble, aka the Misean "crack up boom") then I suspect it will be the most spectacular, awe-inspiring meltdown the world has ever seen. It will make the US housing bubble look like a (cop-enforced) closed lemonade stand.

You have been warned.

Sun, 10/02/2011 - 15:26 | 1731194 Snakeeyes
Snakeeyes's picture

http://confoundedinterest.wordpress.com

Copper prices falling, our aggregate demand is falling, anything NOT falling?

Sun, 10/02/2011 - 15:31 | 1731200 zorba THE GREEK
zorba THE GREEK's picture

Looks like someone has been drinking the China kool-aid. China is a riddle wrapped in an enigma

dipped in horseshit and deep-fried. China is the shinning example of a government using central

planning to run an economy. We all know how that works out. With no transparency, extremely

high leverage, BS accounting, and a housing bubble so big, it dwarfs the one in the U.S.

The Chinese economy is nothing more than a Ponzi.

Mon, 10/03/2011 - 00:53 | 1732303 Dick Fitz
Dick Fitz's picture

Zorba, I'm re-posting this just because it dovetails with what you said-

"Do you think empty cities and 60 million empty apartments don't deteriorate over time and don't destroy capital the same way war destroys capital?"

I think that's where 90% of the "China will be fine" crowd fail. They think that this wonderful 9%+ y/o/y growth has been in PRODUCTIVE areas, when the reality is that a large part of it has been in non-productive, depreciating, non-capital, deteriorating "urban expansion" that is more of a liability than asset. Repeat after me- LARGE, NON-PROFIT DRIVEN, UNRESPONSIBLE COMMITTEES CANNOT CREATE VALUE!

Unless someone is consuming capital with a clear idea of creating future revenue with said capital, the project is bound to fail. The larger the capital expenditure, the larger and more spectacular the failure.

When the credit bubble in China bursts (and the recent pullback by PBoC means that new money is not being printed to support the numerous unproductive ventures, leading to a BIG burst in the bubble, aka the Misean "crack up boom") then I suspect it will be the most spectacular, awe-inspiring meltdown the world has ever seen. It will make the US housing bubble look like a (cop-enforced) closed lemonade stand.

You have been warned.

Mon, 10/03/2011 - 02:15 | 1732361 zorba THE GREEK
zorba THE GREEK's picture

DF   Those 60 million empty apartments are no where near affordable for the average Chinese worker.

     Even if they sold them at half the cost of building them, it is unlikely they would sell 10%.

Sun, 10/02/2011 - 15:41 | 1731214 Youri Carma
Youri Carma's picture
India to Outsource Services to Maine as State Eliminates Outdated Child Labor Laws http://www.benningtonvalepress.com/2011/04/india-to-outsource-services-to-maine-as.html

Elite: it’s ok to exchange China and India poverty for America’s Middle Class http://motherjones.com/kevin-drum/2011/01/davos-man-different-you-and-me

Sun, 10/02/2011 - 16:14 | 1731312 IronShield
IronShield's picture

Let's be clear; the Chinese were not successful because of their intellectual brilliance or recognizable personal endeavors.  They were successful as a result of a Fiat system that rewarded the 'leaders' at the top of the chain with limited trickle down (for the connected).  Sometimes slaves don't know they're slaves (and that applies to both East and West).

I have nothing against the Chinese people and am still proceeding with my visit.  However, I will be looking through a different lens to see if this will even meet my requirements or those of my family.  Why would I exchange one corrupt system (with limited growth but clearly defined business processes) for another corrupt system (having uknown growth and potential with a murky, at best, business climate that wants to be exclusionary)?  You should have learned the economic lesson that you "can't have your dim sum and eat it too..."

Sun, 10/02/2011 - 16:21 | 1731326 reader2010
reader2010's picture

China is NOT the place that you want to relocate to with your dear family. Jim Rogers was right on that. Forget about other factors. Just take a serious look at the hard cold facts about their environment from which you and your family will get drinking water, air, and food. Do you really want to relocate to that worse shithole in the world? You call.

Sun, 10/02/2011 - 16:27 | 1731333 IronShield
IronShield's picture

I have been there many times and, if you have the resources, you can live comfortably.  I agree that there are many things to be concerned with and that is why I am taking another look.  Do you have personal experience or are you speaking anecdotally?  I appreciate all input relative to this.

Sun, 10/02/2011 - 16:16 | 1731315 reader2010
reader2010's picture

Fuck it.  It's purely Chinese bullshit. What they are trying to do is trying to win affection from their own stupid people that have been raped and milked dry by monetary inflation scheme, abusive power structure, and raw slavery system that have been put in place since 1949.  We know Shanghai has been building playgrounds for international hedge fund speculation industry since 2008. Do they have anything to show for? How many foreign nationals working in China nowadays? Give me a fucking break. It's purely bullshit.

Sun, 10/02/2011 - 16:21 | 1731328 IronShield
IronShield's picture

"Do they have anything to show for? How many foreign nationals working in China nowadays? Give me a fucking break. It's purely bullshit."

Please expand on this...  Are you speaking from a position of knowledge or just throwing crap against the wall?

Sun, 10/02/2011 - 16:32 | 1731338 reader2010
reader2010's picture

From Wiki, "According to the Shanghai Municipal Statistics Bureau, there were 152,050 officially registered foreigners in Shanghai as of 2009, an increase of 50% from 100,011 in 2005. The three largest foreign nationalities were Japanese (31,490), American (21,284) and Korean (20,700)."

Let's include those unreported sex workers from Russia, Vietnam and North Korea. Let's say they have 500,000 foreign nationals in that shit hole. What's the percentage comparing to its glorious city population of 23 million Chinese? 

Sun, 10/02/2011 - 16:33 | 1731348 reader2010
reader2010's picture

China is the trapand hell, not a destination, man. Get a clear head and read the facts. How about drink its recycled water from public rest rooms? Your call.

Sun, 10/02/2011 - 16:49 | 1731385 moskov
moskov's picture

Wow. you are really a pathetic loser posting spams rather than some meaningful stuff.

I beg you must be so lonely and you have nobody to get laid with

Sun, 10/02/2011 - 18:52 | 1731614 Kayman
Kayman's picture

moskov

So you're saying the video of a woman taking a shit on a busy street corner in Shanghai is a fake ?

Of all the people that I know personally that have been in China, the conclusion without exception is the air is putrid and the water foul.

That is the attraction to foreign business; they do not have to pay for the externalities.  All the crap dumped into the air in China can be exported free of charge to the U.S. West Coast.

Mon, 10/03/2011 - 00:59 | 1732317 Dick Fitz
Dick Fitz's picture

EXTERNALITIES!

That's what's missing from most analysis. Since there are no property rights in China- it's all owned by the gov't- then there is no incentive to reduce pollution, and if you dump mercury or fucking plutonium into the water supply...well, it's not your problem.

Without property rights, there are no human rights, and no civil rights. You are owned by the state, to be used and discarded at their whim.

That's China.

Sun, 10/02/2011 - 19:43 | 1731729 reader2010
reader2010's picture

Does my candid observation of your glorified Chinese culture offend your glorified world view,  and your glorified stinky pussy at all? Just curious. 

Sun, 10/02/2011 - 17:53 | 1731492 tim73
tim73's picture

Yes, I have heard stories how bad things are in reality. They use you to the max and in many cases steal documents from western companies. Not even bothering to hide them or change the cover text. Plus they got massive spy organization in the West.

What they do is they set up some kind of "Chinese Market" to some relatively remote and poorish town in a western country. The town of course is happy to get this new exotic business but it is all cover up. The main goal is to get BUSINESS VISAS to the real spies, relatively low level but still. There are a lot of people going in and out but not much actual business is happening. After few years the market is closed down queitly when the officials start smelling something is not quite right.

They are also aggressively recruiting former workers from big blue companies to China. Sometimes the worker starts with copied documents from his own former company :) China is big COPY&PASTE country.

Sun, 10/02/2011 - 17:35 | 1731462 tim73
tim73's picture

China is going to crash hard and it is going to be B-A-D out there. Already companies are relocating to even cheaper Vietnam, Thailand, Malaysia etc. China is too expensive and they tend to stole and copy everything. I'd bet there are massive hidden misallocations of misinvestments, thanks to one party rule.

Things will be even worse, thanks to the policy called one child rule. There are millions and millions of men without girlfriends and future wives because Chinese couples aborted the girl fetuses in hopes of getting a boy as the one and only.

It is not that good even in a little bit more democratic nations like Thailand and Malaysia, so it must be much much worse in China with no democratic oversight. 

China is also hitting the 10000 dollar glass roof, meaning average yearly salary usually stalls around that number in many undemocratic countries despite huge economic growth. The society is too corrupted in these countries and the rich elite pockets the most of the money.

Sun, 10/02/2011 - 20:07 | 1731649 e2thex
e2thex's picture

x

Sun, 10/02/2011 - 19:58 | 1731773 BigInJapan
BigInJapan's picture

I have to pay in to the Japanese system over here.

If you pay in for 5 years or less, you can have the amount transferred back to your home country when you leave. Stay a day longer and the Tokyo Brain Trust gets to keep it and spend it on a new bridge to nowhere or a shinkansen line to a town of 200 people - you know, the IMPORTANT stuff.

 

 

Sun, 10/02/2011 - 21:14 | 1731937 SanGuo
SanGuo's picture

I am an American English teacher in China and I'm definitely going to find out if this article is accurate.  I have long suspected they might force us to start paying for substandard medical care insurance and housing allowances which doesn't benefit me or my wife because we already own one house.

This will cause more foreign English teachers to simply stop working legally as full time teachers and instead teach "part time" and pay no taxes at all.  I will definitely consider this move as my wife is Chinese and I don't need a work VISA to teach part time. Part time teachers illegally working on tourist visas are already a BIG problem in China and now they are just going to make it worse. I have no problem paying income tax, a flat 10 to 15% of my salary off the top but I will not pay useless entitlement taxes.  Looks like I might move my family to Taiwan, Hong Kong or Singapore.

 

Sun, 10/02/2011 - 21:32 | 1731980 slewie the pi-rat
slewie the pi-rat's picture

how can ya figure china?

slewie can't.  i just figure they're winging it like everybody else

only inscrutably

personally, i think china is as clueless as everybody else.  occam's razor?

maybe even more so, except those who are on zeroHedge, of course

FREE TIBET!!!

Sun, 10/02/2011 - 22:55 | 1732134 Tompooz
Tompooz's picture

As long as there is globalization, wage costs will adjust towards equilibrium. Taxation changes (in China *and* in the US and Europe) will  only give that adjustment the characteristics of sudden jerks.

Well-run multinationals will take such jerks into their stride.  No need for paranoid anti-chinese rhetoric here.  Spies in the US? Just google for 'Israeli spy network".

Sun, 10/02/2011 - 23:43 | 1732197 Belteshazzar
Belteshazzar's picture

The Economist story is something of a red herring.

The reason I say this is that most multinationals in China have been moving towards a more localized labor force for years. The only real people left in most multinationals' hierarchies are top management, for whose case multinationals are willing to fork over the extra dough for housing, car&driver, relocation fees, international schooling for children and what have you. We are not talking chump change here either- the cost/benefit for having that senior level manager are of a magnitude where paying another 20 grand US in taxes per year is not going to deter an MNC from having that manager on the ground.

What is more interesting about this proposed new regulation is to see if the sourcing/trading and foreign language teacher labor supplies dry up, as those portions of the expat population are much more sensitive to price pressure and visa restrictions.

Mon, 10/03/2011 - 00:36 | 1732288 caerus
caerus's picture

hang seng down nearly 5% Bombay sensex down nearly 2% why quibble when it's obvious the house is in flames?

Mon, 10/03/2011 - 06:11 | 1732462 asiafinancenews
asiafinancenews's picture

"... renewed concerns that the country's debt load, especially at the local government level, will be a substantially greater hindrance to growth and hence, concern than previously thought" ???

"... Chinese growth will likely slow down substantially more than previously expected" ???

Hello ... anybody ever hear of Jim Chanos / Kynikos or Hugh Hendry / Eclectica or Mark Hart / Corriente Advisors ?

Heck, these guys nailed it back in 2008: http://www.globalsecuritieswatch.org/PRC_Sovereign_Risk_Review.pdf

Mon, 10/03/2011 - 21:24 | 1735424 merizobeach
merizobeach's picture

That's a great article, thanks for the link.  I'd really like to see the past four years of updated data!

Fri, 10/07/2011 - 11:04 | 1749683 PulauHantu29
PulauHantu29's picture

How much is the tax? I read most workers there still make less then $6 a day...that's a far cry form even the minimum wage folks in the Western countries.

The big "Q" is whther oil stays this cheap...then shipping these chealer goods may still be cost effective....add to that zero "tenure"...zero "unions"....zero this that and it may still be cheaper then in the West...

I'm just saying.....

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