This is well written argument, but there is one big difference between China now and Japan then.
China is still going through urbanization in unprecedented scale. About half of the Chinese live in cities now. By 2030, cities will be home to 70 per cent of China’s population and generate 75 per cent of its GDP. There will be 200 million Chinese moving into cities in next few decades. China can be close to where Japan is now in the 2040 banking crisis. For now, even massive crisis just delays the inevitable increase in demand that eats away all mistakes in fiscal and monetary policy.
Yes, the urbanization argument for this time it's different. There is bound to be massive urbanization in China. However what it ignores is the price of housing the newly urbanized can afford. Eventually it will have to settle to the economic value they add in the global marketplace. The price of housing at many of these new ghost cities is already close to the level of heavily developed western cities. So that leaves two possibilities
1. Every newly urbanized Chinese person moving from the country side will generate the economic potential of a Chicago or London person. So another 200 million investment bankers I suppose.
2. The property values of these ghost cities will dramatically deflate to measure up to the economic value added by the newly urbanized. Which means the value of these massive properties needs to written down by the banks.
Most people making the urbanization argument assume that option 1 will invariably occur. When in fact it is overwhelming likely that option 2 will occur looking at the massive number of people being urbanized and the massive deflationary pressure on every occupation. Urbanization per se will not cure the ghost cities problem. You have to look at the prices too.
The situation in Japan developed because the real estate got disconnected from its economic potential by a large margin. At the peak of the bubble in the mid-80’s the land value of just the imperial palace in Tokyo was worth more than the entire land value of California. A million times ratio!!. There is no amount of urbanization that could have solved this problem for you because the underlying economics did not make sense. In the end, I’m not sure the Japanese had a choice, maybe they could have let some banks fail earlier but the size of the bubble was so massive that immediate deflation would have triggered a Lehmann like moment for them.
In fact, if Option 2 is correct I’m pretty sure the Chinese leadership has no other option but to deflate the economic gap with a zombie like situation for decades. If you think they will let a Lehmann-like moment to happen and quickly reset prices back to the ‘right’ level you are mistaken. It would put the financial system at risk; the entire legitimacy of the CCP in danger and that would mean blood on the streets. They will keep shutting down the smaller non-state banks and keep rolling the loans of the bigger state banks and gradually write off the debt over several years. There is definitely no shock therapy of short-term pain that makes sense.
Where are you getting your information on the price of housing in China? Looking up some statistics on line I found an average of $1,742/m in China versus $15,284/m in the US. It might be that there are some massively overpriced developments, but they don't seem to be moving aggregate prices much so they can't be that big a deal on an economy-wide basis.
But in the end prices are simply an abstraction over the physical economy. China has an awful lot of families crammed into a single room, so there's clearly a reasonable case for building lots more housing. Like all abstractions they can screw things up and deflation can certainly cause problems, but not when it's much smaller than growth and Chinese inflation is right now comfortably over 4%.
1. Just doing a back of the envelope calculation will show your $15K per sq-m means that a tiny house the size of a small apartment (~ 100 sq-m/ 1000 sq-ft) is going to cost $1.5 Million. The average house in the US is over 200 sq-m (~2000 sq-feet) [1]. You are trying to tell us that an average house in the US costs over 3 million USD? Sorry, that makes zero sense. That $15K number is what the top 0.1% pays in Manhattan overlooking central park.
2. Since you gave a China average, for a realistic comparison lets look the medians in various cities [2]. Chicago median houses are at $1700 per sq-m. Chicago is probably in the top 25% of cities in the US from price of real estate and it is as expensive as average of China across all the cities. BTW, if you did the ranking of various cities in China like the guys in [2] have done you will end up with a list similar if not more expensive (Shanghai, Beijing, HK at top with prices much higher than the $1700 per sq-m you have listed). If we did the same averaging across the US pretty sure the average house price will drop much below $1700 per sq-m.
3. The US GDP per capita is nine times China on a nominal basis and at least 6 times on Purchasing price parity basis. So if the house prices in China are similar or more than the ones in the US how will the Chinese be able to pay for these houses. People in the US are barely able to make their payments. Even accounting for the fact that houses in China are smaller, they are definitely not 6-9 times smaller.
4. Where do you think the wealthy and elite Chinese are buying properties? Hint: not china.
As to your second point, I believe I answered that question. It is not a matter of what someone needs, it is a question of being able to afford a house at a given price.
The author of the article only forgot a little detail.. the population size and the urbanization phenomena...
Only when this stop to happen, we will be able to see the real size of the china economy.. not to mention the "last drop", when they will push efficiency into the engines, to get a little more expansion.. US and Japan already did both.. and til someone discover a new economical path.. nowhere to go for them..
So only china and the emergents will be able to grow right now, under the old economical gears..
(not to mention that nobody is making more babies anyway to fill the void)
This is a superb article but it's scary how many of the points made apply directly to the US economy as well: zombie banks, real estate bubbles, a declining currency, faith in the bureaucrats and so on.
I think the underlying mechanism here is a centralized banking system in all three countries. Without getting into the religious discussion of whether a central bank is "right or "wrong", I would suggest that any system that relies on a small group of unelected humans making decisions on the supply of the underlying medium of exchange is imperfect and prone to favoring one group over another for reasons that are not positive for everyone.
In other words...we all agree that price fixing leads to either shortages or surpluses..but we all agree that fixing the price of money in a central bank is the right way to go. And we are not able to see the contradiction therein.
In the end it's a question of alternative mechanisms. Either we use the current system or we go with a "backed" medium of exchange. The "backed" version suffers from elasticity (but that may or may not be a good thing). So the issue becomes what are some other alternatives that aren't just derivative of the first two?
Fed's decade long easy money policy had a vitalizing effect on many businesses in many countries...Soon unfortunately we may get a zombie attack all over the world.
I believe the unstated goal of US monetary policy 2009-2013 was to fix the balance sheets of overlevereaged financial institutions by making borrowing very cheap. I think that policy goal is hidden and the cost to our economy is unknown.
I don't really see any mention of demographics in the article. The "boomer" swell explains a lot in all three of these economies (US, Japan, China). The US was just about 13 years behind Japan in terms of the peak of the boomers hitting their mid 40s (maximum earnings and spending). The Japanese hit stall and decline in the early 90s, and the USA did pretty much the same thing on cue in the early 2000s. China's demographic decline is going to be especially sharp.
There is no need for a zombie China. Japan became a zombie due to terrible monetary policy. Ben Bernanke wrote a big paper about it: Japanese Monetary Policy: A case of self Induced Paralysis?
So even if China found itself in the exact same situation as Japan was that day, we'd only see the equivalent of a lost decade if the Chinese monetary policy was as backwards as that of the Japanese back then, and after that, and the latest world financial crisis, I'd be shocked if China repeated the behavior of yesteryear. This is especially true due to China's love of playing with the country's exchange rate. The Chinese central bank would not bat an eye if it had to devaluate the Renminbi forty percent.
So while the article describes the current situation very well, the predictions aren't really necessary given the premises.
Aren't they following the same path already? The massive dump in credit (cheap money) into the Chinese Banking system after 2008 seems to be following the same path that America/UK took after 2001. A recession causes the central bank to ease and real estate/asset bubbles begin to blow up but external factors (chinese export deflation in the 2000's, and weak global demand today) keep inflation low.
The cheap money effectively subverts large parts of the economy because they become dependent on it, but it only works while there are asset classes that can continue to rise and can be easily traded into and out of e.g. real estate.
Mr Bernanke as you quoted wrote a paper about this and yet in the end the Central Bank alone in the US could not contain the fallout when the bubble could blow no bigger. The US government had to absorb the losses by writing cheques to bailout the institutions that were failing until they reached a point where it was no longer politically feasible.
I don't see an easy solution to this, the issue is not just bad debt, it's that there won't be an asset class to bid up anymore, there won't be a practical way to get that easy credit into the system anymore.
The common factor across most political systems is that political/economic systems tend to carry on with the way they are going until they either proactively reform or hit a wall (a crisis or crash). The article explains well Japan's faults - without a definitive crash, politicians continued in their support of poor economic policies for a long, long time.
A few commenters argue that China is different - it has different features, but the above tendency will prevail here. Chinese politicians, businessmen and economists are hugely invested in a system that is top heavy, vastly corrupt and built around pillars of cheap labour, property/development and credit-based investment. Politically speaking, they are also committed to a system based around media control, repression, lack of debate and 'stability' (ie. no change of the political status quo).
My personal fear - my house, family and business are all in China - is that in the face of an economic crisis, we will also see a backwards slide into repression as the party attempts to put an iron grip on the economy AND public opinion.
My great hope is that China will see a few years of correction - letting the people's income catch up with the bubbles, supported by a government that is aware of the problems and motivated to act. Let's see...
I read the Quartz regularly and enjoy much of what they write. However, they do appear to have an obsession with China and are nearly all doom and gloom. Maybe that's because they're right and China is a house of cards about to fall but I've found I have to take everything they write on China with a pinch of salt as they write 1 or 2 articles per week on how screwed China is.
First I read all the comments already posted here. Then I read the fine article from beginning to end. This is a good article, and well worth a read. I am old enough to remember the kind of reporting that was done about Japan in the English-language press back when the book Japan as Number One[1] had just been published. Japan used to look unstoppable in the same way that China looks world-beating to many people now. But Japan's "lost decade" of minimal economic growth and declining soft power in the world has lasted a lot longer than just one decade.
Japan in the 1980s already had significant advantages that China still lacks in the 2010s. First of all, it had a political system with actual elections that weren't wholly rigged. (The political system in Japan has opened up more since then, but even thirty years ago it was well ahead of where China's political system is now.) Second, Japan had a free press and unfettered access to foreign reporters and foreign news media for decades by the 1980s. China still doesn't have either of those information channels for correcting problems in sufficient degree. Third, although primary education in China is quite good in urban areas, good primary education in China is still not as pervasive nationwide as it was in Japan by the 1980s. That's illustrated in part by how few people in China (compared to Japan) are even conversant in the national language. Barely more than half the population is conversant in standard Mandarin Chinese.[2]
China is at risk. The "socialism with Chinese characteristics" (中国特色社会主义) economic policy it officially now has cannot be sustained. It looks like it has been growing rapidly in recent years for some of the same reasons that Spain looked like it was growing rapidly a decade ago--a housing bubble. The inevitable correction that has to happen in the investment markets in China may not bring about a recession, but it can't help but bring about a change of investment priorities that may make China look less amazing for a while. China will really rise to world prominence when its common people enjoy free and fair elections, a free press, and good educational opportunity all over the country, something I hope they experience sooner rather than later. Meanwhile, I'm actually more optimistic about India during my lifetime.
South Korea - military dictatorship until the late 80s
Taiwan - one party state + martial law from 1949 - 1987.
Singapore - one party has held power for over 40 years.
These three countries have transformed themselves into advanced high-income economies. My expectation is that China will follow the same path as its neighbours - authoritarian government + restrictions on personal freedom during the rapid industrialisation phase, then eventually a transition to a functioning democracy once urbanisation is mostly complete. If China can attain the same GDP per capita as the Asian Tigers, then it will easily be larger than the US economy.
I believe these 3 countries had a good and free education system (in the periods mentioned) which is still a burden for the majority of Chinese nowadays.
> China will really rise to world prominence when its common people enjoy free and fair elections, a free press, and good educational opportunity all over the country...
People were saying the same thing about the USSR half a century ago ("I have seen the future..."), and we all know how that turned out. The simple fact is that sustained growth is not possible under oppressive governments because they don't permit creative destruction. Those who are in control will fight to maintain the status quo once they can no longer create further growth in a non-disruptive manner. We see this in America as well, as a result of regulatory capture.
The role of government should be to provide for the less fortunate (but only where they are in that situation for reasons out of their control) and to create a level playing field for all entrants (whether that be workers entering the labor market or companies entering industrial markets), no more. Of course, the devil is in the details, since what sort of intervention is required to create a level playing field varies wildly by industry/market, and it gets constantly reshaped as technology advances. And of course, no one has so far found a good solution to regulatory capture.
I think the natural distinction to make here is that the USSR had a poor economic system, but that this is independent from whether their government is autocratic or not. You can have a non Democratic government but still have a high-growth economic policy, which the Chinese have arguably attained.
My whole point is that the contemporary understanding that the USSR's economic system was flawed was not apparent to Westerners half a century ago. This is exactly the "I have seen the future" sentiment that I previously referred to. Many Westerners, including Americans, were genuinely afraid that the USSR would come to economically dominate, that they had developed a superior system. The fact that so few people realize that these days is a testament to the enduring success of the Western system.
In the 30s (yes, during the Great Depression), 40s, and 50s, the Soviets achieved rapid economic growth, largely because they were starting from such an economically backward situation (ring any bells when it comes to China?). But when growth on the basis of "catching up" started to plateau, they could make no further progress.
> But when growth on the basis of "catching up" started to plateau, they could make no further progress.
That's a bold statement, the Soviet Union was far too big and non-homogenous a construct to easily hand wave such generalizations. The post Soviet states are (and were) rich in natural resources and before the exodus of the last 25 or so years, had a very strong engineering and scientific base. You'll have to be a lot more specific about when "cathing up" is supposed to plateu because much, if not most of, the soviet republics had (and still have) a long way to go to catch up with the western world.
I also don't see how it applies to China. Just like it was with the Soviet Union, China's success or failure will depend on their leadership but they are in a very different situation. The Soviet Union's entire political and social structure was in upheaval in the 1980s and all sectors of government suffered as a result, especially the ones in engineering, with wildly mismanaged civil and technological projects. China, although I'll admit I have little confidence in the accuracy of media analysis of the political situation there, doesn't seem to have anywhere near the systemic instability that the USSR did since it's population, although bigger, seems far more homogenous and united under the state. Even though they aren't as resource rich relative to the size of their population, they happen to be a major economic economic partner (supplier) not only of many of its allies, but also its rivals (the US & Europe).
> You'll have to be a lot more specific about when "cathing up" is supposed to plateu because much, if not most of, the soviet republics had (and still have) a long way to go to catch up with the western world.
The plateauing process is gradual, so stagnation started long before they finished catching up (not to mention the chaos of the post-Soviet era resulted in a few steps backwards). When you've got an oppressive government that justifies its legitimacy on the basis of growth, people are going to get antsy from the slowdown long before you actually reach 1st world levels.
> I also don't see how it applies to China.
It applies to China because the authoritarian Chinese government results in the politically powerful directly benefiting from the economic growth. Like I said, innovation requires creative destruction, and this won't happen when the political (and therefore economic) system is controlled by those who benefit from maintaining the status quo.
This is not all that different from how the Japanese government and banks (many of which were nationalized) propped up the "zombie" companies for years, rather than investing that capital in newer firms.
> China, although I'll admit I have little confidence in the accuracy of media analysis of the political situation there, doesn't seem to have anywhere near the systemic instability that the USSR
Because China hasn't yet reached the state that the USSR was in in the 80s. It's still growing, even if not at the same clip that it was a decade ago.
The Soviet Union's economic growth rate was greater than that of the USA throughout most of the C20th,[1] until at least the 1970s. Obviously, they were growing from a very low base, and they arguably "ought" to have been growing much faster.
Because, despite all history written ever, governments do not make nations strong or rich or industrious. People do, ordinary raise-your-kids people. But that is really hard for ordinary people to do if they fear speaking out against stupid ideas (steel furnaces in every home) or taking action that is not approved or hearing about ideas of others.
in short, whilst not tooting the horn of libertarianism, the only ways we have found to turn 18th century standards if living into 20th century standards is the path we are all familiar with.
Because that's what a good important chunk of the rest of the world thinks it means "rising to world prominence", that's why. It doesn't mean it's either bad or good though.
The whole Japanese 'lost decade' thing is misleading. It's based on absolute gdp numbers, not gdp per capita, which makes a big difference for a country like Japan where the population is steady or declining. If you compare US and Japanese growth per capita it's revealed that Japanese growth hasn't been far behind America's.
The problem with that data set is that it can produce huge fluctuations due to exchange rate volatility. I think a better measure would include 'purchasing power parity'.
However, the above figures may not be a good indication of the increase in the standard of living for each county because:
(1) Japan has almost no immigration while US has had a huge influx of immigrants. My guess is that immigrants have lower incomes than the general population but much higher incomes than in their previous country. It is not fair to compare an immigrant's 2012 income with the average US income in 1995.
(2) USD GDP growth between 1995 and 2012 heavily favoured an elite, very small minority. The vast majority of the US population increased their average income by far less than 3.5% per year. I doubt Japan has skewed its income growth to the same degree.
You are, to my understanding, not correct about #2. I don't have a star for you off the top of my head. It is a bit difficult to compare transnationally because of the differing tax regimes of Japan and the US. CEOs of peer companies have similar lifestyles but in Japan they are on the books at low six figures in income, despite massive subsidization of their lifestyle by the company.
Basically, he argues (perhaps my interpretation) through statistics that income equality is very significantly related to what is typically considered a good country to live in, which in contrast to many, does not include salary/GDP and such monetary stats but rather how long you live, infant mortality rates, social mobility, etcetera, where the Nordic countries and Japan outperform all other countries (more or less) and where the USA have it really difficult to compete against other Western/developed nations.
Thus, one can quite easily argue that regardless of the adjusted GDP growth, Japan has managed to develop in a much more healthy way compared to the USA, which may be because of the quickly rising income equality.
"Whereas the U.S. labor force increased by 23 percent between 1991 and 2012, Japan’s labor force increased by a mere 0.6 percent. Thus, adjusted to a per-worker basis, Japan’s output rose respectably. Indeed Japan’s growth was considerably faster than that of Germany, which is the current poster child of economic success."
Yes i heard the opinion on the Japanese economic situation that it's hopeless because you can't fix something that ain't broken. Japanese have a problem with demography, not economy, their labor force is shrinking and people are getting older which explains their GDP being stuck, no other problem to speak of than that.
And here China will also find itself in the similar situation soon due to their one-child policy for the last 40 years. And it will be even worse than Japan's. Fortunately U.S. demographics is healthy - it's nice to have a conservative and religious society :)
With the risk of picking on details (sorry if it sounds that way!): From what my understanding (and also what I've heard is the story from Chinese people and gov) is that the situation of China regarding demographics is the way it is because Mao promoted population growth without end, mainly because a larger workforce would be able to outperform in output (which we've actually seen now is true). The downside with that policy was that there were no thought taken to when it would end, and the government/leaders that came after saw that a growing population would be impossible to feed (it was a big problem already for Mao) and it would eventually cause a sort of population bubble. Thus, they enforced the one-child policy to stop this. The current Chinese government seems to be quite aware of the demographics problems. According to official statistics (based on from what I've heard from a Chinese person), they estimate China will grow from the current 1.3 billion population up to 1.6 before it stagnates and possibly decreases. Considering the problems of a decreasing population and skewed demographics, they have started to loosen up the one-child policy however so there seems to be thinking within the top of China that they need to make a slow transition back to a more healthy size of the population.
By the way, this seems also to be the case in general with the top leaders in China. As been previously stated, China is probably way behind on the prerequisites to be able to run a working democracy (compare for example many of the countries where democracy have been quickly forced upon a country such as many of the countries where the US have been engaged in various conflicts such as Iraq and Afghanistan as well as countries in Central America). The positive sign from the leaders in China is their current and (as it looks anyway) real fight against corruption, which is a huge problem in any democracy (it seems anyhow). Of course, education is another problem but it seems like maybe there's not so much that can be done right now that let it take the time it takes to develop (since old people in general are not targeted for the educational system).
This, in combo with my comment where I mention Hans Rosling's interesting statistics, makes me quite positive about the future of China. Hopefully it lands rather than crashes and perhaps it is healthier to the country to avoid a crash and slowly manage the much needed creative destruction rather than face the consequences of a crash. A crash may for example cause a lot of social unrest, which probably will become a larger problem for China as their growth slows. Hopefully, they'll plateau into a healthy developed country, similar to what (in my opinion) it seems like Japan did. Although we don't here much about it, China is a much bigger countries with many more different groups of people than Japan (as far as my knowledge goes anyhow) and I think social unrest has much bigger potential as a serious issue to China's well-being (and thus probably the world's well-being since we do so much trading with China).
China has a long way to go and lots of problems such as corruption, educational level of the average man, transparency, human rights, and so forth. I hope for the best! :) My 5 cents anyway!
China is at risk, yes. So are all countries. I was just in a guest house this week-end and there were some books about China left left by the guests. Maybe five of them were about the imminent fall of China. One was published in the nineties, the other were in between.
And the article, from my Sino French perspective, smells very strongly as us centric, narrow minded, "only money counts" kind of thinking.
Since I've seen the same reason being given many times, and I don't actually know if it's true or not, I have to wonder: why do you think that free and fair elections along with free press a necessity for China to be world prominence in term of economy?
Democracy and freedom is certainly worth striving for, I just don't know if there is an absolute connection between them and economic power.
The mainstream of political/economic thought is that economic power, in the long term, derives from inclusive political institutions. It can be gained in the short term when totalitarian regimes have incetives for growth and sufficient resources available, for instance the industrialisation of the USSR in the early 20th century, but they will ultimately founder due the contradictions imposed by extractive political institutions.
Since we don't know of any system other than democracy that can produce inclusive institutions, democracy and freedom are a pre-requisite for economic power that will last and continue to grow.
That's my understanding of the argument, based on reading 'Why Nations Fail' by Acemoglu and Robinson. As far as I can tell this is the prevailing line of thought in the West, even if it's not always stated in the same terms.
It's because of the lack of creative destruction blowing through the country. An ossified political strata is resistant to new ideas. A lack of new ideas and lack of dynamism creates a self-reinforcing negative spiral.
China has been down this path before- once a technological leader of the world - it turned inwards and lost ground to the dynamic, open and inclusive societies forming in Europe during the medieval period.
China became a technological leader of the world during its imperialism. Granted there weren't that many democracies around the world at the time, so we have no point of comparison. The few period where there existed a democracy in the world (ancient Roman, for example), it's quite hard to compare the two, and what worked in the past might not work in the present.
But my point is that it's just not simply a clear cut issue of "democracy", "democracy" like everyone in the West like to chant whenever they talk about China (and to certain extend, East Asia as a whole). Look at Japan, one party (Liberal Democratic Party) has been in control of the goverment since 1955 - and not because of corrupted election or anything like that. The social and cultural situation in East Asia is much difference than the West.
The game we Chinese are playing will not lead us to anywhere, but another rise and fall of rulers. We are staggering and stuck in a modern world that we are not able to sync with. Japan is somewhat worth envying since it transformed to better keep pace with the developed world. And yes, Japan has it's own issues or in other words, bottleneck that it is stuck with. Given the geopolitical and it's surrounding conditions, no easy way out for them.
Just to nitpick one of the claims in an otherwise well-reasoned comment - of course a lot of Chinese don't speak the national language. That's because for many Chinese people, Mandarin isn't their mother tongue - other Chinese dialects like Wu, Yue, etc. [1] As the BBC article you linked states, this is an issue of "linguistic unity" more than a symptom of a bad education system. Japan, as a much more homogeneous society, did not have this problem.
> China will really rise to world prominence when its common people enjoy free and fair elections, a free press, and good educational opportunity all over the country.
If you somehow knew that a hypothetical China in 2040 with all these things would still be pursuing domestic and foreign policy divergent from American interests, would you still be saying this? If so, I applaud your intellectual honesty.
The 400m people who can't speak mandarin statistic is a bit misleading. Most of these people are likely to be old and out of the workforce. it's rare to meet someone under 40 who can't speak ok Mandarin. Also a lot more people can understand it than speak it.
Not sure on the relevance on freedoms and election rigging but this statement -
"Third, although primary education in China is quite good in urban areas, good primary education in China is still not as pervasive nationwide as it was in Japan by the 1980s. That's illustrated in part by how few people in China (compared to Japan) are even conversant in the national language. Barely more than half the population is conversant in standard Mandarin Chinese"
To me means they have huge room for easy improvement and as such can continue growth for years.
I'm not too impressed by this argument. You could easily compare China with South Korea or Taiwan and come to the opposite conclusion. This is why you should never trust an argument that relies on two data points.
In fact, don't trust macroeconomists in general: individual preferences cannot be aggregated, at least not with our present mathematical tools. As a result, micro-founded macro models (99% of them) are complete nonsense: that's why Caltech doesn't even bother teaching macro to its PhD students anymore. It also explains why DSGE models have no predictive power whatsoever. Rant over.
One important point not mentioned: Japan were alone when the country's economy collapsed in late 80's. Today's China is surrounded with relatively strong peripheral economies (Taiwan, Korea, etc.) The support is there.
Also, do not discount black-market economy. It's difficult to keep track of economic progress in a cash-based economy. The strength of China's domestic economy is often discounted by foreigners because of economic activities unaccounted for.
The real worry is the aging population and the lack of social welfare.
While the lack of social welfare could be considered a problem from a moral perspective, in terms of the national economy it's not a negative.
Compare for instance the situation where 50% of elderly Chinese starve after they stop working, and the situation where 50% go on extensive state welfare. In both situations the elderly aren't producing anything, but in the latter they're consuming national resources and in the former they aren't, so from an economic perspective the former would produce better results.
Of course this isn't a very humane way of looking at it, but the Chinese leadership don't have a history of particularly humane behaviour.
Even if it starts stagnating it will pass the US in total GDP. China has 10x the population of Japan. Not that it matters. The average Chinese will still be a lot poorer than the average American.
However, thanks to the PRC's 1979 "one-child policy", they look to be the first country to skip from the "industrializing" stage which generally has reasonable population growth (weasel wording since Japan's fertility started declining in 1974 and has yet to stop), to the sort of modern social welfare state we see in the West with too few producers trying to support too many dependents. Except of course they don't have much of a welfare state.
It's sometimes called the 4-2-1 problem: 4 grandparents produced 2 parents who produced 1 child. It's one of the reasons for their very high savings rates, even with negative real returns. And like Japan, the retirees are in for unpleasant times when they try to turn paper wealth into real consumption.
That's a really nice piece, specially given the comparisons used in the article. However, as a layman, I wonder whether 1) chinese socialism and 2) its ownership of other major countries' debt make it all different or not. I suppose it does. Their government seems able to do "magic" tricks with its economy without pretty much any foreigner nosing around, and it also seems to me that the chinese are everywhere. I don't recall japanese companies owning so much of the world back in the 90's as the chinese do now with their infrastructures projects in South America and Africa, the US's debt thing etc. I think if they ever fail like the japanese did, they'd eventually drag a lot of countries with them down the hole because of these global tentacles.
Except if the only part of this article worth analysing is its very end: "[...] or permitting foreign banks to compete [in the chinese market]", then it's case closed and it was just a piece of banking propaganda against China.
Japan is actually the second biggest foreign holder of US debt. As of February 2014, Japan held 1.210 trillion of US debt while China held 1.272 trillion.
I am having trouble finding historical data, but what I can find from the 90s indicates that Japan alternated for the top foreign US debt holder with the UK. I am not really sure what data to look for general Japanese foreign investment.
> I don't recall japanese companies owning so much of the world back in the 90's as the chinese do now with their infrastructures projects in South America and Africa, the US's debt thing etc.
Don't you? There were jokes about how the Japanese owned so much of California they might as well buy the state from the US.
Even the GDP per capita number is misleadingly optimistic if the 0.01% are taking the lion's share of growth that I'll stipulate might be "the same or higher than Sweden's entire GDP."
If the typical American isn't prospering, what good is it?
>If the typical American isn't prospering, what good is it?
Well, neither is the typical Swede. They have an astronomical housing bubble that's just waiting to burst, the average household has a debt around twice the income, while the gap between rich and poor has been widening for a long time now.
It's not all roses and relative to where they are, most seem to be preparing for worse days ahead, rather than better ones.
The reason I used Sweden as an example is that many Americans think commerce in Sweden must be hobbled by taxes and regulation. It must surprise some people that Sweden's GDP per capita has grown the most among Western industrial nations, and much more than the US.
I'm not claiming the wealth gap in Sweden is healthy on an absolute scale, but relative to the US it's about half. Every economy has challenges, but the historical results I posted show that US chest-thumping is exceptionally silly.
When the bubble bursts, then it'll be thanks to tight monetary policy, ironically. Sweden is now experiencing monetary-policy driven deflation, and hopefully I don't have to explain why that's a bad thing for a population with high household debt.
Well yeah. The US is much bigger and contains more people than Sweden. So what? If the Texas seceded again it wouldn't make Texans suddenly 50x poorer.
Yeah that's great. We're well on our way to a lost decade or two ourselves, replete with zombie banks and corporations. This might as well be an indictment of the decline of the US rather than the decline of China or Japan.
China's GDP has grown 7% or more every year since 1991. It had an impressive economic record before that as well. You can read gloomy articles like this going back to 1949. In that time, China has become the second largest economy in the world. I was reading articles like this a decade ago, I was reading articles like this two decades ago. People have been saying the sky is falling since 1949. Despite all of that, China's GDP will probably grow 7% this year, as well as 7% next year.
This Quartz website, often linked in HN, is a usability nightmare. In my Android phone's browser, I just cannot see any text at all, apparently I see a sidebar full-screen. In my choice desktop browser (Opera 12), I do see the article but for some reason it auto-scrolls up every few seconds, so I cannot read it.
I can read it in Firefox but with noticeable UI latency when scrolling, as if my computer was 3 or 4 years older than it is.
Quartz does the same thing in Opera 12 for me. (Hooray, I'm not the last Opera 12 holdout on the planet.) Turning off Javascript for the site makes it readable normally, though.
Ask anyone in the US trying to live off interest income right now, like my 77 and 80 year old parents. Aren't that real interest rates in the US negative or thereabouts, and I read that was true following the bust in Japan.
(Except of course in the US as of now our money isn't trapped in the country, unlike Japan's back then for individuals and small business as mentioned in the article, or China, who's currency wasn't even internationally traded until a pilot scheme started in 2009, and is still, in the scheme of things, taking baby steps.)
Well, I can't comment on the macro economics, but on the small business side, I can say that China will do much better than Japan. The Japanese are deadly afraid of commitment and responsibility for some reason (the culture, likely), which is not the case with the Chinese, who can bootstrap like crazy and are less afraid of taking risks - although the latter might be because they have nothing to lose. Plus, China's got 10x the population...
The Japanese are afraid of responsibility since what century exactly? I've never heard of that. I've only heard the opposite in fact: that being responsible is among the most important cultural things to the Japanese. You see it in the history of how they view employment between employers and workers for example. A general sense of making things right.
I think you'd be very hard pressed to find a people more responsible than the Japanese.
Probably has something to do with their high national debt. Many people seem to believe that high national debt reflects a population that chooses government subsidies over employment. You see that with Greece and Spain a lot.
Huh? Japan's employment rate remains extraordinarily high (3.6% unemployment, after ~20 years of recession!), and Japan's government debt is almost entirely to Japanese investors.
Could you base your arguments with some facts? I work in international company and don't find Chinese in the top risk taking colleagues (Americans win big in this area). That's equally anecdotal like in your case but since it is different experience it would be interesting to hear where you experience comes from.
Why no one mentioned the big difference between china and japan?
Japan is actually a dependant state of usa. So usa can take advantage of japan whenever it wants, consider the Plaza Accord when usa destroyed japan's economy.
China, whatever you name it, is a independent nation. It is not easy to order China to do something, not like japan.
China is still going through urbanization in unprecedented scale. About half of the Chinese live in cities now. By 2030, cities will be home to 70 per cent of China’s population and generate 75 per cent of its GDP. There will be 200 million Chinese moving into cities in next few decades. China can be close to where Japan is now in the 2040 banking crisis. For now, even massive crisis just delays the inevitable increase in demand that eats away all mistakes in fiscal and monetary policy.
http://insights.som.yale.edu/insights/what-should-we-underst...
http://www.cn.undp.org/content/china/en/home/presscenter/pre...
http://www.cn.undp.org/content/china/en/home/presscenter/pre...