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China Economy Watch

August 2010 - March 2012

Update 1 March 2012: China's new Labor Contract Law creates unemployment

20 million Chinese workers have lost their jobs since the 2007 GFC. An Asian Development Bank Institute report says that one cause was the introduction of new Labor Contract laws in 2008. These restrict the ability to hire and fire. Summary and report here.

Update 21 April 2011: Unrest in China?

There's continuing speculation of brewing unrest in China. This trucker strike in Shanghai fuels the speculation.

Update April 2011 from John Findley 'on the ground' in China

Hi Ken,

I've started to put some thoughts together on China.

As I started, I realised there is so much to say about China; some positive, some negative. It might present a confusing picture, so I thought maybe I could split my thoughts into a "mini-series" for you.

For starters, I have great admiration for the high speed rail network now operational (equivalent of Sydney to Melbourne takes 3 hours). There are vast highway systems criss-crossing China being developed, bringing goods to markets. Ports are being developed. Just about everyone in the cities has access to cheap high speed broadband, not fast enough for downloading movies, as is the major usage of fibre optic systems in USA and which will most likely be the main use in Australia's NBN, but fast enough for commerce. China is spending on important infrastructure, in Australia we don't seem to be able to mobilise.

Next, I am greatly dismayed by the levels of pollution I continue to see in China, they are just getting worse by the year. Whilst I have little research capability with which to match Professor Garnaut, I do have 25 years on the road in China.

I see from the reports of power consumption, that China is the world's largest consumer. The electricity is generated in thermal power stations. China is the world's largest coal miner, but the quality is poor; it is high sulphur and high ash.

In fact, every tonne of Australian coal sold to China IMPROVES the global emissions because Australian coal is much better quality.

But what do the goof-balls in Canberra want to do? They want to tax Australian miners and manufacturers out of existence and send our production to China, where they don't give a damn about the environment.

Professor Garnaut tells us China is leading the green revolution; in fact China is merely capitalising on that revolution by becoming the largest manufacturer of wind turbines and photovoltaic cells for export to the gullible Westerners. In so doing, they pay no attention to the pollution they generate.

How long will the economic boom last?

I do not have the Mandarin skills of Kevin Rudd, but then again, I have lived and worked in real China, not in the cloistered, misrepresentation and deception-filled environment of the diplomatic corps' enclave in Beijing.

In my travels I see the evidence of 200 million Chinese moving into a propertied middle class and I see the evidence of the 1.2 billion living in pretty bad conditions. The 1.2 billion all want the goods enjoyed by the new middle class, such as apartments with washing machines, fridges, cars, etc. if the government of China does not deliver, there will be social unrest. It is my belief that the economic boom will continue for at least a generation. That entails steel production and cement production. These need coal in their production processes; the goof-ball Greens must think that there is some sort of new cement mill that can be fired with CO2 and its only emission will be endangered species.

Blah, blah, blah ... I could go on and on about the naivety of our politicians and the navel gazing of the Greens, but I lack the journalistic skills and the research capability.

Anyway, as a small, independent businessman, I have to get on with making a dollar; 7 days per week for me. Submissions to write, clients to see, even on Sunday in Shanghai, so I must stop indulging myself and get back to work.

Cheers,
John Findley

Update 29 December 2010: A property bubble?

2010 has proven more and more that the health of the global economy is tied to China. Will the China surge continue?

Former Prime Minister John Howard says in his autobiography, Lazarus Rising, 'China will grow old before she grows rich'. This view mirrors that of demographic economists such as HS Dent.

The demographic prediction for China is that the one-child policy will result in a massive rise in the percentage of the aged and non-working population. This will blunt China's growth, replicating the same demographic experience of Japan from the 1990s. But this shift shouldn't happen until around 2020. According to one commentator (the story includes some good graphs):
    '... China's population is expected to grow from 1.32 billion today (2008) to 1.46 billion in 2030, after which it will decline slowly, to around 1.42 billion in 2050. Its working population is currently around 840 million. This component of the population will rise in the next ten years to around 910 million (2018) and then will decline quite rapidly to around 790 million by 2050.'
On this analysis, the global economy has about a one-decade window in which China should continue to surge. This means that Chinese economic management is critical, but it seems that every aspect of Chinese business is controlled by the Communist Party. Can the CCP succeed and control the property bubble, for example?
  • John Findley, an ICA follower, has lived and worked in China for 25 years. He's sent us an analysis of the Chinese property 'bubble', arguing that it's probably not a bubble. He also reflects on the backwardness of Australia when it comes to infrastructure development compared with China.
  • China's latest efforts to control inflation can be found here and here;
  • a CNBC video debate on whether there's a Chinese property bubble;
  • and a perspective on consumer supply problems in China.

Update 28 September 2010: Two different views

The Age says that China will continue to surge even though Strator claims that it's an inherently unstable economic system.

Update 20 August 2010: A property bubble?

But here's one analysis of the Chinese property market which says it's the mother of all property bubbles.



Update 18 August 2010: China Number 2

China has just passed Japan as the world's second largest economy. It could become the largest global economy by 2030. Here's an analysis from the New York Times. And here's an analysis from 'on the ground'. It provides a rare insight from someone who knows China well.

The Chinese economy: Interesting links August 2010

Stratfor's risk analysis on China

Chinese Communist Party politics explain economic policy

First warnings of bank collapses in China

An excellent economic analysis of China from Pivot Capital

Al-Jazeera's video of China's brand new 'empty' city

Predicting a China collapse

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Submitted Comments

On 18 April 2011, Arno from Perth wrote

Having also just returned from China, I would like to add my agreement to some of the points raised regarding China.

There is no doubt in my mind of the massive investment by the Chinese in the development of infrastructure. It is far from complete and the old China and the new China seem for the moment to co-exist somewhat in harmony. It is quite true that poverty is observable in almost every direction but the real surprise is the rapid take up of Western life style.

I am seriously looking at going "offshore" and this desire is not necessarily driven by the attractions, although many, of the Chinese experience, but equally if not more so by the disappointment that I feel regarding the directions being taken by the current Australian government. It is as if the Australian people are being misled or misguided. We really do need (as Ken so often points out) more entrepreneurial activity and we need to look to embracing our geographical position and our relations with our neighbours and not just token lip service.

Oppressing the likes of small business people, contractors and small business people at large will not stimulate our economy or enrich our society and will contribute to the demise of a vibrant sector of our economy. I have met many people who want out of the Australian business environment and I, for one, will continue to pursue my own goal of leaving this system for what I feel are the greener pastures of other Asian countries.