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Whither China

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Liang Jiajie
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Joined: Aug 21 2007

for Ryan1812

The Japanese and Chinese real estate bubbles have a similar cause: too much cheap money circulating in the economy.  When too many real estate speculators have access to low interest, no-consequence loans from state-directed banks, they can use the money to play in the real estate markets (and in the stock markets).  They then use their real estate assets as collateral for other loans for whatever purpose, so subsequent loans are often based on the value of real estate.

When the real estate bubble burst in Japan in 1990, real estate collateral wasn't enough to write off those non-performance loans, so many banks went into insolvency.  You can be sure that Beijing is aware of this lesson and wants to avoid a similar fate.  

Like Japan did in the past, Chinese banks enjoy unusually high savings rates that can finance national economic stimulus packages, like the one we saw in China recently -- the central government can quite easily direct banks to provide no-consequence loans at below-market interest rates. But Beijing estimates that 25% of the stimulus money went into speculation.

This access to cheap money was good for the Japanese economy when its export sector was in development mode and its industrial sector was sprouting, but it eventually led to dependency, waste and inefficiency, like Tokyo-style real estate speculation.  I thnk the lesson here is that, unless China wants to be detached from the international economy, it will have to move towards a free market economy.   

Edited at 1:14 PM


Fidel
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Joined: Apr 29 2004

I think what happened in Japan is that between 1945 and '85, their's was a model state-capitalist banking system financing prosperous post-war era growth. But then with the Plaza Accord, the US begged Japan to commit suicide and allow the Yen to rise in value against the dollar and making Japanese exports more expensive. The US was disappointed with Japan's rising star economy status. Japanese domestic markets were then flooded with credit at low interest rates and enabling the US to do the same in order to inflate the US economy coming out of an ideologically driven recession of short-lived tight money policies a la Friedman-neoliberalism. By 1990, cheap credit bubble burst in Japan, and they've been paying for it ever since. This led economists to joke that the Bank of Japan was acting as the Thirteenth Federal Reserve District and the Japanese government as the Republican Re-election Committee.(US economist Michael Hudson)

I don't think China will make the same mistake that the Japanese did in 1985. "Chimerica" is now looking at divorce proceedings wrt China diversifying away from the US dollar. They don't want to recycle US dollars by buying more US debt. And neither do India or Russia. They don't want to be financing US Military buildup around them with their country's savings. The SCO-Asian countries have asked the US in 2005 for a time line to pullout US military from Central Asia. They now see the US as an aggressor and lawless nation living beyond its means. This time it doesn't look as if the US will have its way with dollar imperialism.


Ryan1812
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Joined: May 20 2010

I wanted to chime in with agreement that Fidel is definatly correct that China is getting out of the US dollar market. China has now given up a lot of it's debt, ironically to Japan, in such an order that Japan now holds the the majority of American debt. I'm sure though that China still has a high percentage and that the US will still come a calling when the US attempts to invade Iran in a few years time.


Liang Jiajie
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Joined: Aug 21 2007

The Plaza Accord only aggravated Japan's loose fiscal and monetary policies of which the real estate bubble was a sympton.  Japan had been easily lending money and providing industry with resources at below-market prices for decades before the 80s bubble.  Hudson is right to emphasize that Japan's economic success was dependent on its export sector, but that's how the Japanese development model works, and China, South Korea, and Signapore worked it to their advantage.  Unfortunately for the long-term, what ultimately makes this model work is the toleration of foreign markets to accept inexpensive goods that undercut their domestic producers.  The U.S. tolerated this in return for wide influence in the formulation of Japan's foreign policy.  It was only a matter of time until the U.S. and Europe asked Japan to open its domestic markets to foreign competition.  It should be noted that the U.S. also used the same strategy to kick-start the European economy after the Second World War.

I also disagree with Hudson's characterization of Japan's developmental model as warfare against Japanese workers.  One of the mode's tenets is to sustain employment despite profitibility which is why the Ministry of Finance continued to provide funds to companies that would have otherwise went bankrupt.  So it's not at all clear that Japan abandoned its workers.

And I wouldn't describe Japan's banks as "model."  By the time of the Plaza Accord, Japanese banks were barely profitable and were loaning money to a select few clients, effectively turning the relationshp between borrower and creditor into a symbiotic one to the point where conglomerates acquired banks. This says nothing of the collusion between Ministry of Finance officials and the banks they regulated, or the substitution of personal relationships for critical screening when evaluating potential borrowers.  

Japan's export sector had become dependent on import restrictions, government subsidies, and on lenient foreign governments.  This is what China has to avoid now. 


Caissa
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Joined: Jun 14 2006

China and Taiwan have signed a historic trade pact, seen as the most significant agreement since civil war split the two governments 60 years ago.

The Economic Co-operation Framework Agreement (ECFA) removes tariffs on hundreds of products.

It could boost bilateral trade that already totals $110bn (£73bn) a year.

http://news.bbc.co.uk/2/hi/world/asia_pacific/10442557.stm


George Victor
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Joined: Oct 28 2007

LJ:

"This access to cheap money was good for the Japanese economy when its export sector was in development mode and its industrial sector was sprouting, but it eventually led to dependency, waste and inefficiency, like Tokyo-style real estate speculation.  I thnk the lesson here is that, unless China wants to be detached from the international economy, it will have to move towards a free market economy."

 

Is that like the economy in which  finance capital was bailed out to the tune of several $trillion? Perhaps we should give THAT economy another name...say, the "bailout market"...or "state reliant market"... something signifying that there is nothing "free" about it?   


Liang Jiajie
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Joined: Aug 21 2007

I'd say China needs to move towards a more rational market economy.  There's no absolutely free market economy because market economies are either regulated or manipulated by national governments, or they're a combination of both.  In the case of the American market, there obviously wasn't enough regulation or it was the wrong kind of regulation.  In China, prices and lending rates are kept artificially low by Beijing's policies.  Like the U.S. learned and then the rest of the world learned not long ago, prices can't be kept irrationally low for too long, as it breeds reckless behaviour and poorly underwritten credit.

 


Fidel
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Joined: Apr 29 2004

Rational market economy is a myth. Globalization, which is neoliberalism has been a lesson in deregulation and privatization. What it  really stands for is financial fraud and rigging markets in favour of a handful of supranational corporations, financial capitalists, and military industrialists. The market is supposed to, in theory, be an efficient means of providing goods and services to people. This market provision has been replaced by a profit-driven "killing machine" in support of America's global war on terror.(Chossudovsky and Marshall).


George Victor
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Joined: Oct 28 2007

Liang Jiajie wrote:

I'd say China needs to move towards a more rational market economy.  There's no absolutely free market economy because market economies are either regulated or manipulated by national governments, or they're a combination of both.  In the case of the American market, there obviously wasn't enough regulation or it was the wrong kind of regulation.  In China, prices and lending rates are kept artificially low by Beijing's policies.  Like the U.S. learned and then the rest of the world learned not long ago, prices can't be kept irrationally low for too long, as it breeds reckless behaviour and poorly underwritten credit.

 

 

Shedding the appellation "free" is a good start, Jiajie.  I believe we will never be able to use it again while globalization reigns.  But, hopefully, in some future, really "rational" period, when it comes home to Homo sapiens just what's been created by "Voltaire's Bastards" (with apologies to John Ralston Saul), and sovereignty is restored in the name of "rationality", we may be able to again use it to describe human decision-making.   Hopefully that will happen in time for Earth to recover.  :)


Ryan1812
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Joined: May 20 2010

I think that China's command economy right now it's what's best for China. It's not really limiting what's coming into the country, as I've seen for myself first hand. Yes, there are some things that are more expensive, but the Chinese people themselves don't midn very much. I talk openly with my Chinese coworkers about how they live in China and they are quite candid with me about how they feel. They are happy!! I talked to one about the command economy as oppose to a free market economy and she said that she prefers the command economy becuase she feels that the government knows better what the Chinese people should have and shouldn't have and are better able to protect Chinese people from harmful products. She agreed that i the west we have more access to many many things, but also said that it allows for too many products and too much competition. Again, I think this is interesting and we need to listen more to how the Chinese feel in many circumstances instead of just placing our western "preferences" onto them. Of course, I accept that not all Chinese feel this way, but we don't even know if the opinions are shared or not. I will say though, the majority of the people I work with all feel the same way with many things economic and political.


Fidel
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Joined: Apr 29 2004

Jackie Chan says Chinese people need to be 'controlled' 2009

In a free society if people can do what they want, then what about corporations? Should corporations and rich and powerful people do what they want, like working toward legalizing financial fraud and corrupting governments?


Ryan1812
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Joined: May 20 2010

Fidel wrote:

Jackie Chan says Chinese people need to be 'controlled' 2009

In a free society if people can do what they want, then what about corporations? Should corporations and rich and powerful people do what they want, like working toward legalizing financial fraud and corrupting governments?

Can I tell you somethign interesting...Jackie isn't the only person who thinks this...Chinese people do as well. It's funny, but they really do think very differently from us and it's quite enlightening. I'd like to say as wellt hat I hope people don't think that rich and powerful people and corporations should do what they want.  However, what do you do when the corporations have spread their reach across borders and we have no power to stop them from pushing their agenda.


George Victor
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Joined: Oct 28 2007

Push back and see if your theory is corrrect?


Ryan1812
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Joined: May 20 2010

The brevity of your response belies the clarity of your reasoning. Am I to assume counter-globalization would be your vaccine for the corporatist virus we are so plauged by and what China is subject to?


Fidel
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Joined: Apr 29 2004

What if free market theory is baloney, and instead what's happened since WW II has essentially been globalizing economic warfare? What if certain countries today are only feigning integration with western economies as a way of maneuvering from a position of vulnerability to one of equal footing with the enemy?  What if certain people trained in economic theory sometimes become economic hit men in preparing countries to be invaded by marauding capital? If countries open their borders to capital, does it make them as vulnerable to plunder and pillage by foreign invaders as what Poland and Czechoslovakia were in the late 1930's-40's?


Ryan1812
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Joined: May 20 2010

Fidel wrote:

What if free market theory is baloney, and instead what's happened since WW II has essentially been globalizing economic warfare? What if certain countries today are only feigning integration with western economies as a way of maneuvering from a position of vulnerability to one of equal footing with the enemy?  What if certain people trained in economic theory sometimes become economic hit men in preparing countries to be invaded by marauding capital? If countries open their borders to capital, does it make them as vulnerable to plunder and pillage by foreign invaders as what Poland and Czechoslovakia were in the late 1930's-40's?

Your comparison between Nazi Germany and global capital is probably much more accurate then some might realize. Germany was appeased over and over again and only in this was was Hitler able to build his army, grow his influence and become manifestly molevolent. The Free Market is the same, if only different in that is does not operate on the state level, but operates to bring states into the global order. It's as useless now to try and subvert the free market as it was to try and change course against Hitler in the summer of 1939. The difference, also, being that at the end of WWII, Europe was destroyed and the US came out victorious. With the free market, nobody will win and everyone will lose.


George Victor
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Joined: Oct 28 2007

Ryan1812 wrote:

The brevity of your response belies the clarity of your reasoning. Am I to assume counter-globalization would be your vaccine for the corporatist virus we are so plauged by and what China is subject to?

 

You can google up a nice piece on globalization's faltering future by our nationalist consort to the former GG (Saul) in Harper's mag...about two years ago.  The bastards are about to fail of their own accord.(and jeez, it was March 2004...where does the time go, eh?

And for chrissake, there's nothing "free" about the bloody market.  It's been bought and paid for by us, whenever the state intervened and saved "free" market asses. It's actually expensive as hell. We just have to start wielding that fact and demanding compensation along national lines and maybe even reclaiming our sovereignty in the process. And demanding a place for Canadian public investments in Canadian infrastructural growth...before the private funds snap up all the opportunities.   There is a place for the state to act, you know, even though that would be last on the mind of Jimmy the budgeter Flaherty.  But it will require "the left" to actually talk about government involvement in the "paid for" market.


Liang Jiajie
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Joined: Aug 21 2007

China strike wave continues

Workers at a Japanese-owned electronics factory in north China have been on strike for three days, the most recent dispute in a wave of labor unrest [...] Some analysts are also concerned that demands for higher wages could erode China's competitiveness as the world's low cost factory [...] Other economists believe wages in China have been too low for too long and higher wages will actually boost long-term growth, by fostering domestic demand rather than forcing China to rely on foreign exports.

As the latter analysts point out, an economy that can absorb what it produces is much less vulnerable to the machinations of a foreign country; geopolitically, this would be good news for the Party.  The export sector, whose growth relies mostly on low wages and weak enforcement of environmental laws, comprises 36% of China's economy, a figure that's much too high if China wishes to advocate more forcefully on the world stage.

"There is no way to see the future with the wage we are making. Living and working like this, my life has no direction," Zhang, a 22-year-old welder who works at a factory making exhaust systems for Honda said.  "I dream of one day buying a car or an apartment, but with the salary I'm making now, I will never succeed."

It's clear that some Chinese don't have as much patience as the Party.  The Party faces a dilemma here.  It could quash this "labour unrest" in the name of its ever important policy of social stability, or let workers continue demanding higher wages and achieve some measure of financial betterment, a long-term goal that the Party can't achieve on its own.  The paradox, of course, is that the Party seeks economic prosperity to provide social stability and legitimize its position, but it has been in the past all too willing to supress workers seeking better working conditions and higher wages.

In the short-term, the Party will have to permit China's people to demand better from their employers, otherwise it risks losing more legitimacy.


George Victor
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Joined: Oct 28 2007

As a "communist party" its legitimacy was lost some time ago.  Hopefully it will be able to re-institute some social welfare programs to keep the beggars fed and houses, even if there is no chance for medical treatment.


Liang Jiajie
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Joined: Aug 21 2007

As a communist party, yes.  But the Party refashioned itself in the early 1990s as a nationalist party and as the provider of individual economic prosperity.


George Victor
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Joined: Oct 28 2007

And like here, the individual had better keep on his/her toes! Certainly, the individual who has it "made in the shade" is not going to be so concerned about the welfare of his/her societal sisters and brothers! But that is where we left off two summers back, I believe. 


Liang Jiajie
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Joined: Aug 21 2007

Well, China's unusually high household savings rate tells us Chinese are already on their toes.  Lack of a disposable income (and other things) makes generosity hard to come by even if one is concerned about the fate of others.  That said, higher incomes and the proliferation of charitable organizations and advocacy groups would allow Chinese to donate some of that disposable income.   


Kislev25
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Joined: Jun 26 2010

Global markets and free trade are a big mistake. Self-sufficiency and minimal trade is better for the environment, creates a more stable world, by removing outside factors that can affect one's economy and keeps jobs local. We depend on China for pretty much everything, ranging from underwear to electronics. Shame on us, we allowed that to happen, because "cheap is better" and if workers are treated like slaves, as long as it's not here, we're O.K. with that.... Dependence on China and its products must end, and it will only depend on us to make that happen.


George Victor
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Joined: Oct 28 2007

You're right, K25. And it depends on "us".  Sort of like "we" should do this or that. But Great Gaia, look at all the intervening factors facing the individual that has to make the choice(s).  As an old soc. prof. used to sum it..."all other factors being equal."   I'm not sure Homo sapiens is up to it, unless facing a firing squad.  Mao tried it all...including the firing squad.

 

And we live in hope, Jiajie.  But I'm glad I came on the Earth scene when and where I did. 


Ryan1812
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Joined: May 20 2010

George Victor wrote:

You're right, K25. And it depends on "us".  Sort of like "we" should do this or that. But Great Gaia, look at all the intervening factors facing the individual that has to make the choice(s).  As an old soc. prof. used to sum it..."all other factors being equal."   I'm not sure Homo sapiens is up to it, unless facing a firing squad.  Mao tried it all...including the firing squad.

 

And we live in hope, Jiajie.  But I'm glad I came on the Earth scene when and where I did. 

Perhaps I should change my name to the perpet-samist, but I think Homo Sapiens-Sapiens isn't up to the tast of making lives better. We like our things cheap. Hell, even I do, and even in China they do. They know why their stuff is cheap, but they care little. It's a natural instinct I think to get something for the least amount as possible. I'm not an economist, but I think human nature is pretty systematic in this respect. I know that the environment means little to any major corporation unless it means they can make money, and even then, the profit motive, not the purpose motive, is more important and always will be. I take a more personal libertarian role in society, living the way that's best for me and trying to make sure other people have the same opportunities. China, as I've said in the past, isn't great, but neither is Canada, the USA, Europe or anyt other developed country. It's going to happen and we have to brace for it.


George Victor
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Joined: Oct 28 2007

The Globe informed us yesterday that "In the year 2000, there wasn't literally an ounce of gold that moved around China without passing through the People's Bank of China (but, now) there is open selling of gold to the public, new designs, new jewellery, government support for people investing in gold...".     And this is good for the Canadian market. Gold constitutes 12 per cent of the TSX.  And great for Goldcorp and Barrick, the two biggest.  Not so great for those countries where their mining operations impinge on soil and water purity. 

I'm "braced" for "it" Ryan, but I wonder if it is too late for China to go over to the Cuban model?  


Ryan1812
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Joined: May 20 2010

George Victor wrote:

The Globe informed us yesterday that "In the year 2000, there wasn't literally an ounce of gold that moved around China without passing through the People's Bank of China (but, now) there is open selling of gold to the public, new designs, new jewellery, government support for people investing in gold...".     And this is good for the Canadian market. Gold constitutes 12 per cent of the TSX.  And great for Goldcorp and Barrick, the two biggest.  Not so great for those countries where their mining operations impinge on soil and water purity. 

I'm "braced" for "it" Ryan, but I wonder if it is too late for China to go over to the Cuban model?  

GV I'm "braced" for "it" to, but I don't think "it" is coming in my lifetime. I think it's many many years away. Once the oil runs out, I'm sure another resource will be thrown into it's place until it to disapears. Easter Island was a model for the world and it's so surprising how we havn't learned from them. When it's all gone, it's all gone.


Fidel
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Joined: Apr 29 2004

They'll have open up NAFTA at some point to ensure that us serfs freezing in the dark by then have no other recourse but to rely on the market for buying scrap pieces of wood and whatever else burns from US-based scrap wood and whatever else burns companies. What's afta NAFTA?


Ryan1812
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Joined: May 20 2010

Fidel wrote:

They'll have open up NAFTA at some point to ensure that us serfs freezing in the dark by then have no other recourse but to rely on the market for buying scrap pieces of wood and whatever else burns from US-based scrap wood and whatever else burns companies. What's afta NAFTA?

I'll tell you what's after Nafta, and it's a broader framework in which North America will certainly emerge completely united in much the same wasy the EU is united. I await that day with baited breath. It's the only way Canada will survive in this market. China is on the way up and Canada, as I've said before numerous times, cannot continue to exist in a vaccum. I think the fault of many leftists, if I may, is the kneejerk nationalism that tends to accompany their leftist zeal. I however, feel different. I feel that a more united North America will result in the merging of our political systems, which the US is, in this writters opinion, far superior. Bringing in Mexico will in effect work to write the wrongs in a country that is mired in corruption and drugs. Canada will finally be able to move away from a resourced based economy wherein we can finally embrace the entreprenurialism and electronic, scientific innovation that has so often come from the US.

Now I know what many of you will say "You are a traitor," "you hate Canada," "You want to usher in the end of Canadian culture," "You want to see the end of Canadian identity as we know it," I'm not suggesting any of these things. I'm a proud Canadian, but I have also seen what the Treaty of Westphalia has resulted in. Centuries of war and strife and the creation of non-state terrorist organizations whose sole purpose is to interfere in the advancement of another nation. I see the dissolution of nation-states as the best result for the collective good. I say to those who accuse me to wanting to kill Canadian culture, do you think Canadian culture weak enough to be killed off by the dissolution of state boarders? If you are, then you have less faith in our cultural heritage then I do. And look at the EU, to those who say I want the end of Canadian identity. The French continue to ratain their own national sense of belonging, while existing within an economic and political system that is easily for the benefit of all EU countries.

Wow, what a rant.  The answer to China is to merge the North American markets completely and entirly, to merge our collective economies, politics and societies. After all, we aren't really that different from our American cousins. We have only been led to think so by those who want a monopoly on our countries resources and who want to keep us divided. T


Lard Tunderin Jeezus
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Joined: Aug 27 2001

It was Einstein who said that the definition of insanity is doing the same thing over and over again, expecting a different result.

By that definition, your prescription for Canada is insanity, Ryan1812.

As is your expectation that you can continue in your 'libertarian' selfishness without being responsible for destroying our children's future.


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