8 ms·

Zombie Factories Stalk the Sputtering Chinese Economy

39 points by MarkMc 11y ago

PeterisP 11y ago
One significant way where a free market economy has an advantage in efficient resource allocation over a planned economy is not the priority allocation of resources to successful enterprises/groups/economic niches (both styles can do that), but a rapid, ruthless deallocation of resources from unsuccessful enterprises, so they can then be used elsewhere. Planned economies could do that in theory, but this has always been their weak point in practice. Bankruptcies are an important instrument for the overall health of the economy. Yes, there is a short term hurt during the reallocation. But if many companies are in trouble keeping afloat, then a few of them sinking will free up resources (workers, capital, materials, land/buildings) so those resources are cheaper for the remaining, slightly more successful companies, allowing them to come back above water.
- conceit 11y ago
  How do you think is planned economy unable to direct this effect? Maybe random faults even out arbitrary bias that would be introduced by regulation. How is a government spending tons on military not partially a planned economy?
  - zardo 11y ago
    Would you offer up the military industrial complex as an example of a planned economy NOT wasting money on dead projects?
    - deleted 11y ago
      [deleted]
  - PeterisP 11y ago
    Planned economy might direct this effect, but they don't - if the system gives leaders an option to prolong the agony, then they invariably use it, and the system suffers from it. For examples in planned economies, USSR had a lot of examples, and this article is another. For examples in otherwise-freemarket-but-not-in-this-case economies, see "too big to fail" situation with bank bailouts, and your own example on USA military industrial complex - where failed projects get propped up instead of allowing them to die as they should, thus in the end harming the long-run perspective in the whole sector.
    - tim333 11y ago
      I kind of lived through this effect with the decline of the British coal industry which was nationalised at the time. It became uncompetitive mostly because British coal was hard to get at compared to say open pit mining in Australia, so money was lost on each ton dug up. But the argument against closing it was the miners needed jobs, it was hard for them to switch to other work, sacking them would kill the economy in mining towns and so on. It was easier for the government to pay the losses from taxes on the general population who didn't complain very much, than to fire a bunch of miners who would complain very loudly. And who did of course when Thatcher eventually fired them. With hindsight it would have been better for the industry to decline gradually than laying off everyone at once.
  - gerbal 11y ago
    Planned economies are not inherently unable to direct said effect. They just have a harder time reallocating resources from failing enterprises because of the political nature of resource allocation. Look at a large corporation like IBM some floundering business units persist for decades because of the internal political cost of ending them when economically it is the prudent thing to do.
- irln 11y ago
  This is NOT a sarcastic comment nor a defense of centrally planned economies: which country(s) has a free market economy post the 2008 financial crisis?
  - toomuchtodo 11y ago
    You could even argue (and I don't believe this is a bad thing) that the way the US government handled GM's default was very much a "planned economy" sort of move, which resulted not only in the successful exit from crisis for the new organization, but also the prevention of a cascading economic failure (EDIT: hundreds of thousands of jobs were at stake). A completely free economy nor a planned economy are ideal; a mix of the two with proper leadership seems to be the path to success. (EDIT: Most importantly, those at the top must be genuine, honest, and transparent. Corruption is a poison in this case, and must be avoided at all costs. You must want success for the stakeholders.)
    - kwhitefoot 11y ago
      Yes, but who are the stakeholders? In the eyes of those at the top that is.
      - toomuchtodo 11y ago
        That's my point. I believe (and this is only my opinion, I could be wrong) that Obama truly believed the employees of GM and associated suppliers/entities were his stakeholders, and he acted to protect them (as well as the much larger economy surrounding GM as a whole). How do you ensure "decent people" are always at the top? I don't know. I'm not a terribly big fan of Obama (drone strikes, supporting the NSA), but he's done an OK job. Now Elizabeth Warren and Rich Cordway (director of the Consumer Financial Protection Bureau)? They're kicking all sorts of ass for the general public. Find good people. Put them in charge. Get out of their way.
  - obrero 11y ago
    Exactly...we hear "free market economy" "advantage in efficient resource allocation" talk when Wall Street demanded deregulation, and that Glass-Steagall be repealed. Then when the rentiers start going broke it becomes "too big to fail" and President Bush signing TARP into law. The same thing happened in the 1980s - Reagan deregulated the banks, rentiers made money, then the S&Ls went bankrupt and the taxpayer was on the hook for the bill. Then we have the 1979 government bailout of Chrysler...the 2009 government bailout of Chrysler...this company seems to need a bailout every thirty years...with some of the same talking heads shouting how the banks need to be bailed out denouncing the "socialism" of bailing out Chrysler. Of course there was the 1971 government bailout of Lockheed as well. Every year the US government sends $500 million to Iowa in direct farm subsidies...Senators Jodi Ernst and Chuck Grassley are against "socialist" measures that tend to go more to big cities in other states, but of course hypocritically demand the government give corporate welfare to the farmers in their state. Texas gets $400 million a year in direct farm subsidies, with the same hypocrisy surrounding it. At least Democrats are honest about what they're doing. Then of course we have the net neutrality debates, with the backers of the AT&T/Verizon monopolists saying "get the government hands off the Internet". This is a laugh to people like me (and some others here I'm sure), who remember the days of ARPAnet and NSFnet and sri-nic.arpa and nic.ddn.mil and so forth. Some people act like Red Guard students are still marching through Peking, throwing portraits of the Buddha in bonfires during a Smash the Four Olds campaign. In the modern day, the economy of the PRC does not operate all that differently than that of the US or Germany or some other country in terms of a "free market". The only different for the PRC is its economy has been booming since the 1980s much more than these other economies. Since 1990, every year the PRC's economy has grown 7% or more. That this might slow down for this quarter is what is eliciting surprise. Looking at the US economic downturns after 2000, and after 2008, it seems incredible that so many American pundits point to a slow quarter in the PRC's growth as signs of how they've been heading in the wrong direction all along etc. 7-14% economic growth every year since 1990 looks pretty good to me.
contingencies 11y ago
Wow, yet another anti-China article from NYT. I can't get over the volume and frequency. Things look pretty good on the ground here!
- seanmcdirmid 11y ago
  Yes, if you get all your news from xinhua then it definitely looks much more negative. But NYT is great if you want to know more than what the government wants you to know; the government doesn't block NYT because they are wrong!
  - IIAOPSW 11y ago
    The fact that the person above wrote in English and is on this site means they are likely an expat/ABC. Thus your accusation that they get all their news from xinhua is a laughable ad hominid.
    - enraged_camel 11y ago
      >>The fact that the person above wrote in English and is on this site means they are likely an expat/ABC. That's one possibility. They can also be a Chinese national who is fluent in English. I don't know if you're aware but there are many such people.
      - IIAOPSW 11y ago
        seanmc accused contigenics of "only getting their news from xinhua". This is on intellectual par with responding to a slightly liberal argument by saying "stop watching fox news". I merely speculated on contigenics nationality to point out the that he/she likely does not only watch xinhua. I stand by my speculation, but it is not central to the point I was trying to make. The point I was trying to make is "Let's not dismiss every pro China comment as CPC shilling".
        seanmcdirmid 11y ago
aurelianito 11y ago
Reading it reminded me of the articles in the same tone that were written against Argentina, also asking for more misery for the people here. They were wrong. Argentina recovered from e 2001 crisis by kicking the IMF out of the country. The IMF uses this kind of discourse to oppress countries. I hope China's government will be wise enough to not let the IMF bankrupt them.
- adventured 11y ago
  Argentina didn't recover by kicking the IMF out. Their growth over that time is almost identical to Chile and Brazil. It began at the exact same time all economies began expanding, including Colombia, Peru, and Ecuador as well. The expansion was a macro effect, not something Argentina did. Worse, Argentina's GDP has hardly moved in 20 years on an inflation adjusted basis. Their debt is soaring faster than during the 2001-02 crisis. [1] Last year their economy had 40% to 60% inflation [2], and is in dire condition. I'd say Argentina is doing a fine job of bankrupting itself. I'm just wondering who they're going to blame this time. [3] [1] http://www.bloomberg.com/news/articles/2015-06-01/argentina-is-racking-up-debt-even-faster-than-during-its-2001-2002-crisis http://www.bloomberg.com/news/articles/2015-06-01/argentina-... [2] http://www.bloomberg.com/news/articles/2015-03-07/argentina-economy-can-t-take-40-percent-inflation-massa http://www.bloomberg.com/news/articles/2015-03-07/argentina-... [3] http://www.bloomberg.com/news/features/2015-07-17/-no-why-argentina-refuses-to-pay-its-debts http://www.bloomberg.com/news/features/2015-07-17/-no-why-ar...
  - ghaff 11y ago
    This article from The Economist a while back [1] gives what seems to be a pretty good rundown of Argentina's rather sad economic and political history. [1] http://www.economist.com/news/briefing/21596582-one-hundred-years-ago-argentina-was-future-what-went-wrong-century-decline http://www.economist.com/news/briefing/21596582-one-hundred-...
- AJ007 11y ago
  China isn't dependent on external creditors. Greece would be a better comparison. If one wishes to participate in global trade then unfortunately there isn't much a country can do once it has borrowed money in a foreign currency. Germany just finished paying off debt dating back to World War I reparations last year. Greece, Argentina may have a hundred years to go before they are back to "normal." China is more in a situation where they have let things get far out of balance. It is hard to sympathize. Irreversible environmental destruction on a massive scale has occurred across the world trying to rush the delivery of raw material so that China could construct infrastructure rapidly. Much of this may not have even been built in a quality that will last for a long time. Fast growth always creates imbalances -- whether you are a country or a private company. China now has to decide how they will re-balance. For now they are making the decisions for themselves, however as a participant in global trade the actions of many other countries will provide constraints.
peter303 11y ago
Sounds like the US oil industry. Many wells that should be shut down as uneconomical at current oil prices are still producing. This is to service an estimated $150 billion in loans from banks and hedge funds.
- bpodgursky 11y ago
  Just because it's uneconomical to drill a well at a given price doesn't mean it's not profitable at the margin to keep pumping from it, given that the drilling is a sunk cost.
fredgrott 11y ago
So basically they need to invest in the economy they cannot plan for consumer.. the only similar case Germany during WWII 250% or more debt over GDP but GDP was not expanding due sole effort on military building

39 points by MarkMc 11y ago

One significant way where a free market economy has an advantage in efficient resource allocation over a planned economy is not the priority allocation of resources to successful enterprises/groups/economic niches (both styles can do that), but a rapid, ruthless deallocation of resources from unsuccessful enterprises, so they can then be used elsewhere. Planned economies could do that in theory, but this has always been their weak point in practice. Bankruptcies are an important instrument for the overall health of the economy. Yes, there is a short term hurt during the reallocation. But if many companies are in trouble keeping afloat, then a few of them sinking will free up resources (workers, capital, materials, land/buildings) so those resources are cheaper for the remaining, slightly more successful companies, allowing them to come back above water.

conceit 11y ago
How do you think is planned economy unable to direct this effect? Maybe random faults even out arbitrary bias that would be introduced by regulation. How is a government spending tons on military not partially a planned economy?
- zardo 11y ago
  Would you offer up the military industrial complex as an example of a planned economy NOT wasting money on dead projects?
  - deleted 11y ago
    [deleted]
- PeterisP 11y ago
  Planned economy might direct this effect, but they don't - if the system gives leaders an option to prolong the agony, then they invariably use it, and the system suffers from it. For examples in planned economies, USSR had a lot of examples, and this article is another. For examples in otherwise-freemarket-but-not-in-this-case economies, see "too big to fail" situation with bank bailouts, and your own example on USA military industrial complex - where failed projects get propped up instead of allowing them to die as they should, thus in the end harming the long-run perspective in the whole sector.
  - tim333 11y ago
    I kind of lived through this effect with the decline of the British coal industry which was nationalised at the time. It became uncompetitive mostly because British coal was hard to get at compared to say open pit mining in Australia, so money was lost on each ton dug up. But the argument against closing it was the miners needed jobs, it was hard for them to switch to other work, sacking them would kill the economy in mining towns and so on. It was easier for the government to pay the losses from taxes on the general population who didn't complain very much, than to fire a bunch of miners who would complain very loudly. And who did of course when Thatcher eventually fired them. With hindsight it would have been better for the industry to decline gradually than laying off everyone at once.
- gerbal 11y ago
  Planned economies are not inherently unable to direct said effect. They just have a harder time reallocating resources from failing enterprises because of the political nature of resource allocation. Look at a large corporation like IBM some floundering business units persist for decades because of the internal political cost of ending them when economically it is the prudent thing to do.
irln 11y ago
This is NOT a sarcastic comment nor a defense of centrally planned economies: which country(s) has a free market economy post the 2008 financial crisis?
- toomuchtodo 11y ago
  You could even argue (and I don't believe this is a bad thing) that the way the US government handled GM's default was very much a "planned economy" sort of move, which resulted not only in the successful exit from crisis for the new organization, but also the prevention of a cascading economic failure (EDIT: hundreds of thousands of jobs were at stake). A completely free economy nor a planned economy are ideal; a mix of the two with proper leadership seems to be the path to success. (EDIT: Most importantly, those at the top must be genuine, honest, and transparent. Corruption is a poison in this case, and must be avoided at all costs. You must want success for the stakeholders.)
  - kwhitefoot 11y ago
    Yes, but who are the stakeholders? In the eyes of those at the top that is.
    - toomuchtodo 11y ago
      That's my point. I believe (and this is only my opinion, I could be wrong) that Obama truly believed the employees of GM and associated suppliers/entities were his stakeholders, and he acted to protect them (as well as the much larger economy surrounding GM as a whole). How do you ensure "decent people" are always at the top? I don't know. I'm not a terribly big fan of Obama (drone strikes, supporting the NSA), but he's done an OK job. Now Elizabeth Warren and Rich Cordway (director of the Consumer Financial Protection Bureau)? They're kicking all sorts of ass for the general public. Find good people. Put them in charge. Get out of their way.
- obrero 11y ago
  Exactly...we hear "free market economy" "advantage in efficient resource allocation" talk when Wall Street demanded deregulation, and that Glass-Steagall be repealed. Then when the rentiers start going broke it becomes "too big to fail" and President Bush signing TARP into law. The same thing happened in the 1980s - Reagan deregulated the banks, rentiers made money, then the S&Ls went bankrupt and the taxpayer was on the hook for the bill. Then we have the 1979 government bailout of Chrysler...the 2009 government bailout of Chrysler...this company seems to need a bailout every thirty years...with some of the same talking heads shouting how the banks need to be bailed out denouncing the "socialism" of bailing out Chrysler. Of course there was the 1971 government bailout of Lockheed as well. Every year the US government sends $500 million to Iowa in direct farm subsidies...Senators Jodi Ernst and Chuck Grassley are against "socialist" measures that tend to go more to big cities in other states, but of course hypocritically demand the government give corporate welfare to the farmers in their state. Texas gets $400 million a year in direct farm subsidies, with the same hypocrisy surrounding it. At least Democrats are honest about what they're doing. Then of course we have the net neutrality debates, with the backers of the AT&T/Verizon monopolists saying "get the government hands off the Internet". This is a laugh to people like me (and some others here I'm sure), who remember the days of ARPAnet and NSFnet and sri-nic.arpa and nic.ddn.mil and so forth. Some people act like Red Guard students are still marching through Peking, throwing portraits of the Buddha in bonfires during a Smash the Four Olds campaign. In the modern day, the economy of the PRC does not operate all that differently than that of the US or Germany or some other country in terms of a "free market". The only different for the PRC is its economy has been booming since the 1980s much more than these other economies. Since 1990, every year the PRC's economy has grown 7% or more. That this might slow down for this quarter is what is eliciting surprise. Looking at the US economic downturns after 2000, and after 2008, it seems incredible that so many American pundits point to a slow quarter in the PRC's growth as signs of how they've been heading in the wrong direction all along etc. 7-14% economic growth every year since 1990 looks pretty good to me.

contingencies 11y ago

Wow, yet another anti-China article from NYT. I can't get over the volume and frequency. Things look pretty good on the ground here!

seanmcdirmid 11y ago
Yes, if you get all your news from xinhua then it definitely looks much more negative. But NYT is great if you want to know more than what the government wants you to know; the government doesn't block NYT because they are wrong!
- IIAOPSW 11y ago
  The fact that the person above wrote in English and is on this site means they are likely an expat/ABC. Thus your accusation that they get all their news from xinhua is a laughable ad hominid.
  - enraged_camel 11y ago
    >>The fact that the person above wrote in English and is on this site means they are likely an expat/ABC. That's one possibility. They can also be a Chinese national who is fluent in English. I don't know if you're aware but there are many such people.
    - IIAOPSW 11y ago
      seanmc accused contigenics of "only getting their news from xinhua". This is on intellectual par with responding to a slightly liberal argument by saying "stop watching fox news". I merely speculated on contigenics nationality to point out the that he/she likely does not only watch xinhua. I stand by my speculation, but it is not central to the point I was trying to make. The point I was trying to make is "Let's not dismiss every pro China comment as CPC shilling".
      - seanmcdirmid 11y ago

aurelianito 11y ago

Reading it reminded me of the articles in the same tone that were written against Argentina, also asking for more misery for the people here. They were wrong. Argentina recovered from e 2001 crisis by kicking the IMF out of the country. The IMF uses this kind of discourse to oppress countries. I hope China's government will be wise enough to not let the IMF bankrupt them.

adventured 11y ago
Argentina didn't recover by kicking the IMF out. Their growth over that time is almost identical to Chile and Brazil. It began at the exact same time all economies began expanding, including Colombia, Peru, and Ecuador as well. The expansion was a macro effect, not something Argentina did. Worse, Argentina's GDP has hardly moved in 20 years on an inflation adjusted basis. Their debt is soaring faster than during the 2001-02 crisis. [1] Last year their economy had 40% to 60% inflation [2], and is in dire condition. I'd say Argentina is doing a fine job of bankrupting itself. I'm just wondering who they're going to blame this time. [3] [1] http://www.bloomberg.com/news/articles/2015-06-01/argentina-is-racking-up-debt-even-faster-than-during-its-2001-2002-crisis http://www.bloomberg.com/news/articles/2015-06-01/argentina-... [2] http://www.bloomberg.com/news/articles/2015-03-07/argentina-economy-can-t-take-40-percent-inflation-massa http://www.bloomberg.com/news/articles/2015-03-07/argentina-... [3] http://www.bloomberg.com/news/features/2015-07-17/-no-why-argentina-refuses-to-pay-its-debts http://www.bloomberg.com/news/features/2015-07-17/-no-why-ar...
- ghaff 11y ago
  This article from The Economist a while back [1] gives what seems to be a pretty good rundown of Argentina's rather sad economic and political history. [1] http://www.economist.com/news/briefing/21596582-one-hundred-years-ago-argentina-was-future-what-went-wrong-century-decline http://www.economist.com/news/briefing/21596582-one-hundred-...
AJ007 11y ago
China isn't dependent on external creditors. Greece would be a better comparison. If one wishes to participate in global trade then unfortunately there isn't much a country can do once it has borrowed money in a foreign currency. Germany just finished paying off debt dating back to World War I reparations last year. Greece, Argentina may have a hundred years to go before they are back to "normal." China is more in a situation where they have let things get far out of balance. It is hard to sympathize. Irreversible environmental destruction on a massive scale has occurred across the world trying to rush the delivery of raw material so that China could construct infrastructure rapidly. Much of this may not have even been built in a quality that will last for a long time. Fast growth always creates imbalances -- whether you are a country or a private company. China now has to decide how they will re-balance. For now they are making the decisions for themselves, however as a participant in global trade the actions of many other countries will provide constraints.

peter303 11y ago

Sounds like the US oil industry. Many wells that should be shut down as uneconomical at current oil prices are still producing. This is to service an estimated $150 billion in loans from banks and hedge funds.

bpodgursky 11y ago
Just because it's uneconomical to drill a well at a given price doesn't mean it's not profitable at the margin to keep pumping from it, given that the drilling is a sunk cost.

fredgrott 11y ago

So basically they need to invest in the economy they cannot plan for consumer.. the only similar case Germany during WWII 250% or more debt over GDP but GDP was not expanding due sole effort on military building