
Why China's Economy Is OK but China's Government Is Not - lx
http://globalreports.columbia.edu/blog/2015/08/why-chinas-economy-is-ok-but-chinas-government-is-not/
======
harigov
Most Chinese, I ever spoke to, talk about how corrupt their government is.
Isn't that something that Xi was trying to make country less corrupt? From
that perspective, I am not entirely sure if government has enough trust from
people that is eroded by this fall in stock market. People may stop trusting
government's recommendation for investing in stock market, if they ever did,
but I am not sure if this is radical enough of a change to trigger any
political changes in the government.

~~~
sokoloff
I'd wager that many Americans would also talk about how corrupt our government
is. Maybe it's corrupt in a different way or to a lesser extent, but any
government of any size will have some level of corruption, and most will have
a higher perceived amount of corruption than the reality suggests (because
discovered exhibits of corruption will be interesting news and thereby over-
observed).

~~~
Retra
I really wish people would take corruption seriously enough to study it as a
professional discipline. It is one of the most important and difficult
problems in human history, and there's a lot of room for innovation in dealing
with it.

>and most will have a higher perceived amount of corruption than the reality
suggests (because discovered exhibits of corruption will be interesting news
and thereby over-observed).

You could argue that most corruption is not reported because it is effectively
legal. Like nepotism, for instance.

~~~
forrestthewoods
Technically speaking nepotism means family but people generally use the term
to mean friends and colleagues.

On one hand hiring people you know over people you don't know is bad and
corrupt. On the other hand it's literally what everyone does because it's the
logical, sane, smart decision to make. The #1 way to hire good people for any
company is for employees to recommend friends and past co-workers.

~~~
bwohlergo
nepotism, noun

The practice among those with power or influence of favoring relatives or
friends, especially by giving them jobs.

... i think you're mistaking the original meaning with its definition.

~~~
forrestthewoods
Nepotism is favoritism granted to relatives
[https://en.m.wikipedia.org/wiki/Nepotism](https://en.m.wikipedia.org/wiki/Nepotism)

: the unfair practice by a powerful person of giving jobs and other favors to
relatives [http://www.merriam-
webster.com/dictionary/nepotism](http://www.merriam-
webster.com/dictionary/nepotism)

No, I'm right. Originally it's a familial term. But modern usage includes
friends.

------
ZoeZoeBee
China's working age population peaked four years ago, currently they are
losing over a million workers a year. Property values are down around 6% year
over year, shadow banking is collapsing, I'm going to humbly disagree with the
title of this thread

~~~
wisty
Yep, China's population pyramid looks like Japan's in the late 80s, only with
a sex imbalance.

~~~
gscott
They can easily resolve it with a three child policy....

~~~
ZoeZoeBee
Right, because the effects of that will be felt immediately....

~~~
gscott
Better late then then never!

~~~
ZoeZoeBee
Perhaps its best if population gradually declined....

------
1971genocide
I do not understand why China is unable to divert its resources at this point
to things like better education. Strong independent domestic institutions.

The biggest problem was assuming that the market players are rational in the
absence of information.

Markets only works with information. Its seems pointless to talk about the one
without the other.

If someone had 100 dollars. The difference in yield between 2% and 7% is not
as big of a deal as transparency.

Since loosing your entire 100 dollars is much more worse.

As someone who is close to india. I find it amusing whenever people tell me
how much better China is compared to india and that maybe india should be more
like China. Multinationals constantly complain about Indian red-tape not
realizing that its not so simple to displace farmers to build a highways in a
democracy. I also see the same thing happening in america with people like
Donald trump openly saying that China is beating the US.

It seems capitalists really like china - which says a lot more about
capitalism then it does about china.

~~~
brc
There is no doubt that free(er) markets in China have not only helped the
Chinese people to a better life, but through the magic of free(ish) trade,
have made the lives of people throughout the world better.

The one thing China does better than places like the US is in the savings
rate. Everyone could learn from that.

~~~
aianus
'Savings' is not a worthwhile goal in and of itself.

If all you do with your savings is stuff it under the mattress or lend it to
banks who in turn lend it to homebuyers to perpetuate the greatest property
bubble in history... you're going to have a bad time.

~~~
brc
Savings are a necessary pre-requisite for investment. On balance it is better
to have savings than debt.

Creating bubbles in certain asset classes is usually the fault of differential
tax or regulation treatment for that class. It can be avoided by not creating
special classes.

The story of savings being stuffed into mattresses is usually followed by some
type of incorrect Keynesian thinking. It's so rare that it is not a problem. A
'general glut' as it used to be called has nothing to do with hoarding
savings.

------
joe_the_user
China's economy is definitely not OK.

The distortion in the system are massive, the main things that work well (and
extremely well) is the export sector. BUT China's export sector has always
been more dependent on foreign investment, foreign management and external
inputs. Even the height of it's manufacturing boom, China could run a trade
deficit because its export sector was so oriented to labor-intensive final
assembly activity. The real estate sector is well know for its ungoldly
distortedness, it's science establishment is riddled with fraud, it's economic
statistics are generally falsified. The pollution produced by it's industry
(and corrupt state) is now making a true deadly impact on its society but the
pollution is also a product of its energy sector's costs being falsified and
so-forth.

------
iskonkul
I was hoping the author would provide further elaboration on why he thinks
China's economy is doing ok when I read the title. However, there does not
seem to be much substantiation for why he thinks China is doing ok. It would
be ironic if he had based it on China's release of GDP growth figures.

"For all the frenzy, the economy is still growing, if somewhat sluggishly by
Chinese standards, and most ordinary citizens are not invested in the market.
What's at stake is the government's credibility."

------
jvm
Tyler Cowen had a great post on the government's incentives in this stage of
China's development, it's worth a read. [1]

> But recall that the “citizen trust contract” with policymakers is ultimately
> a fragile one and based on a series of quite short-term evaluations. When
> the tailwinds are less positive, the policymakers must take on a much
> shorter time horizon. They will prop up stock prices now, or try to, even if
> that is foolish.

…

> The same leadership structure can perform either very well or very poorly,
> with both the same leaders and the same citizens. And the switch can come
> fairly quickly, and be occasioned by events which are significant but not
> transformative on a world-historic or even a country-historic scale.

[1]
[http://marginalrevolution.com/marginalrevolution/2015/07/a-v...](http://marginalrevolution.com/marginalrevolution/2015/07/a-very-
particular-theory-of-political-leadership.html)

------
brayton
I think 'OK' is being used very loosely. And I believe a bad government will
help lead to a bad economy (although some may debate that with a government
closer to home)

~~~
ekianjo
> And I believe a bad government

Depends of what "bad" means. If it means bad AT controlling the Economy, that
may be a good thing for the private sector. If it's bad as in, controlling the
Economy in a way that is damaging to industries/entrepreneurs, that may indeed
be a very bad thing.

------
adventured
The Chinese economy isn't doing ok.

\- Imports and exports have been crashing lower. [1]

\- They've spent decades lying about their unemployment rate, leaving it
mostly unchanged around 4.x% perpetually. [2] It's likely far higher, some
good estimates peg it around 2 to 2.5 times higher.

\- They've rapidly become one of the most indebted nations. Most of that
occurred in just seven or eight years, taking on debt of epic proportions in
record time. They took their total debt to GDP ratio from around 158% in 2007
to over 300% today. [3] [4] [5]

\- They have perhaps 500 million people living on ~$3 per day. Most of those
people are poor farmers, not allowed to own the farm land they work on. In any
mid-tier or above economy, about 400+ million of those people would be
unemployed, because farming productivity would be vastly higher. Instead, in
China farming productivity is held artificially low, because those people
would have nothing to do otherwise. South Korean farmers are upwards of 40
times more productive than Chinese farmers. [6]

\- Since the great recession when China's boom ended, they've turned to
stimulus programs and debt to fake growth, and have inflated at least two
major asset bubbles, in real estate and equities. Both of which are now
falling. The article notes that if you had bought stocks a year ago, you'd
still be up nicely - I've noticed articles keep saying that as the market
keeps falling, pretty soon it'll no longer be true. Then what?

\- They had to aggressively devalue their currency, as a next to last ditch
effort to shore up falling exports, and tumbling competitiveness.

\- Return on invested capital domestically has been falling for years. As has
the return on debt.

\- Capital is rapidly fleeing China, to the tune of roughly 3/4 of a trillion
dollars in the prior year. [7]

\- China has begun eating their foreign reserves, consuming upwards of $300
billion over the last 12 to 14 months. [8] They have significant reserves of
course, however only half of those are accessible without causing serious
consequences for the global economy and their biggest customers.

\- China may have vaporized $6.8 trillion on worthless investments. [9] The
estimates could be off by a lot and it would still be a massive sum.

\- China has spent hundreds of billions of dollars trying to prop up their
stock market bubble. The fall of that bubble, and the fall of their real
estate bubble, will wipe out perhaps $10 plus trillion of assets. That removes
a lot of assets that are needed to help offset their huge debt burden.

\- China no longer has a significant advantage in manufacturing costs.
Countries such as the US, Mexico and Vietnam are increasingly competitive
versus China in manufacturing.

\- Container rates for Asia and China are crashing, indicating deep economic
problems. [10]

\- Core industries like steel are falling hard. [11] [12]

This list just keeps going.

[1] [http://www.businessinsider.com/chinas-imports-hitting-
record...](http://www.businessinsider.com/chinas-imports-hitting-record-
lows-2015-8)

[2]
[http://www.economist.com/blogs/freeexchange/2015/08/unemploy...](http://www.economist.com/blogs/freeexchange/2015/08/unemployment-
china)

[3] [http://www.bloomberg.com/news/articles/2015-07-15/china-s-
de...](http://www.bloomberg.com/news/articles/2015-07-15/china-s-debt-to-gdp-
ratio-just-climbed-to-a-new-record-high)

[4] [http://www.wsj.com/articles/chinas-debt-
bombs-1435512036](http://www.wsj.com/articles/chinas-debt-bombs-1435512036)

[5]
[http://www.bbc.com/news/business-26225205](http://www.bbc.com/news/business-26225205)

[6] [http://www.businessinsider.com/chinese-farmer-
productivity-2...](http://www.businessinsider.com/chinese-farmer-
productivity-2012-8)

[7] [http://news.investors.com/ibd-
editorials/072715-763627-china...](http://news.investors.com/ibd-
editorials/072715-763627-china-economy-will-not-return-to-10-percent-plus-
growth.htm)

[8] [http://www.bloomberg.com/news/articles/2015-08-18/china-
rese...](http://www.bloomberg.com/news/articles/2015-08-18/china-reserves-
seen-dropping-40-billion-a-month-on-yuan-support)

[9] [http://www.cnbc.com/2014/11/27/china-has-
wasted-68-trillion-...](http://www.cnbc.com/2014/11/27/china-has-
wasted-68-trillion-in-investment-warn-beijing-researchers.html)

[10] [http://gcaptain.com/asia-europe-container-freight-rates-
have...](http://gcaptain.com/asia-europe-container-freight-rates-have-fallen-
off-a-cliff/)

[11] [http://www.bloomberg.com/news/articles/2015-06-11/china-
stee...](http://www.bloomberg.com/news/articles/2015-06-11/china-steel-output-
falls-as-low-prices-weigh-on-mill-profits)

[12] [http://www.bloomberg.com/news/articles/2015-08-09/china-
stee...](http://www.bloomberg.com/news/articles/2015-08-09/china-steel-flood-
deepens-cutting-earnings-fanning-trade-rows)

~~~
gregpilling
We have several tons of scrap steel I was going to recycle. It was quoted at 2
cents a pound US! Last year scrap got 7 cents, and a year or so before that it
was 11 cents. It was not worth hauling it in, maybe I will make sculptures
with it instead.

~~~
brc
That is a very big drop in price! No wonder the iron ore price has dropped
through the floor.

I wonder if the innovation needed, then, is a mobile recycling plant rather
than having to haul the raw goods to the scrapyard. I'm sure such a thing is
pie in the sky, but I've seen the mobile sawmills in action, they're quite a
sight to behold.

~~~
gregpilling
we will turn the stuff into garden art or something. They are the remnant
skeletons from plasma cutting parts. 4'x8' sheets with 6" holes in them
basically.

the art will go for a few dollars a pound, if we are lucky. But it is slow,
and more complicated than just scrapping the stuff and getting cash today.

------
sillygeese
> _The Chinese economy is doing OK_

A bunch of _ghost cities_ would beg to differ. Apparently this guy thinks
malinvestment on a _massive_ scale has no effect on an economy.

