Why China’s Economy Will Be Hard to Fix

http://www.bloomberg.com/graphics/2016-changing-chinese-economy/

by adventured • 10 years ago

67 77 10 years ago

ZoeZoeBee5• 10 years ago

Answer Demographics, China's Working Age Population peaked 4 years ago. Since then the working age population of China has been losing over a million people a year.

Long Story Short, it is too late for China, they just don't know it yet.

zanny2• 10 years ago

I'm guaranteeing you supply of labor is not the dominant factor in China's economic climate. The rigged economics of their core competencies has a much larger impact than the availability of cheap workers - labor markets can adjust seamlessly and effectively to less available labor by having the most valuable work done and less valuable work gets delayed. To some degree you have a cutoff valuation where less valuable work is not worth doing - in the west we call it minimum wage. I highly doubt China's economy is anywhere near that threshold yet.

ucaetano3• 10 years ago

I think parent wasn't saying that supply of labor is the problem now, but that it will be in the future. If thinks are looking bad now, imagine when dependency ratio increases significantly.

It's not just about absolute supply of labor, but also about how much of that labor is being used towards supporting old and young people.

rm_-rf_slash6• 10 years ago

This problem isn't about using robots to refine steel or manufacture iPhones, or have workers magically move up the value stack, it's a question of who will take care of the legions of elderly Chinese. Throw in the fact that China lacks a serious social safety net and the spice of nobody wanting to be an elderly care worker, and you have a full on crises on your hands.

Moshe_Silnorin2• 10 years ago

It will be interesting to see how more-powerful labour replacements effect these predictions. With the death of Moore's law, perhaps this point is moot, but if we get perfect replacements for intellectual and physical labour, a large population of savers may be ideally placed to benefit from the transition, as perfect mass-produced labour substitutes will likely presage enormous economic growth.

rm_-rf_slash6• 10 years ago

That large population of savers is largely doing so because houses are extremely expensive and the gender gap is so wide that most (of the few) Chinese women can disregard (the very many) men without property and do so without consequence.

So even if this large population of savers were to start spending their money, what are they expected to do with their lives, jack off until they die?

I wonder if this point will hit home to Bay Area engineers who live and work mostly among men and can't afford a house without serious pay or a startup buyout.

adventured7• 10 years ago

China has between 400 and 500 million fake farmers that are a readily available supply of working age labor.

Supply of labor is the absolute least of China's problems. In fact, they have far too much labor compared to global consumer demand, which is why the bottom 50% of China is so poor.

If China operated its farming as efficiently as South Korea, much less the US, they'd need no more than 30 million farmers. They have hundreds of millions of people producing very little output, and they're kept that way - and without any ability to own their own farms - on purpose because the state has no idea what to do with them if they're not subsistence farmers.

ZoeZoeBee5• 10 years ago

I'm sorry could you please explain to me why you believe I'm talking about the supply of labor?

mixedmath• 10 years ago

This page contains many pleasantly-made visualizations, which I always like. The editorial content is a little slim to my tastes. For instance, I have a slightly hard time looking at a graph indicating a mere 7% GDP growth and concluding that an economy is in need of fixing.

In a related fashion, I'm a bit surprised that there is not a dedicated graphic to some sort of private debt. Perhaps this information is simply not known well enough. But it's my [admittedly quite limited] understanding that one of the problems the Chinese economy will soon have to face is rising reliance on individual debt for wealth generation.

sandworm1012• 10 years ago

7% would be fine elsewhere, but China needs more. The deal with the general population is that, in exchange for stalled political progression, the people shall be allowed economic progress. Should the later break down, the population may/will become difficult to rule. Anything even hinting at revolution may see the Chinese economy do far more than stall. So china's 10% goal isn't so much an economic but a political necessity.

adventured7• 10 years ago

The problem is, essentially nobody credible on China believes they're actually growing at 7%.

Their imports and exports have declined dramatically as of late. Their manufacturing sector is contracting, with millions of people set to be fired across several major industries such as steel and coal. Their services sector is barely expanding. Capital outflows are of epic scale. Their stock market has crashed by ~50% and is lower than it was five years ago.

7% is basically impossible given that data, and those are government figures. Where is that vast growth supposedly coming from while most of the economy is contracting?

Going by China's history on economic data (a statement which is not excusing any other nation on bad data accuracy), the real data is likely even worse. No chance they're growing anywhere near 7%. Given their behavior and the government figures alone, I'd bet on their economy being closer to recession than not.

Mikeb853• 10 years ago

While China has a lot of corporate debt, household debt is actually far less than in the US or Canada.

http://www.tradingeconomics.com/china/households-debt-to-gdp http://www.tradingeconomics.com/united-states/households-deb... http://www.tradingeconomics.com/canada/households-debt-to-gd...

adventured7• 10 years ago

They don't just have a lot of corporate debt, they have a vast amount of muni debt and shadow debt. Their total debt to GDP ratio exceeds that of the US [1], and it's still expanding rapidly. Their non-financial corporate + financial institution debt is now roughly twice that of the US.

http://www.bloomberg.com/news/articles/2015-05-08/china-s-ve...

rpgmaker• 10 years ago

The editorial content is a little slim to my tastes.

Usually the "editorial content" is just filled generic information not necessarily related to the topic at hand. Given the choice I'd much rather a slimmed down article filled with just the relevant information.

kazinator• 10 years ago

A 4850 × 2879 wide raster image for a simple graph could be a "pleasant visualization" if transferred to the side of train, or a billboard.

bsbechtel4• 10 years ago

One theory here is that it is easy to predict basic needs for a population, and thus let the government control the production of those - food, shelter, medicine, etc. For an extremely simplified example, you have 1 billion people in China, so you need to build 1 billion housing units. That is going to keep a lot of people very busy for 20+ years.

Once the general population's needs move beyond basic necessities, it becomes much harder for a central authority to predict what will be needed by it's citizens. Services, entertainment, and consumer goods are all highly dependent on many more variables than shelter and food are.

sandworm1012• 10 years ago

> Services, entertainment, and consumer goods are all highly dependent on many more variables than shelter and food are.

I'd agree with that for the most developed economies. The US government is in no place to predict consumer wants 5/10/15 years out. But china is far behind. They can look to the more liberal/advanced economies for guidance. They seem to be doing this in their allowance of some international culture (hollywood) and communication (internet). And I think the population is following the pattern. They haven't demanded anything radically different than more advanced economies have.

drzaiusapelord2• 10 years ago

The US government is in no place to predict consumer wants 5/10/15 years out.

It doesn't have to. It just need to provide the framework for US businesses to be successful and allow the entrepreur class to handle future demand. China, Russia, etc have so much state owned industry that the government itself needs to predict this stuff, which is the problem.

nickff• 10 years ago

You vastly overestimate the abilities of any central planner. Coordination through market prices is the only way to provide the goods you describe. If houses were a simple cube of bricks built in the same location every time, what you descibe might be feasible (though it would still be a challenge to design the bricks, select materials, and an assembly technique). Market pricing allows for relative valuation of different options, such as making waterfront homes in Manhattan more expensive than homes in Boise tend to be, or deciding how many strawberries should be grown off season in greenhouses, and how many factories should be dedicated to producing insulin (as well as which techniques should be used, as modern insulin techniques were created by a startup you may have heard of).

You make the production of basic necessities sound simple, while ignoring the great amount of evidence to the contrary, i.e. Kruschev's famous tour of the grocery store.

leereeves7• 10 years ago

Coordination through the market is far from perfect.

The market has myopia and rarely makes huge long-term investments, and sometimes it leads people off a cliff like a band of lemmings.

For example, it's given the United States a plethora of entertainment but decaying infrastructure, and the housing and dot-com bubbles.

The best system seems to be a mix of both central planning and private markets.

rdl• 10 years ago

As a counterexample: Military logistics tends to be centrally planned/standardized, not market based, and while it's rarely efficient, part of that has to do with the environment (where P(success) > unit price; it's perfectly ok to have ammunition which is marked up 100x at the front line vs. manufacturer's door if you're certain to have enough at the right time/place).

tdaltonc2• 10 years ago

That perspective was Hayek's primary contribution to economics. Markets are not just short-term allocation systems. In the medium and long term, their primary function is to collect, compute, and communicate granular information about what is wanted where.

Bureaucrats can compile reports on the broad strokes in static systems, and by doing it without wastes like marketing, or redundant infrastructure they could maybe even do those parts more efficiently than markets. But nothing beats a market for realtime servicing of rapidly moving demand (unless you ask the techno-utopian communists).

vlehto2• 10 years ago

I've been wondering if stuff like this was the reason for initial growth spur of soviet union. It was easy for Lenin to see in 1923 that the country needed steel, food, housing and railroads. If you just churn out that stuff, you can't go wrong too much. But once those markets we're saturated in the 70's, you had no data provided by the markets about what to do. So the soviet union was pretty much doomed to that level of GDP.

Now I imagine it would be still relatively easy to take a country like Peru, turn communist and simply churn out steel, food, housing, install internet cables and improve roads. But you would hit a wall in decade or two.

pash• 10 years ago

"The Use of Knowledge in Society" [0], Hayek's famous essay on the subject, is an enjoyable 12-page read. I first read it as an undergraduate economics major, and it remains one of my favorite economics papers for its clear and simple insight into the role of markets as basic mechanisms of social organization.

If you want to get a feel for what the other side of things was like in Hayek's era, I recommend a curious book written a few years ago by Francis Spufford called Red Plenty [1], which illustrates (partly in fact, partly in fiction) the immense ambition of economists at Gosplan, and the even bigger task they faced, as they tried to modernize the Soviet economy of the 1950s and '60s.

0. https://www.aeaweb.org/aer/top20/35.4.519-530.pdf

1. http://www.redplenty.com/Front_page.html

ajross• 10 years ago

you need to build 1 billion housing units. That is going to keep a lot of people very busy for 20+ years.

By all accounts, though, housing is already vastly overbuilt in China. They spent all those labor-hours already fueling the boom, and those "very busy" hands are now idle.

leereeves7• 10 years ago

Reportedly, China wants to move tens or hundreds of millions of people to the "ghost cities" by 2020.

http://europe.chinadaily.com.cn/epaper/2015-07/03/content_21...

http://www.nytimes.com/2014/03/18/world/asia/china-releases-...

http://www.techinsider.io/heres-chinas-big-plan-to-move-a-po...

It's seems like a strange plan: build empty cities then move people to them en masse. I guess it makes more sense for a centrally planned economy.

icebraining4• 10 years ago

For an extremely simplified example, you have 1 billion people in China, so you need to build 1 billion housing units.

Well, only if you want to have empty units, as there's (almost?) always more than one person per housing unit. How many? Well, that depends on the wealth of the household, on how many children they plan to have, on how many generation will be living with them.

And where should those houses be located? That depends on the (future!) employment opportunities, on the surrounding environment, on personal preferences, etc.

And what kind of zoning should there be applicable? US-style sprawling suburbs? High-density skyscrapers? Smaller towns? How dependent is that on other factors?

What building materials should be used? Is it better to build something cheap for now, betting on improving economic conditions for later rebuilding? Or is a medium-term solution better?

If a layman like me can think of a few dozen variables in 10 minutes, how many are actually there? How can one make a plan that accounts for the particulars of each of the billion?

bsbechtel4• 10 years ago

My example was extremely simplified, and my point was not that China's central planning is correct, working well, or a good idea. It was that it is easier to get away/justify central planning on basic necessities (especially when 500 million people don't even have access to these things) than more complicated luxuries that are more subject to individual tastes.

drzaiusapelord2• 10 years ago

Historically, growth from agrarian to factory based economies is massive and fast once the political and capital elements are put into place. We saw this with the USSR, North Korea, China, etc. The problem is that the move past factory economies is tricky. The pre-reqs to be successful here are just much more complex. Service based economies are special and they can't be successful in a political vaccuum like factory work can. You need a lot of western ideals to make this actually work: free speech, open markets, powerful banking, strong monetary policies, anti-isolationism, free trade, employee protections, anti-corruption, capital protection, pro immigration policies, multi-party government, non-corrupt judiciary, etc.

This is why Russia stuggles now. It ignored almost all of the above and has been held up solely by its state-owned petrochemical industry and petrochemical derived reserves. I think there's a reckoning coming for the autocratic BRIC states soon. Either they'll liberalize and migrate to a US/EU model or become economic sob stories. Russia is looking at 1% contraction this year and its oil slump has moved into a real estate slump. China has a chance to fight this I suppose, but I doubt it has the political will to move away from autocracy and political oppression.

The next decade will be interesting for BRIC economies. The low hanging economic fruit in many of these countries has already been snatched up. What happens now is the big question.

seren• 10 years ago

You need a lot of western ideals to make this actually work: free speech, open markets, powerful banking, strong monetary policies, anti-isolationism, free trade, employee protections, anti-corruption, capital protection, strong pro immigration policies, multi-party government, non-corrupt judiciary, etc.

That is an interesting point, I wonder how all the points you have listed are intertwined.

Do you need free speech because it is a prerequisite to have a low level of corruption ? Or could you in some systems have the low corruption without the free speech ? (I don't really believe that but it seems that is what is the PRC is trying to achieve) What would be the more and less important factor if you had to "implement" one first ? And so on.

EliRivers• 10 years ago

As a single data-point, Singapore managed low corruption without free speech (and indeed, economic development without much attendant political freedom).

neuromancer2701• 10 years ago

Friedman argued you could use free markets as kind of a trojan. Once they get implemented even in an authoritarian regimes it is easier to transition to an overall free society. Chile is generally seen as having made that transition from Pinochet to full republic by 1990.

pjc50• 10 years ago

I'm not sure all of them are required - to me the minimum package is multi-party government + non-corrupt judiciary + free speech + relative ease of starting a business or NGO legally. Some sort of employee protection or at least representation helps a lot with stability.

A lot of people would say that employee protection conflicts with free trade and free movement of people.

sharetea2• 10 years ago

Latest News: China to lay off five to six million state workers

http://www.reuters.com/article/us-china-economy-layoffs-excl...

rm_-rf_slash6• 10 years ago

The report comes from anonymous Chinese government officials and cannot be accepted at face value as fact.

However it is unlikely that China can rebalance from massive overproduction without massive layoffs. The quoted government official, Yin Weimin put the number closer to 1-2 million.

RobertoG• 10 years ago

" it is unlikely that China can rebalance from massive overproduction without massive layoffs."

Why is that? it is a genuine question. Do they have an inflation problem?

sharetea2• 10 years ago

So the western world should just take the Chinese government media at face value? since the foreign media now needs a 'permit' to publish online in China. This is a government that cheats, lies, and steals. Oh, and kidnaps foreign citizens and forces them to tell lies on state TV

http://www.forbes.com/sites/jnylander/2016/01/07/swedens-for...

m0llusk• 10 years ago

"hard to fix" : "business opportunity"

Why China’s Economy Will Be Hard to Fix

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