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Author Topic: China  (Read 59265 times)
DougMacG
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« Reply #500 on: April 23, 2013, 12:43:46 PM »

For quite some time, I have been making this point here about China having some seriously weak links in the chain of the story of how it is going to take over the world such as its inverted demographic profile, seriously dishonest bookkeeping, and the fact that it is a worsening toxic dump.

I agree 100%.  If China challenges us to be the number one economy in the world in our lifetime under their current regime, it can only be because of catastrophic policy failure in the U.S.
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bigdog
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« Reply #501 on: May 06, 2013, 10:13:24 PM »

http://www.defense.gov/pubs/2013_China_Report_FINAL.pdf
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DougMacG
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« Reply #502 on: May 25, 2013, 04:49:01 PM »

Current Pulitzer Prize winner WSJ/Brret Stephens:
Reading Hayek in Beijing       May 24, 2013
A chronicler of Mao's depredations finds much to worry about in modern China.

Yang Jisheng By BRET STEPHENS

In the spring of 1959, Yang Jisheng, then an 18-year-old scholarship student at a boarding school in China's Hubei Province, got an unexpected visit from a childhood friend. "Your father is starving to death!" the friend told him. "Hurry back, and take some rice if you can."

Granted leave from his school, Mr. Yang rushed to his family farm. "The elm tree in front of our house had been reduced to a barkless trunk," he recalled, "and even its roots had been dug up." Entering his home, he found his father "half-reclined on his bed, his eyes sunken and lifeless, his face gaunt, the skin creased and flaccid . . . I was shocked with the realization that the term skin and bones referred to something so horrible and cruel."

Mr. Yang's father would die within three days. Yet it would take years before Mr. Yang learned that what happened to his father was not an isolated incident. He was one of the 36 million Chinese who succumbed to famine between 1958 and 1962.

It would take years more for him to realize that the source of all the suffering was not nature: There were no major droughts or floods in China in the famine years. Rather, the cause was man, and one man in particular: Mao Zedong, the Great Helmsman, whose visage still stares down on Beijing's Tiananmen Square from atop the gates of the Forbidden City.

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Zina Saunders

Yang Jisheng

Mr. Yang went on to make his career, first as a journalist and senior editor with the Xinhua News Agency, then as a historian whose unflinching scholarship has brought him into increasing conflict with the Communist Party—of which he nonetheless remains a member. Now 72 and a resident of Beijing, he's in New York this month to receive the Manhattan Institute's Hayek Prize for "Tombstone," his painstakingly researched, definitive history of the famine. On a visit to the Journal's headquarters, his affinity for the prize's namesake becomes clear.

"This book had a huge impact on me," he says, holding up his dog-eared Chinese translation of Friedrich Hayek's "The Road to Serfdom." Hayek's book, he explains, was originally translated into Chinese in 1962 as "an 'internal reference' for top leaders," meaning it was forbidden fruit to everyone else. Only in 1997 was a redacted translation made publicly available, complete with an editor's preface denouncing Hayek as "not in line with the facts," and "conceptually mixed up."

Mr. Yang quickly saw that in Hayek's warnings about the dangers of economic centralization lay both the ultimate explanation for the tragedies of his youth—and the predicaments of China's present. "In a country where the sole employer is the state," Hayek had observed, "opposition means death by slow starvation."

So it was in 1958 as Mao initiated his Great Leap Forward, demanding huge increases in grain and steel production. Peasants were forced to work intolerable hours to meet impossible grain quotas, often employing disastrous agricultural methods inspired by the quack Soviet agronomist Trofim Lysenko. The grain that was produced was shipped to the cities, and even exported abroad, with no allowances made to feed the peasants adequately. Starving peasants were prevented from fleeing their districts to find food. Cannibalism, including parents eating their own children, became commonplace.

"Mao's powers expanded from the people's minds to their stomachs," Mr. Yang says. "Whatever the Chinese people's brains were thinking and what their stomachs were receiving were all under the control of Mao. . . . His powers extended to every inch of the field, and every factory, every workroom of a factory, every family in China."

All the while, sympathetic Western journalists—America's Edgar Snow and Britain's Felix Greene in particular—were invited on carefully orchestrated tours so they could "refute" rumors of mass starvation. To this day, few people realize that Mao's forced famine was the single greatest atrocity of the 20th century, exceeding by orders of magnitude the Rwandan genocide, the Cambodian Killing Fields and the Holocaust.

The power of Mr. Yang's book lies in its hauntingly precise descriptions of the cruelty of party officials, the suffering of the peasants, the pervasive dread of being called "a right deviationist" for telling the truth that quotas weren't being met and that millions were being starved to death, and the toadyism of Mao lieutenants.

Yet the book is more than a history of a uniquely cruel regime at a receding moment in time. It is also a warning of what lies at the end of the road for nations that substitute individualism with any form of collectivism, no matter what the motives. Which brings Mr. Yang to the present day.

"China's economy is not what [Party leaders] claim as the 'socialist-market economy,' " he says. "It's a 'power-market' economy."

What does that mean?

"It means the market is controlled by the power. . . . For example, the land: Any permit to enter any sector, to do any business has to be approved by the government. Even local government, down to the county level. So every county operates like an enterprise, a company. The party secretary of the county is the CEO, the president."

Put another way, the conventional notion that the modern Chinese system combines political authoritarianism with economic liberalism is mistaken: A more accurate description of the recipe is dictatorship and cronyism, with the results showing up in rampant corruption, environmental degradation and wide inequalities between the politically well-connected and everyone else. "There are two major forms of hatred" in China today, Mr. Yang explains. "Hatred toward the rich; hatred toward the powerful, the officials." As often as not they are one and the same.

Yet isn't China a vastly freer place than it was in the days of Mr. Yang's youth? He allows that the party's top priority in the post-Mao era has been to improve the lot of the peasantry, "to deal with how to fill the stomach."

He also acknowledges that there's more intellectual freedom. "I would have been executed if I had this book published 40 years ago," he notes. "I would have been imprisoned if this book was out 30 years ago. Now the result is that I'm not allowed to get any articles published in the mainstream media." The Chinese-language version of "Tombstone" was published in Hong Kong but is banned on the mainland.

There is, of course, a rational reason why the regime tolerates Mr. Yang. To survive, the regime needs to censor vast amounts of information—what Mr. Yang calls "the ruling technique" of Chinese leaders across the centuries. Yet censorship isn't enough: It also needs a certain number of people who understand the full truth about the Maoist system so that the party will never repeat its mistakes, even as it keeps the cult of Mao alive in order to preserve its political legitimacy. That's especially true today as China is being swept by a wave of Maoist nostalgia among people who, Mr. Yang says, "abstract Mao as this symbol of social justice," and then use that abstraction to criticize the current regime.

"Ten million workers get laid off in the state-owned enterprise reforms," he explains. "So many people are dissatisfied with the reforms. Then they become nostalgic and think the Mao era was much better. Because they never experienced the Mao era!" One of the leaders of that revival, incidentally, was Bo Xilai, the powerful former Chongqing party chief, brought down in a murder scandal last year.

But there's a more sinister reason why Mr. Yang is tolerated. Put simply, the regime needs some people to have a degree of intellectual freedom, in order to more perfectly maintain its dictatorship over everyone else.

"Once I gave a lecture to leaders at a government bureau," Mr. Yang recalls. "I told them it's a dangerous job, you guys, being officials, because you have too much power. I said you guys have to be careful because those who want approval from you to get certain land and projects, who bribe you, these are like bullets, ammunition, coated in sugar, to fire at you. So today you may be a top official, tomorrow you may be a prisoner."

How did the officials react to that one?

"They said, 'Professor Yang, what you said, we should pay attention.' "

So they should. As Hayek wrote in his famous essay on "The Use of Knowledge in a Society," the fundamental problem of any planned system is that "knowledge of circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess."

The Great Leap Forward was an extreme example of what happens when a coercive state, operating on the conceit of perfect knowledge, attempts to achieve some end. Even today the regime seems to think it's possible to know everything—one reason they devote so many resources to monitoring domestic websites and hacking into the servers of Western companies. But the problem of incomplete knowledge can't be solved in an authoritarian system that refuses to cede power to the separate people who possess that knowledge.

"For the last 20 years, the Chinese government has been saying they have to change the growth mode of the economy," Mr. Yang notes. "So they've been saying, rather than just merely expanding the economy they should do internal changes, meaning more value-added services and high tech. They've been shouting such slogans for 20 years, and not many results. Why haven't we seen many changes? Because it's the problem that lies in the very system, because it's a power-market economy. . . . If the politics isn't changed, the growth mode cannot be changed."

That suggests China will never become a mature power until it becomes a democratic one. As to whether that will happen anytime soon, Mr. Yang seems doubtful: The one opinion widely shared by rulers and ruled alike in China is that without the Communist Party's leadership, "China will be thrown into chaos."

Still, Mr. Yang hardly seems to have given up hope that he can play a role in raising his country's prospects. In particular, he's keen to reclaim two ideas at risk of being lost in today's China.

The first is the meaning of rights. A saying attributed to the philosopher Lao Tzu, he says, has it that a ruler should fill the people's stomachs and empty their heads. The gambit of China's current rulers is that they can stay in power forever by applying that maxim. Mr. Yang hopes they're wrong.

"People have more needs than just eating!" he insists. "In China, human rights means the right to survive, and I argue with these people. This is not human rights, it's animal rights. People have all sorts of needs. Spiritual needs, the need to be free, the freedoms."

The second is the obligation of memory. China today is a country galloping into a century many people believe it will define, one way or the other. Yet the past, Mr. Yang insists, also has its claims.

"If a people cannot face their history, these people won't have a future. That was one of the purposes for me to write this book. I wrote a lot of hard facts, tragedies. I wanted people to learn a lesson, so we can be far away from the darkness, far away from tragedies, and won't repeat them."

Hayek would have understood both points well.

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« Last Edit: May 25, 2013, 06:27:54 PM by DougMacG » Logged
DougMacG
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« Reply #503 on: May 27, 2013, 10:26:58 AM »

China facing a bubble?  Who knew? 

http://www.chinadaily.com.cn/opinion/2013-05/27/content_16534227.htm

China must be prepared for capital exit
2013-05-27
By Hong Liang  China Daily


At the G20 meeting in Washington last month, the International Monetary Fund sounded a warning about the problems that could be caused by a sudden massive outflow of capital from emerging markets when the major developed economies, notably the United States, terminate their quantitative easing programs.

Since the US Federal Reserve started its quantitative easing program some two years ago, there has been a large flow of capital into emerging markets in search of higher returns. This flood of money has, in turn, inflated asset prices in these markets and pushed up the value of their respective currencies.

These aggressive monetary policies adopted by some developed economies to stimulate their economic growth cannot be sustained for too long as they can create their own problems with too much cheap money floating around. It's widely expected that governments will stop printing money as soon as their economies show definite signs of a sustainable recovery.

That may come sooner than expected, and a more optimistic economic outlook in developed countries could trigger a reversal in capital flows out of emerging markets. A sudden capital outflow could burst the asset bubbles in some emerging markets, sparking a financial crisis as many enterprises have greatly increased their foreign currency borrowings at low interest rates to fund their domestic investments.

Acknowledging the "crucial" role of "accommodative monetary policy" in stimulating economic growth, the IMF cautioned in a statement issued at the conference that there is a need to monitor the potential impacts of monetary easing on capital flows and exchange rates. "Eventual exit from monetary expansion will need to be carefully managed and clearly communicated," the statement said.

At the conference, IMF Managing Director Christine Lagarde warned that "unconventional" monetary policy has raised international concern about currency valuations and competitive depreciation. She added that the IMF will probe further into the consequences of unconventional monetary policy and "what will be the consequences of the variety of exit and what will be good exits as opposed to the more unpleasant exits" for all IMF member countries.

At that time, the US economy was still mired in a sputtering recovery hamstrung by persistently high unemployment and tepid consumer demand. In Japan, the monetary easing program, though large in scale, was too new to have produced any results, although some neighboring economies were already seeing a marked increase in the influx of capital. Under these circumstances, the IMF warnings about exit policy seemed premature and economic planners in most countries didn't take them seriously.

Not anymore. The marked improvement in the US' employment figures has raised expectations that the Fed will consider moderating the pace of its monthly bond purchases. The Fed is schedule to debate policy on June 18 and 19.

With a balance sheet swollen to some $3.3 trillion, the Fed must weigh the risks of igniting future inflation or blowing up asset bubbles against printing more money to pump up the economy. Fed Chairman Ben Bernanke and other Fed officials have said that any reduction in bond purchases would not indicate a withdrawal of monetary stimulus. But to many emerging market observers, preparation by the Fed for an exit is on the way.

In a recent speech, the text of which was published last week, Liu Yuhui, a financial researcher at the Chinese Academy of Social Sciences, said that the normalization of US monetary policy is expected to rapidly gather pace, causing a severe contraction in the international flow of the US dollar, which would, in turn, exert tremendous pressure on asset markets across the Asia-Pacific region.

Liu said that Chinese banks need to strengthen their financial structures to face the threats coming from abroad, warning that assets, mainly properties, were already valued at levels considered too high.
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Crafty_Dog
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« Reply #504 on: May 27, 2013, 09:37:47 PM »

"China facing a bubble?  Who knew?"

Ummm , , , as posted here for a few years now, I did  grin though not for the reasons here based upon Keynesian drivel , , ,
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G M
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« Reply #505 on: May 28, 2013, 07:24:20 AM »

Will their bubble pop before ours does? They have a few advantages over us, such as a leadership that knows that marxism doesn't work.....
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DougMacG
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« Reply #506 on: May 28, 2013, 10:04:34 AM »

"China facing a bubble?  Who knew?"
Ummm , , , as posted here for a few years now, I did  grin though not for the reasons here based upon Keynesian drivel , , ,

Yes, I agree on the first part.  On the second point I'm not sure if I follow you.  When QE ends, some of the artificial effects of it end with it, with consequences.  I am all for QE ending, just saying what seems to be widely ignored, it won't be pretty if and when it happens.  This was one of 3 posts on 3 separate threads but taken together, if they each have validity, the slightly negative economic news coming out of India, Korea and China, (and Japan and elsewhere) poses risks for global companies and investors everywhere.

Will their bubble pop before ours does? They have a few advantages over us, such as a leadership that knows that marxism doesn't work.....

Good point.  My point is not which goes first but of the interconnectedness.  Either burst would have a major, adverse effect on the other.  To take one local Dow listed example, how does 3M's sales performance and outlook look without rapidly growing Asia sales and operations?  Not nearly as good as it does now.
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Crafty_Dog
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« Reply #507 on: May 28, 2013, 05:53:19 PM »

"When QE ends, some of the artificial effects of it end with it, with consequences.  I am all for QE ending, just saying what seems to be widely ignored, it won't be pretty if and when it happens."

Maybe QE-X has been a BAD thing, i.e. holding the economy back?  Maybe it has been as Scott Grannis has said, simply ineffective because money growth has been constant and the QE simply showing up in bank reserves, not money supply?

But this is all tangential to this thread , , , smiley
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Crafty_Dog
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« Reply #508 on: June 19, 2013, 09:48:01 AM »

I have been warning of this coming for a few years now , , ,


Summary

A cash crunch over the past three weeks has caused rates on loans between banks to spike to the highest levels since mid-2011, drawing attention back to China's financial instability. Rates have since subsided, but conditions exist for them to remain elevated over the next month or beyond. Unlike two years ago, at least one bank has already defaulted on a loan and there are rumors that other defaults have occurred. The emergence of bank defaults poses a serious challenge to the central government's efforts to clamp down on credit growth as part of its broader attempt to reform the country's economy.
Analysis

The recent spike in interbank lending rates began in late May after a combination of factors caused a liquidity shortage. The monthly average overnight rate stood at 2.9 percent for April but rose to 6.4 percent for May. In particular, companies sought to pay taxes at the end of May and banks rushed to meet regulators' reserve requirements, leaving them with less cash on hand. Meanwhile, the lead-up to the Dragon Boat Festival, a national holiday that closed markets from June 10-12, spurred consumers to withdraw deposits, further squeezing banks.
Shanghai Interbank Offered Rate, Monthly Average

In addition to these seasonal factors, the central government's attempts to rein in the high rate of credit expansion also contributed. In February, the People's Bank of China started reducing liquidity injections, and as rates rose in early June it mostly refrained from softening this stance. Meanwhile, in early May, the State Administration of Foreign Exchange issued new measures against falsifying trade data in order to import funds illegally, a move that brought down reported export volumes and foreign exchange inflows.
Shanghai Interbank Offered Rate, Daily Average

A similar confluence of factors led to a spike in interbank rates during roughly the same period in 2011. But this time around the consequences have raised greater fears. On June 6, China Everbright Bank, the country's 11th-largest lender, defaulted on a 6 billion-yuan ($980 million) loan repayment to Industrial Bank Co. The default allegedly caused Industrial Bank Co. to default in turn, and various news reports have suggested that other banks also may have defaulted on loans, though this is unconfirmed. On June 7, the central bank allowed more cash to flow into the interbank market as previously scheduled, providing some relief for strained banks, though it did not take any additional actions. The cash crunch manifested elsewhere when the Ministry of Finance and state-owned Agricultural Development Bank failed to sell all the bonds offered in recent auctions, occurrences that, though not unprecedented, are rare and reflect the liquidity shortage. The Agricultural Development Bank has scaled back upcoming bond sales as a result.

These recent events point to the rising financial trouble in China, where debt levels have rapidly grown as a result of the investment-driven economic model and the post-financial crisis drop in export growth. Bank failures are rare in China, where state entities step in quietly to prevent panic and ensure stability. For examples one must look to the last banking crisis in the late 1990s, though the failure of a rural credit cooperative in Jiangsu in 2012 points to the recent rise in risk. Recently, for instance, China Securities Journal claimed that the total credit in China's system may add up to 221 percent of gross domestic product, far above officially reported figures.

The size and rapid growth of China's credit expansion is coupled with the murkiness of the details about the lending -- the well-documented explosion in shadow banking and the huge growth in financial instruments such as wealth management products that deliver high returns but that regulators say are based on unclear or illiquid assets. Financial analysts have recently raised alarms about the dangers of this informal lending spree -- Fitch Ratings, Societe Generale and others, including Stratfor sources, have all warned of these recent signs that the debt buildup may finally have reached a point at which growth rates cannot sustain it. The Chinese central government's attempts to clamp down on lending channels reveal it is aware of the risks.

It is too early to tell whether the latest cash crunch is the harbinger of an immediate descent into financial turmoil. First, at the moment there does not appear to be contagion from the Everbright default or other rumored defaults. Second, the fact that the recent liquidity shortages resulted from central government tightening policies suggests that easing those policies can alleviate the problem for a time. The central bank has large reserves with which to fight fires (about $3.44 trillion in foreign exchange reserves), though clearly it fears that the speed, size and opaqueness of recent years' credit expansion could lead to an unmanageable chain reaction. Third, Everbright itself is a chronically troubled bank -- one that received a bailout as recently as 2007 and is mostly owned by an arm of the Ministry of Finance, Central Huijin, which is increasing its stake -- and therefore its default does not seem to have created the kind of shock that the default of a supposedly healthy bank would have done. Nevertheless, its failure to repay is just the beginning -- there are numerous other small- and medium-sized banks that are more highly leveraged than Everbright and more heavily exposed to innovative products with unknown risks.

The cash squeeze is expected to continue at least through June and July as a result of accounting practices at the end of the first half of the year and expectations that the central government will maintain tight policies on credit, not to mention other factors that could encourage capital outflows, such as the U.S. Federal Reserve reportedly considering halting its quantitative easing policies. Given the underlying factors of high leverage, slowing growth and tight government policy in a new administration that must prove its resolve in executing tough reforms, the conditions are ripe for further troubles among poorly managed banks.

At the moment, China's cash crunch resembles that of 2011 and seems mostly policy-driven. But the situation merits close attention. Stratfor has long called attention to the hidden debt eating away at the core of China's economic model, the debt surge after the global financial crisis and the constraints on Beijing's attempts to transition to something more sustainable. If more bank defaults occur and the central bank refuses to provide support, or if the central bank eases policy and bank troubles continue unabated, then authorities could soon find themselves overwhelmed. China's poor financial fundamentals point to increasing turmoil sooner or later.

Read more: China's Banking Troubles | Stratfor
Follow us: @stratfor on Twitter | Stratfor on Facebook
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DougMacG
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« Reply #509 on: June 19, 2013, 10:54:03 AM »

I have been warning of this coming for a few years now , , ,

...China's poor financial fundamentals point to increasing turmoil sooner or later.

Agree.  Rapid growth covered up a multitude of sins.  A slowing of growth exposes weaknesses.  There will be an economic reckoning.  Oddly, if Europe and the US (China's biggest customers) could get their own economic acts together, that would help China stay on track.

I don't think the political apparatus of China can withstand an economic meltdown.  Or as Wesbury might call it when 50% of loans fail, workhorse banking?
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