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“You cannot hope to bribe or twist – thank God! – the British journalist. But, seeing what the man will do unbribed, there’s no occasion to.”

So wrote the witty early twentieth century British man of letters Humbert Wolfe. His assessment of American journalists isn’t recorded but, where pivotal issues are concerned, they have probably proved even more naïve lately than their British counterparts.

American journalistic naïveté has rarely been more embarrassingly on display than in recent coverage of the Chinese economy.

Here is probably the most successful export economy in world history, yet American journalists have somehow been persuaded that it is in such terrible shape that it needs a devaluation. CNBC, for instance, reported the other day that “most experts” believe the yuan is overvalued by fully 10 percent. This despite the fact that the Chinese currency has already dropped more than 8 percent against the U.S. dollar in the last two years.

True China’s export performance has been lackluster lately – exports were down 3.7 percent in yuan in November, for instance, and the drop was considerably greater in dollars. What is rarely mentioned, however, is that China’s exports are one of the most volatile series in global economics. Short-term setbacks of as much as 20 percent or more are common and bespeak remarkably little about China’s underlying economic health. What matters is the long-term trend, a rate of growth in dollar-denominated export revenues that has averaged more than 17 percent a year in the last fifteen years. That is a truly sensational number and its accuracy is attested by other nations’ imports.

It hardly needs to be said that, pace what the press’s “expert” sources say, the case for devaluation does not stand up to even cursory examination. After all, the point of exchange rates is to ensure that trade is conducted on fair and mutually advantageous terms. Yet for a generation now the yuan has been so undervalued that it has wreaked havoc on what little has remained of America’s once superlative industrial base.

The result as of 2014 was that America’s bilateral trade deficit with China totalled $348 billion. This accounted for the vast bulk of the entire U.S. current account deficit with the world as a whole, which totalled $389 billion (the current account is the widest and most meaningful measure of a nation’s trade). Meanwhile China enjoyed a current account surplus of $220 billion.

Even in the face of figures like this, the press has often put a distinctly negative spin on Chinese economic news. Indeed many journalists have gone so far as to entertain suggestions – emanating ultimately from Sinology’s lunatic fringe – that the Chinese economic miracle is just smoke and mirrors and that in reality China is teetering on the brink of economic or political disaster, or both.

The political consequences are hard to exaggerate. Reports of economic trouble in China not only pander to wishful thinking among ordinary Americans but provide U.S. policymakers with an excuse to procrastinate on long-overdue measures to crack down on China’s trade cheating. Meanwhile the ground is cut from under economic hawks like Donald Trump who want to get tough with China.

In the circumstances the Beijing authorities could hardly be better served and it seems clear that for many years they have been quietly promoting a “bad news” propaganda agenda. (Japan does so as well, but that is a story for another day.)

The root of the press’s problem is a poor choice of sources. Instead of proactively seeking out trustworthy, independent sources, journalists too often sit around passively heeding whomsoever happens to be within earshot. Far too often this means listening to sources artfully placed in prominent positions by the China lobby.

What is clear is that many of the top academic Sinologists seem to be congenitally pro-Beijing. Others are merely ambitious, and know that to land a big job in a future presidential administration, they have to avoid saying things that might discomfit the China lobby. That lobby is largely funded by major U.S. corporations that do much of their manufacturing in China. One of the lobby’s most obvious objectives has been to keep the yuan low, with all that has implied for the future of America’s manufacturing base. As the lobby controls large tranches of China-studies money, it has had little difficulty ensuring that America’s most frequently quoted Sinologists are on message.

As for other key sources, China-watching securities analysts and bank economists are generally even less reliable than university-based Sinologists. They are clearly constrained by a need to please their most profitable and demanding customers, among whom various financial arms of the Chinese system have long taken pride of place. (China is now a vast exporter of capital, which is, of course, great news for those Wall Street firms who find favor in Beijing.)

Of course, some frequently quoted sources undoubtedly do believe what they are saying. In particular there is a minority of far-right China-watchers who love to preach textbook American laissez-faire to an apparently benighted Beijing. This is the “Tea Party” wing of American Sinology. Its members seem to be particularly lacking in the listening skills that are essential to understanding a place like China (basically you have to listen to the unsaid – something that Tea Party types probably consider an oxymoron). Of course, precisely because such Sinologists are so often wrong, they are viewed in Beijing as useful idiots who work wonders in keeping Americans confused and disunited.

While we can rarely say for sure whether any particular China watcher is in Beijing’s pocket, most undoubtedly are. Though they would be horrified to be so identified, their agenda is pretty obvious in the way they censor themselves. Instead of speaking out on China’s trade barriers, intellectual property theft, and the undervalued yuan, they typically tiptoe away from frank discussions of such matters.


Let’s take a closer look at some of Sinology’s more problematic figures. It takes no more than a cursory internet search to turn up countless China watchers who have vainly predicted the Middle Kingdom’s eclipse, if not collapse, over the years. In a moment we’ll look at Gordon Chang, who ranks as the king of the “collapsing China” crowd, but first let’s consider a few pretenders to the throne.

One often quoted source is the Beijing-based professor and analyst Michael Pettis. Though the tenor of Pettis’s comments varies, he has often come across as a super-bear.

Here, for instance, is how he described the Chinese economy to the Associated Press in 2007: “Right now, we’re in a sweet spot. Everything is as good as it can get…. You can make a very plausible case that we have all the conditions for a serious crisis when there’s an adverse shock. There’s a lot more debt out there than we think.”

Any U.S. policymaker who was persuaded by this would have been blindsided by subsequent events. China’s exports, for instance, multiplied more than three-fold in dollar terms in the next seven years.

Among China super-bears, few are more outspoken than Arthur Waldron, a professor at the University of Pennsylvania and a member of the Council on Foreign Relations. As far back as 2002, he claimed that Chinese economic growth was make-believe. Writing in the Washington Post, he backed a madcap theory that instead of growing at about 6 percent, as officially stated, the Chinese economy had actually been contracting for the previous four years. He concluded that China’s industrial policy was “a recipe not for growth but for economic collapse.”

Another Sinologist who has played an outsize role in confusing American opinion is Susan Shirk. As the Ho Miu Lam Professor of China and Pacific Relations at the University of California, San Diego, Shirk remains what she has long been: a notable “friend of China.” An early indication of her style came in 1994 when she published How China Opened Its Door: The Political Success of the PRC’s Foreign Trade and Investment Reform. She went on as Deputy Assistant Secretary of State in the Clinton administration to play a key role in negotiations that led to China receiving Most Favored Nation trade status.

Her claim to fame as a China super-bear is based largely on her 2007 book, China: Fragile Superpower: How China’s Internal Politics Could Derail Its Peaceful Rise. The book postulated a supposedly serious risk that the Chinese regime would be overthrown in a popular revolution. The consequences, she suggested, could be devastating not only for China but for the West. She urged the West not only to accord Chinese leaders exaggerated respect but to adopt an explicit policy of keeping them in power. Among other measures that presumably meant holding back on complaints about China’s trade policies.

Virtually every aspect of her analysis can be debunked but a full rebuttal would require more space than I have here. The first thing to note is that she claimed her analysis was based on conversations with numerous top Chinese leaders. That may well be so – but she evidently didn’t ask herself what was in it for them. After all they have made a fine art of keeping things secret from their own people. Why would they pour their hearts out to a mere gweilo (and a gormless one, by the sound of it)?

For now let’s simply note that for millenia, Chinese leaders have generally shown themselves uncommonly adept at nipping in the bud any signs of incipient revolution. Supreme leader Deng Xiaoping perpetuated the tradition by so brutally breaking up the Tiananmen protests in 1989. Today’s leaders moreover seem more secure than their predecessors in that they are equipped with modern methods of electronic surveillance that can provide a much earlier warning of incipient trouble than in the past.

Now let’s consider David Shambaugh, a political scientist at George Washington University. Long noted for suggestions that the People’s Liberation Army is a paper tiger, he has become outspokenly pessimistic about China’s political system in recent years. One recent essay, published in the National Interest in 2014, was headed “The Illusion of Chinese Power.”

Then in March 2015 he persuaded the editors of the Wall Street Journal to publish a commentary headed “The Coming Chinese Crackup.”

He wrote: “The endgame of Chinese communist rule has now begun, I believe, and it has progressed further than many think.” Referring to Communist Party rule, he added: “Its demise is likely to be protracted, messy and violent. I wouldn’t rule out the possibility that Mr. Xi will be deposed in a power struggle or coup d’état.”

His analysis was so melodramatically worded that it attracted considerable criticism, not least a point-by-point rebuttal from commentator Stephen Harner (who, unlike Shambaugh, can claim to have spent much of his career in China).

Shambaugh’s central point was a surmise that Chinese president Xi Jinping’s efforts to curb corruption had dangerously ruffled the feathers of power rivals.

As a measure of Xi’s allegedly weakening grip, Shambaugh mentioned that on a recent visit to a Chinese campus bookstore, he noticed that a pile of pamphlets by Xi didn’t seem to be moving. This, of course, is broadly as fatuous as an illiterate Chinese visitor judging Hillary Clinton’s presidential prospects from the height of a pile of pamphlets at Columbia University.

Shambaugh also noted that an increasing number of Chinese students have been studying abroad lately. This, he suggested, stemmed mainly from a morbid fear of political instability at home. He did not seem to wonder whether less sensational explanations might suffice. After all, on the latest figures, Koreans are proportionately nearly seven times more likely than the Chinese to study in the United States – and the Taiwanese are more than four times more likely. Are we to believe that the danger of “crackup” is even greater in South Korea and Taiwan than in China? The truth is that East Asian students study abroad for a variety of rather mundane reasons, most notably the chance to improve their English. The trend has been powerfully stimulated not only by East Asia’s increasing wealth but by the same advances in air travel and communications that have been generally promoting globalization.

Perhaps Shambaugh’s most important point was that many super-rich Chinese families have been buying homes overseas. But, as Stephen Harner pointed out, this is hardly news. The Chinese have been doing so for generations. The only difference these days is that they have so much more money to spend. This, of course, attracts notice and even gets written about in the press.

Probably the single most widely publicized member of the “collapsing China” club is Gordon Chang, a Chinese-American lawyer. Since he published The Coming Collapse of China in 2001, he hasn’t had a good word to say about China’s prospects. Yet between 2001 and 2014, China boosted its exports from $267 billion to $2,331 billion – a more than eightfold rise and a compound annual growth rate of an almost unbelievable 18.1 percent. This signified a rate of sustained productivity growth that few, if any, other nations have ever matched.

Contacted recently, Chang professed to be still a convinced China super-bear. But if China managed to escape economic Armageddon in the wake of his book’s publication fourteen years ago, what’s different today? In its latest reformulation, Chang’s argument is that China is facing devastating new competition from India. Just as a rising China wreaked havoc on the U.S. economy, a rising India supposedly poses a similar threat to the Chinese economy.

To a non-economist, especially one who is not familiar with Asia, this might not seem entirely implausible. In reality Chang’s argument is based on one of the most elementary fallacies in economics, the idea that success is a zero-sum game. His implicit assumption is that for some nations to win, others necessarily have to lose. This is Malthusianism and it overlooks the fact that in normal modern conditions economic growth is an expanding universe. Think, for instance, of the rise of Scandinavia. Though Norway, Sweden and Denmark now rank near or at the top of the world income league, this has hardly on balance posed a problem for a nation like Germany.

What Chang seems to be implying is that India will be accorded carte blanche to use the same super-aggressive methods on the Chinese industrial base that China has used on the American industrial base. He fails to note, however, that Washington has been asleep at the switch, with the result that China has been allowed to get away with the economic equivalent of murder. In particular China has extorted a cornucopia of advanced production technologies from America. U.S. corporations have been told that to sell their products in China they must manufacture there and bring their best technologies. To say the least, such diktats ride roughshod over China’s obligations under international trade agreements. India is unlikely to be permitted to use similar extortion techniques against China.

In truth about the only thing India and China have in common is an Asian address. In economic and political fundamentals, they are chalk and cheese. In trade, for instance, India remains a negligible force, despite many years of bullish econobabble in the West. At last count it was not only being out-exported nine to one by China but China seemed to be lengthening its lead. (Measured since 2006, India’s exports have hardly doubled, whereas China’s have more than quadrupled.)

Crucially the Indian savings rate runs little more than half of China’s. Worse, the Indian authorities seem to lack the authoritarian tools necessary to boost it. (In In the Jaws of the Dragon, a book I published in 2008, I showed how China uses authoritarian controls to suppress consumption, thereby automatically and powerfully boosting the savings rate.)

Another key distinction is that whereas China has run huge current account surpluses for decades, the Indian balance of payments remains stubbornly in the red.

A second strand in Chang’s argument is that capital flight threatens to destroy the Chinese economy. Though this again may impress a non-economist, there is again a lot less here than meets the eye. For a start, China is necessarily a huge capital exporter as a result of its current account surpluses (as a matter of simple arithmetic, every dollar of surplus represents a dollar of capital that will willy-nilly be exported).

To be sure Chinese leaders have often talked as if they are worried about capital flight. The point of such talk, however, would appear to be merely to deflect attention from the People’s Bank of China’s market interventions to keep the yuan undervalued.

What is clear is that if the Beijing authorities can control the internet and the press, a fortiori they can control capital flight (which requires mainly just a firm grip on a mere handful of major banks, most of which are, in China’s case, state-owned). What we know for sure is that historically other nations with a far more liberal tradition – the United Kingdom in the mid-twentieth century, for instance – have had little trouble maintaining effective capital controls. Moreover the investment case for the British getting their money out in those days was far greater than for the Chinese today. After all Britain’s economic performance was persistently anemic, whereas China’s current growth rate, at around 6 percent, remains one of the world’s highest. In the unlikely event that Chinese capital flight really becomes a problem, the authorities have a host of remedies available, not least an Orwellian system of electronic snooping far more intrusive than anything known in the West today, let alone in the United Kingdom of the 1960s.

So what are we left with? It is past time the American press remembered its traditional commitment to balance – and recovered its commonsense. Hearteningly, not only all members of the press are incapable of learning from experience.

I will leave the last word to Gideon Rachman of the Financial Times. He cut to the core of the matter in a well-balanced commentary in 2012.

He wrote:

It is clearly true that China has enormous political and economic challenges ahead. Yet future instability is highly unlikely to derail the rise of China. Whatever the wishful thinking of some in the west, we are not suddenly going to wake up and discover that the Chinese miracle was, in fact, a mirage.

My own scepticism about China is tempered by the knowledge that analysts in the west have been predicting the end of the Chinese boom almost since it began. In the mid-1990s, as the Asia editor of The Economist, I was perpetually running stories about the inherent instability of China – whether it was dire predictions about the fragility of the banking system, or reports of savage infighting at the top of the Communist party. In 2003, I purchased a much-acclaimed book, Gordon Chang’s, The Coming Collapse of China – which predicted that the Chinese miracle had five years to run, at most. So now, when I read that China’s banks are near collapse, that the countryside is in a ferment of unrest, that the cities are on the brink of environmental disaster and that the middle-classes are in revolt, I am tempted to yawn and turn the page. I really have heard it all before.



Eamonn Fingleton reported on East Asian economics and finance from a base in Tokyo for 27 years. He met China’s supreme leader Deng Xiaoping in 1986 and predicted the Japanese stock market and real estate crashes in a major article in Euromoney in September 1987. He is the author of Unsustainable: How Economic Dogma Is Destroying American Prosperity (New York: Nation Books, 2003) and can be reached at [email protected]

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  1. Anonymous • Disclaimer says:

    Your post doesn’t really prove anything other than there are overhyped bears out there.

    But guess what – I can point to lots of ultraoptimists as well who predicted double digit growth for China for many decades to come.

    You don’t really engage in any substantial quantitive analysis other than to look in the mirror and point out the missed estimates of other people, the easiest thing in the world. China’s current GDP is massaged, everyone agrees on that. The only question is by how much.

    I think Nick Lardy of the PIIE think tank, who is seen as a modest optimist, is probably correct in saying that China’s old industries are in recession but their services are doing pretty well. Even if the old industries are not as important as they used to be, they still account for a very large percent of the domestic economy.

    To this you add China’s massive debt bubble, fuelled by shadow banking, and their humongus excess capacity, especially housing, which sends a deflationary shock pulse throughout the world, especially in the PPI inflation measurements(industry etc).

    To me, looking at an imminent Chinese crash is a red herring. Because of their totalitarian grip on the state, a much more likely outcome would be Japan, where zombie banks/financial institutions and inefficient SoEs are kept on life lease far longer than they should, because in normal democracies you get a recession and then the ruling party is purged. In China you can’t have that, so they avoid recession at every price, and the end result of that is Japanisation.

    Do more original analysis next time than just ribbing off from other people, cherry-picking those with the most outlandish claims. Mediocre.

    • Replies: @Eamonn Fingleton
    , @Sean
  2. […] Is the Chinese Economy Really in Trouble? by Eamonn Fingleton for The Unz Review.  The case for not selling China short. […]

  3. It seems to me that there are perpetual bears and Bulls, who get it right, by chance, 1/2 of the time. I discuss this in my blog.

    It seems obvious to me that the world is headed for a downturn, and China is no exception to this. But so what? The world goes in such cycles and the world is due for a crisis of some sort. But collapse, disaster and Armageddon? Nope. Not happening.

  4. I’m not sure if the author believes in hbd or not.

    But hbd is the obvious answer to the disconnect between mainstream economists and actual reality is because of liberal media.

    It was pretty obvious that Korea and China would become fairly wealthy based on iq tests performed.

    At the end of the Korean war in the 1950s pretty much every economist insisted that Nigeria was going to beat Korea and korea in economic development.

    Why did they make this prediction? Because they assumed that every human being was interchangeable and have the same iq, China and Korea’s economic development was going to be stalled by the Korean war while Nigeria was going to get a massive head start.

    And true to a fault 65 years later it looks like the hbders we’re right.

    The economists will make all sorts of crazy explanations for Chinas and Korea’s economic growth, but none of the mainstream economists will ever mention the words iq or genetics.

  5. @Anonymous

    A reply to Sinocinema:

    The point of my article is that the super-bears – some of them clearly at the lunatic-fringe end of Sinology – get all the publicity. You seem to agree, so what is your point?

    As for your suggestion that there are “lots of ultraoptimists as well who predicted double digit growth for China for many decades to come,” I am not aware of a single serious China watcher who have made such an extreme prediction. Perhaps you could quote a few, preferably from the editorial pages of the Wall Street Journal, Washington Post, and New York Times (where the most extreme of the super-bears are not infrequently taken seriously).

    In talking of China’s “zombie banks” and “shadow banking,” you echo what the super-bears have been saying all along. Though there are always problems in any banking system, China’s financial problems have not so far – a generation after they were first talked about – shut down its export growth. To the extent that China’s export growth is likely to slow in future this is merely because the ability of slow-growing Western nations like the United States to continue to increase their imports is limited.

    • Replies: @Jim Christian
    , @dc.sunsets
  6. Rehmat says:

    If Chinese economy is in trouble, how comes China is not demanding America to return $1 trillion the later owes to China?

    Furthermore, Chinese elites cannot go bankrupt because according to the Newsweek (December 29, 2010), they learn business from Holy Talmud.

  7. “In truth about the only thing India and China have in common is an Asian address.”

    Well, not even that. China sits on the Eurasia Plate, whereas India sits on the Sub-continental Plate which floated over from Africa, knocking into the Eurasia Plate forming the world’s highest moutain range – the Himalayas, which happens to be the world’s most difficult terrain to trespass, only the invention of the modern airplanes having made it possible.

    If China and India shared the same Asian address, then Spain( or France, Portugal, Italy etc.) and Morroco would share even closer European or African address, too.

  8. […] By Eamonn Fingleton • Unz Review • January 11, 2016 […]

  9. This article provides a much needed rebuttal to the perenially annoying predicted-12-of-the-past-0-Chinese-recessions crowd. Regrettably, these one might think rather obvious things do have to be repeated every so often.

    That said, the continuing secular rise of China is all but assured not by its industrial policy and technological espionage that Fingleton hyperbolically refers to as the “economic equivalent of murder” – which, for that matter, the vast majority of today’s developed countries happily engaged in during their own periods of catch up – but by its high level of average national IQ, which makes it much easier to push through productivity improvements than in S.S.-Africa or even India.

    • Replies: @Stephen R. Diamond
    , @KA
  10. Anonymous • Disclaimer says:

    The author here is hypocritical.

    So what if China devalued its currency. America has been inflating its currency for over 50 years now. It’s called dollar hedgemony, and it’s the reason why America can afford to drop a trillion in Iraq and still keep its economy going. Show me a country that has a currency that is priced at market value. There is none.

    Also, the west has not engaged in corporate espionage? Give me a break. The west topples entire countries it doesn’t like, directly supports terrorists, and has supported separatist movements in China for years. And you want to take China to task for stealing plans on some industrial process?

    • Agree: Seamus Padraig
  11. So the price of virtually every physical commodity is in free fall because…?

  12. @Anatoly Karlin

    The highest-IQ capitalist countries have periodic recessions. China hasn’t had one for decades, you don’t soon predict one. IQ explains the possibility of rapid advance, but something else (economic organization?) must explain its uninterrupted character.

    • Replies: @Randal
    , @MarkinLA
  13. Realist says:

    You could have listed Zero Hedge as a super China market bear blog.

    All the MSM blames the Chinese market for the US economic problems.

    • Replies: @anon
  14. Anonymous • Disclaimer says:

    On the subject of anyone making hyper-optimistic China predictions in the mainstream Western media.

    The most hyper-optimistic prediction every published in a major Western publication was written by Robert Fogel, a UChicago professor and Nobel Prize laureate in January 2010. He predicted the Chinese economy would rise to 123 billion dollars in 2040.

    It’s not too overly optimistic in my opinion. If China reaches 80 billion dollars by 2040, it will still just be twice the size of the US economy.

  15. @Anonymous

    haha. bro. what are you doing here with your logic? this is about us vs them. it doesn’t matter how we do things, we must point out everything that is wrong with the chinese. we are already doing everything we can get away with under the sun trying to stall or bury the chinese economy.

    the sadist in me kinda want to see what happens when usa and china is openly at war with each other in trade and economy.

    PS: the TPP alone is like a bucket of ice water in author’s face.

  16. @Hbd investor

    is there a source of any economist comparing the economic prospects of Nigeria and Korea in 1950? I doubt so…

  17. unit472 says:

    What we KNOW is that Chinese forex reserves have fallen by 1/2 trillion dollars in 2015. This indicates a sizable capital outflow and, as John Mauldin quotes a Shanghai based Merrill Lynch employee, if the wealthiest 3% of the Chinese people were to move 7% of their wealth abroad it would equal another $1.5 trillion. Allowing the yuan to fall will accelerate this, keep the dollar peg and Chinese exports get hit.

    China has not found a magic solution to economic trouble. The credit intensity of their economy has soared with diminishing returns on the additional debt. Same everywhere in this debt choked world. Its not a country specific issue it is the nature of the beast. At low debt to GDP levels each dollar or yuan of additional debt expands GDP by more than a dollar or yuan. As debt levels rise the ratio falls as debt service rises. This os basically what Carmen Reinhart and Kenneth Rogoff document in their book “This Time Is Different: Eight Centuries of Financial Folly”.

    The problem for China is perhaps more political than economic. Every nation has economic slumps or recessions and, in democracies, the party in power typically gets the blame and is voted out. China, being a one party authoritarian state doesn’t have that safety valve and should it experience serious unemployment from an economic slump the legitimacy of the government itself could be called into question with all that entails. China hasn’t faced this problem since Deng Xiaoping but the low hanging fruit and days of rapid economic growth appear to be coming to an end.

  18. @Eamonn Fingleton

    Eamonn, question from a layman. If robotics are becoming more and more viable for nearly any item now being manufactured by hand, will China suffer from manufacturing moving back to home countries of companies now manufacturing in China? Some manufacturing already is moving to Vietnam, but that “cheaper labor” train ought to nearly be in the station by now, no? Is not even the cheapest labor far more expensive than robotics?

    Does a resource-rich United States need still to export parts and raw materials to China for assembly anymore, only to have to ship finished product back to the United States for distribution and sale? Might, or shouldn’t we see robotic lines in the States manufacture everything here? All you need are a few engineers to program, assemble and maintain the robotic lines, a few sweepers, some security guards to maintain secrets and dispense with the huge numbers of hands on-product. You eliminate the transport of material and finished product, the entire process becomes automated. Of course, what to do with idle hands?

    They talk of returning manufacturing to the U.S., but that move, while efficient, hardly employs more Americans. We don’t manufacture with labor anymore which seems a major reason to move it all back here for robotic manufacturing. Does this wound China? Seems to me a mortal wound.

    Are the bears looking at the prospect of U.S.-based robotics killing Chinese manufacturing?

  19. @Anonymous

    Concur. And for all our trillions owed, what’s to stop the United States from filling freighters with $100-dollar bills on pallets and sailing them to China to satisfy our debt? A C-Note would be worth a dollar overnight, but still. Perhaps we extend the middle finger to China on our debt? Would the bankers care? Would China even care? After all, over all these decades, they kept their people fed and busy stocking American shelves after all.

  20. Randal says:

    The strongest reason for viewing China-doom scenarios with scepticism is certainly the one alluded to at the end of the article – the fact that such scenarios have been repeatedly predicted by the supposed experts and those who find their predictions useful, and have repeatedly failed to come to pass.

    While we can rarely say for sure whether any particular China watcher is in Beijing’s pocket, most undoubtedly are.

    Some might be, but many more are clearly simply ideologically disposed to hope for the worst for China (Chang, for instance). And it is that same hope for the worst for China, based upon ideological opposition or nationalist rivalry, that ensures any predictions of Chinese doom get such a boosted reception in the US sphere media.

    Wishful thinking is a much better explanation than supposed pro-China sympathies for the prevalence of false China doom scenarios in US sphere discourse over the past couple of decades, imo.

    • Agree: Seamus Padraig
  21. KA says:
    @Anatoly Karlin

    IQ obsession will force Americns and Europeans a kind of fatalism . Competition will not be in the psychology anymore Changes in the behavior will be put off . Worship of IQ shows poor IQ and nothing else
    This damages the chances of recovery from the impotence laziness,and poor thinking . It eliminates the numerous myriad directions that a ountry could try to escape recover,and prosper. IQ worship creates learned helplessness .

    American or Indian problem is not rooted in IQ . The disadvantages are not to be found in IQ.
    There are many rigid barriers in thinking and in practices . These explain the rot.
    Sure the trade barrier , devaluation of yuan , theft of trade secrets are not new innovation of some new kind of IQ . The hubris to neglect them and arrogance to ignore them are manifestation of a systematic fault lines that are undergirded and maintained by American Exceptionalism ,dismissive attitude to other culture and to the faith in white aryan European Protestant superiority. Add the lack of knowledge to this mix ( among those who matter in shaping policy public opinion,and utterring cautions to the audiences on the media) .

    American habit of searchings for quick answers for any of their personal problems translate into searching for same quick fix in other areas of collective doldrums and insanities . It also leads to quick ,emotional , faulty and ego -pleasing conclusion . This is why Saddam’s or Iran or N Korea’s bravado turn into an ominous portend but Chinese deceptivity give a false sense of hope with trust in Anerican invincibility .
    Above all Chinese play the game as monolithic coordinated top to bottom advancing column . America is constrained by too many voices that are motivated by personal gains, anger at third party ( support China because it will hurt Russia despite not benefitting America) , motovated by individual corporate gain that hurts overall economy , falling prey to the shallowness of arguments about capitalism ( af if they were some divine revealitions nd laws) ,and uncoordinated misdirected ill conceived foreign adventures promoted by the liberal interventionist and the neocons.

    • Replies: @Wizard of Oz
    , @Thirdeye
  22. 5371 says:
    @Jim Christian

    [Some manufacturing already is moving to Vietnam]

    If true, this suggests the “robotics revolution” is a fraud.

    • Replies: @Jim Christian
  23. @5371

    No, it just means some folks that manufacture low-value “stuff” (rubber dogshit and rubber puke) want even cheaper labor than in China to bring rubber dog shit and rubber puke to a novelty store near you. Said low-value goods don’t need robotics, the margins are too slim.

    Cars and phones and household goods can be done with robots here in the States and we can eliminate the middleman of transport for raw materials at one end and finished product at the other. I’m assuming, anyway. Robots take no breaks, raw materials in at one end, cars and such out the other end. Henry Ford would be proud.

    This would be the one reason those bearish on China would be justified their bearishness.

  24. AG says:

    At end of the day, economy is trade with goods and service using money as media. Goods, service, money need to constantly changing hands.

    Passive saving (Chinese did too much in general) is not good for economical activities. Active spending is good. Active spending on credit is even better for economical activities.

    Chinese government should create social security like pension plan for her citizens to stimulate people spend their money instead of passive saving for retirement. Inflation is another way to prevent people doing too much passive saving. All these can be done by government to create internal demand for economical activity. Oversupply needs to meet overdemand to keep economical activities at higher rate which means higher GPD per capita.

    • Replies: @AG
  25. @Hbd investor

    HBD also must include acknowledgement that East Asian culture does not amplify high average IQ the way Western Civ did.

    Anecdotes are anecdotes, but from teachers to engineers (of US/Northern European heritage) what I’ve heard is that Chinese people often excel at wrote math but lack common sense application. Chinese engineers are great at reverse-engineering others’ innovations but their cultural aversion to rocking the boat handicaps their own innovation.

    This is why I laugh when science fiction posits a future dominated by the Chinese. Perhaps I’m wrong, but as I see it, China had a civilization for thousands of years yet never developed true science and their civilization was thus relatively static.

    Without Western Civilization (and the people genetically predisposed to produce it) humanity will stagnate even under a high IQ mean China’s leadership.

    • Replies: @Billy Liu
  26. @Eamonn Fingleton

    The entire world is still seized by a mania in credit creation and the inevitable massive misallocation of resources that must depend from it. It’s gone on long enough that virtually everyone thinks this is the New Normal. Hint: the last 30-40 years will eventually become Vol. 2 for Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds.

    China is, if anything, Ground Zero for the worst of the credit bubble (in large part because its financial system is even more of a command “economy” than any in the West.) This makes China the world’s biggest casino, in a world covered by them.

    I have no doubt that the deeply embedded deference of East Asian culture will keep China’s restive populace far more docile than anywhere else such economic cataclysms may rage, but the notion that there won’t be hell to pay for China’s recent “miracle” is silly.

    No, they’re not likely to return to Maoist mass murder. Yes, they’re in for some serious upheaval. China has spent decades accepting dollar-IOU’s in return for shipping mountains of stuff to the USA. A credit collapse should have very interesting effects when it arrives in earnest.

    • Replies: @MQ
  27. Sherman says:

    Chinese economic growth has no doubt been impressive.

    However, the Chinese economic model has been based largely on cheap labor.

    These days there is no longer an unlimited supply of poor Chinese people willing to do the kind of grunt work needed to sustain this model.

    There is also a tremendous amount of corruption in China. My company recently ran into trouble working with a subcontractor in China. We eventually abandoned the

    I believe China’s rise as an economic superpower has been exaggerated.

    • Replies: @Eamonn Fingleton
  28. @Sherman

    A reply to Sherman (Comment 27):

    You say that the Chinese economic model “has been based largely on cheap labor.” Chinese labor would not seem particularly cheap if the Chinese authorities had not intervened constantly to keep the yuan at less than half its true value. As for the future, you seem not to have understood: China’s super-high savings rate has been providing Chinese industry with torrential flows of capital to invest in the most advanced, capital-intensive production systems.

    • Replies: @dc.sunsets
    , @Reg Cæsar
  29. @Hbd investor

    Nigeria was still a British colony in the 1950s. In other words, it was administrated by competent professionals, whatever the capacity of the locals. So a prediction of growth, if too rosy, wasn’t entirely off the mark.

    Koreans at the time misruled themselves, and did so for decades afterward. Independence allowed the “Nigerians” (actually Igbo, Hausa, Yoruba, etc) to do the same.

    • Replies: @Anonymous
  30. @Eamonn Fingleton

    Super-high savings is great…as long as it is not misallocated into phenomenally redundant overcapacity.

    This is the fact to which macroeconomists are blind: in the absence of a true market, there is no way to know what product actually qualifies as an economic “good.” China’s financial system, as I understand it, lacks even the tissue of transparency we now condone in the West.

    We have such structured markets now that there is no way to discern how much product is good and how much simply represents digging a ditch and then filling it in, i.e., investment that produces nothing but entropy.

    If Enron’s employees saved 20% of their net (forced by the management) and plowed it into the company’s ESOP, and dozens of stock analysts offered endless Buy recommendations, does that mean Enron is a viable and profitable firm? Or does its accounting gamesmanship result in raw material + work + innovation divided by misallocation = nothing?

    My son works for a major multinational with operations in China. Even at the foot soldier level it is apparent to him that the firm is realizing just how little its “investment” is yielding, and how interaction with Chinese counterparts (presumably the cream of the crop) underwhelms.

    • Replies: @Anonymous
    , @PandaAtWar
  31. @Eamonn Fingleton

    … to keep the yuan at less than half its true value.

    Speaking of supply and demand… This is why international finance has always appeared to be voodoo to me. Why wouldn’t the marketplace correct for such a false value, and reattain equilibrium, in this market as it does in any other? Why is it any more robust than any other fiat pricing?

    It’s kind of a paper, or pixel, form of bimetallism.

    • Replies: @anon
    , @Bill
  32. MQ says:

    Why is debt bad for economic growth? It is bad for economic growth because it leads to a failure of confidence on the part of creditors and a failure of consumption on the part of borrowers, leading in turn to the cessation of productive economic exchange between them. This is a problem in a *decentralized market* economy. If you have a command economy, debts can be wiped out by fiat and economic exchange can be forced, meaning that debt is NOT necessarily a problem in a command economy at all. Command economies have other problems, like rampant inefficiency in normal distribution.

    Debt, the sinister-sounding ‘shadow banking’, and the like might (or might not) be an issue for the market exchange elements of China’s economy, but the fact that China has a strong command / public ownership element to its economy leads me to believe that debt will have very different effects there. If much of the market demand and discipline in China’s economy is coming from foreign importers, they will not be particularly affected by China’s internal debt issues. Capital will continue to be allocated to industries that are successful export industries, introducing an element of market discipline. In terms of Chinese owing money to each other, that might be an issue or the government might iron it out with internal redistributions, but much of China’s growth is not coming from their internal markets.

    • Replies: @dc.sunsets
  33. LondonBob says:

    China is simple to forecast, simply look at the rise of the other East Asian nations and extrapolate.

    Sure the data is questionable, and for outsiders the business practices are unfathomable, but that applies to most of them. Western firms piled into China, they took the tech and the Western companies will be left with nothing. Well done GE for steering clear and opting for Russia to expand into. Like most East Asian markets they will be closed to almost everything except high end western consumer goods.

    Anyway the Chinese economy seems to be picking up now after the slowdown of 2015.

  34. utu says:

    Almost each declarative statement in this article and comments I can contest with a valid counter example. Nothing here has been clarified. The economic discourse is an art of obfuscation. Obfuscation not of the true knowledge but the ignorance because the true knowledge either does not exist or is very well hidden.

    • Replies: @interesting
  35. Randal says:
    @Stephen R. Diamond

    something else (economic organization?) must explain its uninterrupted character

    Most likely imo the fact that China has been rebounding dramatically from a similarly dramatically depressed position, below its “natural” level in relation to the rest of the world, for decades. Ever since the end of WW2 in some senses, but most obviously since the 1980s, clearly.

    Similarly Japan experienced only occasional brief pauses in its relentless growth from the 1960s to the beginning of the 1990s.

    Historically, China has been the number one world economy for much of human history. It’s not unreasonable to suppose it might well achieve that position again, once the advantages to Europe and its offshoots (such as the US) of the industrial revolution have finally played themselves out.

  36. @MQ

    If I interpret your position to be approving of a command economy, I only suggest you reconsider the consequences of eliminating (or worse, falsifying) factor prices.

    Mises irrefutably proved that without factor prices (set in a market) it is impossible to allocate resources properly (i.e., avoid waste on a scale commensurate with the lack of prices.)

    China, by this standard, must be engaging in waste on a level we can’t imagine. Given its steel-making capacity and concrete production binge (didn’t they pour more concrete in the last few years than the USA did during the 20th century?), we have signs that this is exactly the case.

    When you turn a raw material into something, you rarely get the chance to recoup the investment in case it turns out to be a mistake. Like someone who buys a shipload of snow-mobiles right before a decade-long period of unusually warm winters, there’s going to be a phenomenally large write-off sometime.

    China is courting an astronomical write-off. (So is the West, but that’s another story.)

    China’s problem isn’t who owns the debt and who owes it. China’s problem with the debt is that most of it is bad, and the domino effect of recognizing that fact will have rather large implications. Debt during the last 30 years allowed a lot of capital consumption disguised as “investment.”

    • Replies: @Historian
  37. Most likely imo the fact that China has been rebounding dramatically from a similarly dramatically depressed position, below its “natural” level in relation to the rest of the world, for decades.

    I think this is it. If you look at a graph of Chinese GDP growth, it has its peaks and troughs, its just that its peaks are really really high while its troughs are still quite a lot above zero.

    You see an exactly analogorus picture with South Korea, incidentally. Apart from a tiny dip around 1980, its first truly noticeable recession appears to have been around the 1998 crisis – that’s almost 50 years since it started its developmental takeoff.

  38. Gordon Chang–a courteous fellow, btw–has been predicting the blow-up of China’s economy for a couple of decades.

    If we wait long enough, he might be right. The question is, will the Cubbies win the series before or after the debacle?

  39. Anonymous • Disclaimer says:
    @Reg Cæsar

    Korea was ruled very well after the Korean War ended in 1953 by President Park Chung Hee and his successors in the 80s.

  40. anon • Disclaimer says:

    Globalization has been a 30 year banking mafia scam that was always going to end in collapse.

    Originally supply and demand was mostly in the west and in balance.

    The banking mafia gradually off-shored supply to the east while keeping demand in the west so they could pay eastern wages while still selling at western prices.

    This made the banking mafia very rich.

    However the imbalance between supply and demand meant it could only last as long as western debt lasted.

    The banking mafia are organised crime.

    • Replies: @Anonymous
    , @Wizard of Oz
  41. anon • Disclaimer says:

    It’s not China’s fault. Since the 1980s Wall St screwed up global supply and demand.

    • Replies: @Realist
  42. anon • Disclaimer says:
    @Reg Cæsar

    Because the truth is it’s only partly Chinese factories and partly US factories off-shored to China by Wall St.

    Thus an undervalued yuan was in Wall St’s interest as they slowly leached wealth from the US.

    • Replies: @PandaAtWar
  43. Anonymous • Disclaimer says:

    What do you mean by supply and demand being in balance? Supply and demand are always in balance, as long as prices can adjust.

    • Replies: @anon
  44. Anonymous • Disclaimer says:

    “phenomenal overcapacity” is nonsense. Savings have been used for public works of phenomenal, useful scale. Take the high speed rail network, now 20,000km in length (more than the rest of the world combined). That’s infrastructure that is being used at capacity currently and will be used for the next 100-200 years.

    • Replies: @interesting
  45. Bill says:
    @Reg Cæsar

    The Chinese government says “bring me a dollar, and I will give you six yuan. Bring me six yuan, and I will give you a dollar.” As long as it does not run out of dollars, the exchange rate is now fixed at six. A currency crisis is when it starts to run out of dollars. Because of persistent trade surpluses, it has many dollars. Simplifying a bit, obviously.

  46. “a rate of growth in dollar-denominated export revenues that has averaged more than 17 percent a year in the last fifteen years”

    facepalm…..taking the past and extending it forever into the future isn’t wise.

    China has as much if not MORE debt than the USA.

  47. @utu

    did the author bring up the fact that China printed more money since 2008 than all the other major CB’s combined?

    that’s how they achieved any growth since then and i stopped reading when he talked about the last 15 years as if the next 15 will be the same, they won’t be, they never are.

    China is the biggest debt bomb in the history of the world AND i’ll bet the author din’t bother with their demographic cliff either.

    what i find interesting is the people that imply china leadership as “the masters of the universe” and can do no wrong ONLY look at one side of the balance sheet..

    • Replies: @5371
    , @PandaAtWar
  48. @Anonymous

    “and will be used for the next 100-200 years”

    i literally laughed out load when i read that…….this is China we’re talking about.

    if it doesn’t collapse at some point they will blow it up and rebuild it just to put people to work.

  49. 5371 says:

    You really think if Bernanke had just wanted to, he could have ” printed as much money” as them and the US economy would have grown as much as China’s? Who knew Gentle Ben was such a spoilsport?
    The “demographic cliff” is another fraud. China’s birthrate hasn’t been high since the late seventies, hence numerous cohorts haven’t been entering the job market since the nineties.

    • Replies: @dc.sunsets
    , @interesting
  50. @anon

    Living and mostly investing in a country which first became rich in the first major era of globalisation roughly from the 1850s to 1914 and which went a long way, greatly to the benefit of most Australians, to throwing off the protectionist straight jacket (and inflator of costs) that prevailed from about 1905 to the 1980s, I don’t respond instantly to the idea of “globalisation” as a negative. I wonder whether you would care to clarify what you mean by it, why it is bad, who suffers and who benefits.

    I associate globalisation with the benefits of free trade where the necessary conditions are met. Were Ricardo et al. all wrong about comparative advantage? Do the qualifications outweigh the basic advantages?

    Assuming you object to the consequences of free trade and attempts at achieving optimum comparative advantage I still wonder why you blame bankers for manufacturing businesses seeking to lower their costs when reduced or nil tariffs and abolition of quota restrictions make it sensible to move some manufacturing to cheap labour countries. Not only do I see it as having no special connection with banking but I also would like to know what you mean by “banking mafia”. I won’t be so pedantic as to require such a metaphor to connote illegality but it still seems to mean, of necessity, that you consider a large and relevant part of the banking industry engages in immoral coercion of the US government and does not engage in customer centred competition. That makes me even less persuaded that bankers have been major causes of the changes which have led to manufacturing leaving America.

    • Replies: @anon
    , @Lucius
  51. @KA

    IQ obsession amongst Americans and Europeans? I don’t see it. Apart from the bad company you keep on blogs where do you find it? Not amongst people running businesses and employing people for sure. If anything there is surely to little concern with IQ in the sense of concern about the dysgenic breeding of Americans and Europeans.

  52. @dc.sunsets

    The true market has existed since the time immoemorial. It doesn’t necessaily equate to, or even need, the Western financial system, particularly the current Western financial system which is so inherently hijacked, structurally toxic, and fundamentally bankrupt that it’s a sheer luck that China doesn’t have much of it.

    Misallocatuions of funds occur to everyone and anyone. The real question is which is the champ:

    China’s state investment to the state-of-art infrastructure projects on the grand scale (e.g. national high speed train rails , roads, shipyards, etc. with much corruption here and there though), using mainly hard-savings of her own people who are producing & selling real goods in the global market ?

    Or printing FAR more cheap paper calling it USD from the thin air in Fed’s own private “QE” appartment backed by errrr…nothing! Then pop them all into its buddy banking cartels which leverage them up to hundreds of trillions of “financial” instruments such as credit derivatives that remain largely not more than a billionaires /multimillionaires bankers-generating machine for the top 0.01%, besides countless “no one will loss” etc self-masturbating social engineering campaigns?

    Misallocatuions of funds? ROFL. No prize for guessing which one is phenomenal misallocations of funds at orders of magnitude higher than the other because that’s just too low IQ, don’t you think?

    On your Enron analogy: if Enron had enough large work force, it would have never collapsed or at least not in that way, despite some large misallocations. Essentially the key reason why Enron collapsed had not much to do with misallocation of funds (every company misallocates funds to a certain degree), but due to its completely faked accounting (not real goods/services in sight), and insane leverage (risk management) – all traits “accidentally” and genetically resembling to the Fed? OMG, was Enron just the posterboy brainchild of Greenspan-Yelen cartel?? ROFL.

    As for the legendary “My son works for a major multinational with operations in China…”, yeah right, didn’t Panda mention that “my 2 sons work for…”? Therefore, 2 against 1, you loss. Thank you and come again. ROFL

    • Replies: @dc.sunsets
  53. @interesting

    Have you heard “QE” and “off-book credit derivs”?

    You are illterate on finance, aren’t you?

  54. @anon

    As for ‘leach wealth” from others, isn’t the one who has artifically popped up higher currency the one that leeches?

    Say, you print 1 anon-dollar, and Panda prints 1-Panda dollar, if Panda tells you that the latter worths more than the formal, then Panda leeches your arse off when Panda buys real goods from you, not the other way around, doesn’t it?

    Talking about financial illiterates… ROFL!

    • Replies: @anon
    , @Astuteobservor II
  55. anon • Disclaimer says:

    Supply and demand are always in balance

    You supply me with food and I’ll give you worthless pieces of paper in exchange.

    • Replies: @Anonymous
  56. anon • Disclaimer says:

    There are three parties: China, US and banking mafia.

    After off-shoring it becomes in the banking mafia’s interest to keep the dollar high and yuan low and by doing so the banking mafia are leeching wealth from the US into their pocket.

    • Replies: @PandaAtWar
  57. AG says:

    Benefit of debt spending: higher productivity, higher economical activity, wealthier the people and nations.

    On paper there are more super-poor in rich countries than China due to negative wealth as result of debt earlier in life when net worth is calculated. Maybe Donald Trump is one of those “super poor” due to debt.


    With debt and interest, people are more motivated to work harder (higher productivity) to pay it back. Actually it is one of incentive in developed nations, which ends up with more wealth for the individual later in life and nation in general. Any business person would know that you can do very little with your own earning in life (small business only). With borrowed money, you can do far more if you can pay it back with investment plan. Students who take on debt to get elite education are investors who invests in their own future. When people take on debt, creditors and borrower both evaluate the odd of success (ability to pay back). Debt will give people with more potential a chance to enrich themselves and country as whole.

  58. anon • Disclaimer says:
    @Wizard of Oz

    I still wonder why you blame bankers for manufacturing businesses seeking to lower their costs when reduced or nil tariffs and abolition of quota restrictions make it sensible to move some manufacturing to cheap labour countries.

    shareholder value
    junk bonds
    relaxation of rules on hostile takeovers
    abolition of tariffs and quota

    all changes that the banking mafia (aka Wall St.) made which forced manufacturers to offshore or be taken over and which led to the current global imbalance.

    Not in America’s interest, not in China’s interest but in the banking mafia’s interest.


    As previously mentioned the current situation in a nutshell is the banking mafia offshored supply to the east while keeping demand in the west funded by ever increasing debt which was always going to break down eventually when artificial western demand dried up.

    How does China get out of this situation of working for worthless paper? They can do it by switching from exports to domestic consumption – in effect USA and China switch places: China becomes 1950s America and America becomes 1950s China. However that requires a stronger yuan and increased wages in China.

    Problem: when they try to do this that part of Chinese manufacturing which is owned by the banking mafia starts to move their plants to cheaper countries.

    So they’re stuck. If they try to switch to a domestic market the banking mafia take half their economy away and if they don’t they end up effectively slaves to worthless bits of paper.

    Solution: nationalize the banking mafia owned factories so they can’t leave and then increase wages.

    Problem: as the banking mafia currently control the US government that would mean war.

    Solution: they need to take out the banking mafia.

  59. Lucius says:
    @Wizard of Oz

    The problem is not free trade per se, and Ricardo et al are correct within the scope of their examination.

    The problem is that free trade – as defined in the term being thrown around (“globalization”) includes external factors to the trade itself. Americans – or Australians or any country in the developed world for that matter – cannot compete with the price point offered by developing nations manufacturing costs. We are precluded from doing so by things like environmental and labor laws and fees, minimum wage laws, etc. Even were our standard of living reduced to the level of the third world, or theirs brought up to match ours, our regime of government regulations, taxes, and laws would not allow for truly “free” competition.

    Note that this is not necessarily a bad thing, it just is.

    If I own a manufacturing company, and I build in Mexico (China, Vietnam, Thailand, etc) to sell in the US, I am leveraging an unfair advantage created in large part by the US government by virtue of our increased wage and regulatory burden. Should the US government choose to address this, they have two choices – tax such a transaction through tariff etc, or, remove the advantage. Neither is inherently desirable, therefore, you have the situation you see today.

  60. @PandaAtWar

    On your Enron analogy: if Enron had enough large work force, it would have never collapsed or at least not in that way, despite some large misallocations.

    Such misallocations become self-reinforcing. If you think a family, a firm or a nation-state can continuously misallocate capital on an ever-increasing level indefinitely, I’ll join you in your juvenile ROFL.

    For more on what such misallocations eventually look like, please see any history of the USSR.

  61. @5371

    China’s birthrate hasn’t been high since the late seventies, hence numerous cohorts haven’t been entering the job market since the nineties.

    I’m still waiting to watch the denouement of the One Child policy; if it really dented the 51/49 split between girls and boys, leaving a whole lot more permanently unmarried males, I doubt that will contribute to placid conditions.

  62. @dc.sunsets

    Wrong a state can misallocate capital forever and never run out of cash.

    For example in NYC and San Francisco the city government spends billions every year on the homeless.

    Yet somehow this isn’t counted as debt! Because the government doesn’t expect the homeless to pay back the city.

    But what if you took that one billion and instead gave it to a company every year to prevent said unprofitable business from going out of business instead?

    So how exactly is the government pumping up businesses in China going to lead to a financial apocalypse because they have debt!

    But giving cash handouts to take care of criminals and homeless won’t because it’s not debt.

    Get it through your head debt != bad

    And trust me the Chinese government spends a Lot LESS on their criminal justice and homeless systems and lifetime on welfare leeches.

  63. @anon

    So according to your previous argument , it concludes that the banking mafia domesticated in, being the citizens of, pay tax to, contribute the GDP of, China? Pls enlighten Panda? LoL

    • Replies: @anon
  64. @5371

    did you miss read my post? based on your comments it sure seems like it,

    “China’s birthrate hasn’t been high since the late seventies”

    that is exactly my point, their population is aging so where are the workers going to come from?

  65. @dc.sunsets

    As HBD investor has already illustrated, there are always 2 sides of the equation: theoritically it really doesn’t matter how much misallocations accur on 1 side, as long as the other side can balance it for real.

    China balances that by her massive industrial production power of real goods that people want (for both export to the world and domestic consumption), her much deeper pocket of foreign reserve, her high domestic saving rate, her arguablely more efficient decision-making style and channels when it really matters, etc. many angles…

    …whereas the US balances her actual complete bankrupcy primarily by Fed’s “QE” (aka outright cheating): printing money from the thin air letting the rest of the world footing your already bankrupted lifestyle bills, and ultimately backed by the the US millitary. Whenever the masses can tell this Emperor’s new clothes, the music will stop with the $ sinking like a stone as it should, coupled with hyperinflation and domestic unrest… so will be empty the finance pot for the US military…

    Talking about misallocations of funds, the former USSR is like a walk in a park compared to the current state of the US -Fed mafia on any criteria you could dream of…ROFL

    If you finally understand the basics above, why not join Panda ROFL once more? ROFL!

    • Replies: @interesting
  66. Anonymous • Disclaimer says:

    US dollars aren’t worthless. Would you refuse 1 million US dollars if somebody offered them to you because they’re worthless?

    • Replies: @anon
  67. anon • Disclaimer says:

    Think some more about the interests of a US factory operating in China and exporting to the US.

  68. anon • Disclaimer says:

    No problem then – the US can keep trading China pieces of paper for manufactured goods forever.

    • Replies: @Anonymous
  69. Anonymous • Disclaimer says:

    Whether it’s a problem or not depends on one’s perspective and values. But it’s not a problem because US dollars are just worthless pieces of paper. Because US dollars aren’t worthless pieces of paper. I’d be happy to take any US dollars off your hands if you think they’re worthless.

    • Replies: @anon
  70. @PandaAtWar

    this was a great ELI 5.

    • Replies: @anon
  71. anon • Disclaimer says:
    @Astuteobservor II

    [email protected]’s quote

    As for ‘leach wealth” from others, isn’t the one who has artifically popped up higher currency the one that leeches?

    Think some more about the interests of a banking mafia owned factory operating in China and exporting to the US: high dollar and low yuan.

    Both you and Panda seem to see this as solely China vs USA whereas it’s partly banking mafia leeching USA using China as a base.

  72. anon • Disclaimer says:

    No, it’s a problem of imbalanced supply and demand currently held together by military power.

  73. @anon

    what you wrote doesn’t make what panda wrote any less true.

    • Replies: @anon
  74. anon • Disclaimer says:
    @Astuteobservor II

    no matter – i’ll assume you got the point i was making

  75. @anon

    On your angle of “leech”:

    The US consumers are using a piece of tree leaf with some sign on it made in the basement of the Fed without any backing.

    They use it to exchange tangible and useful consumer goods made of angible materials such as metals,rubber, etc. using precious energies such as crude oil, etc.

    Leech? Are the (US) banking mafia and the US consumers together leeching Chinese manufactorers’ residual real values with that hyped up cheap tree leaf instead? ROFL!

    • Replies: @anon
  76. anon • Disclaimer says:

    I’ll leave it to sink in.

  77. @PandaAtWar

    “printing money from the thin air”

    isn’t that exactly what China is doing as well?

  78. The US consumers are using a piece of tree leaf with some sign on it made in the basement of the Fed without any backing.

    They use it to exchange tangible and useful consumer goods made of angible materials such as metals,rubber, etc. using precious energies such as crude oil, etc.


    …….if the dollar is so worthless why is China pegging their currency to a piece of tree leaf with signs on it??

    • Replies: @Astuteobservor II
  79. Historian says:

    China, by this standard, must be engaging in waste on a level we can’t imagine. Given its steel-making capacity and concrete production binge (didn’t they pour more concrete in the last few years than the USA did during the 20th century?), we have signs that this is exactly the case.

    The Chinese use concrete for everything, where we would use all sorts of substitute materials.

    Most of our railway network uses wooden ties. Most of the Chinese railway network uses concrete ties. They can’t make them out of wood because they don’t have any wood in China. They cut down their trees about two thousand years ago.

    Most of our suburban houses are made of wood. Most rural houses in China are either brick or concrete. Urban China is mostly concrete, or steel frame with a concrete skin.

    Most of our bridges are steel bridges. Most of the Chinese bridges are concrete bridges. Steel-reinforced concrete, but a lot more concrete than steel. Their civil engineers just really like to use concrete.

    Most of our roads are asphalt. Most Chinese roads are asphalt on concrete. The Germans build their roads this way, and they last a lot longer than American roads. It may be costing the Chinese a pretty penny now, but it’s going to save them money in fifty years.

    This is the sort of thing that makes me wary of economic prognosticators. Any time I read an analyst who trots out the concrete statistic, I start to wonder, “What else did you miss?” There’s a lot about China that makes no sense, until you look at what’s actually going on.

    • Replies: @Eamonn Fingleton
  80. @interesting

    it is like the entire conversation just flew by your head in the speed of light.

    • Replies: @interesting
  81. @Historian

    A reply to Engineer:

    Any time I read an analyst who trots out the concrete statistic, I start to wonder, “What else did you miss?” There’s a lot about China that makes no sense, until you look at what’s actually going on.

    Well said! You have contributed the most informed and incisive comment of this entire discussion. You could indeed have generalized it to include the entire East Asian region. As someone who lived 27 years there, I can testify that there is a lot about countries like Japan and Korea also that makes no sense until you look at what’s going on…..

    • Replies: @AG
  82. AG says:
    @Eamonn Fingleton

    thing sthat makes no sense, until you look at what’s actually going on.

    dunning kruger effect: a cognitive bias in which relatively unskilled individuals suffer from illusory superiority, mistakenly assessing their ability to be much higher than it really is.

  83. Thirdeye says:

    Above all Chinese play the game as monolithic coordinated top to bottom advancing column . America is constrained by too many voices that are motivated by personal gains, anger at third party ( support China because it will hurt Russia despite not benefitting America) , motovated by individual corporate gain that hurts overall economy , falling prey to the shallowness of arguments about capitalism ( af if they were some divine revealitions nd laws) ,and uncoordinated misdirected ill conceived foreign adventures promoted by the liberal interventionist and the neocons.

    That’s the key right there. Under western liberal capitalism the interest of the corporation trumps the interest of the economy as a whole. China is working under a postliberal capitalist model that they are acting forcefully to defend from the corruption of the western liberal model. The first example of postliberal national interest capitalism in practice was in Meiji Japan. China’s pragmatic, postliberal model illustrates why east Asia is ascendant while the west goes into decline. It’s a cultural issue.

  84. MarkinLA says:
    @Stephen R. Diamond

    must explain its uninterrupted character

    It has a huge market to dump it’s excess production in – the US and Europe. This was the same for Japan. The US and European periods of development were almost entirely indigenous. When the US factories produced too much for the market they had to throttle back production and lay people off. When the excess was worked off people were called back and more money was in circulation. This is what drove the business cycle. If Chevrolet in 1929 produced too many cars where were they going to dump that excess production?

  85. @Astuteobservor II

    China printed more money than the BOJ, the FED and the ECB combined since 2008, and since 2000 their debt has increased by 26 times.

    LOL, in the speed of light…..too funny!!

    • Replies: @Astuteobservor II
  86. Sean says:
    Joseph Nye is a University Distinguished Service Professor at Harvard University. He is also the former Dean of the John F Kennedy School of Government at Harvard, the Assistant Secretary of Defense under the Clinton administration from 1994-1995, and a current member of the Foreign Affairs Policy Board

    Xi Jinping has escalated nationalist rhetoric in China that is sometimes regarded as a precursor for Chinese belligerence. Do you think the economic slowdown in China is fuelling this new nationalism?

    Xi Jinping needs a legitimizing force for his power and for the power of the Chinese Communist Party (CCP). Economic growth has historically been the primary legitimizer of its authority, especially since communist ideology has declined greatly in importance. As China has an economic slowdown, nationalism will increase further, and I think we are undergoing a period of heightened attention to nationalism. I think nationalism has made it more difficult for China to resolve conflicts with its neighbors in the South China Sea. So far there is no clear indication that increased Chinese nationalism will result in military aggression. The high level meeting between Xi Jinping and Abe at the APEC summit was a positive step, as China had been resistant to these meetings in the past. But the potential for nationalism to boil over, it is something we need to watch closely.

    In 2011, Foreign Policy magazine named him to its list of top global thinkers.[5] [The] Magazine’s valued reporter Daniel Drezner wrote: “All roads to understanding American foreign policy run through Joe Nye.”

    So acceptance of economic slowdown and a shaky government in China is the view informing US policy.

    Who predicted decades before the event that if Ukraine gave up nuclear weapons it would be invaded by Russia and all the international guarantees given would be worthless? Not Nye.

    China was the biggest economy in the world until a few centuries ago, it will be again. Potential military force relative to rivals is a zero sum game. By fostering the belief that it is not going to overtake the US in potential power, China is wisely avoiding scaring the US.

  87. Anonymous • Disclaimer says:

    How do you define “misallocate capital”? There are people who argue that, for example, not firing American workers and outsourcing to lower costs is “misallocating capital”. How do you define it?

  88. Anonymous • Disclaimer says:
    @Jim Christian

    decades ago, corporations have considered using fully automated and robotic assemblies to reduce manufacturing costs. for example, in addition to savings on labor, there is no need for heating or cooling in the factories and no need for cafeterias and restrooms. the factories can operate 24/7 with no holidays. then when China opened, they discovered it was far cheaper to use Chinese labor when compared to totally automated, robotic manufacturing at home. As a result, corporations and those who have spare money to invest have done fabulously well and wealthy, leaving those with inadequate education and special skills far behind. the solution is place higher taxes on corporate profits and from stock gains and use the extra income to create huge number of jobs with infrastructure building and repairs, benefiting specifically those who need them.

  89. Anonymous • Disclaimer says:

    Mr. Fingleton is correct in his analysis of how we got to this point in our relationship with China, but he underestimates the resolve of the Anglo-sphere not to fall under Asian domination. You can be certain that regardless of who the next president may be (Trump, I hope) the relationship between China and the U.S. is going to drastically change.

    This will not occur solely as a result of China’a trade policies, but also as a result of its ecological destruction of the oceans. Right now China has 250,000 fishing boats, and fish stocks are collapsing. The number of Chinese fishing boats will need to be reduced to 50,000; and I can assure you that they will not make this change willingly. And then there are the issues of China’s industrial waste; and population growth.

    So in sum, I think that in a few years, China will face a completely new American foreign policy; one that demands deep concessions if trade is to continue at all.

  90. @Jim Christian

    Good point, I have said this several times to Donald Trump supporters. Robots and 2-d printing will lower the need for workers in factories.

  91. Actually, the least educated person is poor at factory work. In the US many high school drop outs have dyslexia or ADHD. These people tend to have poor-hand and eye coordination or manual dexterity even before the factory worked was shipped aboard a lot of high school drop outs couldn’t do factory work but service jobs. So, getting back factory jobs doesn’t always help the least educated if they suffer from poor-hand and eve coordination or poor manual dexterity which is hard to do factory work if you have to assemble several widgets in a particular time period. A lot of guys that would have become machinists are now becoming computer programmers, plumbers and so forth. They didn’t suffer but the low skilled white which tends to have learning disabilities doesn’t really benefit from factory work as much as many here thing. They are better doing a service job like cooking which is easier if you have poorer manual dexterity.

  92. […] is Pakistan. Trapped by the Saudis. The chaos to come. America’s opportunity. China troubles (1, 2, 3), and related. Commercialization of hard security. The demographic dimension. Skyscraper […]

  93. Cracker says:

    The Middle Kingdom is doing fine. They have a bit of a longer and different view than us hurried Westerners…

  94. Billy Liu says:

    “China had a civilization for thousands of years yet never developed true science and their civilization was thus relatively static.”

    Developed a scientific revolution is a singular one-off that was only ever achieved by the successors cultures to Latin Christendom. And only someone truly ignorant of human history could call Chinese civilisation static – it evolved and changed immensely over the two thousands years that followed the founding of the Qin Dynasty.

    “their cultural aversion to rocking the boat handicaps their own innovation.”

    I’ve lived in China for a while – Chinese entrepreneurs and research scientists I’ve are amongst the biggest and most capsize-prone boat rockers I’ve encountered.

    “This is why I laugh when science fiction posits a future dominated by the Chinese.”

    Probably best not to glean your information on other cultures from Marvel comics and sci-fi movies.

    • Replies: @Olorin
  95. Olorin says:
    @Billy Liu

    Just two words:

    Agricultural espionage.

    • Replies: @PandaAtWar
  96. @Olorin

    Right, shaken not stir – say what a prick! ROFL

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