Category Archives: China

China to Become World’s Largest Economy by 2016 – So?


via China to Become World’s Largest Economy by 2016 – So?.

Looking at China’s Real Estate Boom Before it Busts

NoOneOfAnyImport shared this.

I’ll just post the video, which was fascinating. I’d heard of China’s real-estate bubble before, but the scope of a booming but overbuilt real-estate sector is amazing.  The video really made that starkly real.  It’s the result of a centralized economy.

A few observations:

1. Clearly allocation of productive workers and resources is still not so good in a communist countries.  Strong conservatives gleefully point this out.

2. If more of Chinese labor was occupied in manufacture for export the competition with US workers might be even more painful for us.  Hooray for communism after all?  Strong conservatives might be less gleefully about this.  Overall though and in the long-run better use of Chinese productive capacity would benefit produce more benefits than costs.  But workers in US manufacturing would be hurt.

3. This is a kind of stimulus on steroids.  Keynesianism can produce full employment of a sort.  People are employed, but not in making anything there’s any voluntary demand for, except for speculation.  A point that isn’t useful to any one ideology.

4. Note though that apparently private investors are buying these empty pieces of real estate.  In the end apparently, this may wipe out much of the new Chinese middle class.  What happens if that happens?

5. China is still remarkably poor.  At least partially a failure of socialism.

More on the subject here:

Marginal Revolution

via Nouriel Roubini on Austro-Chinese business cycle theory.

China is rife with overinvestment in physical capital, infrastructure, and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.

Commercial and high-end residential investment has been excessive, automobile capacity has outstripped even the recent surge in sales, and overcapacity in steel, cement, and other manufacturing sectors is increasing further. In the short run, the investment boom will fuel inflation, owing to the highly resource-intensive character of growth. But overcapacity will lead inevitably to serious deflationary pressures, starting with the manufacturing and real-estate sectors.

Eventually, most likely after 2013, China will suffer a hard landing. All historical episodes of excessive investment – including East Asia in the 1990’s – have ended with a financial crisis and/or a long period of slow growth.


World Wide Military Spending–The Daily Dish

This is really striking. Our military spending is far beyond that of the next closest nation. I wonder though how much so this is because our labor costs to recruit troops are a lot higher. That is our army I suspect is no where near this many times larger than China’s, but it likely may cost in salaries this many times more.


Blogging Blocked in Beijing

Blogging Blocked in Beijing
JohnBTaylor@Stanford.Edu (John B. Taylor)
Sat, 26 Mar 2011 07:41:00 GMT

One of the things I like most about blogging is that I can post from anywhere in the world—Tokyo, Milan, Washington—not just from my home or office at Stanford.
Well not exactly. This past week I could not post from Beijing where I was visiting. I normally use Google’s Blogger platform to post blogs, but when I attempted to post from Beijing I could not get on Blogger. I soon found that I could not even get on my blog, nor on Greg Mankiw’s blog, nor any Blogspot blog.

When I asked some students what the problem was, they told me that all Google platforms were blocked in China, and so were Facebook and Twitter platforms. As I later discovered in this Wall Street Journal article, the blockage is evidently part of an effort to prevent Internet traffic related to the so called “Jasmine Revolution.”

So I had to wait until I returned to Stanford to start blogging again, as I did yesterday. But it’s sad to know that students in China who might be interested can’t read, for example, about how the U.S. and the Chinese stimulus packages differed, or about many more important things.


Blogging Blocked in Beijing
JohnBTaylor@Stanford.Edu (John B. Taylor)
Sat, 26 Mar 2011 07:41:00 GMT

Francis Fukuyama on China

[CHINA inside] Agence France-Presse/Getty Images

Surveys show that a majority of Chinese feel their lives have gotten better economically in recent years. Above, a worker at a construction site in Suining, China.

Over the course of three short months, popular uprisings have toppled regimes in Tunisia and Egypt, sparked a civil war in Libya and created unrest in other parts of the Middle East. They also have raised a question in many people’s minds: Are all authoritarian regimes now threatened by this new democratic wave? In particular, is China, a rising superpower, vulnerable to these forces?


The Communist government in Beijing is clearly worried. It has limited news coverage of the recent uprisings and has clamped down on democratic activists and foreign reporters, acting pre-emptively against anonymous calls on the Internet for China to have its own "Jasmine Revolution." A recent front-page editorial in the Beijing Daily, an organ of the city’s party committee, declared that most people in the Middle East were unhappy with the protests in their countries, which were a "self-delusional ruckus" orchestrated by a small minority. For his part, President Hu Jintao has urged the strengthening of what has been dubbed the "Great Firewall"—the sophisticated apparatus of censorship and surveillance that the regime uses to control access to the Internet.


China’s middle class, unlike its counterparts in the Middle East, has benefited from dramatic economic growth and the government’s focus on creating jobs for the educated. Pictured here, a Chinese businesswoman shops for sunglasses at a boutique in a Beijing shopping center.



No social scientist or intelligence analyst predicted the specific timing or spread of the Arab uprising—the fact that it would start in Tunisia, of all places, that it would be triggered by an event like the self-immolation of a vegetable seller, or that protests would force the mighty Egyptian army to abandon Hosni Mubarak. Over the past generation, Arab societies have appeared stolidly stable. Why they suddenly exploded in 2011 is something that can be understood only in retrospect, if at all.

But this doesn’t mean that we can’t think about social revolutions in a more structured way. Even unpredictable things take place in a certain context, and the present-day situations of China and the Middle East are radically different. Most of the evidence suggests that China is pretty safe from the democratic wave sweeping other parts of the world—at least for now.

Perhaps the most relevant thinker for understanding the Middle East today and China tomorrow is the late Samuel Huntington—not the Huntington of "The Clash of Civilizations," who argued that there were fundamental incompatibilities between Islam and democracy, but the Huntington whose classic book "Political Order in Changing Societies," first published in 1968, laid out his theory of the development "gap."

Anti-government protesters have chased presidents from office in Tunisia and Egypt and have sparked a civil war in Libya.



Observing the high levels of political instability plaguing countries in the developing world during the 1950s and ’60s, Mr. Huntington noted that increasing levels of economic and social development often led to coups, revolutions and military takeovers. This could be explained, he argued, by a gap between the newly mobilized, educated and economically empowered people and their existing political system—that is, between their hopes for political participation and institutions that gave them little or no voice. Attacks against the existing political order, he noted, are seldom driven by the poorest of the poor in such a society; they tend to be led, instead, by rising middle classes who are frustrated by the lack of political and economic opportunity.

All of these observations would seem to apply to Tunisia and Egypt. Both countries have made substantial social progress in recent decades. The Human Development Indices compiled by the United Nations (a composite measure of health, education and income) increased by 28% for Egypt and 30% for Tunisia between 1990 and 2010. The number of people going to school has grown substantially; Tunisia especially has produced large numbers of college graduates. And indeed, the protests in Tunisia and Egypt were led in the first instance by educated, tech-savvy middle-class young people, who expressed to anyone who would listen their frustrations with societies in which they were not allowed to express their views, hold leaders accountable for corruption and incompetence, or get a job without political connections.

Mr. Huntington stressed the destabilizing power of new social groups seeking political participation. People used to be mobilized by newspapers and radio; today they are spurred to action by cell phones, Facebook and Twitter, which allow them to share their grievances about the existing system and to learn about the possibilities of the larger world. This change in the Middle East has been incredibly rapid, and it has trumped, for now, old verities about the supposed passivity of Arab culture and the resistance of Islam to modernization.

But do these remarkable developments tell us anything about the possibility for future instability in China?

It is certainly true that the dry tinder of social discontent is just as present in China as in the Middle East. The incident that triggered the Tunisian uprising was the self-immolation of Mohamed Bouazizi, who had his vegetable cart repeatedly confiscated by the authorities and who was slapped and insulted by the police when he went to complain. This issue dogs all regimes that have neither the rule of law nor public accountability: The authorities routinely fail to respect the dignity of ordinary citizens and run roughshod over their rights. There is no culture in which this sort of behavior is not strongly resented.

Egyptian anti-government protesters celebrated in Cairo after president Hosni Mubarak stepped down on February 11.



This is a huge problem throughout China. A recent report from Jiao Tong University found that there were 72 "major" incidents of social unrest in China in 2010, up 20% over the previous year. Most outside observers would argue that this understates the real number of cases by perhaps a couple of orders of magnitude. Such incidents are hard to count because they often occur in rural areas where reporting is strictly controlled by the Chinese authorities.

The most typical case of outraged dignity in contemporary China is a local government that works in collusion with a private developer to take away the land of peasants or poor workers to make way for a glittery new project, or a company that dumps pollutants into a town’s water supply and gets away with it because the local party boss stands to profit personally. Though corruption in China does not reach the predatory levels of certain African or Middle Eastern countries, it is nonetheless pervasive. People see and resent the privileged lives of the nation’s elite and their children. The movie "Avatar" was a big hit in China in part because so many ordinary Chinese identified with the indigenous people it portrayed whose land was being stolen by a giant, faceless corporation.

There is, moreover, a huge and growing problem of inequality in China. The gains from China’s remarkable growth have gone disproportionately to the country’s coastal regions, leaving many rural areas far behind. China’s Gini index—a standard measure of income inequality across a society—has increased to almost Latin American levels over the past generation. By comparison, Egypt and Tunisia have a much more equal income distribution.

According to Mr. Huntington, however, revolutions are made not by the poor but by upwardly mobile middle-class people who find their aspirations stymied, and there are lots of them in China. Depending on how you define it, China’s middle class may outnumber the whole population of the United States. Like the middle-class people of Tunisia and Egypt, those in China have no opportunities for political participation. But unlike their Middle Eastern counterparts, they have benefited from a dramatically improving economy and a government that has focused like a laser beam on creating employment for exactly this group.

Anti-government protesters in Libya have sparked a civil war.



To the extent that we can gauge Chinese public opinion through surveys like Asia Barometer, a very large majority of Chinese feel that their lives have gotten better economically in recent years. A majority of Chinese also believe that democracy is the best form of government, but in a curious twist, they think that China is already democratic and profess to be satisfied with this state of affairs. This translates into a relatively low degree of support for any short-term transition to genuine liberal democracy.

Indeed, there is some reason to believe that the middle class in China may fear multiparty democracy in the short run, because it would unleash huge demands for redistribution precisely from those who have been left behind. Prosperous Chinese see the recent populist polarization of politics in Thailand as a warning of what democracy may bring.

The fact is that authoritarianism in China is of a far higher quality than in the Middle East. Though not formally accountable to its people through elections, the Chinese government keeps careful track of popular discontents and often responds through appeasement rather than repression. Beijing is forthright, for example, in acknowledging the country’s growing income disparities and for the past few years has sought to mitigate the problem by shifting new investments to the poor interior of the country. When flagrant cases of corruption or abuse appear, like melamine-tainted baby formula or the shoddy school construction revealed by the Sichuan earthquake, the government holds local officials brutally accountable—sometimes by executing them.

Another notable feature of Chinese government is self-enforced leadership turnover. Arab leaders like Tunisia’s Zine al-Abidine Ben Ali, Egypt’s Mr. Mubarak and Libya’s Col. Moammar Gadhafi never knew when to quit, hanging on 23, 30 and 41 years, respectively. Since Mao, the Chinese leadership has rigidly adhered to terms of about a decade. Mr. Hu, the current president, is scheduled to step down in 2012, when he is likely to be replaced by Vice President Xi Jinping. Leadership turnover means that there is more policy innovation, in sharp contrast to countries like Tunisia and Egypt, which have been stuck for decades in the rut of crony capitalism.

The Chinese government is also more clever and ruthless in its approach to repression. Sensing a clear threat, the authorities never let Western social media spread in the first place. Facebook and Twitter are banned, and content on websites and on China-based social media is screened by an army of censors. It is possible, of course, for word of government misdeeds to get out in the time between its first posting by a micro-blogger and its removal by a censor, but this cat-and-mouse game makes it hard for a unified social space to emerge.

A final critical way in which China’s situation differs from that of the Middle East lies in the nature of its military. The fate of authoritarian regimes facing popular protests ultimately depends on the cohesiveness and loyalty of its military, police and intelligence organizations. The Tunisian army failed to back Mr. Ben Ali early on; after some waffling, the Egyptian army decided it would not fire on protesters and pushed Mr. Mubarak out of power.

In China, the People’s Liberation Army is a huge and increasingly autonomous organization with strong economic interests that give it a stake in the status quo. As in the Tiananmen uprising in 1989, it has plenty of loyal units around the country that it could bring into Beijing or Shanghai, and they would not hesitate to fire on demonstrators. The PLA also regards itself as the custodian of Chinese nationalism. It has developed an alternative narrative of 20th-century history that places itself at the center of events like the defeat of Japan in the Pacific war and the rise of a modern China. It is very unlikely that the PLA would switch sides and support a democratic uprising.

The bottom line is that China will not catch the Middle Eastern contagion anytime soon. But it could easily face problems down the road. China has not experienced a major recession or economic setback since it set out on its course of economic reform in 1978. If the country’s current property bubble bursts and tens of millions of people are thrown out of work, the government’s legitimacy, which rests on its management of the economy, would be seriously undermined.

Moreover, Mr. Huntington’s scenario of rising but unfulfilled expectations among the middle class may still play out. Though there is a labor shortage among low-skill workers in China today, there is a glut of the college educated. Every year into the future, China will graduate more than seven million people from its universities, up from fewer than a million in 1998, and many of them are struggling to find work suitable to their self-perceived status. Several million unemployed college graduates are far more dangerous to a modernizing regime than hundreds of millions of poor peasants.

There is also what the Chinese themselves call the "bad emperor" problem. China’s historical achievement over the centuries has been the creation of high-quality centralized bureaucratic government. When authoritarian rulers are competent and reasonably responsible, things can go very well. Indeed, such decision-making is often more efficient than in a democracy. But there is no guarantee that the system will always produce good rulers, and in the absence of the rule of law and electoral checks on executive power, there is no way to get rid of a bad emperor. The last bad emperor, commonly (if quietly) acknowledged as such, was Mao. We can’t know what future tyrant, or corrupt kleptocrat, may be waiting in the wings in China’s future.

The truth is that, much as we might theorize about the causes of social revolution, human societies are far too complex, and change too rapidly, for any simple theory to provide a reliable guide. Any number of observers dismissed the power of the "Arab street" to bring about political change, based on their deep knowledge of the Middle East, and they were right every year—up until 2011.

The hardest thing for any political observer to predict is the moral element. All social revolutions are driven by intense anger over injured dignity, an anger that is sometimes crystallized by a single incident or image that mobilizes previously disorganized individuals and binds them into a community. We can quote statistics on education or job growth, or dig into our knowledge of a society’s history and culture, and yet completely miss the way that social consciousness is swiftly evolving through a myriad of text messages, shared videos or simple conversations.

The central moral imponderable with regard to China is the middle class, which up to now has seemed content to trade political freedom for rising incomes and stability. But at some point this trade-off is likely to fail; the regime will find itself unable to deliver the goods, or the insult to the dignity of the Chinese people will become too great to tolerate. We shouldn’t pretend that we can predict when this tipping point will occur, but its eventual arrival, as Samuel Huntington might have suggested, is bound up with the very logic of modernization itself.

—Mr. Fukuyama is a senior fellow at the Freeman Spogli Institute for International Studies at Stanford University. His new book, "The Origins of Political Order: From Prehuman Times to the French Revolution," will be published next month

The US: The world’s manufacturing juggernaut

From the Boston Globe of all places:

Americans make more “stuff’’ than any other nation on earth, and by a wide margin. According to the United Nations’ comprehensive database of international economic data, America’s manufacturing output in 2009 (expressed in constant 2005 dollars) was $2.15 trillion. That surpassed China’s output of $1.48 trillion by nearly 46 percent. China’s industries may be booming, but the United States still accounted for 20 percent of the world’s manufacturing output in 2009 — only a hair below its 1990 share of 21 percent.

“The decline, demise, and death of America’s manufacturing sector has been greatly exaggerated,’’ says economist Mark Perry, a visiting scholar at the American Enterprise Institute in Washington. “America still makes a ton of stuff, and we make more of it now than ever before in history.’’ In fact, Americans manufactured more goods in 2009 than the Japanese, Germans, British, and Italians — combined.

American manufacturing output hits a new high almost every year. US industries are powerhouses of production: Measured in constant dollars, America’s manufacturing output today is more than double what it was in the early 1970s.

HT:  Greg Mankiw

PS.  The four countries mentioned in paragraph two have a combined population greater than the US.

The world’s manufacturing juggernaut
Sun, 06 Feb 2011 17:30:40 GMT

Is it necessary to be the Richest nation or is Rich enough?

 Conor Friedersdor on the daily dish submits this.  He argues that the prospect of China’s GDP passing our own is not to be sanguine about.  He criticizes Ezra Klen for suggesting otherwise.  Klein argues that we should expect this if for no other reason than that China has a much larger population.   I agree with Ezra Klein. 

From the daily Dish

I see Ezra Klein’s point when he writes this:

A decent future includes China’s GDP passing ours. They have many, many more people than we do. It’s bad for both us and them if the country stays poor. A world in which China becomes rich enough to buy from us and educated enough to invent things that improve our lives is a better world than one in which they merely become competitive enough to take low-wage jobs from us — and that’s to say nothing of the welfare of the Chinese themselves…

In the best global economy we can imagine, the countries with the largest GDP are the countries with the most people. That’s not America. And that’s okay. We want America to have the most innovative and dynamic economy in the world, and we want living in America to be better than living anywhere else. But we don’t want everywhere else to remain poor. We can’t want that.

Still, I think he’s fallen prey to ahistorical, pollyanna-ish thinking. In 1939, the USSR had more people in it than the United States. In the decades that followed, was it a good thing or a bad thing that the USA retained the biggest economy? By Ezra’s logic, it was a bad thing. I’m not suggesting the post-war USSR and contemporary China are analogous – just that the geopolitical features of a country are factors to consider when deciding whether to hope for its economic might to surpass our own.

If China has a peaceful rise to world’s biggest economy and doesn’t export its creepy brand of authoritarianism elsewhere as a consequence of its supremacy, then sure, I’m with Ezra. But we won’t know for a long time if that’s what is going to happen – and if China being the biggest dog means that it’ll subsume Korea, Tawain and Japan three or four decades from now, I can’t help but think that the world would be better off if the United States (or hey, India) ended up on top.

Ezra continues:

…perhaps it’s better to think of it in terms of Britain rather than China. Was the economic rise of the United States, in the end, bad for Britain? Or France? I don’t think so. We’ve invented a host of products, medicines and technologies that have made their lives immeasurably better, not to mention measurably longer. We’re a huge and important trading partner for all of those countries. They’re no longer even arguably No. 1, it’s true. But they’re better off for it.

Perhaps it is better to think of it that way – or perhaps it’s better to ask if the rise of Germany in the end proved bad for Britain or France or Poland, or if the rise of the United States proved beneficial to Mexico (maybe!) or Columbia… or if the rise of the USSR proved beneficial to its neighbors. Don’t get me wrong. We should trade with China, maintain good relations, and create incentives for a peaceful rise, insofar as it’s within our control.

But even perfect geopolitical gamesmanship on our part is no guarantee of a huge rising power’s future intentions, as all of world history demonstrates. It isn’t callous to be wary of China’s rise – it is prudent, and perfectly consistent with earnestly wanting always improving lives for the Chinese people.

Conor argues that an economic advantage overall was significant during the cold war, and we would have been fearful of the USSR having a larger GDP, even though the USSR had a larger population.  I don’t think the comparison works for at least two reason.

First, tension with China is I think less than it was with the USSR during the cold war.  This is likely due at least partially to our having a major commercial relationship with China.  Furthermore, while the USSR had a larger population during the cold war the difference was relatively small, unlike between the US and China.  For the GDP of china to remain below that of the US the difference of wealth between typical Chinese and US citizens would have to remain huge, and like Klein argues this can’t contribute to global stability.

Finally, I lean toward a libertarian perspective that we shouldn’t be concerned about being wealthier than others.  To do so is to be taken with envy.  I suspect that many who roll their eyes at concern about the gap between the wealthy and the rest in the US would be very concerned about the gap in wealth between the US and China.