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Q: Can someone please tell me the reasons behind the prediction of China's economic crash?
So I keep reading on the news (and on here) about this economic crash that is supposed to be coming to coming to China soon. As a bit of a economic simpleton, I don't know the reasoning behind this - can someone tell me what are the main factors?
Also, when do you think the crash will come? I'm planning to leave this country soon anyway so it won't bother me so much, just curious.
10 years 45 weeks ago in Money & Banking - China
Try reading what it says on:
http://www.foreignpolicy.com/articles/2011/12/29/the_coming_collapse_of_...
and while it was written over one year ago, still holds true to a large extent
GuilinRaf:
I am afraid I could not read it, as it requires one sign up and I refuse to be forced into signing up for something.
Thanks for the link anyway....
CARLGODWIN1983:
Happy,
I have just read that for the first time, and thank you.
It is really quite true. I would just say it's taken longer than anyone hoped. I also hope the ROW really does turn its back on China by forcing China to play by the rules etc.
I am happy that economies such as the US and UK are clearly picking-up, even if only on a small scale. Each month that we improve will be one more month that China will fall behind.
The only worry for the ROW is if Chinese people stop spending their money abroad, but, hopefully, this will be made up for by the increase in other nationalities' spending.
Traveler:
The Foreign Policy Article http://www.foreignpolicy.com/articles/2011/12/29/the_coming_collapse_of_...
The Coming Collapse of China: 2012 Edition
In the middle of 2001, I predicted in my book, The Coming Collapse of China, that the Communist Party would fall from power in a decade, in large measure because of the changes that accession to the World Trade Organization (WTO) would cause. A decade has passed; the Communist Party is still in power. But don't think I'm taking my prediction back.
Why has China as we know it survived? First and foremost, the Chinese central government has managed to avoid adhering to many of its obligations made when it joined the WTO in 2001 to open its economy and play by the rules, and the international community maintained a generally tolerant attitude toward this noncompliant behavior. As a result, Beijing has been able to protect much of its home market from foreign competitors while ramping up exports.
By any measure, China has been phenomenally successful in developing its economy after WTO accession -- returning to the almost double-digit growth it had enjoyed before the near-recession suffered at the end of the 1990s. Many analysts assume this growth streak can continue indefinitely. For instance, Justin Yifu Lin, the World Bank's chief economist, believes the country can grow for at least two more decades at 8 percent, and the International Monetary Fund predicts China's economy will surpass America's in size by 2016.
Don't believe any of this. China outperformed other countries because it was in a three-decade upward supercycle, principally for three reasons. First, there were Deng Xiaoping's transformational "reform and opening up" policies, first implemented in the late 1970s. Second, Deng's era of change coincided with the end of the Cold War, which brought about the elimination of political barriers to international commerce. Third, all of this took place while China was benefiting from its "demographic dividend," an extraordinary bulge in the workforce.
Yet China's "sweet spot" is over because, in recent years, the conditions that created it either disappeared or will soon. First, the Communist Party has turned its back on Deng's progressive policies. Hu Jintao, the current leader, is presiding over an era marked by, on balance, the reversal of reform. There has been, especially since 2008, a partial renationalization of the economy and a marked narrowing of opportunities for foreign business. For example, Beijing blocked acquisitions by foreigners, erected new barriers like the "indigenous innovation" rules, and harassed market-leading companies like Google. Strengthening "national champion" state enterprises at the expense of others, Hu has abandoned the economic paradigm that made his country successful.
Second, the global boom of the last two decades ended in 2008 when markets around the world crashed. The tumultuous events of that year brought to a close an unusually benign period during which countries attempted to integrate China into the international system and therefore tolerated its mercantilist policies. Now, however, every nation wants to export more and, in an era of protectionism or of managed trade, China will not be able to export its way to prosperity like it did during the Asian financial crisis in the late 1990s. China is more dependent on international commerce than almost any other nation, so trade friction -- or even declining global demand -- will hurt it more than others. The country, for instance, could be the biggest victim of the eurozone crisis.
Third, China, which during its reform era had one of the best demographic profiles of any nation, will soon have one of the worst. The Chinese workforce will level off in about 2013, perhaps 2014, according to both Chinese and foreign demographers, but the effect is already being felt as wages rise, a trend that will eventually make the country's factories uncompetitive. China, strangely enough, is running out of people to move to cities, work in factories, and power its economy. Demography may not be destiny, but it will now create high barriers for growth.
At the same time that China's economy no longer benefits from these three favorable conditions, it must recover from the dislocations -- asset bubbles and inflation -- caused by Beijing's excessive pump priming in 2008 and 2009, the biggest economic stimulus program in world history (including $1 trillion-plus in 2009 alone). Since late September, economic indicators -- electricity consumption, industrial orders, export growth, car sales, property prices, you name it -- are pointing toward either a flatlining or contracting economy. Money started to leave the country in October, and Beijing's foreign reserves have been shrinking since September.
Traveler:
Part 2
As a result, we will witness either a crash or, more probably, a Japanese-style multi-decade decline. Either way, economic troubles are occurring just as Chinese society is becoming extremely restless. It is not only that protests have spiked upwards -- there were 280,000 "mass incidents" last year according to one count -- but that they are also increasingly violent as the recent wave of uprisings, insurrections, rampages and bombings suggest. The Communist Party, unable to mediate social discontent, has chosen to step-up repression to levels not seen in two decades. The authorities have, for instance, blanketed the country's cities and villages with police and armed troops and stepped up monitoring of virtually all forms of communication and the media. It's no wonder that, in online surveys, "control" and "restrict" were voted the country's most popular words for 2011.
That tough approach has kept the regime secure up to now, but the stability it creates can only be short-term in China's increasingly modernized society, where most people appear to believe a one-party state is no longer appropriate. The regime has clearly lost the battle of ideas.
Today, social change in China is accelerating. The problem for the country's ruling party is that, although Chinese people generally do not have revolutionary intentions, their acts of social disruption can have revolutionary implications because they are occurring at an extraordinarily sensitive time. In short, China is much too dynamic and volatile for the Communist Party's leaders to hang on. In some location next year, whether a small village or great city, an incident will get out of control and spread fast. Because people across the country share the same thoughts, we should not be surprised they will act in the same way. We have already seen the Chinese people act in unison: In June 1989, well before the advent of social media, there were protests in roughly 370 cities across China, without national ringleaders.
This phenomenon, which has swept North Africa and the Middle East this year, tells us that the nature of political change around the world is itself changing, destabilizing even the most secure-looking authoritarian governments. China is by no means immune to this wave of popular uprising, as Beijing's overreaction to the so-called "Jasmine" protests this spring indicates. The Communist Party, once the beneficiary of global trends, is now the victim of them.
So will China collapse? Weak governments can remain in place a long time. Political scientists, who like to bring order to the inexplicable, say that a host of factors are required for regime collapse and that China is missing the two most important of them: a divided government and a strong opposition.
At a time when crucial challenges mount, the Communist Party is beginning a multi-year political transition and therefore ill-prepared for the problems it faces. There are already visible splits among Party elites, and the leadership's sluggish response in recent months -- in marked contrast to its lightning-fast reaction in 2008 to economic troubles abroad -- indicates that the decision-making process in Beijing is deteriorating. So check the box on divided government.
And as for the existence of an opposition, the Soviet Union fell without much of one. In our substantially more volatile age, the Chinese government could dissolve like the autocracies in Tunisia and Egypt. As evident in this month's "open revolt" in the village of Wukan in Guangdong province, people can organize themselves quickly -- as they have so many times since the end of the 1980s. In any event, a well-oiled machine is no longer needed to bring down a regime in this age of leaderless revolution.
Not long ago, everything was going well for the mandarins in Beijing. Now, nothing is. So, yes, my prediction was wrong. Instead of 2011, the mighty Communist Party of China will fall in 2012. Bet on it.
juanisaac:
Well put. Don't forget that during times of upheaval a World War to distract people may be coming as well.
Let me see if I can sufficiently cover the basics:
1. The common folk (CF) put their money into a savings account to earn a meager interest rate. 2. Banks use that money to loan to others at an interest rate higher than those who are saving (to pay the CF interest rates plus make a profit).
3. Wishful thinkers (WTs) borrow the money to buy land, build buildings and develop infrastructure.
4. People with more money than brains (MMTB) borrow money to buy these properties expecting others (CF) to buy or rent from them.
5. No one (US) can afford to rent or buy these properties.
6. The banks are supposed to have a certain percentage of deposits held in reserve.
7. The banks loan out far more money and thus have no real reserves.
8. Counties, cities and provinces also spend all of their cash-in-hand to support and develop these ventures (by means of infrastructure - electricity, gas, water, sewage, etc.).
9. Everyone and their grandmother defaults on their loan payments (see point 5).
10. Banks attempt to recall their loans when a rich person decides to withdraw all of their money and move to a province that they purchased in Canada (BC) (FYGIOH).
11. No one has any cash to repay their loans.
12. After much pants-wetting, the central gov't steps in and assures everyone, "Nothing to see here, move along, move along."
13. China ups its protective tariffs and hopes like hell that no one calls them to task about their agreements as part of the WTO.
14. The WTO calls China to task about its protectionist policies.
15. China collectively cries like a bitch and announces that the WTO has hurt its feelings.
16. China buys 85 gazillion dollars of U.S. debt.
17. Obama says that the WTO, the WHO, the WHAT, the WHAT, the WHY, the WHEN and the HOW have no business questioning China’s policies.
18. Every foreign manufacturer pulls out of China and sets up in third world countries where it’s more “exploiter-friendly”.
19. Chinese manufacturers follow suit.
20. Chinese state-owned but really friendly and independent (COUGH-COUGH) enterprises start listing the pre-paid services revenue as profits.
21. People question how the aforementioned enterprises went from 1.5 RMB in profit to 20000000000 RMB profit in only one year.
22. The world collectively wets its pants and stock markets tumble.
23. The CF continue to enjoy higher wages and the wide variety of consumer products (“An Apple product a day keeps…”) and thus keep driving their unpaid-for BMWs from their unpaid-for condos on unpaid-for roads to their unpaid-for businesses to exploit their unpaid-for laborers.
24. You, easyrider, attempt to withdraw your 312 RMB prior to leaving China for the last time. Having no money in the bank, it and all other banks, immediately collapse (the bubble busts!).
25. Easyrider is assessed a 3000000000 RMB fine when attempting to leave the country for “Hurting the feelings of the Chinese people,” for insinuating that there ‘might’ be a problem with the Chinese economy.
bill8899:
17. When did President Obama say the WTO should not question China's trade policies?
Sinobear:
@bill8899 (I can't believe I did that - hashtags are next!) It's already happening. Please await the knock on your door for further information. @easyrider: If it is not China's fault, then it must be somebody's fault. You ARE that somebody. Everyone gets a turn. Crimochina is already pegged for the declining birthrate, Traveler for national skepticism, Philbravery for declining grammatical abilities, myself for the angst of the politically-correct, Hugh G, Rection for something that I cannot identify yet (publically)...it's just your turn. Do enjoy!
Scandinavian:
Are my eyes failing me or did you forget about shadowbanking and people selling apartments they have loans in, for cash and use the cash for iProducts and motorcarriages.
Sinobear:
Motorcarriages? I say, Old Bean, whatever do you mean? Are you truly Scandanavian or a Brit (after all, Brits have not developed the English language since 1920 except their beloved Chavs) I feel the thumbs-down accumulating. Good! Let the anger flow through you!
Scandinavian:
@Sino. Mortorcarriage is a perfectly cromulent word. Just because one has an old-timey vocab doesn't mean one should not be from the aforementioned geographical region. Now get on with the syllogism and tell me if I overlooked "shadowbanking" in your otherwise stupendous explanation.
The reasons for the prediction of the impending Chinese economic crash?
1. American propaganda.
2. American fear of being No2
3. Americans repeating 1 and 2.
4. America has been forecasting a Chinese crash for 30 years, eventually the law of averages say they'll get it right.
crimochina:
yes blame america. that is why china's leaders send their children, family, and money out of the country. even the guy in charge now keeps millions of his family's money in other countries.
yes american propaganda verified to be true by other countries. becuase those wealthy chinese children in other countries really don't exist.
Scandinavian:
If anything, the US still sees the communist ghost. The only thing that can make the land of the brave tremble.
Hugh.G.Rection:
There you go Coc the refusnik.
When the world ends he will be the last one to still believe "it wasn't us".
Pucktards, and retards born of the "greatest education system on Earth".
Hugh, a lot of that information is coming from the BBC, wouldn't put your foot in mouth too much, I have Brit friends so I will not banter with you but we do have the worlds most wanted products, "even if they are made here", I do not believe England has a Steve Jobs, or Google, Nike etc, you have fish and chips and bangers and mash, both dry and tasteless, lay off the Americans, China did this to itself even if, sadly enough, they are following America's footsteps in regards to the housing market.
Hugh.G.Rection:
techezee,
I am a Brit but I am not proud of that. Britain has become a very poor servant of the USA they shit we rush to eat it up. We're pathetic, we were a nation once, not any more.
P.S. As a Brit I would trust the CPC and Pravda and hell even Fox news before I would trust the BBC!
maybe as an american we did this on purpose, create a selfish , partially capitalistic society so dependent on other countries that they cant afford to be a military threat anymore to the world, then pull the plug and let them be a split government demanding benefits from the rich to create internal political problems and keep them busy while we continue to do what we always do, create another liberal heaven (or hell i was would call it) where everybody can sit on their collective ass and collect benefits from the government.
I'm not an economist or an accountant, but some things just don't add up. The housing/construction craze is one of them. You can't just keep on building things and call it GDP. With apartments going up at maddening pace, there appears to be a housing boom. Real estate agents say that the houses are sold even before the buildings are finished. That may be so (in many cases), but when you look inside, nobody is there. Who owns the houses? Speculators? "Investors"? In China, people buy houses hoping for a return in the future, speculating that the prices will always continue to rise. So what happens when they don't?
Then the government gets involved and props up the mess with it's policies, cash, and fuzzy accounting, which only makes the inevitable crash even more painful. Again, I am not economist, but this economy doesn't seem real. Balancing the economy is more than just moving people here and building stuff there and fudging numbers in the books. The common people have to actually spend money in a super economy that China claims to have. But the common people aren't that rich, so where is the money coming from to fix this problem?
Scandinavian:
The "sold before the building is there" thing is also a lie. When the projects are financed a certain amount of money is invested. If the square meter price goes up before the sales start, then only the amount of square meters needed to cover the required part of the financing are sold. The remainder can be used as bribes to government officials, bank people etc. to get the next project rolling. Or simply to pay subcontractors.
6 towers have just been put up in the distance from out living room view. The sales center was open for a weekend, the local news said all was sold in the first hours. This is almost a year ago. Today one tower has occupants, the others are empty. The construction work on the towers finished within a couple of months of each other, so it is not because the other buildings are not finished. I am guessing they are actually not sold, if they were I should be able to find some for rent at the local estate agents. I can't. I am guessing they only sold one building and are holding the remaining building until a nearby shopping center is completed making the area "more attractive" as the Chinese would say, or "one step closer to hell" as I view it.
