
Why China’s Economy Will Be Hard to Fix - adventured
http://www.bloomberg.com/graphics/2016-changing-chinese-economy/
======
bsbechtel
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.

~~~
tdaltonc
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).

~~~
pash
"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](https://www.aeaweb.org/aer/top20/35.4.519-530.pdf)

1\.
[http://www.redplenty.com/Front_page.html](http://www.redplenty.com/Front_page.html)

~~~
bsbechtel
I'm a big fan of Hayek, however I don't think he ever discussed what I feel is
the strongest argument against state-sponsored central planning - contingency
planning. When the government decides it needs to be responsible for some
basic human need because it is too important to be left up to the free market,
such as food security or healthcare, it crowds out alternatives that actually
behave as valuable insurance/backups to a primary provider of a given good or
service. If/when the government fails at providing something as vital as food
or water, there isn't much you can do when the government controls the means
of production. If a natural monopoly exists, people are at least free to find
alternatives on their own, and thus profit from them, should those managing
that natural monopoly fail at their jobs.

------
mixedmath
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.

~~~
Mikeb85
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/china/households-debt-to-gdp)
[http://www.tradingeconomics.com/united-states/households-
deb...](http://www.tradingeconomics.com/united-states/households-debt-to-gdp)
[http://www.tradingeconomics.com/canada/households-debt-to-
gd...](http://www.tradingeconomics.com/canada/households-debt-to-gdp)

~~~
adventured
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...](http://www.bloomberg.com/news/articles/2015-05-08/china-s-very-high-
mountain-of-debt)

~~~
Mikeb85
So, according to your link, Chinese 'total' debt is about on par with the rest
of the world? And this is cause for extra concern? Despite the fact they have
very low household and relatively low government debt, in a fast-growing
economy?

South Korea's 'total' debt is higher with slower growth. Yet no one is
predicting their collapse...

~~~
adventured
The reason it's cause for extra concern is two fold.

First, their accumulation has been extraordinarily rapid. A pace the likes of
which the world has never seen before.

Second, it's still climbing rapidly.

If you combine these elements with: the command economy approach; the
likelihood that their debt is even higher due to shadow debt; that the
government is making the wrong choice and is propping up the mess ala Japan's
mistake with zombies; and that all of their other economic data is heading
south as they're continuing the debt accumulation (including a rapid bleed-off
of foreign reserves, half of which they can't use anyway) - the sum picture
you get is economically frightening and very unstable compared to the debt
picture in eg Australia, the US, or Germany.

Finally, to make matters a lot worse, China still has a billion very poor
people and almost no social safety net. How is China going to deal with their
rapidly aging population (which will demand far greater total care expense
with each passing year), while already being more in debt than other developed
nations?

~~~
fspeech
You don't seem to realize that the companies' debts are the people's assets.
There are two ways to invest in a company, directly holding shares or lending
it money.

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

[http://www.reuters.com/article/us-china-economy-layoffs-
excl...](http://www.reuters.com/article/us-china-economy-layoffs-exclusive-
idUSKCN0W33DS)

~~~
rm_-rf_slash
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.

~~~
sharetea
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...](http://www.forbes.com/sites/jnylander/2016/01/07/swedens-former-pm-is-
china-starting-to-kidnap-individuals-in-hong-kong/#32ebe05aea44)

~~~
rm_-rf_slash
We both agree. Anonymous Chinese government official statements are two layers
of bullshit. Quoted officials are one.

------
m0llusk
"hard to fix" : "business opportunity"

------
ZoeZoeBee
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.

~~~
zanny
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.

~~~
ucaetano
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.

~~~
ZoeZoeBee
Thanks, I'm often amazed how many people like zanny are incapable of seeing
the likely future for societies who's economic and social models are dependent
upon constant expansion. At this point in time it is simply too late for most
of the EU and Asian nations, it is not a question of if but how the population
will react when things begin to unravel. The Demographics of said nation's
give us a very good idea of when.

~~~
imtringued
They already are heavily investing in robots to counteract this.

~~~
ucaetano
You're still misunderstanding this point. It ins't about labor availability,
but dependency ratio (people working vs. people not working).

~~~
zanny
This ratio is increasing regardless of mean population age. Automation is
making even 20 year old prime-of-their-life human labor gradually obsolete.

~~~
ucaetano
I wasn't clear. Dependency ratio doesn't depend on unemployment, but on people
who CAN work vs. people who CAN'T work (elderly, young, sick, disabled, etc.).

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

~~~
jernfrost
I think a problem with Singapore style solutions is that it is so dependent on
having one very wise leader. Democracy is more robust I think in that it can
weather even bad leaders. Bad decisions will happen sooner or later. The
problem is that a country like Singapore or China has no good way of dealing
with that.

Especially with China over a billion people are all dependent on the decision
made by one single very centralized government.

