Archives for category: China

There seems to be some conflicting information coming from people  who think they know what they’re talking about concerning the state and future state of the Chinese economy. Reuters reported on Monday that NYU economist Nouriel Roubini, the man renowned for not being stupid, believes that China faces a “‘meaningful probability’ of a hard economic landing” in 2013.

Roubini cited China’s over-investment (50% of GDP) as a perennial indicator of its future economic problems:

“Sixty years of data had shown that over- investment led to hard landings, he said, citing the Soviet Union in the 1960s and 70s, and East Asia before the 1997 financial crisis.

“‘I was recently in Shanghai and I took their high-speed train to Hangzhou,'” he said, referring to the new Maglev line that has cut traveling time between the two cities to less than an hour from four hours previously.

“‘The brand new high-speed train is half-empty and the brand new station is three-quarters empty. Parallel to that train line, there is a also a new highway that looked three-quarters empty. Next to the train station is also the new local airport of Shanghai and you can fly to Hangzhou’, he said.

“‘There is no rationale for a country at that level of economic development to have not just duplication but triplication of those infrastructure projects.'”

On the other hand, The Globe and Mail reported last Friday that trade data released that day showed that “worries of overheating have given way to predictions of a soft landing for the world’s biggest exporter…”

So, is the landing going to be soft or hard? Will China glide to a more ‘sustainable’ growth percentage (which some economists think is around 8%) or will it nosedive into a serious economic downturn?

I’m not an economist and I barely passed Micro my junior year of high school, but from the information that I’ve been able to access (thanks Google), I was able to come up with a potential explanation that might account for these differing prognoses. According to Anthony Harrington over at the blog on, it’s possible for China’s central bank to effect a slowdown (or ‘cooling’ period) in its economy by getting a handle on the excessive credit flowing into the country due to its enormous trade surplus, and yet still inadvertently trigger an abrupt collapse in the future. Harrington writes:

“What everyone fears, of course, is that a Chinese slowdown will cut demand for commodities. Yet […] Commodity prices have been overheating precisely because of the way China’s overheated economy is sucking in commodity imports at an enormous pace. Some backing off should be welcomed as generating space for commodity prices to shed some of that inflationary momentum.

“The other thing that is scaring the markets about China at the moment is that [it’s] in the process of winding down the $586 billion stimulus spending it uncorked as its policy response to the global crash. Chinese authorities also want to stem the flood of easy credit from China’s banks in order to get a grip on inflation, which is threatening to get out of hand […]

“The problem, as always, is that when a fund manager looks at an index that has suddenly started to dive he or she is immediately on the horns of a dilemma. If it is merely one of the endless jitters down and up that any daily pricing graph wanders through, it can be ignored. If, however, the downward dive is the signal that the market is going to go into a major pull back, then continuing to hold a long position in a whole bunch of stocks, particularly those heavily predicated on strong growth from China, no longer looks that sensible […] So if China is going to have a major growth hiccup, selling makes sense. The only problem is that if a whole bunch of long-only managers turn into sellers simultaneously, they drive prices down still faster and the market turns into a train wreck.”

My concern is that Harrington’s ‘fund manager’s dilemma,’ if you may, is more than a separate problem – it comprises one of the market’s fundamental flaws. Again, if I’m a fund manager with a lot of money invested over the long-run in a stock that I (defying logic) need to believe is going to grow indefinitely at rates that can only be maintained by false confidence (i.e. bubbles), how do I know which down-tick will be fatal, the one gush of wind that forces me off the cliff? I don’t. So I guess and cook-up rational stories about my decision that make it easier to swallow.

There’s a Chinese official I talked to who said something to me which I thought was just vivid. He said, ‘We used to be the students in the classroom and you used to be the teacher.  We always used to listen to you. We wanted to be the brightest kids in the classroom, we always wanted to copy the Americans. If we were regulating our securities industry the first question we’d ask is how do the Americans do it?’ He said, ‘Now we look back and we think to ourselves we were the kids in the classroom, but suddenly we realize the teacher was a moron.’

Fareed Zakaria, interviewed on Charlie Rose, talking about the new swagger of the BRICs (and other emerging nations)

In 2045, UN demographers project, the world’s population may reach 9 billion. Not good news when you also consider that crop yields all over the world are diminishing; that oil may have peaked years ago; that, in general, earth’s carrying capacity has been stretched to its limit already.

There have been many well-intentioned plans to mitigate this population explosion, but none perhaps more ambitious and effective than China’s (in)famous one-child policy,  the “30-year-old family-planning policy [that] limits most couples to one child, a restriction the government imposed to curb a large and then-rapidly growing population that officials feared the country could not support.”

In fact, the policy has been a little too effective.  As the Washington Post (quoted above) reports, as many Chinese workers are approaching retirement, there aren’t enough younger workers to replace them, setting the country up for a range of unforeseen problems:

The demographic change is ushering in higher wages and inflation and remaking the country’s social fabric — particularly in rural villages such as this one south of Beijing, where working adults have all but disappeared to major cities. If there are children, they are living with or visiting grandparents.

China’s one-child policy is a vivid example of how even our best-laid plans for solving many of the world’s most pressing problems  straddle a precariously thin line between worse and even worse.  This is why, before you execute your plan to save the world, you should imagine yourself on a tightrope.  And while so imagining, keep in mind that if you misstep there is no safety net at the end of your fall.  By the way, most experts, scientists, politicians, and policymakers aren’t tightrope walkers.

Which reminds of an E.M. Cioran aphorism:

As the years accumulate, we form an increasingly somber image of the future. Is this only to console ourselves for being excluded from it?  Yes in appearance, no in fact, for the future has always been hideous, man being able to remedy his evils only by aggravating them, so that in each epoch existence is much more tolerable before the solution is found to the difficulties of the moment.