
China’s Economic Growth Looks Strong, Maybe Too Strong - adventured
https://www.nytimes.com/2018/01/18/business/china-gdp-economy-growth.html
======
jbrun
Having lived, worked and now running a B2B SaaS company there, the growth is
real. Are the numbers exactly right, of course not. China is a massive,
complex and not entirely transparent mesh of interests. Long story short
though, there is a real middle class in China that is driving real consumer
demand. This is starkly different to India, South Africa or Brazil where no
real middle class exists.

Much longer thoughts on America vs. China [http://www.jonathanbrun.com/who-
will-lead-the-world/](http://www.jonathanbrun.com/who-will-lead-the-world/)

~~~
anthonyleecook
China may have a middle class, but that middle class is still making a low
$1000/month, even if that middle class is slightly bigger than 100M

Also, lots of Chinese local governments have confessed to faking data.

[https://www.google.com/amp/mobile.reuters.com/article/amp/id...](https://www.google.com/amp/mobile.reuters.com/article/amp/idUSKBN1F60I1)

[http://money.cnn.com/2017/01/18/news/economy/china-
province-...](http://money.cnn.com/2017/01/18/news/economy/china-province-
falsified-economic-data/index.html)

In addition, if you check out Anne Stevenson yang, a China expert living in
China, she said the real gdp growth is only 1-2%

~~~
jbrun
For example, we pay out team in Shanghai between 3000 USD and 1000 USD per
month. They represent the middle class. Yes, it is less than many in the US,
but it is still high enough to enjoy consumer products, travel, and invest in
their future and their children's. Plus salaries are increasing 2-3% a year.
Government spending on infrastructure is a huge part of GDP, but if you take
the high speed trains in China you will see that every seat is sold out and
they are not that cheap and if you go to a Chinese tourist location, it is
packed, and tickets to enter can easily be 30-40$. This is anecdotal evidence
of course, but I would recommend a trip to China - both coastal and interior -
if you are so skeptical. Flights are cheap!

~~~
anthonyleecook
Oh I lived in Pudong for a while ;). I will have to disagree with you. It was
also very busy for US in 2007, during the housing bubble. And it was busy for
Japan in 1989, during the asset bubble. There is little reason for China to be
able to escape its massive bubble right now.

~~~
pwaai
China is literally following step by step where Japan was, fighting debt with
more debt, until they could no longer defend it.

It's also interesting that prior to 1989, there was real fear of Japan
overtaking US and it was reflected by the media and films.

If you studied Economics in university, you will realize US hegemony is far
more penetrating and hard to replicate due to network effect...its self
evident when the Chinese political elite send their kids away from China,
along with wealth...

In my humble opinion, the American empire is probably the most efficient and
anti-fragile system set in human history because it feeds off on our weakness
for rare material goods. I will have to agree with Warren Buffett that the
next 100+ years for America will be very good indeed for business. Majority of
the network is on an English speaking framework, it's unlikely to switch to
hieroglyphics and archaic Confucian values that oppressed individual freedom.

tl;dr: China won't usurp the US hegemony without surpassing its military and
its transnational and intranational reach through corporatism. Soft power
plays a huge role and its not something communist architectures are known for.
Otherwise, American elites would be fighting to send their kids to the dreamy
foggy lands of Beijing University. The US model is to provide a platform where
American corporations can thrive, with money or bullets. It's a system where
the value of every nation's money is backed by it's own fiat currency,
guaranteeing the #1 position as long as there isn't a civil war or something
like that divides the country.

The only people that believe PRC will overtake the US are Chinese folks and
through Chinese diaspora that bought the line.

~~~
jbrun
Japan is a pretty good place to be born. Better than many places. Talking
about debt without talking about assets and ownership structure of debt is
incomplete.

~~~
pwaai
I'm sure many Japanese would disagree given the high rate of suicides and low
reporting of happiness.

Sorry should've been more specific with my terms, debt levels that exceed
assets has proven to be toxic in Japan, Korea, Ireland, Greece.

------
propman
I read a while back that local governments would significantly artificially
inflate their manufacturing, construction, spending, and raw materials
numbers. There were dozens that seemed so far fetched they were easily spotted
as fake by a professor that did little research.

When you have govt officials who are forced to increase growth and you'll look
bad/fired if you don't and no authority is safeguarding this, then these
actions seem fairly logical.

Interesting to see how perception is sometimes as good as reality.

~~~
beat
This is, of course, _completely different_ from the performance figures of
departments in large corporations, because... um.

~~~
colemannugent
The parent never implies that it is.

However, at the end of the day large corporations need to keep shareholders
pleased to survive. They could lie all they want to themselves, but the
shareholders would see through that and remove the bad administrators.

China has no such mechanism to ensure accountability.

~~~
beat
I'd argue there have been plenty of examples of large corporations delivering
rosy figures, until they could no longer sustain the lie.

Some years ago, I got an investment club to put some of our money in Harley-
Davidson, based on numbers that hit our criteria perfectly. Too perfectly. A
few months later, the CEO resigned, revised numbers came out, it became clear
they'd been more or less cooking the books, and the stock tanked. This happens
_a lot_. Worse, it happens with stock market darlings. Remember Enron?

------
gthtjtkt
There's an economist from Tsinghua University named Patrick Chovanec who used
to do an amazing job of documenting China's explosive growth and the many ways
in which it might have been artificially inflated (easy credit, shadow
banking, fudged numbers, empty skyscrapers, etc.).

His blog is still up, but unfortunately he switched from blogging to Tweeting
in 2013 and it's been impossible to follow his train of thought since then.
It's a pretty fascinating read (assuming you find dry economic posts
fascinating) if you start sometime around the 2009 entries and go from there:
[https://chovanec.wordpress.com/](https://chovanec.wordpress.com/)

Some of the ones I found most interesting:

Beijing’s Bad Debt Bailout: Problem Solved?
[https://chovanec.wordpress.com/2011/06/02/beijings-bad-
debt-...](https://chovanec.wordpress.com/2011/06/02/beijings-bad-debt-bailout-
problem-solved/)

Big Losses Hidden on China’s Bank Balance Sheets:
[https://chovanec.wordpress.com/2009/09/23/big-losses-
hidden-...](https://chovanec.wordpress.com/2009/09/23/big-losses-hidden-on-
chinas-bank-balance-sheets/)

Even though they're almost a decade old they still give you an interesting
look into how things work in China.

~~~
oblio
My guess is that China is inflating its numbers, but even so, the growth
they've had is impressive and a lot of it is real. And even with further
inflation of their numbers, I don't think they will be a paper tiger with
nukes, like the USSR was.

~~~
seanmcdirmid
Much of it is real, China's growth has been outstanding! Then you encounter
the occasional ghost mall or notice that many of the apartments in your
complex are empty and wonder a bit about how much of it is real (probably a
lot) and how much of it is just a bubble (probably a significant portion
also).

A lot of China's GDP growth is tied up in asset growth (e.g. appreciated real
estate). So if/when that bubble pops, they will take a hit. Accordingly, in
the Chinese news, they talk about supporting and nurturing what they call the
"real economy" as a counter to that danger.

~~~
IkmoIkmo
I'm not sure if the ghost stuff is really indicative of a failing economy. I
mean, China is about 20% of the world population, you're bound to find
emptiness. We're talking about city planning on a massive scale. 220 cities of
>1m people are expected by 2025. (SF at 0.8m by comparison). China has
multiple cities bigger than countries like the Netherlands, multiple cities 4x
bigger than Norway that was recently in the news. It has 280m (rural) internal
migrants. Compare it to the US working age population of is just 200m.

The numbers are insane. In the US, we move 11x in our lifetimes of ~80y aka
13% of our population moves each year. Apply that average to China and you're
looking at 170m migrants annually. And unlike US (a lot of urban to urban), in
China there's a gigantic one-way rural->urban traffic, i.e., two people aren't
switching urban houses and calling it 'moving', two people are leaving behind
a rural home and needing an entirely newly built urban home.

How do you accommodate that many people in new homes. Do you start building
homes only after they're needed? Or do you build some capacity at a surplus,
to cover expected growth?

Probably the latter. It isn't much different from any company stocking surplus
inventory. That's not an immediate indication of a failure of economics and a
bubble.

And do you only build in existing popular cities and just try to add to the
periphery, or do you build-up new cities? Probably the latter, too.

Plenty of other countries do it as well. Incheon developed very much due to
overdevelopment in Seoul. Or here in the Netherlands, we now have close 0.8m
people living in so called Vinexwijken. They're a development centered on a
new ordinance concerning housing development between 1995 and 2005. Since 1995
our population grew by 1.6m or so, apparently half our growth went to these
new locations created out of nothing. And we always have discussions about
structural emptiness, big malls being built and remaining 75% empty for years.
But the scale is smaller, the country is 75x smaller than China. We had issues
with structural vacancy rates at a new 100k 'village', scale that up to 75x
and you have a similar story. Yet the biggest ghosttown in China ia Ordos,
planned for 1 million people, scaled back and built for 'only' 300k, and
currently houses more than 100k and climbing. That's what is consistently
called the biggest ghost town in China. For Chinese, both the size of the
project as well as the timeframe (10 years of vacancy) is a rounding error.

Don't get me wrong, there's definitely an asset bubble. But we've also been
saying that for who knows how many years and I feel we tend to focus too much
on symbolism of the ghost town narrative.

------
melling
By some measures China has already passed the United States:

[https://www.bloomberg.com/view/articles/2017-10-18/who-
has-t...](https://www.bloomberg.com/view/articles/2017-10-18/who-has-the-
world-s-no-1-economy-not-the-u-s)

China, and eventually India, matching the United States will hopefully help
increase R&D.

For example:

\- Solar energy prices have dropped significantly because of China's
investment.

\- Nuclear energy is dead in the US but lives in China.

\- AI - China will match the US, accelerating development

\- Mass Transportation - High-speed rail, maglevs

\- Electric vehicles - China has large EV quotas and they're the largest car
market.

~~~
seanmcdirmid
Only in PPP, which doesn't mean much because many things are more expensive in
China than the USA (housing, cars, high-end goods, schooling, ...). For an
equivalent lifestyle, you often need to earn more in China than the USA, so
PPP seems to be a weird metric.

\- Solar is suspected to be heavily subsidized by the government. That isn't
so bad for us as long as we don't produce panels, it has led to a solar
revolution in the USA as well.

\- China still hasn't done its own production nuclear plant yet. Citizens are
extremely wary of the government to do it right.

\- The point here is "will" rather than "does". China keeps touting how they
will beat the USA in AI by 2020 or 2030 or whatever, but it is still all
aspirational. China has a lot of talent and a lot of data work with (privacy
isn't much of a concern), but claiming you are going to win a race is much
different from winning it.

~~~
nsypteras
"Citizens are extremely wary of the government to do it right." \- I don't
think citizens have much say in the matter...

\- it's worth noting that along with data and talent, there is money - China's
dedicated 150 billion USD to AI as part of it's 5 year plan. Meanwhile the US
is considering cutting scientific research funding by as much as 15% as part
of 2018 budget

~~~
seanmcdirmid
> "Citizens are extremely wary of the government to do it right." \- I don't
> think citizens have much say in the matter...

They actually have more say than you think. And also, the government also has
a lot of its own introspection about nuclear, especially after Fukushima.
Couple with the huge capital costs, and it isn't a sure thing for China.

> it's worth noting that along with data and talent, there is money - China's
> dedicated 150 billion USD to AI as part of it's 5 year plan.

Much of the current advances in AI are not coming from federal funding
(rather, private companies who are using it). Nor can you expect Chinese
academia to soak up that much money and use it efficiently. Again, China has a
chance at it, but it is far from inevitable. It is annoying to me when they
talk about how their success is a sure thing, the Chinese government used to
talk about how they would clean up their pollution problem by 2015 in 2010
because they were going to spend a lot of money on it....

~~~
nsypteras
"They actually have more say than you think" \- I disagree. China forcibly
relocated over 1 million to complete the 3 gorges project. It doesn't have the
best track record of reacting to citizen concerns. I think the other points
you mention are more material in it's nuclear considerations.

Fair about the money and pollution. I would assume those commercial advances
you mention however are mostly non-military, nor will players like Google or
Apple likely soon contribute to US government/military AI research
initiatives. I guess in the end the "AI race" is more like "AI olympics" in
that no country will win all the events

------
Apocryphon
Documentary on this subject forthcoming -

[https://www.youtube.com/watch?v=55892jT06aI](https://www.youtube.com/watch?v=55892jT06aI)

~~~
fellellor
The trailer sounds like typical documentary crap. I'll reserve my opinion for
now.

PS: This seems to be implying that the Chinese economy is all hot air, but
none of the characters in the trailer looked like Chinese. If the banks sold a
nonsense China story to "mom" and "pop" investors who know nothing about
China, then what makes these guys so much more knowledgeable? Also, one shit
company exposes the entire Chinese economy now? Aren't there any mediocre
companies in the US? This extrapolation needs a lot more explanation.

As someone who know nothing about this, whats likely is that some people in
the US have way too much money in their hands and seemingly nowhere to put
that. So they looked at China and pumped too much money there following a
herd. To call that a conspiracy and a financial crime seems like a huge leap.

I mean the same is happening in Indian stocks which are at a stupidly high
level. It's more investor stupidity than some grand conspiracy.

------
shadowbantruth
Another somewhat popular or not so popular opinion is that China reports gdp
numbers lower than what they actually have. I don't know what to believe but
putting it out there for discussion.

~~~
evbots
Do you have a source for this?

~~~
Symmetry
I think the OP might have been misunderstanding a thing that actually happens.
Because officials are graded on whether they hit targets or not but they don't
get extra points for exceeding them they have an incentive to under-report
growth in good years so that a return to accurate reporting in bad years lets
them still report growth. So there will be a combination of over and under-
reporting of growth at different times, as was show in the graphs in the
article. _How China Escaped the Poverty Trap_ goes into more detail for those
interested.

~~~
contingencies
... except top-level officials are constantly shuffled between posts in
different cities/provinces they have no family ties to specifically to prevent
such corruption.

~~~
dragonwriter
That only actually prevents it if:

(1) rotations are most often _exactly one_ of the periods on which goals and
evaluations occur (that is, understating growth that at least meets the goal
never is expected to help you by making it more likely you can plausibly claim
to meet a growth goal the next period), and

(2) the rotating top-level officials have some other structursl disincentive
to form a class identity and class norms (stack ranking where the top slice
promotes into a national administration group and the bottom slice is demoted
out of regional leadership, while the middle group remains, for instance,
would do this, since everyone would have a strong incentive to make everyone
else's results relatively worse; OTOH, this incentivizes an opposite kind of
misreporting, so it's not really a solution.)

~~~
contingencies
_some other structural disincentive_

Oh you mean like "play by the rules, have a nice life for you and your family"
versus "capital punishment for you, and movement restriction and asset seizure
for your family"?

~~~
dragonwriter
Sure, if the punishment is perceived to be applied reliably and accurately.

If it's perceived to be applied in a spotty manner, according to shifting
whims of the leadership as to issues of concern, and with favoritism that can
see the guilty free and the innocent punished, then, no, that just
incentivizes currying favor and trying to influence the leadership perception
that drive where enforcement is and isn't focussed.

