Wikileaks Reveals Early Chinese Warning Of Domestic Asset Bubbles, Overcapacity, Bashing Of "Copy And Paste" Educational System

Tyler Durden's picture

Wikileaks' threat to expose Bank of America came and went, and yet all it took for the bank to implode was reality, a little time, and an independent media. That said, Wikileaks has not yet been completely relegated to the compost heap of one time fads. In a blast submission of several thousand cables, Julian Assange tries to regain his one time star status. While we have to go through the bulk, one that caught our attention was a cable from the US delegation in Chengdu, China, where a counsel met with a local representative of the World Bank's International Finance Corporation, for some candid one on one. While the bulk of the exposition, which took place in December of 2009,  is not surprising, there are some frank admissions about the emergence of a Chinese bubble, long before the topic was mainstream (and only fringe investors would consider it), observation that urban housing prices are "here to stay for the coming few years as they are an unavoidable, long-term aspect of the nationwide, structural shift in the population from rural area to urban centers", the realization that the solar industry is plagued by overcapacity and due for a restructuring (many "solar" longs would have been delighted to know this well in advance of the recent decimation in the Chinese solar stock space), but most notable is the Chinese admission that "China will remain a "poor country" for years to come, and can expect to emerge as a "respectable mid-level" country only in another 10-20 years" in order to grow its service sector from the current 30-40% of the economy to a US-comparable 75%, many structural shifts will have to take place. And while such shifts "are already happening to some extent in places like the Pearl River Delta", and "Chinese companies increasingly setting up factories overseas" the biggest impediment is China's "terrible educational system" which "promotes copying and pasting over creative and independent thought." Explaining further, "the normal process undertaken by students when writing as essentially collecting sentences from various sources without any original thinking.  He compared the writing ability of a typical Chinese Phd as paling in comparison to his "unskilled" staff during his decade of work with the IFC in Africa." Well, if China's education system is worse than that of the US, we can probable stop worrying about the dollar relinquishing its reserve status. On the other hand, we would be the first to point out that China, which does not admit defeat, is probably in the early stages of the next bubble: that of importing teachers, educators, professors and generally Ivy League Ph.D.'s. Which is great: take as many as you want. The average tenured Ivy League (not to mention MIT and NYU) professor has already done enough damage to the US - it is only fair that they destroy China next.

From Wikileaks

E.O. 12958: N/A
REF: A) 09 CHENGDU 271, B) 09 CHENGDU 310, C) 09 BEIJING 665
CHENGDU 00000005  001.2 OF 003
1. (U) This cable contains sensitive but unclassified information - not for distribution on the Internet.
2. (SBU) Summary: The head of the World Bank's International Finance Corporation (IFC) office in Chengdu, a PRC national with a patriotic bent, acknowledged that China faces possible asset bubbles, but was confident that China's "strong and technocratic" government would intervene effectively if the signals of overheating became too severe.  Rapidly rising urban housing prices are here to stay for the coming few years, he believes, as they are an unavoidable, long-term aspect of the nationwide, structural shift in the population from rural area to urban centers.  The IFC is trying to push Beijing to address the lack of affordable housing for moderate income households.

China does have overcapacity in several industries, but the emphasis on mega-projects by local politicians, many of whom are engineers, will make reducing overcapacity more difficult.  Over the next 10-20 years, China will need to restructure its economy so that it has a significantly higher share of knowledge-based services, especially research and development.  However China's "terrible" educational system, which promotes copying and pasting over creative and independent thought, is the largest impediment the country faces on this front, our IFC contact said.  End summary.
Asset Bubbles: "Signs Are There", But Government Intervention Will Address

3. (SBU) In a December 17 meeting with Consul General, the head of IFC's Chengdu office, Lai Jinchang, discussed the question of whether stimulus policies have created asset bubbles in the Chinese economy.  Lai noted the "staggering" amount of credit the government injected into the economy in 2009, contrasting the estimates of around 9.3 - 9.4 trillion RMB (USD 1.3 - 1.4 trillion) with the "normal" annual figure of less than 4 trillion (USD 588 billion).  This has certainly caused inflationary pressures - he particularly noted increased prices in iron and steel, petroleum products, electricity, water, edible oil, and produce.  However, Lai, perhaps in part out of patriotism and bureaucratic survival instincts, made the ambivalent prognosis that, although "The signs of an asset bubble are there," the economy was not yet experiencing "genuine" asset bubbles.
4. (SBU) Overall, Lai said he was not worried about the possible emergence of asset bubbles because of the Chinese government's capacity to track the situation and take timely and effective action.  If credit needs to be further reigned, the government will just set a new quota and make it happen.  In particular, he highlighted the December Communist Party of China (CPC) Economic Work Conference, where participants emphasized the need for some cooling down of credit.  He also noted the Central Bank of China's public stance on moderating credit in the coming year.

Lai assessed the basic economic policy stance going into 2010 as unchanged, continuing to emphasize a favorable monetary policy, but with the size of the credit expansion significantly reduced.
Overcapacity in Number of Industries:  Local Politicians Contribute to the Problem
5. (SBU) Asked about the European Chamber of Commerce in China's recent report on overcapacity in China, Lai said he had not yet read the report, but agreed that overcapacity was a problem in a number of industries.  He highlighted the bio-energy, wind and solar industries in particular, noting that they had grown rapidly in recent years as a result of a surfeit of subsidies, and would likely face a period of restructuring.  He also expected the industries targeted in the central government's ten-industry stimulus plans (Ref C) to develop overcapacity.

6. (SBU) Regardless of concerns about national overcapacity, local politicians, such as in inland provinces of Southwest China, will continue to rely on investment in large projects to boost local GDP and further their own prestige, Lai said.  He agreed that Leshan in Sichuan, where the city is planning three billion USD investment in transportation and industrial infrastructure (see Ref B) may be such a case.  "They are mostly engineers so they understand mega-projects, but they don't understand the law," Lai stressed, further explaining that he views most Chinese leaders as lacking an understanding of institution building.  However, he said, the emphasis on large projects to boost GDP figures is "not all bad."  After all, "they have been doing it for decades" and there have clearly been some benefits.
Inflated Housing Costs: Here to Stay as Urbanization Continues; Moderate Income Households Most Severely Affected
7. (SBU) While housing prices have certainly seen some increase, this is not a major issue in cities such as Chengdu, Lai felt, as prices generally remain within reason.  Discussing the Beijing and Shanghai markets, he described the housing prices as "a little scary" and in many cases "totally out of reach" for the vast majority of Chinese citizens.  Nevertheless, investment in the hotter housing markets - for those who can afford it -- will likely remain secure for a while to come, he predicted. Although purchase prices often far outstrip realistic rental incomes, the capital gains on most housing purchases will continue to make the purchases worthwhile.  The apparent excess of new empty apartment buildings in urban areas, along with price increases, was not necessarily irrational, Lai asserted.

Rather, he believed these trends to be driven by the long-term process of urbanizing the Chinese population - a process that still has years to go.  Separately, Lai asserted that one problem with including housing prices in China's Consumer Price Index (CPI) is that the commercial housing market was immature and just over a decade old (so that the data was not yet reliable enough for its inclusion in the CPI).
8. (SBU) Overall, he said, the current housing market in China is still manageable for middle and high income households.  Low income households are also managing as they have access to government housing programs whereby they can rent low-cost homes.  However, moderate income households - with incomes too high to qualify for low-income housing but falling short of the middle class -- are falling through the cracks.  The IFC is trying to push the government to address this problem, with a focus primarily on incentivizing commercial developers to build moderately priced housing for this market.  To this end, Lai believes the government should conditionally support developers by providing lower priced land and government subsidies.  In addition, he emphasized the need for mortgage insurance, and more broadly for capital market development in order to broaden mortgage access.
Toward a "Respectable" Mid-Level Economy in 10-20 Years: China Must Shift to Become a Knowledge - and Service-Based Economy
9. (SBU) China will remain a "poor country" for years to come, and can expect to emerge as a "respectable mid-level" country only in another 10-20 years, Lai said.  Successful development over this period will require a structural shift so that Chinese companies' share of the intangible elements of economic output increase significantly.  China's share of the research and development, services, and marketing remains low, he emphasized.  He stressed that the service sector accounts for only 30-40 percent of the economy at present, in contrast to the US at 75 percent, and Europe at 70 percent.  In the coming years, China needs to affect a shift to increase the service sector to at least 60 percent.
10. (SBU) The necessary structural shifts are already happening to some extent in places like the Pearl River Delta, Lai noted, highlighting a transition there from industries requiring low-tech labor, to those that are increasingly skills-based. Citing historical shifts in other Asian economies such as South Korea, he also foresaw Chinese companies increasingly setting up factories overseas, utilizing local labor with Chinese management.  As the Chinese economy shifted to become more knowledge-based, and as Chinese companies increased their overseas presence, the constituency for IPR protection would also expand, he believed.

"Terrible" Education System Is Main Impediment
11. (SBU) However, Lai identified China's "terrible" educational system as presenting a serious impediment toward achieving a shift to a more knowledge-based economy.  The current system promotes copying and pasting over creative and independent thought.  Lai said that the system rewards students for thinking "within a framework" in order to get the grade.  He described the normal process undertaken by students when writing as essentially collecting sentences from various sources without any original thinking.  He compared the writing ability of a typical Chinese Phd as paling in comparison to his "unskilled" staff during his decade of work with the IFC in Africa.


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infiniti's picture

Thank god, somebody gets it.


Chinese employees are insanely bad at solving new and unique problems, providing quality customer service, managing (anything), and committing themselves to the organization. No creativity, no 'bigger picture' thinking.


I deal with them every day. No thanks.

trav7777's picture

they're awesome at stealing things tho

Stack Trace's picture

Precisely my experience with Chinese Engineers. They wait for me to pioneer the concept then they take what I have done and copy it.

I worked beside a Chinese PhD a few years ago. The guy depended entirely on my leadership and work product. I would develop solutions and he would incorporate them into his bag of tricks. Not one time in over a year did he create a single solution that wasn't already provided to him in another context.

The funniest thing was when he was fired. He refused to accept it and continued coming to work for a week. In the end security walked out the door. Was strange situation and I think management was trying to be sensitive.

The last day he was in the office he told me how I was the only other than himself that was any good and even said I had taught him many things.

The sad part was that I felt I taught him little though I tried and he was by far the least capable member on the team.

Granted our team had a PhD Chemistry, PhD Physics, PhD Mathematics, and him with a PhD Computerr Science. I only have a BS in Computer Science and BA in Philosophy but lead the group. Goes to show you that experience and other skills can get you places where education itself doesn't.

Vendetta's picture

Precisly my experience as a trainer of indian engineers and working in a group of Phd's in various disciplines who were from china and russia (the russian was the most creative and had a fantastic sense of humor though).  However I must annotate that statement with the observation that the American engineers in one organization had the analysis skills of toads, they were fascinated by their paychecks which were way above what their level of skill and experience warranted.

falak pema's picture

Sounds like the french educational system to a dot comma! Jesus, the mandarin culture of jacobin france was invented in china!

That figures. Central planned and elitist meritocracy. "Learn by rote and never make a mistake as its forbidden"; you get a bad note for being original, off the beaten track!"

Lol, vive la France des Enarques! (That is the Topp bureaucratic school to beat all schools!)

Fortunately the french have an individualistic culture since the revolutio that allows them to be self assertive, now cowed down. Its shows in their general culture, not so much in their economic culture which is state controlled to a point its  painful.

The Internet revoltion will help solve that down the road all over the world, freeing individual entrepreneurship, provided the State does not clamp down on Internet freedom.

proteus's picture

we have the same thing in US, just to a lesser extent.  dumbing down is implied in the very term "education."  we don't even have a word in the English language that i am aware of to describe what education *should have been*.  the entire concept is outmoded and has to be abandoned before the planet can transition to a post industrial era - but teachers don't know how to think - they only know how to copy - it is a vicious circle.

Tapeworm's picture

In my area the school board always looks for a credentialed educrat to be superintendent of schools.

 They always choose a hidebound thing that has a PhD in "Education" and demands to be referred to as "Doctor Such-and-such".

 The level of knowlegde from entry level employees is now so low that my business is paralyzed for decent new hires. The sandardized tests that I use from 40 years ago are a strong indicator as to whether the prospect has any chance at doing this work. The base cutoff level of 40 years ago is never approached by high school graduates that had four years of academic courses including four years of math.

 I am down to one guy that really can maintain the equipment that supports the rest of the employees. He knows the score and constantly threatens to quit. Without him I would have to do all of it myself, so by then I would just get out. (BTW, most of the equipment is under fve years old and needs little maintainance.) None here has any clue on CNC machine controls and how to set up a control with the parameters to make it work best.

 The employees need me far more for basic maintainence than I need them. That is a bad situation for them.

 A shop with a few real electro-mechanics guys can make it. The scrap employees that cannot figure out anything deserve to be dumped. If they do not care enough to take advantage of free tuition and books from me then why should I care about them?

DoChenRollingBearing's picture

That is really bad news for you Tapeworm.  And it is REALLY BAD news if that is being replicated all over America. I do not have the figures, but I believe math competency is going down, despite all the blather about "education".

If I were young again, I might take your math test...

And you are offering them free tuition and books.  Ugh.  Bad sign.


Thanks for the anecdote.  I will be looking for more of this kind of news.

dick cheneys ghost's picture

Unlike Japan, Communist China has no brands..........Communist China's new air craft carrier is an old Soviet Union relic.........The recent pentagon report about Communist China military build up was a joke.........more fear mongering from the "MIC"........


Cheap Communist Chinese products are destroying economies in every corner of the world.......... 

reader2010's picture

The Chinese education system is brilliant because it can churn out IP chieves at one million per year.

IMA5U's picture

i like that wikileaks dood


reader2010's picture

I just came back from a tour trip to China recently. I can tell you almost all Chinese people that I talked to in cities, from college professors to gabage collectors, sincerely believe the shit, which is "structural shift in the population from rural area to urban centers" will always mean that more housing price appreciation is baked in the cake. The only exception is that the rural peasants that I talked to don't believe that lie. 

DoChenRollingBearing's picture


reader2010, you are on fire today.

Boop's picture

China will remain a "poor country" for years to come...


Noam Chomsky agrees, American Decline: Causes and Consequences:

In the 2011 summer issue of the journal of the American Academy of Political Science, we read that it is “a common theme” that the United States, which “only a few years ago was hailed to stride the world as a colossus with unparalleled power and unmatched appeal – is in decline, ominously facing the prospect of its final decay.” It is indeed a common theme, widely believed, and with some reason. But an appraisal of US foreign policy and influence abroad and the strength of its domestic economy and political institutions at home suggests that a number of qualifications are in order. To begin with, the decline has in fact been proceeding since the high point of US power shortly after World War II, and the remarkable rhetoric of the several years of triumphalism in the 1990s was mostly self-delusion. Furthermore, the commonly drawn corollary – that power will shift to China and India – is highly dubious. They are poor countries with severe internal problems. The world is surely becoming more diverse, but despite America’s decline, in the foreseeable future there is no competitor for global hegemonic power.

reader2010's picture

Poor country is defined in terms of per capital, such as GDP per capita. Overall, it can be a heavy weight due to its population size. 

SMG's picture

Until it's food supply gets cut off.

Spastica Rex's picture

Chomsky +1

Yes, I did say that out loud.

Yen Cross's picture

I'm curious?   Put / b`elow ,

or call> topside?

lolmao500's picture

Very interesting.

reader2010's picture

I've never been to Chengdu. But, here is what Urban Dictionary says about it:


An inland Chinese city where foods are numb and spicy, girls are horny and sexy, guys are chain smokers/heavy drinkers, and streets are dirty and stinky. It's the capital of Sichuan. It has the largest number of teahouses, bars and whorehouses per capita in the world.


You can take care of your appetite and dick at the time in Chengdu."


Ramboy's picture

Funny, for decades chinks were called nerds, brainiacs, comp sci engineers, computer geeks.  Now they're dumb cos ZH says so.

One has to also wonder why half of Apple's San Francisco office is Chinese H1B imports

infiniti's picture

Because the Chinese are as bad as Apple. I don't want anything to do with either. Brainless, controlling, monotonic.

reader2010's picture

Steve Jobs & Co really love to employ those Chinese slaves, don't they?

RockyRacoon's picture

Well, Ramboy, with well over a billion people, SOME of them are bound to be smart.   How dumb does one have to be not to see that?   They can't ALL be cookie-cutter stupid.

Ramboy's picture

Sounds like society putting a premium on intelligence now vs. last few decades when if you were smart you were discounted as a nerd.  So yeah, now US media says Asians in general are dumb.

Marco's picture

The fact that expats making best use of western opportunities education excell has little relevance to the reputation of natively educated Chinese in China ... expats are the cream of the crop, and western education if you chose to be selective of where you go and apply yourself is still the best.

dvp's picture


Concerning, "The average tenured Ivy League (not to mention MIT and NYU) professor has already done enough damage to the US - it is only fair that they destroy China next," don't confuse non-economists with economists.  Yes, economists are ideologues parading as academics, but other academics are actually legitimate--except for political scientists who want to copy economists.

defender's picture

Have you actually looked at the stuff that they are coming up with?  The only good scientists that they have were hired after they had made a name for themselves, and then they promptly got lost in their ivory towers. 

Publish or die has killed the host.

Religion Explained's picture

My two cents: It is not the education system, it's the mind of individuals, i.e., genes. I'll let you chew on that for a while.

See if you can tell me how to find the answer on how to solve the lack of creativity in a race of people.

Oh, and if you think this is a racist statement, then let me counter with: you're an ignorant fool that needs an education in cognotive evolutionary psychology. May I suggest a little Steven Pinker to start your education ...

Bottom line: China is just a big Japan, but less refined. Creativity is not going to happen, not on the scale necessary to set them apart in any way, educational system or not.

frobn's picture

Perhaps genes do play a part however the environment is as important or more so. The prevailing economic theories are buck. The education system at present, all over the world, is junk in, junk out. The main economic fallacy in the US and China is that goods take priority over people.

proteus's picture

agreed 100% that China is Japan 2 size XXL.  but if China can match Japans per capita GDP @ 1+ billion population it will rule the world.

Yen Cross's picture

  Is it me?


     That ( FUCKING  FALLING short}  THING?  Sunday open and  looking @ charts. Trade smalls.

RockyRacoon's picture

Got news for ya, my man.   Everybody does not trade currencies.   Well, except fiat for food when necessary.   Your market oracle calls are useless to some of us.   Like... who cares.

Yen Cross's picture

  Rocky / XAU has to be converted into ( Cabbage)?


RockyRacoon's picture

The currency step in "conversion" can be sidestepped (and often is).   I can trade a silver dime at my local farmers market for half a bushel of nice corn or other veggies any time.   Currency is just a convenience (imposed by TPTB who mandate it for payment of taxes) that can be skipped in everyday commerce.   You are talking your so-called book and perhaps should be looking past the trees to see the forest.

valuetrader's picture

I need to disagree with the conclusions of the article. Firstly, Ph.D.'s from the USA moving to China is very bad for America. I am not talking about Keynesian money printing economists here. I am talking about engineers and nuclear physicists. With them will go technologies and ideas that America should keep to itself rather than transfer to its competitors. The other thing that I think the article is wrong about is the Chinese educational system. The Chinese have shown that hard work is a large part of what is needed in order to become good at anything. With the US educational system focused on baseball and soft sciences, the majority of the students hardly learn anything. This attitude can be seen in so many TV shows like ''Saved by the bell''. The Chinese have moved forward and many kids there actually study and focus on education and learning. Not all of them will turn out to be good students and only some of them will become very good at what they do but this is the case always. Together with the average and hard working but unable to think creatively students there will be some exceptional ones and they are likely to help China advance. We are already seeing some of this happening. My comment on the exam system is that while it is not ideal, it is surely the best way to select the top students and definitely beats a selection process that lets athletes attend universities even if they lack basic writing skills. To claim that the exam system favours the rich is complete nonsense. While the rich may have more free time to prepare for exams or pay for private tutors, poor but talented kids are likely to succeed at exams and come on top. Generally speaking, the US educational system at the high school level is one of the worst out there and doesn't provide students with the skills needed to succeed in the modern work place. Sadly, on this front I have to say China 1: US 0.

scratch_and_sniff's picture

10-20 years is a bit of an understatement, the standards of education in the west probably wont ever be matched, if so it will be several generations down the line. Its all about tradition, we have a tradition of educational excellence in the west, its not going to be easy to trump. Not just that, but the availability of an excellent education for everyone, regardless of background, still exists (even i got a decent education fuck sake, i did math at a Russell group university and i was thick as two shore planks, and broke). If i wanted to get back into education tomorrow, i would have immediate financing, somewhere to live, and plenty of offers to decent universities...thats an unmistakeable trait of an great society, one that gave the world just about everything it depends on to make progress...from the interweb to Hamiltonian mechanics, the telephone to the shotgun, the flugelbinder to relativity, aahh fuck whats the point, you all known the rest, i.e just about everything.  

(its a shame i wasted my education, but thats another matter)


PulauHantu29's picture

Every Bubble meets a Pin eventually. China and Australia are massively overpriced right now by any measurement. Price to income....rental name's Bubble Territory.

bill1102inf's picture

Ok, so the average dumb american is smarter than a chinese PHD recipient.  Figures.

In 10 years China will lead the world with LFTRs and the endless energy they produce while we are still paying exhorborant amounts of $ for our energy.

RockyRacoon's picture

They only have to be smart enough to reverse engineer what we produce, or require technology transfers as a part of setting up manufacturing facilities in China.   A process that American industry seems only too willing to do.   Historical precedent:  The transistor was developed in the U.S. -- and look what Japan did with it!

halflink123's picture

Production and manufacturing are central to a prosperous economy, not "service".  This is all baloney.



JamesBond's picture

thourghly enjoyed this essay.

Woodyg's picture

I've always said the most dangerous people in the world are People with an Ivy League MBA.

Dirt Rat's picture

The most dangerous people in the world are People with an MBA. FTFY. That they would have to study something that comes naturally for others is very peculiar.

AnAnonymous's picture

Made me laugh.

Nothing more than covering for the angles. And open angles.

Innovation has led to more consumption of resources. Well educated, innovative, 150 IQ population would only lead to more and more consumption of resources.

For the Chinese, the issue is simple: where to find the resources to grow their service economy?

As the world resources are mostly already mapped, no much growth, no much additional inputs to expect for new resources to appear in the system?

Outsourcing? Yep. Possible but will mean that the jobs moved from overseas result in unemployment overseas. How would US citizens welcome that? Answer is easy.US Soccer moms support the idea that losers' jobs (manufacturing and all) are shipped overseas, after all, losers are meant to lose but if her college educated darlings could no longer find a well job because someone else can perform the same for cheaper in China, woooo, totally another story.

As the Chinese can not secure the resources necessary to grow their service industry, well, one thing has to be blamed: and that is education.

Again, the Chinese could have well educated, innovate, 150 IQ PhDs, this kind of population only means one thing: more resources are going to be consumed. New ways to consume resources are going to be developped.

The question is simple: where are the resources to fund such population's way of life? Without that answer, everything else is just an attempt at kicking the can, masking the reality.

So yep, education is poor in China. Can only be poor. No other solutions to explain well, the consequences of lacking resources to develop a services industry.

Gimp's picture

There is no substitute for creativity and experience, more and more paper degrees means squat.

I have worked with Indian Software Engineers, very nice people, but none brought any new ideas to the table. Not sure if it is a cultural thing but they just wait for someone else to give them new ideas and direction. I ain't worried about the so called "rise" of India and China. It is all BS built up by people with an agenda.

Mad Cow's picture

All over the world, the creators are on the endangered species list. The creators are drugged at an early age and the rest are assimilated into the parasitic horde. The manipulator parasites morph the creation into something destructive or sterilize it. Peak parasites bitchez!

Joebloinvestor's picture

Feynman had the best explanation when he was teaching physics in a foreign land.

They could recite chapter and verse, but didn't understand what they were reading.

When asked for an example of what they had just read, silence.

He told them to look out the window.