
Fears over the true state of China's economy - tokenadult
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11571438
======
golergka
And that's why you can't have truly capitalist systems with authoritarian,
corrupt government. China and Russia both learning this lessons the hard ways
as we speak. The core requirement for "free markets" to work is to have
transparent, leveled playing field.

And while a lot of criticism against US financial system is completely valid
(of course HN is bashing US first — because HN readers live there and it makes
more sense to criticize something that you're more familiar with), it's 10s,
100s times healthier, just because the political competition between a
multitude of actors guarantees that power will not be centralized in single
hands.

My (completely idiotic and unprofessional) prognosis for the next decade:
global financial system will repeat the same mistakes with India boom.

~~~
yyyuuu
The one difference between China and India is that of Democracy. Even though
both the nations boast of a corrupt governance system, yet the fact that in
India, a non functioning government is more likely to get kicked out by an
increasingly well aware population, makes it a safer bet in the long term I
guess.

To Quote Thomas Friedman[0]:

"If India and China were both highways, the Chinese highway would be a six-
lane, perfectly paved road, but with a huge speed bump off in the distance
labeled "Political reform: how in the world do we get from Communism to a more
open society?" When 1.3 billion people going 80 miles an hour hit a speed
bump, one of two things happens: Either the car flies into the air and slams
down, and all the parts hold together and it keeps on moving -- or the car
flies into the air, slams down and all the wheels fall off. Which it will be
with China, I don't know. India, by contrast, is like a highway full of
potholes, with no sidewalks and half the streetlamps broken. But off in the
distance, the road seems to smooth out, and if it does, this country will be a
dynamo. The question is: Is that smoother road in the distance a mirage or the
real thing?"

[0] [http://www.nytimes.com/2005/06/08/opinion/bangalore-hot-
and-...](http://www.nytimes.com/2005/06/08/opinion/bangalore-hot-and-
hotter.html)

~~~
rubberstamp
Modi, the current prime minister of India got into power with big majority as
the coalition govt(UPA coalition) at the was too corrupt. Modi promised big
reforms, like Obama when he got first elected, but nothing positive yet for
the majority of population. He is some what pro business, but not enough pro
business or pro masses to worth any applause. I don't think pro business and
pro masses policy is mutually exclusive. So far it looks like his election
campaign was just a marketing campaign to get elected.

See gas price, crude oil price and rupee/dollar rate over last few years.
*sorry about the formatting as this is html doesn't care about white spaces
and <pre> tags doesn't work here

year 10 11 12 13 14 15 today

$ Crude 74 109 90 99 108 61 33

Rs.gas 51 63 71 63 71 66 64

$ vs Rs 46.2 44.7 57.1 59.2 60.2 63.4 66.8

The prices are deregulated. But still even though crude prices has fallen so
much, govt keeps retail gas prices costlier by increasing taxes. Taxes form
the majority of retail gas price.

Taxes vary between states, which is detrimental for business due to the amount
of paperwork. Unified tax rate named GST was to be introduced(its not a law
yet). The outrageous statement made by someone was that even though GST will
charge uniform tax rate somewhere in the range of 14-18% gas prices will be
kept out of its purview for the time being. The horror!

But things are bright for India in the long term as youth have high education.
All most all have college degree. There are press or internet censorship.

~~~
pkhagah
I don't understand how keeping taxes on gas prices meant that he is all
marketing gimmicks? Did he promise that he'll keep gas prices low? Gas is
neither cheap nor costly with the current price in India[1]. It's midway
compared to most of the countries and almost the same as China. India is not a
oil producing country and keeping it cheap will hurt its economy. Btw INR/USD
in 2010 was way stronger than today.

[1]
[http://www.globalpetrolprices.com/gasoline_prices/](http://www.globalpetrolprices.com/gasoline_prices/)

~~~
rubberstamp
What I hate about the guy is the increasing religious intolerance that is
happening because of this party, and him doing not much about it. He gained a
lot of votes by promising to fix corruption and telling "good days are
coming". People are actually frustrated as "good days are not coming".

India imports majority of crude and refines all petroleum within the country.
Business aren't paying international wages for their refinery workers, they
get paid normal wages like for any other Indian. Yet when it comes to selling
the petroleum products refined within the country, oil marketing companies
used to say they were selling at loss. Not real loss, but hypothetical loss if
they weren't selling at international prices -the companies were always making
profit. These are listed companies and their annual reports are public.

Now Modi may have not promised he'll keep gas prices low, but is keeping it
artificially high what he should do?

Keeping it cheap will not hurt economy as it has a direct impact on prices of
food and transportation. People would've been able to save more.

------
jstaffans
China has a history of inflating economic performance indicators. Massive
overestimation of grain yields was one of the key factors contributing to the
Great Chinese Famine [0] [1]. It wouldn't be surprising if this would still be
the case.

[0]:
[https://en.wikipedia.org/wiki/Great_Chinese_Famine](https://en.wikipedia.org/wiki/Great_Chinese_Famine)

[1]: [http://www.missedinhistory.com/blog/missed-in-history-the-
gr...](http://www.missedinhistory.com/blog/missed-in-history-the-great-
famine/)

~~~
toxik
I think comparing the state of China during and after Maoism, especially after
the advent of Deng Xiaoping as head of state during the 70s, is a completely
unfair comparison. It really speaks a lot to the understanding us westerners
have of actual Chinese politics.

------
codeshaman
The system (capitalist or communist) determines to a great extent all kinds of
curious behavior in people.

Like reporting numbers.

In communism, people are incentivized to inflate the positive numbers and
deflate the negative numbers, because the primary goal is to maintain a good
and submissive relationship with the higher-up party chief. The higher-up has
the same incentive before his higher-up.

If you fall from grace with your higher-up (by not being able to achieve the
numbers planned by the party), then your career is over (and possibly that of
your family and business partners too). So you _have to_ give him those
numbers. If you do, he will take care of you and with time, you will grow.

Then there's another property of communism: people steal.

Not only you have to report higher productivity than the set goal, you also
have to cover up for all the stealing that took place below you and the
"favors" you make to the higher-ups.

Of course this is illegal, but when people start doing this, they become
partners in crime and now it's about life an death. Falling from grace can
actually mean doing hard time in jail or even getting the capital punishment.

This system works well when the economy grows - the pressure to perform beyond
expectations is increased with each layer of bureaucracy and is more than just
about "job security" \- it's about survival - so people _have to_ produce
those numbers.. even if it means lying.

Of course the hard work is done by the same oppressed "working class" that the
system was supposed to help in the first place.

Now, I have _no idea_ what's going on in China and if these properties apply
to their particular flavor of communism, but I suspect they do, because this
is how human beings have to behave in that game to win.

And that means that the numbers reported by the government are probably off by
quite a bit and it's possible that even they have no idea what the real
situation is.

~~~
seren
You can probably replace communism by capitalism in most sentence of your
post. Regarding the incentive to inflate numbers, think about quarter report,
or of things like Enron, Volkswagen or Autonomy (which was sold as an inflated
price).

The main difference is that in an autocratic system, it is easier to not get
caught by using force to silence oppositions or whistle blowers. In a working
democracy with some kind of transparency and regulation, you can't lie for
ever. (But then you can still say you are flabbergasted by what the auditors
have found and you will do everything in your power to find out why such
shocking activity took place and restore the public confidence in your
company)

~~~
naveen99
Corporations have a bigger principal agent problem. But in capitalism you also
have privately owned businesses which doesn't have as much bloat. And the
corporations have to compete with these.

------
kushti
What is the true state of US economy? Could it be viable without the
government debt growing at a crazy fast pace?

~~~
rm_-rf_slash
Debt is actually growing at a moderate rate, as it tends to do in most growing
economies. The United States took on enormous amounts of debt leading up to
and following World War II, but the postwar economic boom and ensuing
inflation (which is fine in a healthy and growing economy) reduced the
unprecedented debt "crisis" to barely a footnote in American financial
history.

~~~
kushti
I pretty in doubt the American economy will be booming in an observable
future. And debt is growing faster than GDP:
[http://www.wolframalpha.com/input/?i=us+government+debt+vs+u...](http://www.wolframalpha.com/input/?i=us+government+debt+vs+us+gdp)
, so I'm still in question how economy will survive without debt money supply.

~~~
theklub
I wonder what GDP in China will look like in 3 years when they have a huge
baby boom.

~~~
rm_-rf_slash
Huge baby boom? From where? Just because they've relaxed the one child policy
doesn't mean everyone is in a rush to have kids. A more common phenomenon is
men saving every penny to someday afford a house, because the few single women
refuse to date a man with anything less.

Every single economy that transitions from agriculture to industry experiences
the same fall in birth rates. Having a lot of kids goes from being an
insurance against elderly poverty to an insurmountable burden on your focus
and finance. Most of the Chinese couples who have one child are happy to leave
it from that.

How will China experience a baby boom any time soon? Why 3 years? Where's your
evidence?

~~~
theklub
I have no evidence I can't see into the future and no one else in this thread
can. It's pure speculation, all I know for sure is the official birthrate will
go up and I'd bet any amount of money on that. I picked 3 years because if you
didn't know it takes 9 months to have a baby so that'd be a good time frame to
see the rate up. Any other questions?

~~~
rm_-rf_slash
Yes, why will the birth rate go up if the cost of raising children remains
high and China's economy appears to be slowing down? These are macroeconomic
signs of lower birth rates, not higher.

~~~
theklub
Birthrate will go up, get over it.

------
anon8418
Naysayers have been predicting the demise of China for the past thirty years.
See Gordon Chang, idiot extraordinaire.

The reality is that growth, in the long-run, is now in Asia (think of the
hundreds of millions of Chinese still living in the countryside...).

This round of modernization (the third wave, after England, America+Western
Europe) involves 4BN people led by India and China and they're just getting
started. Take a pause and think of what that means. Four billion. BILLION.

We're entering the age of Asia. Just wait and see.

I think the bigger fear in China (at least amongst the leadership) is some
crazy environmental disaster. Think of the hundreds of millions that live on
the Yangtze... a massive flooding event that wipes up power/clean water is
much more likely cause of revolution than an economic meltdown.

The US can barely handle Katrina... China is 10x more dense. Something like
that would be death knell for CCP control.

~~~
gbog
> Naysayers have been predicting the demise of China for the past thirty
> years.

Yes. They even use the same sentence and arguments every six months since 30
years. I live in China and keep my eyes open, and what I see here is that
people go to work, big trucks deliver bunches of new cars from the factories
to the cities, universities produce an increasing number of highly skilled
engineers, et cetera.

~~~
anon8418
I've yet to not be astonished by the pace of development and change in China,
despite my frequent trips there since the mid-90s.

Especially in the hinterland... it's really night and day. Literally in a year
you go from farms to skyscrapers. Crazy fast development.

The world is starting to notice though... now you see more Chinese middle-
class tourists, more Chinese students (not the smart ones who just goto the
ivies, but the rich mediocre students in community / for-profit / tertiary
colleges), and real estate investors (which is starting to be a huge problem
in Cali, PNW, etc.).

This is nothing but a road bump for China. The Chinese are hungry as hell. I
don't really think the west fully appreciates their cultural drive.

The bigger story I don't see much mention of in the press is the growing
dilemma facing Europe. Do they ally themselves with America or the growing
East. This will grow to become a key political concern for the EU in the next
10-20-30 years.

~~~
gbog
Yes it's a road bump, yes China is back in the front row, yes they're hungry.
But once the U.S. has accepted this reality that its not a solo play anymore,
there should be no need for Europe to choose, because the battle we will have
to fight is against a big chunk of the planet sinking back in the dark, and we
can win this battle only if we go together, U.S., Europe and China.

~~~
gbog
Expanding on the battle we civilized humans (US + EU + China) need to fight
together: this is not a battle for tanks, drones and helicopters (if it was,
the US would do it well enopugh), it is a fight where the weapons are words,
values and time.

------
dibujante
Here's a related and fairly contemporary piece by a China economist I read
sometimes: [http://www.bloombergview.com/articles/2016-01-10/china-
isn-t...](http://www.bloombergview.com/articles/2016-01-10/china-isn-t-headed-
for-a-financial-crisis)

------
zcbenz
Economists have been saying the same thing for almost 10 years, I didn't see
anything new in this article.

------
johnchristopher
I thought the true state of any economic agent didn't matter, that what
matters is the perceived trust you can leverage to borrow or lend credit.

------
ramshanker
Whatever be such commentaries, just look at their Forex reserve, don't think
it can be forged.

