China Embraces Capitalism And Free Markets

China Plans To Reduce The State’s Role In The Economy -- New York Times

SHANGHAI — The Chinese government is planning for private businesses and market forces to play a larger role in its economy, in a major policy shift intended to improve living conditions for the middle class and to make China an even stronger competitor on the global stage.

In a speech to party cadres containing some of the boldest pro-market rhetoric they have heard in more than a decade, the country’s new prime minister, Li Keqiang, said this month that the central government would reduce the state’s role in economic matters in the hope of unleashing the creative energies of a nation with the world’s second-largest economy after that of the United States.

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My Comment: This is a seismic change in China's economic policy .... and long overdue. Regular readers of this blog know that I am a China watcher .... who has lived there (1988-1989), and who travels there at least once every year. All of my Chinese contacts are excited with this change .... and so am I. The government has made the decision to embrace capitalism with all of it's pluses and minuses .... and while I am not sure on what this will eventual bring, I do know one thing .... the next decade or two will be an exciting time in China.

China's Economy Will Be The World's Biggest By 2016

China 'To Overtake America By 2016' -- The Telegraph

China is on track to overtake America as the world's biggest economy in 2016 as its growth accelerates, according to a report by the Organisation for Economic Co-operation and Development.

China's economy expanded last year at 7.8pc - its slowest pace in more than a decade - and recent data has fuelled concerns that any rebound in the country's growth is losing steam.

However, the OECD was upbeat, predicting in a new survey of China's prospects that the country's economy could expand by 8.5pc this year and by 8.9pc in 2014.

While the OECD noted the slowdown in China's aggressive expansion, it nonetheless predicted that growth should average 8pc in this decade at current rates of investment and reform.

After allowing for price differences, it forecast that China could become the world's largest economy, overtaking America, around 2016.

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My Comment: I am still skeptical of the 2016 date .... but China is on a trajectory to pass the U.S. economy within the next 5-10 years.

China Surpassed The U.S. To Become The World’s Biggest Trading Nation In 2013

Photographer: Tomohiro Ohsumi/BloombergPhotographer: Tomohiro Ohsumi/Bloomberg

China Eclipses U.S. As Biggest Trading Nation Measured In Goods -- Bloomberg

China surpassed the U.S. to become the world’s biggest trading nation last year as measured by the sum of exports and imports of goods, official figures from both countries show.

U.S. exports and imports of goods last year totaled $3.82 trillion, the U.S. Commerce Department said last week. China’s customs administration reported last month that the country’s trade in goods in 2012 amounted to $3.87 trillion.

China’s growing influence in global commerce threatens to disrupt regional trading blocs as it becomes the most important commercial partner for some countries. Germany may export twice as much to China by the end of the decade as it does to France, estimated Goldman Sachs Group Inc.’s Jim O’Neill.

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My Comment: I was told on my last trip to China (fall 2012) that the economy was slowing down .... but steady growth will continue to be the norm for the next decade or two. I agree. At this rate, China's economy will easily surpass America's in the next decade .... and then go far beyond that.

A Sign On Where China Is Heading

Yuan Hits Second Straight Record High -- Business Recorder

China's yuan hit a record high against the dollar for a second straight day on Tuesday, thanks to sustained bullish sentiment for the currency from Chinese companies, with further gains seen in the near term. The central bank allowed the yuan a bit more room to rise by setting the midpoint fix at 6.2891 per dollar, slightly stronger than Monday's fix of 6.2920.

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Update #1: China's yuan hits record high on economic recovery -- AFP
Update #2: Yuan sets record high vs US$ for second day -- Business Times

My Comment: I am old enough to remember the days when the US dollar was king.

What Happens If The Chinese Economy Slows Down

The Consequences Of A Slowing Chinese Economy -- Anthony Fensom, The Diplomat

It’s the 1 trillion yuan question: has China’s economic bubble finally burst?

It’s an unnerving issue for the global economy, particularly at a time when the presumed leader in waiting, Xi Jinping, has apparently gone “missing in action” just a month ahead of the once-in-a-decade leadership transition at the 18th Party Congress.

After clocking up an average 10 percent annual growth rate for 30 years, this year’s forecast for the Chinese economy is 7.5 percent, its lowest expansion since 1990. In August, industrial output growth dropped to its lowest level since May 2009, imports dipped 2.6 percent and steel output is expected to contract this year for the first time in three decades.

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My Comment: In short .... a Chinese economic slowdown will mean that a global recession has started.

Is A Debt Bomb About To Explode In China?

Photo Credit: Flickr (bsterling)

Are Chinese Banks Hiding “The Mother of All Debt Bombs”? -- Minxin Pei, The Diplomat

China's massive bank financed stimulus was intended to keep the economy moving. It may instead lead to economic disaster.

Financial collapses may have different immediate triggers, but they all originate from the same cause: an explosion of credit. This iron law of financial calamity should make us very worried about the consequences of easy credit in China in recent years. From the beginning of 2009 to the end of June this year, Chinese banks have issued roughly 35 trillion yuan ($5.4 trillion) in new loans, equal to 73 percent of China's GDP in 2011. About two-thirds of these loans were made in 2009 and 2010, as part of Beijing's stimulus package. Unlike deficit-financed stimulus packages in the West, China's colossal stimulus package of 2009 was funded mainly by bank credit (at least 60 percent, to be exact), not government borrowing.

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My Comment: A few years ago worries and concerns on China's debt was not a concern to me .... as long as the world economy was humming I knew that China would continue to grow. But with a global recession now on the horizon .... anything is possible, and I suspect that the Chinese leadership are also now aware of this possible new crisis.

The Growing Economic Crisis In China

China’s Growing Economic Crisis -- William Pesek, Bloomberg

Policy makers around the world have long envied China’s ability to get big things done. A huge 4 trillion-yuan ($630 billion) stimulus plan as the global economy cratered in 2008? No problem. Marshaling banks to lend trillions more? Check. Enacting sweeping regulatory changes at a moment’s notice? You bet.

Ahhh, the good old days. Now, a once-in-a-decade leadership shift is getting in the way of the stimulus-happy policies to which investors became accustomed. The nimbleness that helped China steer around the worst of the global crisis is confronting political paralysis of the kind more often seen in Japan, Europe and the U.S. The upshot is that China’s 7.6 percent growth rate may fall more in the next 12 months than anyone expects.

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Update: Everything You Think You Know About China Is Wrong -- Minxin Pei, Foreign Policy

My Comment: All good things come to an end one day .... and for China the signs have been there for the past year. Bottom line .... China needs export markets to grow, but with everyone now mired in deep debt and/or experiencing a recession .... exports are not happening. I still expect China to come out of this economic crisis stronger and more resilient than ever .... but they are going to have a bumpy ride.

Will the Next "Economic Catastrophe" Be In China?

China, where the economy has expanded 10.1pc a year on average since 1978, is reminiscent of the housing market before credit default swaps allowed hedge funds to make bets against the entire market, according to Mr Zuckerman.

China Seen As The Candidate For 'Next Catastrophe' -- The Telegraph

Beware the China bubble because until hedge funds have found a way of directly shorting the soaring economy it will remain unchecked, says Greg Zuckerman, author of The Greatest Trade Ever.

Mr Zuckerman's book was one of the first to reveal the billions in profits which hedge funds and banks from taking bets against the sub-prime market just before the housing bubble burst.

China, where the economy has expanded 10.1pc a year on average since 1978, is reminiscent of the housing market before credit default swaps allowed hedge funds to make bets against the entire market, according to Mr Zuckerman.

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My Comment: I have been hearing doom and gloom from economists on China's economy since the mid 1980s .... and they have all been wrong. While I am sure that with time there will be corrections and adjustments in the Chinese economy as it continues to expand .... my bigger worry is the U.S. and European economies. They are deeply in debt .... and are unwilling to address a fiscal crisis that everyone agrees will get worse if nothing is done.

China's Economic Growth Continues

China's Inflation Accelerates, Adding Pressure -- Wall Street Journal

The country's gross domestic product rose 9.7% from a year earlier in the first quarter, down marginally from 9.8% growth in the fourth quarter of 2010. Growth was faster than expected, as economists polled earlier by Dow Jones Newswires had a median forecast of 9.5%.

The consumer-price index, meanwhile, rose by 5.4% from a year earlier in March, up from 4.9% in February and the fastest pace since July 2008. Economists had expected a 5.3% rise.

China's leaders have said repeatedly that taming consumer prices is their top economic priority this year. They have taken a long series of measures in that fight, including four interest-rate increases since October and government orders to companies like Anglo-Dutch consumer-goods giant Unilever PLC to delay planned price increases. But prices have continued rising rapidly

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My Comment: The Chinese economy is rapidly becoming like the U.S. economy .... when both sneeze everyone else gets a cold. Therefore, nothing will heighten tensions more in Asia than what happens in China, and if there is economic instability (i.e. inflation), this will impact everyone.

China Surpasses Japan To Be The World's No. 2 Economy

China Surpasses Japan As World's No. 2 Economy -- Washington Post

TOKYO -- Japan lost its place to China as the world's No. 2 economy in the second quarter, as receding global growth sapped momentum and stunted a shaky recovery.

Gross domestic product grew at an annualized rate of 0.4 percent, the government said Monday, far below expectations of 2.3 percent growth in a Kyodo news agency survey.

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My Comment: And in 15 years the news will be China surpassing the U.S. as the world's No. 1 economy.

Is The Chinese Economic Bubble About To Burst?

How China Cooks Its Books -- Foreign Policy

It's an open secret that China has doctored its economic and financial statistics since the time of Mao. But could it all go south now?

In February, local Chinese Labor Ministry officials came to "help" with massive layoffs at an electronics factory in Guangdong province, China. The owner of the factory felt nervous having government officials there, but kept his mouth shut. Who was he to complain that the officials were breaking the law by interfering with the firings, he added. They were the law! And they ordered him to offer his workers what seemed like a pretty good deal: Accept the layoff and receive the legal severance package, or "resign" and get an even larger upfront payment.

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My Comment: A good article for anyone who is interested in doing business in China. Long time readers of this blog know that I did business with China in the mid to late 80s. The Golden Rule was/is the following .... you work with the Chinese political leadership (the higher the better) on the Municipal, Provincial, and Federal level. To get to know these people you (and them) must spend a lot of time together. Drinking, eating, arguing, talking, planning, traveling back and forth, introducing friends and business associates .... everything is on a personal level. When you start doing business .... especially international business .... you cannot do wrong even when "the books" make no sense.

Chinese society is an authoritarian society with a strong command and control center starting form Beijing, and working outwards to the provinces. If they want to export something, and the price is cheaper somewhere else, no problem .... it becomes cheaper. Money is passed back and forth, workers work for less, and the cycle continues to the next product.

Can this continue? That is a good question of which I do not have the answer. I bailed out of that rat race a few years ago, and I am glad that I did. The stress is gone, and when I go to China it is to meet friends, be spoiled, and to have a good time. Business opportunities are always presented .... but no thanks.

I know that good times cannot last forever, and for the Chinese I can only hope that they are prepared when that day comes.