whither china?

[jk]

here's a snip from suddendebt, posted in another thread:

In my opinion, we are already at the first critical point: price hikes for food commodities are being passed on to the consumer (chart above). We can also observe profit margin squeeze, e.g. WalMart's recent decision to cut prices on thousands of toy and other discretionary items.

The next 2-3 weeks will show if this year the consumer will snub the pre-holiday shopping ballyhoo and simply wait for retailers to panic and slash prices a week before Christmas. I know that's what I will do...

If this happens, you can bet that retailers and wholesalers are going to blow it all back to their suppliers/manufacturers in the form of smaller orders AND demands for lower prices, or at least a freeze. This is when China is going to feel it and given their tremendous overextension in manufacturing capacity and thin profit margins, I strongly believe they are headed for a heap of trouble.

http://itulip.com/forums/showthread....9015#post19015

in another post, grg55 noted the high energy input into industrial agirculture, and the suddendebt post includes data positing a price cascade about to drive food prices still sharply higher. meanwhile, food is about 40% of the chinese cost of living. simultaneously, blue ear disease [i am not making this up] has decimated chinese swine herds, and pushed up the price of pork, a substantial component of the chinese diet.

so i'd like to open a discussion about what people think is going to happen in china over the next 2 years. i choose that time frame because it's long enough for big things to happen, and close enough that we might be able to make out some shapes in the fog.

so, chinese recession? will energy prices stay up because of a weakened dollar, or drop because of reduced global demand? and what will food prices do, and how might chinese recession or slowdown interact with food prices and produce political effects? just domestic political effects or international? will the supposed shakiness of the chinese banking system factor into this process?

i'm full of questions but have no answers. however, i think a discussion here might reveal some collective wisdom, or at least a glimmer of illumination.

[touchring]

Re: whither china?

I just came back from South China Wednesday.

Heard that the government cooling measures are starting like 40% cash down payment for 2nd home, high capital gains tax, 8% mortgage rates, ban on foriegners buying real estate, etc, are starting to take effect in Shenzhen.

Smaller cities are still very bullish though. Food price increase does not seem to diminish economic activity. Poorer people can just take less meat and more vegetables - the higher food prices might even benefit the rural farmers if their income increases. As for oil hikes, the chinese are used to taking public transport, or even cycle around.

I visited the small-sized city of Xiamen (population 2 million), last time i went there was like 2 years ago, every third block was a construction site - i thought that they will have an oversupply of apartments, but this time, i went, all the apartments under construction then are occupied - you could see people hanging clothes out of the windows of newly build apartments. Today, every second block that is not a new building is a construction site!

Some photos of this small city below.

As you can see, the city is very compact and high density, they are also building a subway/light rail system so the place is now very dusty and in a mess.

My take is that a Chinese recession might affect the major cities, especially the hot real estate market, but the less developed places will continue developing. And if there are unrests, the Chinese government will just crackdown and cover up.

[jk]

Re: whither china?

thanks, touchring. it's always interesting to hear some direct experience. i think the real issue in a recession would be unemployment. if u.s imports slow, chinese factories will have to slow. there's already a lot of unemployment with migrants from rural areas and fake employment in the state operated enterprises. any hints of nationalistic/jingoistic talk looking towards more of a military build-up?

[c1ue]

Re: whither china?

JK,

My view is a little different.

I actually see the problem not being the US economy slowing down, so much as unrest in the rural countryside.

The rural people in China are not happy over their relative lack of progress vs. their urban counterparts; both the real and 'unofficial' price controls on farm products are also not helping.

The inability of the rural countryside to tap into the capital pouring into China also is a factor.

In some ways, having a pause in the urban hamster wheel of progress would be useful for the government: action is occurring without the government having caused it.

I'm still formulating what the possible outcomes are - this is difficult because the balance is whether the suppressed regions and/or rural countryside will actively revolt, and this is always unpredictable.

[GRG55]

Re: whither china?

JK,

My view is a little different.

I actually see the problem not being the US economy slowing down, so much as unrest in the rural countryside.

The rural people in China are not happy over their relative lack of progress vs. their urban counterparts; both the real and 'unofficial' price controls on farm products are also not helping.

The inability of the rural countryside to tap into the capital pouring into China also is a factor.

In some ways, having a pause in the urban hamster wheel of progress would be useful for the government: action is occurring without the government having caused it.

I'm still formulating what the possible outcomes are - this is difficult because the balance is whether the suppressed regions and/or rural countryside will actively revolt, and this is always unpredictable.

This is a question. A short while back at a social gathering here in the Gulf I was introduced to someone who was just back after spending 8 months in China (not his first trip either). His firm sources a lot of manufactured product from China. I was asking about the same issue on this part of the thread, and he told me that "any threat to the economy would be seen as a threat to the Party", Since the Party will first and foremost protect and preserve itself, the economy has a "political" aspect more acute than perhaps any other country, and the Party will move heaven and earth to keep it from slowing materially.

Now perhaps this seems self-evident to you Sinophiles out there, but I am wondering just how valid is this thesis? Certainly the Party didn't hesitate to shoot its own citizens the last time it felt under threat. But time passes and thngs change, and an economy is a wee bit more complicated to drive than a tank. Anybody able to shed any light on this? :confused:

[rj1]

Re: whither china?

JK,

My view is a little different.

I actually see the problem not being the US economy slowing down, so much as unrest in the rural countryside.

The rural people in China are not happy over their relative lack of progress vs. their urban counterparts; both the real and 'unofficial' price controls on farm products are also not helping.

The inability of the rural countryside to tap into the capital pouring into China also is a factor.

In some ways, having a pause in the urban hamster wheel of progress would be useful for the government: action is occurring without the government having caused it.

I'm still formulating what the possible outcomes are - this is difficult because the balance is whether the suppressed regions and/or rural countryside will actively revolt, and this is always unpredictable.

I don't place much faith in a "peasent revolt". The Chinese military are a class above and beyond your typical national military. For the rural peasants to revolt and be successful, it'd be like the Taliban overrunning American soldiers in Afghanistan.

Potshots here and there, yes, guerilla warfare is the most modern form of underdog warfare.
Revolt, no. And if they try, they will be brutally suppressed. Which would then force all the multinational corporations from Europe and North America there to defend the actions of the government that allows them to operate there.

[touchring]

Re: whither china?

I actually see the problem not being the US economy slowing down, so much as unrest in the rural countryside.

There are already unrests in the rural countryside, which in fact, is caused by the real estate bubble. Developers collaborating with corrupted local officials to seize farmland and convert them into golf courses, etc.

I think a slow down will benefit the rural countryside instead. It's the same as the American great depression where farmers did better than city people.

[touchring]

Re: whither china?

and the Party will move heaven and earth to keep it from slowing materially.

Well, they could always use the american method by extending endless credits to stimulate consumption!!

[The Outback Oracle]

Re: whither china?

Let me have a waffle on China.

Similar to Touchrig I returned from there on Friday. I have for a year or two been ringing a bell on inflation coming out of China.
Initially in the face of increasing prices the prices of the product did not increase much but the specification declined substantially!. For example the tube wall thickness on one of our chair models was reduced from 1.4mm to 0.9 mm (without our knowledge!) This applied generally. The upshot was that we ended up with a high proportion of broken chairs from overweight drunken aussies stumbling backwards and falling into them from a distance of about 6 feet! Subsequently the wall thickness is back to 1.2 mm but the chair price was much higher and still rising. I doubt if the negative value arising from decreased usage was accounted for in any inflation figures!
Subsequently reductions in Government export subsidies caused further price increases. The exchange rate is squeezing manufacturers’ already ridiculously tight margins and is causing prices to increase.

Make no mistake there is inflation coming out of China that has so far been hidden by various sleight of hand!

Manufacturer’s are now quoting us in a range of Yuan values. That is they have a different price according to whether the RMB / USD rate, at the time of production, is 7.5, 7.4, 7.3, 7.2, 7.1, 7.0 Major Banks advising these manufacturers are suggesting a rate of between 7.0 and 7.1 by year end!

It seems inevitable, that a major recession in the US within the next 12 months, will flow on and cause major disruption in China. Clearly their economy is heavily reliant on exports, and their margins extremely tight.

On the other side of the coin, the domestic progress in China is beyond imagination. As Touchrig indicated the building of massive apartment complexes is everywhere. I was also in Xiamen and in some smaller “towns” (say population around 1 million) around that area. There are massive freeway and bridge developments around Xiamen and indeed everywhere I went there and through Guangdong province. For an Aussie the size of it is just mind boggling, and even though I have been to China more than 60 times over 20 odd years, it still blows my mind.

The Party is still extremely powerful in China no doubt. I am a little doubtful whether it could get away with widespread violent crushing of dissent. Chinese people feel relatively free these days to criticize their Government if they want to. The channels of communication are far more instant and wider sourced than in the old days where people stood in the open street and read the Chinese People’s Daily pinned on the neighbourhood notice board. I don’t pretend to half understand the place, but I just think the Government may run into more opposition than it bargained on, if it is too heavy handed on a massive scale.
Further it is important to understand that the average Chinese person is very focused on money and commercial opportunism. This applies from the large corporation to the market stall operator or factory worker. Disruptions which cause dislocation and interference with the creation of wealth will of themselves lead to widespread dissastisfaction with the Goverment.

Unlike the Chinese Government I will tolerate dissent from my opinions! As was suggested at the beginning of the thread we might even learn something.

[touchring]

Re: whither china?

Disruptions which cause dislocation and interference with the creation of wealth will of themselves lead to widespread dissastisfaction with the Goverment.

The chinese government is now playing the same game as the American government or Feds. Let the market collapse by itself.

Greenspan on subprime: "an accident waiting to happen ....not my fault"

[zoog]

Re: whither china?

Touchring, Outback Oracle, always appreciate the observations of people who actually visit these (to me) far-off places we talk about from time to time.

...The Party is still extremely powerful in China no doubt. I am a little doubtful whether it could get away with widespread violent crushing of dissent. Chinese people feel relatively free these days to criticize their Government if they want to. The channels of communication are far more instant and wider sourced than in the old days where people stood in the open street and read the Chinese People’s Daily pinned on the neighbourhood notice board. I don’t pretend to half understand the place, but I just think the Government may run into more opposition than it bargained on, if it is too heavy handed on a massive scale...

I was reading in Wired magazine the other day an article entitled The Great Firewall: China's Misguided - and Futile - Attempt to Control What Happens Online.

Interesting article. It was both disturbing how much effort the Chinese government has put into tracking people online (and offline), and bemusing how much slips through their fingers as people figure out ways around it.

Some snippets:

Beijing has recently added a new weapon to its arsenal of surveillance technologies, a system it believes to be a modern marvel: the Golden Shield. It took eight years and $700 million to build, and its mission is to "purify" the Internet — an apparently urgent task.

But my experience as a correspondent in China for seven years suggests that the country's stranglehold on the communications of its citizens is slipping: Bloggers and other Web sources are rapidly supplanting Communist-controlled news outlets. Cyberprotests have managed to bring about an important constitutional change. And ordinary Chinese citizens can circumvent the Great Firewall and evade other forms of police observation with surprising ease. If they know how.

The first cyber-rebellion to have a major political impact took place in 2003. Sun Zhigang, a young migrant worker in Guangzhou, died in police detention after failing to produce identity documents during a street check. Sun's friends protested his death on discussion boards ... Tens of thousands of Chinese became involved in a national conversation... The government opted not to crack down on these violations, rightly sensing that doing so would have been more politically costly then letting the debate run its course. A few months later, Prime Minister Wen Jiabao abolished the law requiring China's 120 million migrants to have special identity papers.

Any attempt to impose iron-fisted control over a network this big seems certain to trigger economic paralysis.

The "cyber-rebellion" concept is intriguing. The peasants may be able to revolt without taking up pitchforks and sacrificing themselves into machine-guns and tanks. I don't want to sound bullish on Chinese democracy, because I'm not. However, the Chinese are discovering that there are ways to effect change that do not involve marching in the streets.

[touchring]

Re: whither china?

The "cyber-rebellion" concept is intriguing. The peasants may be able to revolt without taking up pitchforks and sacrificing themselves into machine-guns and tanks. I don't want to sound bullish on Chinese democracy, because I'm not. However, the Chinese are discovering that there are ways to effect change that do not involve marching in the streets.

Propaganda is a funny thing, it doesn't have to be all encampassing. If you look at how the American Feds and media influence people into taking part in a giant ponzi scheme, you will know that a few contrarian voices (itulip is one of them) cannot offset mainstream propaganda or media.

[bill]

Re: whither china?

here's a snip from suddendebt, posted in another thread:
http://itulip.com/forums/showthread....9015#post19015

in another post, grg55 noted the high energy input into industrial agirculture, and the suddendebt post includes data positing a price cascade about to drive food prices still sharply higher. meanwhile, food is about 40% of the chinese cost of living. simultaneously, blue ear disease [i am not making this up] has decimated chinese swine herds, and pushed up the price of pork, a substantial component of the chinese diet.

so i'd like to open a discussion about what people think is going to happen in china over the next 2 years. i choose that time frame because it's long enough for big things to happen, and close enough that we might be able to make out some shapes in the fog.

so, chinese recession? will energy prices stay up because of a weakened dollar, or drop because of reduced global demand? and what will food prices do, and how might chinese recession or slowdown interact with food prices and produce political effects? just domestic political effects or international? will the supposed shakiness of the chinese banking system factor into this process?

i'm full of questions but have no answers. however, i think a discussion here might reveal some collective wisdom, or at least a glimmer of illumination.

http://www.chinadaily.com.cn/bizchin...nt_6230084.htm

More price hikes likely

By Fu Jing (China Daily)
Updated: 2007-11-05 07:15


Huge rises in commodity prices are exerting mounting pressure on inflation, a senior economic official has warned amid concerns that rising global oil prices may soon push production costs higher.
Zhu Hongren, a deputy department director at the National Development and Reform Commission (NDRC), said high oil prices have already put pressure on production materials, which in turn may cause prices of industrial products and commodities to rise.
This is the first warning this year by government officials that there is a serious risk of a rise in the consumer price index (CPI), a key gauge of inflation.
Earlier, officials had maintained that inflation - which stood at 6.2 percent for September after hitting an 11-year high of 6.5 percent in August - was structural, and that the government is keeping a close eye on developments. The rising CPI figure was mainly attributed to high food prices.
"This means inflation could turn from a structural to an overall high," Zhu, who is in charge of economic operations, told China Daily. "That is my concern."
Light crude for December delivery rose to a record $95.93 a barrel on the New York Mercantile Exchange after rising as high as $96.05 earlier. And on Thursday, a trading record of $96.24 was set.
The NDRC has vowed that the country will ensure energy supplies to power its fast growing economy after it raised the prices of gasoline, diesel oil and aviation kerosene by 500 yuan ($66) per ton last week, a rise of around 8 percent. The average retail price of gasoline now stands at 5,980 yuan ($800) per ton, and diesel is 5,520 yuan ($740) per ton.
Zhu said the government will implement further tightening macro-control policies to address inflation, curb excessive liquidity, and restrain commercial bank loans.
However, several economists have said energy prices were not the only reason for the inflation. They have repeatedly warned that the country has entered into "a cycle of high prices," saying high investment costs, growing wages, increasing consumption demand and price hikes in the international market have fueled inflation fears.
During the 17th CPC National Congress last month, leading agricultural policy decision maker Chen Xiwen forecast that grain prices will continue to edge upwards next year despite a turbulent 12 months in which costs soared.
He said the surging costs of oil, production material and fertilizer will make it increasingly difficult for the government to curb hikes generated by rising food prices since last year.
"Preventing overall inflation and economic overheating should be treated as our top priorities," said Zhu Hongren.

[c1ue]

Re: whither china?

Now perhaps this seems self-evident to you Sinophiles out there, but I am wondering just how valid is this thesis? Certainly the Party didn't hesitate to shoot its own citizens the last time it felt under threat. But time passes and thngs change, and an economy is a wee bit more complicated to drive than a tank. Anybody able to shed any light on this?

Willingness to shoot people is present in all governments - Britain was the exception with Gandhi (but not before that!).

The key is who is willing to be shot.

Tiananmen was primarily a bunch of students and agitators - it was neither an urban nor a rural popular movement.

I don't place much faith in a "peasent revolt". The Chinese military are a class above and beyond your typical national military. For the rural peasants to revolt and be successful, it'd be like the Taliban overrunning American soldiers in Afghanistan.

The Chinese military is a nation unto itself, true. But I think your analogy of the Taliban is not a good one; a better analogy would be Iraq.

Even disregarding that, the problem with rural revolts - especially in a country which imports a lot of food - is that if you shoot all the farmers, who then feeds the urban masses?

Don't forget that this dynamic was a little recognized factor in the success of the original Communist takeover from Chiang Kai Shek - even with masses of military equipment and US subsidies, CKS couldn't shoot enough people nor buy enough food to keep the flames from spreading.

As the people in power are exactly the ones who instituted this domino effect in the 1940's, I have to believe they recognize the inherent dangers.

[touchring]

Re: whither china?

Don't forget that this dynamic was a little recognized factor in the success of the original Communist takeover from Chiang Kai Shek - even with masses of military equipment and US subsidies, CKS couldn't shoot enough people nor buy enough food to keep the flames from spreading..

The CCP has to do really badly to reach the state before the Communist takeover from Chiang Kai Shek. I heard that people were so desperate that they ate their children after they died of starvation. About the same situation as North Korea a few years back.