Is China crashing?

[chiang mai]

Part of China's problem could be the quality of their goods. Or lack thereof. I have spoken with people from various countries that will no longer buy Chinese products. simply because of the poor quality. This is not built in obsolescence. There is no pride or quality in their work , which comes as no surprise considering the working conditions and inferior materials. All China has is a cheap labour force. With no real technology of their own.

Same story. Sounds like Thai goods as well.

But how vital is it that China have the same engineering standards as Germany, the same production capabilities as Japan and the entrpreneurship levels of the US? I would argue that when you are a country of 1.35 billion people whose land mass is the third largest in the world, those things are not important at all, especially when you are already the worlds second largest economy and all you supposedly do is manufacture low quality plastic items that were copied from somewhere else! The point is of course that the Chinese economy has so much untapped upside potential and very little downside, unlike the more fully developed economies of say Japan and the US who already operate near the ceiling of their potential - I think the quality aspect is important but it's far less important to China at this stage in their development than it is to say Japan or Germany..

[Naam]

Part of China's problem could be the quality of their goods. Or lack thereof. I have spoken with people from various countries that will no longer buy Chinese products. simply because of the poor quality. This is not built in obsolescence. There is no pride or quality in their work , which comes as no surprise considering the working conditions and inferior materials. All China has is a cheap labour force. With no real technology of their own.

Same story. Sounds like Thai goods as well.

But how vital is it that China have the same engineering standards as Germany, the same production capabilities as Japan and the entrpreneurship levels of the US? I would argue that when you are a country of 1.35 billion people whose land mass is the third largest in the world, those things are not important at all, especially when you are already the worlds second largest economy and all you supposedly do is manufacture low quality plastic items that were copied from somewhere else! The point is of course that the Chinese economy has so much untapped upside potential and very little downside, unlike the more fully developed economies of say Japan and the US who already operate near the ceiling of their potential - I think the quality aspect is important but it's far less important to China at this stage in their development than it is to say Japan or Germany..

the quality of Chinese goods is mainly badmouthed based on yada-yada hearsay and the same applies to "copying cheap plastic items". i admit that Chinese factories produce a lot of low quality goods. but on the other hand my personal experience is that even low cost Chinese products can last and do the assigned job and that selected Chinese research and development as well as manufacturing quality can very well beat those of other countries' products.

There is no pride or quality in their work , which comes as no surprise considering the working conditions and inferior materials.

yeah right! that's why top and globally renowned German companies produce in China whereas high-tech and top quality items are produced exclusively in England, Scotland and Wales.

[soomak]

No China is not "crashing".

But it is coming out of a period where it's "economic miracle" will now have to face reality.

For example, China has been building to many hotels, apartments, etc. , and now using that construction to artificially inflate it's "growth" figures.

There are many "ghost towns" now in China, with new fancy buildings that are actually empty and can't be sold.

They overbuilt in their property sector, many wealthy Chinese bought "investment" property in those housing projects, and now they are starting to realize those "investments" are not going to be profitable.

It's called overbuilding and was not rational. China fueled it's growth and employment figures .... it's "economic miracle" .... with infrastructure and property spending that is unsustainable in the long run. A classic bubble situation.

Reality will set in soon.... it always does.

Bottom line ... China's economy was in a boom cycle .... growth rate that was unsustainable in the long run .... and now reality will have to sink into the growth perceptions.

But, there are developed economies, in Europe or in the U.S. that would just love to have the same problem as China does.

China's miracle just has to come back down to reality again.

Agree; they are simply entering a stage of slower growth (let's say 6-7% a year), and it 10 years settle into a 3-4% per year growth.

It's natural evolution of a country that went from self subsistence agriculture to a manufacturing-export based economy, and is now trying to evolve into service, technology and innovation based economy.

[harryfrompattaya]

China shall break up to at least 7 counties in the next 10 years.

Watch India the New Super Economy

[NeverSure]

back to the topic China. before discussing a potential crash of the Chinese economy a definition of "crash" should be established and the arguments of those who forecast a crash should be analysed. there are mainly two negative arguments, one is "ghost cities" and the other one is "banks overextended".

my [personal] view:

-it is only a matter of time till the problem "ghost cities" is solved.

-any banking crisis will be solved internally.

-should growth drop from the present estimated 7.5% to 3% or even 2% it is a matter of perspective to call it a crash. i know a bunch of countries who would be very happy to have 0.5% or 1% growth.

You are talking about growth in GDP. Take away the construction which is part of GDP, and the growth is negative. Manufacturing has fallen dramatically. China's debt is now astounding.

Local debt Another

"If corporate and household debt is also counted, China's total debt load balloons to more than 200% of gross domestic product." Link

"China" has no sovereign debt but is a net creditor. you are referring to Chinese banks and their internal debt (forget about the peanuts amounts of those banks' external debt). internal debt, denominated in "internal currency" can be managed nearly infinitely, respectively till better times arrive. best example is Nippon, the country of the rising sun and rising internal debt.

the university educated eggheads, Nobel prize winners and gurus of various provenience who forecast gloo&doom for China always forget one thing. and that is no convential yardstick can be used to measure China's economy.

what can be measured or rather estimated is the impact on countries like Australia, Chile, Brazil, Argentina and some others who's exports to China will drop like a stone if and when China "crashes".

Before you say the China has no external debt, you should do your homework.

And it was internal debt, not external debt that caused the recent crash in the US. It was a loss of bank and Wall Street liquidity - exactly what is happening to China.

It was also to much reliance on construction as a percentage of GDP that crashed and left everyone holding the bag.

As for the ghost cities taking care of themselves, that is laughable. They are built and priced far beyond the ability to become housing for the middle class. They are also built in areas where there is no economic engine - no jobs. They were built on credit as "stimulus" for the Chinese economy to make up for a loss in manufacturing and to keep people working and to keep the GDP up but there is an end to it because the loans are badly taking the banks under water.

China's manufacturing is down, has been replaced by stimulus projects financed by banks and shadow lenders but they will default and cause a crisis far greater than what happened in the US. The US (well its corporations) has a true economic engine via owning and profiting from most of the high tech in the world, owning resources, and I could go on and on. China has none of that and only has the low paying jobs as it manufactures for the West under Western supervision. The Western countries are making the money.

[NeverSure]

China’s economic slowdown emerges as risk to U.S. economy
Washington Post - By Jia Lynn Yang, June 21, 2013

"HONG KONG — Concerns are growing about China’s economy as the country’s new leadership tries to get a handle on deep problems that experts say have been years in the making.

There was a record spike Thursday in rates banks charge when they lend to one another, evoking memories of the credit shortage that shook the U.S. economy during the financial crisis. A disappointing figure from the manufacturing sector provided another ominous sign this week, causing further alarm that China’s slowdown is well underway.

For years, China has been viewed as a place flush with money, erecting gleaming airports, highways and entire cities seemingly overnight. But experts say that much of that building — and impressive economic growth — was fueled by debt that local governments are now struggling to repay, especially as the economy slows down.

“You’re dependent on creating new debt every day,” said Anne Stevenson-Yang, co-founder of J Capital Research, a Beijing-based analysis firm."

More

[Naam]

Before you say the China has no external debt, you should do your homework.

And it was internal debt, not external debt that caused the recent crash in the US. It was a loss of bank and Wall Street liquidity - exactly what is happening to China.

i have done my homework and repeat China has no external debt that is worthwhile to mention. but worthwhile to mention is that your irrelevant arguments prevent me to engage in a meaningful discussion with you.

[Naam]

China shall break up to at least 7 counties in the next 10 years.

Watch India the New Super Economy

and the counties (sic) will drift apart. some into the Pacific, some towards the South China Sea and a couple of them will land up in Siberia. it's these dàmn aliens who are causing most of China's problems.

[LawrenceChee]

back to the topic China. before discussing a potential crash of the Chinese economy a definition of "crash" should be established and the arguments of those who forecast a crash should be analysed. there are mainly two negative arguments, one is "ghost cities" and the other one is "banks overextended".

my [personal] view:

-it is only a matter of time till the problem "ghost cities" is solved.

-any banking crisis will be solved internally.

-should growth drop from the present estimated 7.5% to 3% or even 2% it is a matter of perspective to call it a crash. i know a bunch of countries who would be very happy to have 0.5% or 1% growth.

You are talking about growth in GDP. Take away the construction which is part of GDP, and the growth is negative. Manufacturing has fallen dramatically. China's debt is now astounding.

Local debt Another

"If corporate and household debt is also counted, China's total debt load balloons to more than 200% of gross domestic product." Link

"China" has no sovereign debt but is a net creditor. you are referring to Chinese banks and their internal debt (forget about the peanuts amounts of those banks' external debt). internal debt, denominated in "internal currency" can be managed nearly infinitely, respectively till better times arrive. best example is Nippon, the country of the rising sun and rising internal debt.

the university educated eggheads, Nobel prize winners and gurus of various provenience who forecast gloo&doom for China always forget one thing. and that is no convential yardstick can be used to measure China's economy.

what can be measured or rather estimated is the impact on countries like Australia, Chile, Brazil, Argentina and some others who's exports to China will drop like a stone if and when China "crashes".

Before you say the China has no external debt, you should do your homework.

And it was internal debt, not external debt that caused the recent crash in the US. It was a loss of bank and Wall Street liquidity - exactly what is happening to China.

It was also to much reliance on construction as a percentage of GDP that crashed and left everyone holding the bag.

As for the ghost cities taking care of themselves, that is laughable. They are built and priced far beyond the ability to become housing for the middle class. They are also built in areas where there is no economic engine - no jobs. They were built on credit as "stimulus" for the Chinese economy to make up for a loss in manufacturing and to keep people working and to keep the GDP up but there is an end to it because the loans are badly taking the banks under water.

China's manufacturing is down, has been replaced by stimulus projects financed by banks and shadow lenders but they will default and cause a crisis far greater than what happened in the US. The US (well its corporations) has a true economic engine via owning and profiting from most of the high tech in the world, owning resources, and I could go on and on. China has none of that and only has the low paying jobs as it manufactures for the West under Western supervision. The Western countries are making the money.

You have this grand plans always about the west rising once again...

The point is simple they are making all these low end stuff cause the west is ordering them and that is all they can afford

As there is a small uptick in the west , don't forget they all remember the lessons well and hopefully do much better this time around for the west ...stop spending on things you cannot afford this is why Uniqlo, H&M Zara and all the generic brands are doing so well

It is also a hard truth that at every luxury store now the real people with the buying power is the Chinese , they are not buying on credit but with cash

If you were brought up in an Asian family the term saving for a rainy day is thumped into you everyday

You saved and not just in banks ...you buy gold, you hoard cash in the house and when times are good you spend ...

The reality is the west an brag about just anything the Chinese measure success in a different yardstick and will never want to the west

[theblether]

You can't trust Chinese official statistics. There's too much pressure on the local party officials to deliver the figures that they think the government wants and quite frankly they are made up.

Anyone with knowledge of China knows that the idea of accurate reporting from businesses is a joke.

[LawrenceChee]

You can't trust Chinese official statistics. There's too much pressure on the local party officials to deliver the figures that they think the government wants and quite frankly they are made up.

Anyone with knowledge of China knows that the idea of accurate reporting from businesses is a joke.

Agree totally ! That is why doing business in china is so much fun !

[theblether]

You can't trust Chinese official statistics. There's too much pressure on the local party officials to deliver the figures that they think the government wants and quite frankly they are made up.

Anyone with knowledge of China knows that the idea of accurate reporting from businesses is a joke.

Agree totally ! That is why doing business in china is so much fun !

+1 It's the Wild West of the business world, it's great fun just as long as you remember to take your profit off the table.

Leave it on there and those Chinese cowboys won't be long before the stage a hold up.

[theblether]

Anyway, it's interesting seeing everyone getting their knickers in a twist discussing made up figures.

[LawrenceChee]

You can't trust Chinese official statistics. There's too much pressure on the local party officials to deliver the figures that they think the government wants and quite frankly they are made up.

Anyone with knowledge of China knows that the idea of accurate reporting from businesses is a joke.

Agree totally ! That is why doing business in china is so much fun !

+1 It's the Wild West of the business world, it's great fun just as long as you remember to take your profit off the table.

Leave it on there and those Chinese cowboys won't be long before the stage a hold up.

Agree ...grandad always say swipe the cash off and dig a hole in the ground and hide it

Great advice for anyone who wants to do business in china...I remember the days when I had to stuff money in rice bags and truck them into Hong Kong

[Berkshire]

Crash or not, the Chinese are flush with cash and buying up real estate all over the world, including the USA:

http://money.cnn.com/2013/07/08/real_estate/chinese-homebuyers/index.html?hpt=hp_t3

[trogers]

Crash or not, the Chinese are flush with cash and buying up real estate all over the world, including the USA:

http://money.cnn.com/2013/07/08/real_estate/chinese-homebuyers/index.html?hpt=hp_t3

The same phenomena occurred in the late 80s when Japanese were acquiring real estate all over the world, including in the USA.

You were probably just a trotter when the Japan bubble burst.

http://www.thebubblebubble.com/japan-bubble/

George Friedman who published his book 'The Next 100 Years' in January 2010 was right - "China is Japan on steroids".

[jbrain]

Sorry, the article from Bloomberg I'd copy was not about Gold but to show you that China is going it's way to get the Yuan as the world reserve currency slowly but step by step. And about the Gold another word: Who do think sold all the Gold for beating the price down? And who do you think bought it? Why does it take America seven years to send this requested small amount of Gold back to his owner Germany, when they sell so many just only for beating the price down? The price they could beat with paper. All given numbers base on reports from the FED or Treasury only and that should make you thinking about.

The Yuan won't be the world's reserve currency in either of our lifetimes.

As to the previous post, I avoid any products from China that I can. I've had too many issues with them. Yes, they are cheap. But they are just that.

With such knowledge, how can you insist that economy ever can sustain.

[craigt3365]

Sorry, the article from Bloomberg I'd copy was not about Gold but to show you that China is going it's way to get the Yuan as the world reserve currency slowly but step by step. And about the Gold another word: Who do think sold all the Gold for beating the price down? And who do you think bought it? Why does it take America seven years to send this requested small amount of Gold back to his owner Germany, when they sell so many just only for beating the price down? The price they could beat with paper. All given numbers base on reports from the FED or Treasury only and that should make you thinking about.

The Yuan won't be the world's reserve currency in either of our lifetimes.

As to the previous post, I avoid any products from China that I can. I've had too many issues with them. Yes, they are cheap. But they are just that.

With such knowledge, how can you insist that economy ever can sustain.

I have extremely limited knowledge re:China. Only what I read in the news, and my 6 months "in country". I just don't see the Yuan being the world's reserve currency in the near term. As is widely reported on sites such as Zerohedge. In the long term? Possible. But not having a crystal ball, who can really say?

[jbrain]

Sorry, the article from Bloomberg I'd copy was not about Gold but to show you that China is going it's way to get the Yuan as the world reserve currency slowly but step by step. And about the Gold another word: Who do think sold all the Gold for beating the price down? And who do you think bought it? Why does it take America seven years to send this requested small amount of Gold back to his owner Germany, when they sell so many just only for beating the price down? The price they could beat with paper. All given numbers base on reports from the FED or Treasury only and that should make you thinking about.

The Yuan won't be the world's reserve currency in either of our lifetimes.

As to the previous post, I avoid any products from China that I can. I've had too many issues with them. Yes, they are cheap. But they are just that.

With such knowledge, how can you insist that economy ever can sustain.

I have extremely limited knowledge re:China. Only what I read in the news, and my 6 months "in country". I just don't see the Yuan being the world's reserve currency in the near term. As is widely reported on sites such as Zerohedge. In the long term? Possible. But not having a crystal ball, who can really say?

The point I tried to make was exactly this :

I avoid any products from China that I can. I've had too many issues with them. Yes, they are cheap. But they are just that.

This is also my experience for many years already, and without doubt the experience of millions other people in the world.

People worldwide get aware of this and again spent more on a reliable product produced in the western world, instead on cheap crap from China which has to be replaced soon.

The more people wake up to this, the more the Chinese economy will slow down.

[chiang mai]

I disagree, the world needs cheap items and someone has to make them, have you never looked around Big C, Tesco, Walmart, Woolworths, the myriad of Poundsaver stores and so on? Not everyone wants or can afford high quality costly items.

[jbrain]

I disagree, the world needs cheap items and someone has to make them, have you never looked around Big C, Tesco, Walmart, Woolworths, the myriad of Poundsaver stores and so on? Not everyone wants or can afford high quality costly items.

It depends. I agree that a brush, cooking pot or maybe even a hair trimmer doesn't have to be of the highest standard. But an economy of 1.4 billion people can not survive on this kind of items.

These days they start to make cars and machinery which is rejected in the western world, because they lack any quality or safety measures.

Look at how many western companies that moved their production to China 2 decades ago have exited from there since.

[chiang mai]

I disagree, the world needs cheap items and someone has to make them, have you never looked around Big C, Tesco, Walmart, Woolworths, the myriad of Poundsaver stores and so on? Not everyone wants or can afford high quality costly items.

It depends. I agree that a brush, cooking pot or maybe even a hair trimmer doesn't have to be of the highest standard. But an economy of 1.4 billion people can not survive on this kind of items.

These days they start to make cars and machinery which is rejected in the western world, because they lack any quality or safety measures.

Look at how many western companies that moved their production to China 2 decades ago have exited from there since.

For example?

[Berkshire]

Crash or not, the Chinese are flush with cash and buying up real estate all over the world, including the USA:

http://money.cnn.com/2013/07/08/real_estate/chinese-homebuyers/index.html?hpt=hp_t3

The same phenomena occurred in the late 80s when Japanese were acquiring real estate all over the world, including in the USA.

You were probably just a trotter when the Japan bubble burst.

http://www.thebubblebubble.com/japan-bubble/

George Friedman who published his book 'The Next 100 Years' in January 2010 was right - "China is Japan on steroids".

Actually, I was a young lad in the USA and remembered when the Japanese were buying up Pebble Beach and the Rockefeller Center, among other things. And yes, they lost their collective asses when they had to sell it all on the cheap. The difference is that the Chinese are buying at a better time...although prices are starting to go back up (partially due to their buying spree).

Honestly, I'm not on either side of this Chinese debate. The pro is that the Chinese have tons of cash and massive manufacturing capacity. The con is that huge population and the endemic corruption. If there's a property bubble, it seems like Hong Kong is in one more so than the mainland. I'd say the growth is unsustainable, but then those Chinese are pretty sharp...they'll figure something out.

[chiang mai]

Most westerners who have never experienced China for themselves simply think of China in terms of its vast size and population and then skip directly to the associated negatives and fail to understand the parts in the middle. Fifteen years ago an international flight into Beijing meant arriving at Beijing airport, deplaning on the runway and walking through the bicycle shed to get to the immigration check point - luggage was served up on a crocodile that was proudly badged as having been made by People Factory Number Seven and was guaranteed to break down every five minutes. The taxi ride into the city at that time involved a drive through open countryside until eventually you reached the outskirts which was marked by the partially completed third ring road, most of which was being constructed by hand. On the weekends it was common for tourists to visit Tianamen Square and The Forbidden City, Western tourists in such places were often the first white westerns most Chinese tourists had ever seen and the young children cried in fear at the sight of them!

Fifteen years later it's a vastly different picture, a modern airport, eight ring roads and there is no open countryside between the airport and the city, westerners are common place and the single McDonalds outlet is now just one of many such eateries. And the same thing is true of the Shanghai and Guangzhou and to a lesser extent, the smaller cities of Dalian, Shenyang and elsewhere.

Huge amounts of change have been made in China in a fairly short space of time yet human expectations are such that China is now continually compared to the most fully developed and technologically advanced countries in the world such as the US and Japan and it is found lacking, the posts in this thread are testament to that. I think it's helpful to put things in perspective by realising where China came from and when, where it is now in the terms of development and how much further it has to go, unlike countries such as the US it has huge amounts of headroom remaining.

[Naam]

without any doubt China is doomed. seven years ago i installed an irrigation pump (2½HP), price 4,000 Baht because i was not willing to pay 15,800 Baht for a top of the line Grundfos or a slightly cheaper U.S. made pump.

this pump runs 5 times 40 minutes (5 zones) approximately 280 days a year. last year i replaced a seal (handmade from a tube with sealant) because there was a slight leakage.

therefore my assumption that companies selling their products, which last many years, that cheap must be doomed.

[jbrain]

I disagree, the world needs cheap items and someone has to make them, have you never looked around Big C, Tesco, Walmart, Woolworths, the myriad of Poundsaver stores and so on? Not everyone wants or can afford high quality costly items.

It depends. I agree that a brush, cooking pot or maybe even a hair trimmer doesn't have to be of the highest standard. But an economy of 1.4 billion people can not survive on this kind of items.

These days they start to make cars and machinery which is rejected in the western world, because they lack any quality or safety measures.

Look at how many western companies that moved their production to China 2 decades ago have exited from there since.

For example?

http://www.newschinamag.com/magazine/factory-flight

http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/7971181/Vodafone-joins-queue-of-firms-to-leave-China.html

http://www.globaltimes.cn/NEWS/tabid/99/ID/711994/Some-EU-companies-may-leave-China.aspx

http://blog.themarketinganalysts.com/2012/06/no-longer-made-in-china/

[jbrain]

without any doubt China is doomed. seven years ago i installed an irrigation pump (2½HP), price 4,000 Baht because i was not willing to pay 15,800 Baht for a top of the line Grundfos or a slightly cheaper U.S. made pump.

this pump runs 5 times 40 minutes (5 zones) approximately 280 days a year. last year i replaced a seal (handmade from a tube with sealant) because there was a slight leakage.

therefore my assumption that companies selling their products, which last many years, that cheap must be doomed.

L-dog vs.jpg

Lucky it was only a seal that broke, because you had to make one yourself as no spare parts were available, but it could have been another part which you couldn't produce yourself.

Anyway I'm glad you have a pump from China which you are satisfied with, don't mention those other Chinese item that broke down quickly and were unrepairable, but keep in mind one swallow doesn't make the summer.

[chiang mai]

I disagree, the world needs cheap items and someone has to make them, have you never looked around Big C, Tesco, Walmart, Woolworths, the myriad of Poundsaver stores and so on? Not everyone wants or can afford high quality costly items.

It depends. I agree that a brush, cooking pot or maybe even a hair trimmer doesn't have to be of the highest standard. But an economy of 1.4 billion people can not survive on this kind of items.

These days they start to make cars and machinery which is rejected in the western world, because they lack any quality or safety measures.

Look at how many western companies that moved their production to China 2 decades ago have exited from there since.

For example?

http://www.newschinamag.com/magazine/factory-flight

http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/7971181/Vodafone-joins-queue-of-firms-to-leave-China.html

http://www.globaltimes.cn/NEWS/tabid/99/ID/711994/Some-EU-companies-may-leave-China.aspx

http://blog.themarketinganalysts.com/2012/06/no-longer-made-in-china/

There's some very good articles there which will take some time to read, but well done in finding them. As an initial comeback I'd say that outsourcing/insourcing runs in cycles and the need for either is determined by the state of the economies in donor and recipient countries at any point in time, this was fashionable in the 1990's in the IT/call centre industry which continues to flip flop - I'll read and comment.

[jbrain]

^^ here's one more

http://www.radioaustralia.net.au/international/radio/program/connect-asia/american-companies-leave-china/1114122

[chiang mai]

I disagree, the world needs cheap items and someone has to make them, have you never looked around Big C, Tesco, Walmart, Woolworths, the myriad of Poundsaver stores and so on? Not everyone wants or can afford high quality costly items.

It depends. I agree that a brush, cooking pot or maybe even a hair trimmer doesn't have to be of the highest standard. But an economy of 1.4 billion people can not survive on this kind of items.

These days they start to make cars and machinery which is rejected in the western world, because they lack any quality or safety measures.

Look at how many western companies that moved their production to China 2 decades ago have exited from there since.

For example?

http://www.newschinamag.com/magazine/factory-flight

http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/7971181/Vodafone-joins-queue-of-firms-to-leave-China.html

http://www.globaltimes.cn/NEWS/tabid/99/ID/711994/Some-EU-companies-may-leave-China.aspx

http://blog.themarketinganalysts.com/2012/06/no-longer-made-in-china/

Thanks again.

You see Neversure, that's how you do it, if you're going to post links to something to make your point then post multiple links to credible sources, none of this single link (cleverly disguised by the word Link) to Nobody's blog ín the Nothing Times (retired bank examiner section) in Nowhere USA.