PRC Economy - New Reflections : Dec 15 2011

[chola]

JEM lets hope democracy brings in NAC kind of bodies which will effectively kill growth while pretending to safeguard the interests of the rural poor. People like Dotty, Amartya, Horse Manure, Setalvad etc can only thrive in a democratic set up. In a totalitarian set up Dotty would gobble up Setalvad or vice versa

To begin with, the world's oriental population is remarkably homogenous. There is a reason people can't tell them apart. What works in one population of slanted eyes will inevitably work in another.

So that said, every nation state in East Asia who has a semblance of democracy -- Japan, South Korea, Hong Kong and Taiwan -- are wealthy with Western level per capita incomes while those with communist governance PRC, North Korea and Vietnam are between a fifth and 10th of that. Guess where more freedom would lead an economy?

East Asian democracy is not like Western or Indian democracy. It is far more authoritarian and mercantile. Closer to Nazi Germany than the US. But the US finds these nations agreeable. Remember South Korea, Singapore and Taiwan were practically fascist dictatorships with a strong mercantile bent.

China can easily become a giant Japan and one with open American support the second the CCP collapses. I've written this before. A China without the commies would bring in American support because it will be a game changer that will solidify American power far into the further.

The moment that CCP is gone, the chini will kiss the feet and every other part of the gora like the rest of East Asia and the floodgates of aid and goodwill will open. It is a familiar story in the region.

So trusting democracy to weaken Panda is the same as believing a freer North Korea would be poorer than the communist pariah is now.

[chola]

What will we get out of it if the CCP fell? Nothing except more competition unhindered by an US cordon as it is now.

I disagree.

The more prosperous China becomes, the harder will it be for Indian elites to justify their continued loot, which keeps the bulk of our population malnourished and stunted.

If China can inspire us to improve, I am all for it.

They are already ahead many times over even now! Why would it make any difference to our inspiration if they were 20 times wealthier per person than the three times they are now?

Why weren't our babus and netas inspired by Korea to be better people when the Koreans went from being poorer than India to a western income level in two generations?

I'd rather have Panda be like North Korea than to be an "inspiration" like South Korea which we all know in our hearts will inspire no one in babudom.

[pankajs]

Asia enters the storm

Asia’s economies can still grow much faster than the developed West if they respond to prolonged stagnation by rebalancing their growth towards internal demand

Decoupling did not occur in 2008, when exports accounted for about 45% of pan-Asian gross domestic product, or GDP, (excluding Japan) and every emerging country in the region experienced a sharp contraction in growth as world trade plummeted. Nor is decoupling likely today, because exports still account for about the same share of the region’s GDP, and about 50% of these exports are still headed to developed countries.

So the idea of decoupling appears to be a chimera. Even if the euro crisis is resolved, austerity in Europe, along with anaemic growth or worse in the US, will mean a slowdown in export-dependent Asia. But Asia’s economies can still grow much faster than the developed West if they respond to prolonged stagnation by rebalancing their growth towards internal demand, especially household consumption. The good news is that these economies have substantial room for such rebalancing, as well as the policy flexibility to accomplish it.

The share of consumption in GDP in these economies fell from more than 60% in the early 1980s to less than 50% today. In China, it is less than 40%—far below the norm for the world’s major economies and for other Asian economies at a comparable stage of development—despite nearly 7% annual average growth in China’s per capita consumption in recent years.

The Asian economies are home to 3.5 billion consumers, but their share in global consumption remains small—much smaller than their share in global GDP. China alone accounts for 20% of the world’s population, nearly 11% of global GDP, but only 3% of global consumption.

China’s 12th five-year plan, which will take effect in 2012, recognizes these policy imperatives and calls for several measures to fulfil them, including wage increases for urban workers; income support for rural households; enhanced access to capital for small businesses, especially in the underbuilt services sector; and more generous social-welfare programmes, which would reduce Chinese households’ high levels of precautionary saving. All of these measures are already under way, and Chinese leaders appear committed to embracing a new growth strategy that will benefit both China’s population and Asia as a whole.

[VikramS]

chola:

As you put it is a struggle between civilizations. You believe that current path taken by the CPC/PLA will lead to eventual self-destruction as the inefficiencies of the system can no longer be glossed over by double digit growth.

My concern is that the CPC/PLA will not go down without a fight; and the fight will not only involve the Chinese masses but also external aggression.

The princeling generation has been bought up on visions of historical Chinese glory, blighted by colonalists, and now followed by the recovery of the Chinese nation as the world's supreme power. However, if and when, the cracks in the story, start appearing, who will take the blame? How will that anger and frustration be directed at?

I would rather have a slow glide down and a slow turn in the CPC's way of doing business and running the country compared to the kind of turmoil created during the Cultural Revolution and the assorted purges during the first few decades of the CPC rule. A turmoil like that is likely to have global repercussions.

The article above about Chinese businesses producing fake "Made in India" products, is an example of the total war being carried out by the CPC. As long as these attitudes continue, the danger of armed aggression will continue to rise. So far the rest of the world has been tolerating the CPC; however things are going to reach a make or break point eventually, and perhaps a lot sooner than most anticipate.

Let me give you an example: Suppose Dabur et. al. are able to bribe the 2G enough for them to ask the IN to interdict Chinese vessels suspected of carrying fake products carrying the Made in India label. How do you think that will play out?

You being a market consultant are focused on what the Chinese market has to offer. However, there are other strategic and geo-political aspects of the CPC policies which could eventually result in great pain to many.

[VikramS]

Pranav:

While it is important to recognize the tremendous achievements made by the Chinese, the hero-worship you display is a bit disconcerting and disconnected from reality. I had seen comments from you on Tibet which were totally disconnected from historical facts.

The Chinese system is the ultimate autocratic with state ownership of almost everything; even now you technically lease the land from the state.

It is a system which was homogenized with the differences between different people brushed under the carpet. That homogenization was achieved at a tremendous internal human cost as the mass murders during the Cultural Revolution and other assorted purges clearly point out to.

It was only when the state ruled supreme and the homogenization was almost perfected could the CPC embark on these policies which permitted rapid growth.

In India on the other hand diversity is celebrated and acknowledgement of that diversity is a key component of the national fabric. A China style homogenization drive would have led to the demise of the Indian nation since the push-back by the components would have been very strong. There is a limit to which India can be homogenized.

This also means that there are multiple power centers which need to be appeased before there is any progress. In principle this is a good thing since it ensures adequate checks and balances and a more fair distribution of the goodies. Unfortunately in its implementation, the distribution of goodies has been concentrated among the power centers within each group, rather than reaching the masses.

That perhaps is the biggest area India can learn from China. Within India, the UPA feasts on that as they adopt the more politically expedient income redistribution plans while longer term plans which can truly alleviate the masses are left behind.

As many here on BR have alluded this requires the masses to rise up and demand their fair share from those who currently pocket them. But Chinese style system would never work in India.

[gakakkad]

VikramS , the war is not coming any time soon . India's growth has started accelerating in the last few years or so. It ll converge with China by 2030 (maybe earlier) . people put it at 2050 but IMHO it ll happen earlier , people have always underestimated India's growing ability . For instance the 2000 BRIC report projected Indian GDP by 2011 to be 0.7 trillion . Most optimistic was 1 trillion. But the GDP reached 1.75 t in 2011 . Well ahead of even the most optimistic .

CPC lacks the military ability whack India . It ll be a USA/USSR type war of attrition and mutual destruction. Not a thing they are brave enough to embark upon . Reports have indicated the they piss in panties , when India tests missiles. Sabre rattling after every missile test is an evidence to the fact .

There have been a lot of foolish op-eds in toilet and a lot of discussion here , on an impending Chinese attack. Most of it is hogwash . The stories are just meant to get the dhotis of SDREs brown . Nothing more to it .

Things will get more interesting after 2015 when India will be growing at a real rate of 10% + .And when India's maiden manned spaceflight will have occurred . The Chinese make a lot of noise after such events. They made a lot of noise after chandrayaan . Watch this space after chandrayan 2 , an year or 2 from now .

[PrasadZ]

They are already ahead many times over even now! Why would it make any difference to our inspiration if they were 20 times wealthier per person than the three times they are now?

Why weren't our babus and netas inspired by Korea to be better people when the Koreans went from being poorer than India to a western income level in two generations?

+1 to that, chola !

[chola]

chola:

As you put it is a struggle between civilizations. You believe that current path taken by the CPC/PLA will lead to eventual self-destruction as the inefficiencies of the system can no longer be glossed over by double digit growth.

My concern is that the CPC/PLA will not go down without a fight; and the fight will not only involve the Chinese masses but also external aggression.

That is my greatest hope is for the CCP and PLA. I want them to hang on as long as possible. Barring that I want to see bloody revolution though that will inevitably bring US intervention, US reconstruction and US aid that will lead to a democratic China.

The greatest danger to India in the long term is a peaceful transition to a democratic China. This will not only create the prospect of neighbor that is Japan times 10 but also less of a role for India in the geopolitical sphere because a democratic China would become an apple in the gora's eye.

The princeling generation has been bought up on visions of historical Chinese glory, blighted by colonalists, and now followed by the recovery of the Chinese nation as the world's supreme power. However, if and when, the cracks in the story, start appearing, who will take the blame? How will that anger and frustration be directed at?

We can only hope they go to war. They would be annihilated by the US and its allies. It might not be as easy as Iraq but it will not be too difficult either. The problem is the chinis won't act and provide a nice pretext for war.

Communist China has had the same visions since the time of Mao. The PRC was far more warlike in the 1960s and 70s. The princeling generation, if anything, is far more less likely to go to war They trade with more nations than we do. They have far more foreign currency than we do. They depend on foreign markets more than we do.

War would hurt them far more than it would ever hurt us. I can only hope they make a misstep and actually go to war. The problem is their leadership knows it so they concentrate on economics.

You being a market consultant are focused on what the Chinese market has to offer. However, there are other strategic and geo-political aspects of the CPC policies which could eventually result in great pain to many.

The geopolitical weight of a democratic China will be far more detrimental to India's position than any possible war scenario created by the CCP.

Again, we gain nothing from a freer China. But instead we will get the following:

One, a possible Chinese economy that matches the per capita income of Japan, South Korea or Taiwan. I thank Chairman Mao that the chini apparatchik push loans toward government run dinosaurs while private enterprises are starved of cash. Anyone who have ever worked with the private sector of Taiwan and Hong Kong would know what it would mean if the same thing ever developed in China. The scale would be frightful.

Two, an unhindered China that is no longer strategically cordoned off by US and its allies because it is now a fellow democracy. Further more, it will now have unfettered access to Western technology including for its military.

Three, the loss of a trump card for India as a counter balance. Without communist China hanging over the world as a threat in need of a powerful counterbalance, we would be equal-equal with the Pakis again. Once the stigma of communism is off, the Chinese presence can expand without Western opposition including the Indian Ocean.

In fact, the geo-political consequences of a democratic China for India is downright dangerous.

[pankajs]

War between the China and the US would likely impact us one way or another us being in the neighborhood. Cold war and jostling for advantage in the Indo-Pacific between then should suit us fine.
Just as China benefited while the American gaze was fixed on USSR, this new US fixation on a "Rising China" would help us in the Interim. In the end, if US triumphs over China and is still powerful, it will start after us and we need to be prepared for that.

[chola]

VikramS , the war is not coming any time soon . India's growth has started accelerating in the last few years or so. It ll converge with China by 2030 (maybe earlier) . people put it at 2050 but IMHO it ll happen earlier , people have always underestimated India's growing ability . For instance the 2000 BRIC report projected Indian GDP by 2011 to be 0.7 trillion . Most optimistic was 1 trillion. But the GDP reached 1.75 t in 2011 . Well ahead of even the most optimistic .

CPC lacks the military ability whack India . It ll be a USA/USSR type war of attrition and mutual destruction. Not a thing they are brave enough to embark upon . Reports have indicated the they piss in panties , when India tests missiles. Sabre rattling after every missile test is an evidence to the fact .

There have been a lot of foolish op-eds in toilet and a lot of discussion here , on an impending Chinese attack. Most of it is hogwash . The stories are just meant to get the dhotis of SDREs brown . Nothing more to it .

Things will get more interesting after 2015 when India will be growing at a real rate of 10% + .And when India's maiden manned spaceflight will have occurred . The Chinese make a lot of noise after such events. They made a lot of noise after chandrayaan . Watch this space after chandrayan 2 , an year or 2 from now .

China is surrounded by an US ring of steel. Unlike the so-called String of Pearls Indians like to scare ourselves with, the wall around China is real. There are 100K US troops with enough weaponry to wipe out the chini cache of soviet clones in weeks if not days. Japan, South Korea, Taiwan and now Vietnam are all powerful states with US weaponry.

China is the one surrounded. Yet, Indians like to make themselves shiver in their dhotis with stories of mythical dragon ability.

If I can't get a prolonged period of communist rule in China that will dampen their economic growth, I will hope that the PRC opt for war because it will bring down their economy - the one power they truly have -- faster than lightning.

[VikramS]

chola and pankajs:

Who said that the CPC will go to war with the US? PRC will go to war within its immediate sphere of influence to strengthen itself as the undisputed King of the East and the Dada of the Eastern hemisphere.

And it will go to war to again reinforce the CPC in the eyes of the masses as the true guardian of the Middle Kingdom, securing her ascent to the top of the world.

The West of course would like India and China to self-destruct so that they can regain their global role.

And you are talking as if China will turn democratic overnight. Any transition to a functional democracy will take at least a generation or two. To start with the CPC has to at least permit a freer flow of ideas. That by itself is likely to reduce the PLA's tendency to throw their weight around.

Further you can not compare the biligerance of the first generation of the PRC. The world itself was a lot more violent at that time, just recovering from the WW-II, the post colonial wars, the Korean War, the Vietnam war. Roles were being created and the PRC fought to earn a seat at the table. Over the past two decades the focus has been on economic warfare; it can always turn back to real warfare as the dynamics change.

From your writings, I can actually see how and why most Western CEOs are willing to sell their mother and more to get into China. You seem to have bought in by the Chinese consumer story hook, line and sinker. What I have yet to see from anyone are true stats about how much money do Western companies actually make in China; what is the ROI on those investments and more importantly how secure are they. And I am not talking about manufacturing setups created to serve the export market but the money made actually doing business within the Chinese market.

On the other hand, I have seen and hear enumerable stories of Western companies being shut out after their local "partner" starts competing against them.

I also find the way you dismiss the so-called gap between India and China as too big too fill lacking a strong thesis. While in absolute numbers China may continue to go ahead, what truly matters for geo-strategic purposes is the order of magnitude. A China which is 3x India's economy still can not think of dominating India since any real war will be a war of attrition. The Chinese victory has to be felt and acknowledged at the psychological level; it can not happen in the battlefield.

It is only when the ratio becomes 10x or so does the superiority of one over the other becomes so overwhelming that any war is worthless. And I very much doubt that the ratio will reach those levels.

While someone might argue that post 1962 India ceded the psychological battle, when it actually comes to land and control, India is actually better off since then. It is now asserting herself and the recent assertion hat the Chinese actually go back to pre-1962 borders if it wants to talk about settlement. That itself is a major psychological change from the way Indians have dealt with the PRC.

So yes, while the Chinese economy may continue to pull ahead while India struggles with the UPA, it is going to hit its natural limits, perhaps sooner than many are willing to accept.

[chola]

War between the China and the US would likely impact us one way or another us being in the neighborhood. Cold war and jostling for advantage in the Indo-Pacific between then should suit us fine.

A hot war between China and the US would end in very short order with a complete US victory. Not only is the US far more advanced militarily, the chinis depend on the US and European markets. Any signs of war would throw the chini economy into turmoil and those 100,000 riots they have every year would go up 1000 fold over night.

On top of everything, the US has Japan, South Korea, Taiwan and a dozen more nations on its side.

Just as China benefited while the American gaze was fixed on USSR, this new US fixation on a "Rising China" would help us in the Interim. In the end, if US triumphs over China and is still powerful, it will start after us and we need to be prepared for that.

Actually the US gaze was fixed on China as well as the USSR. Nixon and Kissinger wrote as much about China, if not more, as they did about the USSR. From the American standpoint a China that depended on the US market and US dollar and liked Hollywood and the NBA is far less dangerous than an isolated China under Mao. In fact, over time they believe that China will become part of the US system just like Japan and Taiwan.

A quick win over China would draw not only American attention but that of all of its East Asian and European allies into rebuilding China in the Western image. The danger to India is not that the US will go after India, the danger is that India will be ignored and pushed aside as the resources from the US, Japan and Europe are poured into China to make sure that its budding democracy is successful.

It would mean chini products and services will be supported to the detriment of all others.

[Pranav]

Pranav:

While it is important to recognize the tremendous achievements made by the Chinese, the hero-worship you display is a bit disconcerting and disconnected from reality. I had seen comments from you on Tibet which were totally disconnected from historical facts....

As many here on BR have alluded this requires the masses to rise up and demand their fair share from those who currently pocket them. But Chinese style system would never work in India.

Let us stick to cold facts, whether I am displaying "hero worship" etc is not the issue.

IMO the problem is rather simple - i.e. pure theft by political elites, with the rot starting from those who were favorites of the departing British.

Where you have a moderately honest leadership the results are vastly different.

Anyway, this is getting OT for this thread.

[pankajs]

A hot war is not only undesirable but unlikely with nuclear arms in the play. Economically, they are bound too closely to desire such an outcome, accidents apart. The real game is jostling for mind share and more importantly market share.

We all agree that a long drawn out struggle for supremacy, in whatever form, between US and China is in the best interest of India. It will keep both of them tied to the pacific and give us the room we need to develop.

[Theo_Fidel]

China is the one surrounded. Yet, Indians like to make themselves shiver in their dhotis with stories of mythical dragon ability.

I agree with this. Don't forget the Nuclear dimension. China is not just surrounded, it is surrounded by Nuclear weapon type states. Every last one. The only state in that predicament in the world. Much of it through CPC own goals, that were discreetly winked at by the West.

If Indian establishment is truly twisted it would find a way to get Vietnam and Burma on the nuclear band-wagon, at which point China would be in check mate.

[Aditya_V]

Indian diplomat attacked in court by Chinese traders

The two were held as captive after the owner of their company, Euro Global Trading, fled without paying the dues of local suppliers. The owner was stated to be a Yemeni or a Pakistani national.

The two Indians hailing from Mumbai say they were employees of the company but the local Chinese suppliers assert they will be released only after they pay the dues.

Their families were in touch with the Indian Consulate officials to obtain their release.

Over 100 Indian traders stay in Yiwu which is the centre of commodities trading.

If they are smart these Indian traders should stop buying from China

[ashi]

Climbing the value chain ...


Chinese producer wins Ford's biggest export order

[PrasadZ]

VikramS and chola, you might want to read this comparative study by a Deakin Uni lecturer : A Comparative Study of Banking in China and India, Nonperforming Loans and the Level Playing Field (free to download, registration recommended).

Interesting excerpts that should invite further comment :

The results from the DEA analysis suggest that restructured and recapitalized Chinese banks such as CCBC, BOC, and ICBC are showing efficiency losses. These banks have raised billions of dollars worth of investments from the Hong Kong and Shanghai share markets. It appears that the greater control and oversight by investors have restricted the expansion of loans of these banks. Having raised investment from the market, these restructured banks are operating under market discipline whereas the Chinee banks which are still to be recapitalized and restructured are merely going ahead with the distribution of loans. The Indian banks have shown two trends. One is that the state owned banks such as State Bank of India have maintained a high rate of loan advancement. The other is that private banks in India, such as ICICI have improved their efficiency dramatically in recent times.

Chinese banks, when exposed to market rigor, reduce their loan growth. Others, like Agricultural Bank of China (ABC), continue to create new loans inspite of reported NPLs of 21%.

These results suggest that whereas the major structured Chinese banks have been restrained from extending loans (output in our study), Agricultural Bank of China is still extending loans without any constraint and the loan amount is so high that even a 30 percent reduction of its loans has not altered its position in the efficiency dispersion.

These high loan ratios and NPLs could be acting as subsidies to export oriented firms ..

It is difficult to introduce a level playing field between a non-market economy such as China and other market economies because of their entirely different modes of financing. It is doubtful that six times the value of the Chinese GDP has been raised by SOEs, local bodies and private citizens without any accounting as self raised funds (Allen et al., 2007). This point to the difficulty in estimating the amount of the subsidy extended to goods exported from China, but permitting such exports from China and restricting them from other market economies may amount to giving an undue advantage to Chinese exporters. The NPLs may act as a form of direct cash subsidy in the export oriented economy of China, but this has not attracted any countervailing duty action by either the USA or the EU because of their treatment of China as a non-market economy.

Transparency is an integral part of the level playing field and the unrestricted growth of NPLs can alter the international business scenario through extension of export subsidies. The major economies of the world such as the USA and the EU do not consider such subsidies as actionable in the case of China whereas any minor infringements by other countries such as India or South Korea immediately invite punitive action. This practice apparently distorts the level playing field and has restricted market access to goods coming from open economies. An avenue for future research would be to identify the actual movement of non-returned bank loans in export oriented firms.

[VikramS]

PrasadZ:

The entire Chinese model including low interest rates, pegged currency, tight hold on labor are designed to give the Chinese manufacturers an advantage over everyone else. These NPLs are a part and parcel of that system. Because they have the quasi-state support the NPLs will not directly translate to a hard-landing.

The problem is that no one is willing to bell the cat. On reason is that Western companies are dazzled by the numbers presented by the Chinese. On this thread itself we have chola reporting how the Chinese consumer market is dwarfing everyone else and that gives them huge leverage.

However, I am yet to see real hard number being broken out in terms of how much money is truly made in China.

I also suspect that Chinese have a two pronged strategy. When it comes to technology intensive industries or areas in which the Chinese industry does not have a presence, they insist on joint collaboration etc. where the eventually acquire the technology. When it comes to the consumer market which is primarily driven by marketing they let the Western companies make some money. They know that it will be very hard for Chinese brands to compete with the established Western brands so they let the Western companies make their money there, while ensuring that the manufacturing jobs stay within China, and China acts as a hub of exports to the rest of the world.

This allows them to gain tremendous leverage in the Western world, get critical IP, and still retain the manufacturing base which creates jobs.
It is very hard for anyone else to compete with that.

However their hubris has dented their efforts to leverage that influence in their immediate neighbourhood. They have succeeded in scaring every country around them to run to Uncle and instead of creating a Pax-Sina, have forced them to seek the cover of Pax-Americana.

[chola]

PrasadZ:

The problem is that no one is willing to bell the cat. On reason is that Western companies are dazzled by the numbers presented by the Chinese. On this thread itself we have chola reporting how the Chinese consumer market is dwarfing everyone else and that gives them huge leverage.

However, I am yet to see real hard number being broken out in terms of how much money is truly made in China.

It is time we stop this jingoism that blinds us. The numbers are not coming from the chini government. The numbers come from Western MNCs and they are mindblowing. If the MNCs had accepted the number from the chini government who cry poverty every time to cheat at the WTO and other world bodies, they would never have invested to the extent they have in China. For a nation with a GDP supposedly at least two times smaller than the US, the chini consumers have markets across the whole range that are as large as the US's.

Multi-nationals get to be multi-nationals because they do their research and not waste investments or opportunities.

Take Yum! the American fast food conglomerate (owner of KFC, Pizza Hut, Taco Bell, etc.) for instance. In 2011 75% of its revenue will come from foreign markets nearly all of that will come from China. India, France, Germany and Russia combined will generate about $40 million in profit this year. Yum's profit in China will be $900 million.

BMW and Mercedes will sell 20,000 cars in India this year. They sold 320,000 in China from January and September.

This goes on and on in the numbers reported by Western -- and Japanese and Taiwanese and Korean -- MNCs. They have belled the cat and then some. Just because you have not looked at the numbers do not assume the rest of the world did the same.

We are the only ones in Asia missing from this market because we are beset by jingoists.

I also suspect that Chinese have a two pronged strategy. When it comes to technology intensive industries or areas in which the Chinese industry does not have a presence, they insist on joint collaboration etc. where the eventually acquire the technology. When it comes to the consumer market which is primarily driven by marketing they let the Western companies make some money. They know that it will be very hard for Chinese brands to compete with the established Western brands so they let the Western companies make their money there, while ensuring that the manufacturing jobs stay within China, and China acts as a hub of exports to the rest of the world.

This allows them to gain tremendous leverage in the Western world, get critical IP, and still retain the manufacturing base which creates jobs.
It is very hard for anyone else to compete with that.

You don't have to suspect it. It is well researched and written at length for decades. China pursues a mercantile agenda. It was and still is a mainly piss poor nation that is attempting to build up its industrial base. It doesn't have excess resources except for people.

How do you game the system when you are dealt a hand with people instead of oil or mineral? You barter access to the population.

The leverage is tremendous. If you are a GM that sells more cars in China than even the US then you are beholden to them to an extent. But you can also hold the chini hostage by influencing their access to the US market.

However their hubris has dented their efforts to leverage that influence in their immediate neighbourhood. They have succeeded in scaring every country around them to run to Uncle and instead of creating a Pax-Sina, have forced them to seek the cover of Pax-Americana.

No nation will ever follow a Pax Sina not even the chinkies believe that. If you truly want to understand the panda's game, follow the US actions against China. The most powerful US effort is to increase the Yuan by at least 40%. This means they believe the chini economy to be far larger than the chini government pretends it is. The chini currency is deliberately undervalued so they can cheat on trade.

The US government as well as every other government in Europe and East Asia knows that the chini economy is much bigger because their MNCs are reporting sales numbers as big as those in the US.

That is the difference between the Westerners/East Asians on the one hand and Indians on the other. They both know that the dragon is lying. But the Americans and Japs have people on the frontline in this battlefield while we have no one on the ground. They are attacking the market. We are not.

The Americans and Japs will gain real advantage in exports by making the chinis admit to a larger economy and a more powerful Yuan. Nothing is gained by Indians pretending that the figures of Western MNCs are fake just they come from their operations in China. It is foolish and puts us at a severe disadvantage.

China cheats. But we are blind to how they are cheating because of our jingos. Again, watch how the US treat China and the Yuan. China cheats by misrepresenting to the low side not the high. Reporting a larger economy does not help it in bargaining with other nations. Pretending it is smaller does.

[PrasadZ]

The US government as well as every other government in Europe and East Asia knows that the chini economy is much bigger because their MNCs are reporting sales numbers as big as those in the US.

I get the feeling China reports lower household consumption than it does have - possibly, some of the GFCF they report is getting siphoned into a black market consumption economy. Then, overall GDP stays the same and the investment/ consumption differential turns out lesser than it appears. They would still have problems but their internal markets are the size of Europe under this hypothesis, as you correctly point out, and our exports nowhere near where they should be.

China needs to rebalance trade to win external friends. China needs to keep the trade surplus going to win internal support
Lets see how they work it out.

[gakakkad]

while we should be making money from Panda , our baboons end up doing the opposite. They run deficits on purpose. They feel that it ll help prevent a China attack if they make it easy for Panda to flood Yindian market with cheap poor quality goods. God knows why Indians dhoti shiver . Even if Burkina Faso threatens to attack some baboons will dhoti shiver . And run a deficit to them by waiving import duty .

[pankajs]

Investors steer clear of Chinese IPOs in US

The value of Chinese companies delisting from US exchanges in 2011 exceeded the amount Chinese companies raised via initial public offerings in the US, a stark sign of how high-profile fraud allegations and slowing growth have made many foreign investors bearish on Chinese groups.

[Advait]

All this talk about China's figures being fake seem like a case of sour grapes. Today China is obviously more prosperous than India. Just look at the auto figures: India has 12 cars per 1000 people, while China has 128 per 1000. India's auto production is 3.5 million (and I think domestic sales are around 2.9 million). China's production is 18 million with most of it going into domestic sales. Plus, India seems to be the only (major?) market where there is so much focus on small cars. This shows that our middle class is not as strong as it is made out to be.

[VikramS]

chola:

1. Most of the examples like mutli-national fast food chains or auto-manufacturers are in the consumer sector. They benefit the global investor but not the US citizens.

2. It is very clear that the CPC controls which companies and which countries get access to their markets. Why do you think they will encourage Indian businesses to make inroads? It is not jingoism, but pragmatism which stops Indian businesses. In areas like IT (NIIT) the Chinese want Indian expertise. But there is very little else India can send to China except raw materials like iron ore.

3. In fact I would argue that most of the Indian establishment is anti-jingo. They are more than willing to placate China by allowing Chinese goods but are doing little to defend Indian businesses. The arrest of the diamond merchants, the counterfeiting of Indian medicines GOI did very little to help. It is clear that wherever India has an edge the Chinese are trying hard to take it away; total war as they would call it. How do you think Indian companies can thrive in such an environment especially when they are competing with foreign companies who have enough ethnic Chinese employees to do business in China?

4. It would be interesting to plot the graph of auto sales in China, especially in the past three years and correlate that with government incentives (hint).

5. No one doubts that the Chinese have have a huge middle class with the willingness to splurge on brand names. Indians on the other hand are hugely value for money people and are always more careful before splurging. In fact the gap in the spending is perhaps an indication of the hidden potential of what the Indian market could offer.

6. I hear the clarion call that the size of the Chinese consumer market is making Western CEOs salivate. However there is and will be a limit to which the hoi-polloi will tolerate the enrichment of the capitalist class at their cost. We are potentially entering the age of protectionism, primarily as a backlash to the mercantile policies of the World's second largest economy.

7. We live in very interesting times; I hope they are peaceful. China is now on the verge of building a military base in TSP, which does not bode well.

[VikramS]

All this talk about China's figures being fake seem like a case of sour grapes. Today China is obviously more prosperous than India. Just look at the auto figures: India has 12 cars per 1000 people, while China has 128 per 1000. India's auto production is 3.5 million (and I think domestic sales are around 2.9 million). China's production is 18 million with most of it going into domestic sales. Plus, India seems to be the only (major?) market where there is so much focus on small cars. This shows that our middle class is not as strong as it is made out to be.

I do not see any talk of the figures being fake.

What the talks is about the underlying dynamics of an economy where 50% of the GDP comes from fixed investments, the potential ROI on these investments, and the repurcussions if the ROI can not finance the debt created to create those investments.

There is no dispute about the size of the Chinese economy; there is also little dispute that a huge portion comes from these state-controlled investments. There is also little doubt that a good portion of the debt will go bad.

How everything plays out in the current global economic context is what the debate is.

[Prem]

http://www.theregister.co.uk/2012/01/03 ... flash_fab/
China's new year's resolution: Build a flash fab

Blocks and Files China has no hard disk drive, DRAM and flash memory production facilities of its own – but that could change.The Asian nation digs up the rare earths used to make components in the world's HDDs, and firms including Huawei and UIT make servers and storage arrays that use disk drives, DRAM and flash memory. However China has no indigenous concerns that make the core base storage technologies for enterprise-grade gear.Setting up and operating semiconductor fabs and the integrated plants needed to manufacture disk drives costs billions of dollars and needs world-class expertise. However things could change and one indicator that they might is that a Chinese concern is now making processors derived from DEC's Alpha chip and others based on the MIPS architecture.
These are being used in supercomputer designs. It is generally accepted that China wants to control its own core technologies and cease dependence on the West, largely meaning non-Chinese Asia and the USA. Its own internal market should be large enough to support its own CPU designs, and if the State-backed companies made DRAM and non-volatile memories to international specifications, the country could sell silicon produced inside China to the rest of the world.What is stopping it?El Reg reckons that the main obstacle is expertise and technological know-how; the Chinese government is encouraging existing suppliers to set up plants in China and by extension skill up Chinese workers, managers, executives and component suppliers.
For example, Samsung is seeking to build a NAND fabrication plant in China.
Hynix, TSMC and SMIC already have semiconductor plants in China. In three to five years Chinese employees at these plant would have learned a great deal about DRAM and NAND flash foundry installation, operation, management and component supply. They will understand the steps in the technological processes involved, be aware of the logistical concerns and understand the financing and cost structures needed.From then on, given sufficient financing and ambition, Chinese DRAM and NAND foundries could be established. They haven't been yet. It is feasible however, that a Chinese supplier such as Huawei could do this and we could, conceivably, see a Chinese NAND foundry operating from 2013 onwards, if they started building one now.The same pattern of events and thinking could result in a DRAM foundry being established as well. However growth estimates for NAND flash sales are looking very attractive, as are technology roadmaps, and it may be that flash looks a better opportunity than DRAM, and also hard disk drives.Will China jump into semiconductor manufacturing? At the high end of the technology spectrum it wants its own satellites and citizens on the moon. It could well have similar plans at the foundation technologies end of this spectrum. ®

[Theo_Fidel]

I really don't see anyone challenging the consumption numbers.

The question is if they will hold up when the gravy train stops. And it most definitely will stop. My questions is, if China GDP is much large than declared then does this mean the economic stimulus as well has to be much much larger than declared to keep the 10% growth going. Won't debt levels be much larger, won't inflation be much larger, won't the forex seem more puny, etc.

[gakakkad]

All this talk about China's figures being fake seem like a case of sour grapes. Today China is obviously more prosperous than India. Just look at the auto figures: India has 12 cars per 1000 people, while China has 128 per 1000. India's auto production is 3.5 million (and I think domestic sales are around 2.9 million). China's production is 18 million with most of it going into domestic sales. Plus, India seems to be the only (major?) market where there is so much focus on small cars. This shows that our middle class is not as strong as it is made out to be.

its not so . Indian middle class is far bigger than the biggest estimates. If you look at the savings % you ll know what I mean. Indian middle class is far more conservative than the western or Chinese . Hence you don't see the amount of conspicuous consumption. Indians save 50% of their income. While in US many people have cars more expensive than the worth of their 401(k)s . Such a thing will never happen in India . Most people will not spend more than 5-10% of their net worth on cars. Besides look at the interest rates , Indian rates are amongst the highest in the world . Gucci bags are useless in India . most indians don't care if they are wearing an armani or a suit made in neighbouring tailor shop .

I agree with Chola that Indian companies need to make more money out of China. No one , here save the Chinese guests are saying that Chinese economy is sustainable in the long run .

I am ready to bet my musharraf , that by 2030-2035 time frame India will be the largest economy. The Chinese demographic window is about to end in 2015. Their will be a precipitous decline in workforce . Inflationary economy means that they ll find it difficult to provide cheap labour for the western companies. Rising domestic consumption and lack of natural resources means that their balance of trade will become positive . That is when things start to get interesting . All Indian colleagues want to go back to India . But none of the Chinese want to . That says a lot in itself .

[abhischekcc]

All this talk about China's figures being fake seem like a case of sour grapes. Today China is obviously more prosperous than India. Just look at the auto figures: India has 12 cars per 1000 people, while China has 128 per 1000. India's auto production is 3.5 million (and I think domestic sales are around 2.9 million). China's production is 18 million with most of it going into domestic sales. Plus, India seems to be the only (major?) market where there is so much focus on small cars. This shows that our middle class is not as strong as it is made out to be.

Advait, have you driven in India's cities? Small cars are life savers - easy to manouver, easy to park, etc.

It is not as if people in India cannot afford bigger cars, it is just that they are PITA to drive around in.

[vina]

Plus, India seems to be the only (major?) market where there is so much focus on small cars

Err. Forgetting about the European and Japanese markets here aren't we ?

[PrasadZ]

2. It is very clear that the CPC controls which companies and which countries get access to their markets. Why do you think they will encourage Indian businesses to make inroads? It is not jingoism, but pragmatism which stops Indian businesses. In areas like IT (NIIT) the Chinese want Indian expertise. But there is very little else India can send to China except raw materials like iron ore.

India has a trade deficit with most countries (incl China); its the FII/FDI inflows that keep INR BOP afloat, services exports are good but not enough. No point in discussing the deficit with China in isolation; India just needs to export more.
But if China controls access to its markets, so can India. WTO rules allow for differential tariffs for China, since its not quite a "market economy" yet. In return, seek access for Indian banks to the Chinese market, maybe ..?

3. In fact I would argue that most of the Indian establishment is anti-jingo. They are more than willing to placate China by allowing Chinese goods but are doing little to defend Indian businesses. The arrest of the diamond merchants, the counterfeiting of Indian medicines GOI did very little to help. It is clear that wherever India has an edge the Chinese are trying hard to take it away; total war as they would call it. How do you think Indian companies can thrive in such an environment especially when they are competing with foreign companies who have enough ethnic Chinese employees to do business in China?

China games the market in general, its not oriented to India. Local jobs is the price of entry to most markets; in fact, NIIT runs its Chinese ops through subsidiaries and local employees. So can Indian banks or car parts manufacturers.

4. It would be interesting to plot the graph of auto sales in China, especially in the past three years and correlate that with government incentives (hint).

Do you mean China incentivises auto sales? Not sure why they would ..

5. No one doubts that the Chinese have have a huge middle class with the willingness to splurge on brand names. Indians on the other hand are hugely value for money people and are always more careful before splurging. In fact the gap in the spending is perhaps an indication of the hidden potential of what the Indian market could offer.

India has a smaller economy, hence the gap in spending. But its also a larger economy than Russia or South Korea today and expected overtake Britain within a decade !

6. I hear the clarion call that the size of the Chinese consumer market is making Western CEOs salivate. However there is and will be a limit to which the hoi-polloi will tolerate the enrichment of the capitalist class at their cost. We are potentially entering the age of protectionism, primarily as a backlash to the mercantile policies of the World's second largest economy.

This is true ! I would add that it looks like protectionist sentiment is rising in China just as much as in the west - in both cases, it rises along with nationalist sentiment.

7. We live in very interesting times; I hope they are peaceful. China is now on the verge of building a military base in TSP, which does not bode well.

I would agree with shiv that this is to be welcomed An overtly hostile base forces a better, sharper Indian response. Tibet stretches China where its uncomfortable. Their need to hold Tibet also makes them vulnerable.

I really don't see anyone challenging the consumption numbers.

The question is if they will hold up when the gravy train stops. And it most definitely will stop. My questions is, if China GDP is much large than declared then does this mean the economic stimulus as well has to be much much larger than declared to keep the 10% growth going. Won't debt levels be much larger, won't inflation be much larger, won't the forex seem more puny, etc.

China's debt levels and inflation are far larger than official numbers - pretty much a drumroll of articles and papers on that subject. But their trade surplus acts as additional gross savings, so the investment stimulus is affordable till the surplus stays. China's stimulus, thus, clashes with US stimulus.
Note that China has a remarkable trade surplus only with US - the surplus with Britain, Singapore and India are pretty minor, its the US surplus that powers its BOP (HK surplus is a proxy for US anyway). You can see this on wiki

I am ready to bet my musharraf , that by 2030-2035 time frame India will be the largest economy. The Chinese demographic window is about to end in 2015. Their will be a precipitous decline in workforce . Inflationary economy means that they ll find it difficult to provide cheap labour for the western companies. Rising domestic consumption and lack of natural resources means that their balance of trade will become positive . That is when things start to get interesting . All Indian colleagues want to go back to India . But none of the Chinese want to . That says a lot in itself .

there is a rand study on comparative effects of Indian and Chinese demographics, gakakkad-ji, which bears out some of what you say
I guess, in the interim, we must learn what policy lessons we can from China's experience. The biggest one is female participation in the labor force, IMO. Thats one area China has really scored over India - do note that its happened inspite of similar gender ratios as India today and starting with similar social attitudes

[pankajs]

Chinese oil company Sinopec agrees $2.2bn US shale deal

Sinopec will get a one-third stake in five new shale projects, with the firms expecting to drill 125 wells this year.

China has been buying energy sources to feed its fast-growing economy, and wants to improve its ability to extract domestic shale deposits{To tap into the US tech}.

China has some of the biggest shale deposits in the world.

China's hunger for energy sources has also seen it snapping up other global deals.

On Tuesday, another big Chinese oil firm PetroChina announced a major deal giving it access to Canadian oil sand reserves.

The company owned a 60% stake in the Mackay River oil sands project, and said it had bought the remaining 40% share for $673m.

Last month, China National Petroleum Corporation won an approval for oil exploration and extraction in Afghanistan.

[pankajs]

China Home Prices Fell for 4th Month in December

China’s home prices fell for a fourth month in December as the government prolonged a crackdown on speculation that risks deepening the slowdown in the world’s second-biggest economy.

Premier Wen Jiabao said business conditions may be “relatively difficult” this quarter and monetary policy will be fine-tuned as needed, in a statement released yesterday.

“We see downside pressure on our economy and elevated inflation at the same time,” Wen said during a two-day trip to Hunan province, according to a statement on the government’s website yesterday. “We also face problems of weakening external demand and rising costs for companies.”

“Property is likely to be the last sector that the government will relax policies this year,” said Peter Bai Hongwei, a Beijing-based property analyst at China International Capital Corp., the country’s biggest investment bank.

“It’s actually very hard to tell whether China’s property market will succeed a soft landing,” said China International’s Bai, who expects home prices to bottom as early as in the third quarter.

[pankajs]

China Audit Shows Local Financing Vehicles' Flaws

BEIJING—China's national auditor Wednesday detailed various illegal actions and misappropriations by local-government financing vehicles, but also progress that has been made in rectifying the practices.

The auditors' report, which covered the actions of local-government financing vehicles through the end of 2010, found billions of dollars worth of infractions.

Such vehicles, set up by local governments to skirt limits on borrowing directly from banks to fund projects such as infrastructure construction, have become a focal point of risks in China's banking sector.

By the end of 2010, local-government financing vehicles had made improper investments worth 35.1 billion yuan ($5.58 billion) in securities markets, real estate, or highly polluting and energy intensive projects, the National Audit Office said, of which 14 billion yuan has already been unwound.

There was also 46.5 billion yuan worth of illegal funding guarantees made to local-government financing vehicles, and 73.2 billion yuan of loans secured with improper collateral.

Through changes in loan agreements and other measures, 22 billion yuan of illegal funding guarantees and 23.1 billion yuan of loans with improper collateral have been resolved, the statement said.

Last week, Bank of China Ltd. economists warned that local government debt is likely higher than the 10.7 trillion yuan official estimate, and that it could be a major risk next year.

The economists cited the banking regulator as saying it had become aware of an increasing number of unauthorized local government financing platforms.

The auditors' report also showed 58 billion yuan worth of loans had been improperly lent or embezzled from five commercial banks. Of that amount, 53 billion yuan has already been resolved, the report said without specifying.

[pankajs]

Bentley rides China’s love of luxury

As fears of sluggish global growth continue to infect both developed and emerging economies, it might seem a difficult time to be a luxury car maker.

Not for British brand Bentley, which is owned by German auto giant Volkswagen. The car synonymous with opulence has seen a 37 per cent rise in sales for 2011, buoyed by blossoming demand in China.

[pankajs]

Major China export hub raises minimum wages

(Reuters) - Shenzhen, a major manufacturing hub in southern China, will increase its minimum wage by 13.6 percent in February despite warnings from factory owners the move could deal another blow to exporters already reeling from a sharp drop in Western orders.

Whilst China's leaders are aware of the pressures on exporters facing shrivelling orders from a debt-stricken eurozone, surging production costs and currency appreciation, they've also pledged to lift migrant factory worker wages to ease wealth inequalities and the sting of nagging inflation.

The wage hike came after a string of major strikes at factories across China's coastal export zones in recent months, with angry workers often retaliating against attempts by factories to shave overtime pay and benefits amidst a fall in orders from anchor markets like Europe and the United States.

China: minimum wage hike leaves few smiling

The reaction from factory workers is cynical.

“If inflation doesn’t push prices up too fast, we may be able to buy 100 catties of pork each month, compared with 200 catties last year,” a blogger on the popular Sina Weibo service says.

“Sure, the minimum wage is going up. All it means is that the factory will deduct more from our wages to cover our social insurance payment. You and I won’t receive the extra money. You all know that,” another one says.

The reaction from factory owners is, predictably, more negative.

[niran]

China Home Prices Fell for 4th Month in December

the maulana missed this

China’s economy is still on a downtrend and the next reserve ratio cut may come as early as this week,” said Kevin Lai, a Hong Kong-based economist at Daiwa Capital Markets. “More liquidity is needed in running up to the Chinese New Year holiday and to provide funds for companies that may face more difficulties in coming months

this raises a question, if am permitted, of course,
the CPC will find mooney for companies, but what about the buyers whose property is halved
by value, and while you are at it Sir, please do consider what about those paying off installment on the now halved(by value) will their loans be halved? or will they suck their collective thumbs in some dark corners?

[VikramS]

PrasadZ
For a country where central planning controls a huge portion of the economy, it is more than likely that winners and losers are also decided in terms of trading partners. The Chinese see very little reason in encouraging Indian companies in China; India does not offer IP they can steal. Instead Indian manufacturers can potentially learn from the Chinese and do a reverse IP transfer.

And in a country where nothing happens without the CPC's blessing, a foreign company can easily be squeezed out by procedural delays, adverse court rulings, and other strong-arm tactics. If you are a SDRE bania the risk of the potential investment going under is perhaps too high for you to consider it worth it, especially when your own economy is growing at a decent rate.


Regarding Auto Sales:
http://www.zacks.com/stock/news/66457/C ... uto+Sales+

http://news.xinhuanet.com/english/china ... 340283.htm

China's auto sales rose just 2.56 percent year-on-year to 16.82 million units in the first 11 months of 2011, a dramatic drop from 34 percent in 2010 and 42 percent in 2009, according to the China Association of Automobile Manufacturers (CAAM).

http://news.xinhuanet.com/english/china ... 338877.htm

Auto market to remain gloomy in 2012, faster industrial transformation urged
English.news.cn 2012-01-02 08:52:57
HEFEI, Jan. 2 (Xinhua) -- It has become increasingly clear to Chinese automakers that they can not always bet future success on a policy-driven market boom, and they should move to a more sustainable growth pattern.

China's auto sales rose just 2.56 percent year-on-year to 16.82 million units in the first 11 months of 2011, while that of domestic brands declined 2.34 percent to 5.52 million units, according to the China Association of Automobile Manufacturers (CAAM).

The January to November growth figure showed a dramatic drop from 30 percent in 2010 and 50 percent in 2009. With one month to go before a final tally can be made, auto sales are estimated to have risen 3 percent in 2011, which will mark the lowest level since 1999.

2009 Cash Program in China
http://www.thecarconnection.com/news/10 ... -for-sales

niran:

That is part of the beauty of the Chinese system; they pick their winners and losers in a centrally planned format and it is tough luck if you end up being a loser. It is all for the greater good

There was an article posted recently about a software engineer making $1500 month putting his parents' entire life-savings as a down payment for a home and then stuck with payments of almost half of his salary, on a home which had lost enough value to exhaust their equity. Real Estate was the traditional hedge against inflation in China where investment options for the common person are extremely limited. Now that is failing for those who bought in the last year or so.

There is a reason why many of the neo-rich seek investments outside China (like a home in Vancouver). Personal wealth in the PRC can take big turns based on the whims of the CPC. This is also one reason why traditional metrics of evaluation fail to work for China. Chola's posts about the PRC's Forex reserve essentially acting as the ultimate guaranteer of her financial stability are very pertinent in this context.

[pankajs]

maulana

I must strongly protest this injustice saar. It impinges on the dignity of the real Maulanas and places a far greater burden on this mujahid than is justified.

China’s economy is still on a downtrend and the next reserve ratio cut may come as early as this week,” said Kevin Lai, a Hong Kong-based economist at Daiwa Capital Markets. “More liquidity is needed in running up to the Chinese New Year holiday and to provide funds for companies that may face more difficulties in coming months

For some reason, I am unable to locate the portion of the article that you refer to. I do remember the article was longer. Maybe a later edit did the trick.

this raises a question, if am permitted, of course,
the CPC will find mooney for companies, but what about the buyers whose property is halved
by value, and while you are at it Sir, please do consider what about those paying off installment on the now halved(by value) will their loans be halved? or will they suck their collective thumbs in some dark corners?

I wonder if the Chinese are permitted "Jingle Mail".

Definition of 'Jingle Mail'
A situation where a homeowner mails his or her house keys to a mortgage lender due to an inability to meet mortgage payment obligations and a lack of equity in the property. If a homeowner is upside-down in a mortgage and feels the entire loan is a lost cause, he or she may choose to walk away from the property altogether and relinquish it to the original lender instead of going though the foreclosure process.

In which case the bank will be left holding the sack. Else the householder has no choice but to grin and bear it.