

Hitting China’s Wall - markcmyers
http://www.readability.com/articles/aicxdbek

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ddeck
_> Investment is now running into sharply diminishing returns_

This can be seen quite clearly in the rising ICOR [1] numbers. The stimulus
lead investment since the crisis has been substantially less productive, at
least in the short term [2]. Infrastructure and real-estate investment is
doing much less for future GDP growth than prior investments in capital
equipment for manufacturing, exports etc.

The bigger concern in the financing of this investment binge. IMO there is a
very real risk of substantial civil unrest in China when the massive credit
bubble comes apart.

The FT put out a much more extensive treatment of these issues a couple of
days ago:

[http://ftalphaville.ft.com/2013/07/17/1554582/when-does-a-
ch...](http://ftalphaville.ft.com/2013/07/17/1554582/when-does-a-chinese-
growth-deceleration-become-a-crisis/)

[1] [http://en.wikipedia.org/wiki/Incremental_Capital-
Output_Rati...](http://en.wikipedia.org/wiki/Incremental_Capital-Output_Ratio)

[2]
[http://www.zerohedge.com/sites/default/files/images/user3303...](http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/03/20130315_china1.png)

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dferlemann
It talks about the lack of spending power of consumer because of low wages,
and gains all flood into elite class and national enterprises. My observation
is that it's seemed almost like "directed" or "forced" consumption to
stimulate economy - a consumption without average consumers, or people really
have very little role to it. Prove is that the real-estate expansion bubble,
empty buildings and cities. It's like a hack of economy for super growth with
very little risk. I think it's a complete violation of nature, but effects can
vary... my prediction of one significant effect is that there will be very
little innovation come out from China for next 20 years. I think they've
thought of it, and don't care as it is not a primary concern for them at this
point in time. And I don't think this hack is as good as it is thought to be,
the risk has been reduced in the short-term, but it's somewhat cumulative, and
it's going to be very dangerous in long-term.

Back to topic of this article... I can see the wall, but it's so huge that
distance cannot be determined. Maybe when China about to hit, they might come
up with something. After all, control is their weapon, and it can be extremely
effective.

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brianbreslin
Funny I hit a paywall when I clicked through this link...

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SideburnsOfDoom
Interesting. Japan is mentioned, and they most have passed through the same
point some time in living memory. South Korea too. How did they cope?

~~~
ansible
This is just speculation...

With Japan, they had seriously begun the process of industrialization in the
1800's with the Meiji Period [1]. So even though their economy and
infrastructure was gravely damaged during WW2, they could rebuild quickly.

With South Korea, I don't know. It was a much smaller country. Being a close
ally of the USA may have helped with foreign investment which allowed them to
climb up the value curve very quickly. I found this on post-WW2 South Korean
economic development [2], but haven't gone through the whole thing yet.

[1]
[http://en.wikipedia.org/wiki/Meiji_period](http://en.wikipedia.org/wiki/Meiji_period)

[2]
[http://www.nber.org/chapters/c4063.pdf](http://www.nber.org/chapters/c4063.pdf)

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alex_marchant
Google "Hitting China's Wall" and follow the link to get around the paywall.

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shadowmint
Wow, I'm as much a skeptic of China's economic model as anyone can be, but
this article is just saying words with 1) nothing to back them up, and 2) an
overt 'no, america isn't anything like this! don't be silly!'.

I mean:

    
    
        (Since someone is going to raise this issue: no, this 
        bears very little resemblance to the Federal Reserve’s 
        policies here.
    

Really? When an article is written as 'factual' in a 'factual' tone, but
contains stupid little personal interjections in it like this, I get :'( face
about the fall of journalistic standards.

Needs 'opinion piece, may not reflect reality' at the top.

~~~
fivethree
The backing data is Krugman being a nobel prize winning economist whose been
incredibly accurate for the last decade and a half. I'm sure you know more
than him though shadowmint.

~~~
shadowmint
Being famous does not excuse lacking citations.

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PhasmaFelis
The link says "readability.com", but it immediately forwards to the New York
Times and a paywall.

