Saturday, January 24, 2009

China Has A Few Economic Problems

China has a few economic problems. One is the slow down of the global economy. But that is not the only one.

"Our country's economic and social development faces some stark conflicts and problems," said the official summary of the meeting in the People's Daily.

"At present, the main ones are the impact of the international financial crisis and the clear slowing of world economic growth," it said. "Businesses are in hardship and unemployment problems are stark."

But China's difficulties with struggling businesses and growing joblessness are compounded by deeper problems with the country's "crude mode of development," which has bought growth only at a heavy cost, said the report from the meeting.

It listed an imbalanced economic structure, feeble levels of innovation, and inefficient growth as among these deeper strains.
Feeble levels of innovation in China? That sounds like an opening for the USA.

So how about some numbers?
Industrial production is plunging around the world as demand dries up. China’s electricity output fell by 9.6 percent in November from a year earlier, today’s figures showed. Pig- iron production fell 16.2 percent. Raw steel declined 12.4 percent. Steel products tumbled 11 percent.

Maanshan Iron & Steel Co. has cut output because of tumbling demand from builders and automakers.

President Hu Jintao visited Angang Steel Co. during a three-day visit to Liaoning province, a center for heavy industry, the state-run Xinhua News Agency reported yesterday. He pledged efforts to maintain stable growth in the face of “serious challenges and difficulties.”

Vehicle production fell 15.9 percent and car output declined 10.1 percent.

“The number is quite awful,” said Kevin Lai, an economist with the Daiwa Institute of Research in Hong Kong. “Enterprises continue to run down inventories and inevitably will reduce production quite massively.”
So how is the brilliant Mr. Obama doing with his administration's relationship to China? Not too well. But I think we should give Mr. Obama some time. After all he has only been on the job a few days. I'm sure that with just a little more effort and attention he could do worse.
Secretary of State Hillary Rodham Clinton has said no nation is more important to the United States than China. But ties between the two powers may be off to a rocky start just days into the Obama administration.

In his inaugural address Tuesday, President Barack Obama spoke of how earlier generations of Americans had "faced down fascism and communism." China's state broadcaster quickly faded out the audio of its live broadcast, the camera cutting back to a flustered studio anchor.

Then, on Thursday, Obama's choice to lead the Treasury Department, Timothy Geithner, wrote that Obama believes China is "manipulating" its currency, which American manufacturers say Beijing does to make its goods cheaper for U.S. consumers and American products more expensive in China.
If the world is not buying China is going to use the money it has saved up to try and shore up its internal economy.
In an effort to hold back the domestic effects of the global downturn, China is starting to spend hundreds of billions of dollars on new highways, railroads and other infrastructure projects.

The stimulus plan, one of the world’s largest, promises to carry the modernity of China’s coasts deep into the hinterlands, buying the kind of great leap forward it took the United States decades — and a world war — to build, and priming China for a new level of global competition.

As President Obama and Congress draft an $825 billion stimulus plan for the United States, China is already two months into its effort. And while Democrats have put aside calls for big transportation projects, with the House bill allocating less than 5 percent of spending for the construction of highways, rail lines and mass transit programs, China is furiously pouring concrete and laying rails.

A $17.6 billion passenger rail line across the deserts of northwest China, a $22 billion web of freight rail lines in Shanxi province in north-central China and a $24 billion high-speed passenger rail line from Beijing to Guangzhou here in southeastern China are among the biggest projects. But extra spending is being planned in practically every town, city and county across the country.
The shift to internal consumption could be a big boost to China's economy and help stabilize the country economically. Now if we could only get the US Congress to see the light and allow for more domestic oil production we might be able to get some similar effects. Unfortunately Obama and his cronies hate oil. Unless it comes from Saudi Arabia.


finn said...

What do you think will happen when the US cannot honour its maturing bonds, largely in the coffers of the Chinese and the Japanese central banks? OK the US coult honor the bonds but only at the cost of closing its public schools and scaling down its military power.

Most say it will come to a mean crunch inside the US, with civil unrest, mass poverty, mass emigration and so on.

I say it will come to nothing - Obama and the press will invent the parole of the mean yellow-skinned empires, who lended all this money to the democratic US only to get the chance to strangle the great nation. They did it because they hate democracy, just lika Osama Bin Laden. So the US will simply say "piss off, we'll pay you the money back as and when we can afford to. Call us again in 50 years". That in turn will put Japan and China in economic trouble, since they have all that debt on the other side of their balance sheet - and suddenly have to write it down to nothing. And with the gigantic US army still in place, there is nothing they can do about it.

M. Simon said...

What do you think will happen when the US cannot honour its maturing bonds, largely in the coffers of the Chinese and the Japanese central banks?

Honour them with what? Dollars? No problem. We can always print more. We are not on the gold standard.

And what are they going to do with the dollars? Spend them in the USA? Fine. That creates demand. Trade them outside the USA? What is the problem?

We are not letting foreigners buy major chunks of the economy. They can buy goods and services.

US Currency is holding up rather well to all but the Japanese Yen. And the Japanese are thinking of increasing their money supply because the high yen is hurting exports.

Now we may be in a fools paradise. The deal is all the fools are in the same paradise. It kind of keeps the fools focused.

LarryD said...

Whose money is the Treasury borrowing when Congress spends more than revenue?

Well, the Chinese provide a fair chunk of it. Along with japan, Saudi Arabia, et al.

With the world wide economic recession, China and the other countries aren't going to have as much surplus to lend us. And China, at least, may well start spending not merely out of current revenues, but out of savings.

I.e., China may stop rolling over all of it's stash of US Treasury Bonds, let alone adding to them. Which means the Treasury very well might be unable to sell enough bonds to cover Washington's deficits. Then what?

M. Simon said...

Inflation is the usual way out.