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So the worst case scenario is that Chinas GDP growth drops to "only" 6%, and will become the largest economy in the world by the end of this year. We'd be happ

So the worst case scenario is that Chinas GDP growth drops to "only" 6%, and will become the largest economy in the world by the end of this year. We'd be happy in Europe with 3% GDP growth, and I'm sure the US wouldn't be unhappy about that too.

Lost_BiomedE 12y ago
China is in for some bad times. They have pumped way more money into their economy than the FED has. A lot of that money went into real estate: China's 15 Trillion pump: http://www.zerohedge.com/news/2013-11-25/chart-day-how-chinas-stunning-15-trillion-new-liquidity-blew-bernankes-qe-out-water http://www.zerohedge.com/news/2013-11-25/chart-day-how-china...
seanmcdirmid 12y ago
China needs at least 6 or so % to keep up with new workers coming into the labor market; also, wealth is very unevenly distributed, which means any slowdown in growth will hit lower income workers especially hard. The party is extremely aware that 3% growth in China could lead to another revolution.
simonh 12y ago
The Chinese government believes that China needs a growth rate close to 10% in order to absorb expansion in the available labour force. Already Chinese universities are churning out far more graduates than there are new graduate level jobs. There's also a steady stream of labor from the countryside seeking work in the cities and factories. The economy has barely been keeping up with demand for jobs as it is. The other problem is that local governments in China are massively overextended with vast outstanding debts, mostly backed by property. Chinese local officials are routinely rotated between regions, so they have little long term commitment to the area they run and are only interested in results during their tenure. This has lead to a generation of highly short-term management decisions, ramping up debt to fund prestige projects, with chronic lack of long term planning or infrastructure investment. Much of Chinese domestic driven growth is spending wasted on white elephant construction projects. When those turn out to be worthless, the entire Chinese domestic economy will crash. A third issue is that up to half of the populations of Chinese cities are technically migrant labour and, even if they've lived in the city for generations, they are technically not residents and have no claim on local services or any welfare support and no pensions. When the bubble bursts they'll be left with nothing. Either the flow of labour from the countryside to the cities will reverse, or the system will break.
- rwmj 12y ago
  The fourth issue is the one child policy which will cause Japan-like stagnation in a few years.
  - josai 12y ago
    China's birth rate is above a huge number of countries, including Holland, Switzerland, Germany and Canada. It's a problem, yes, but let's not overstate it.
    - seanmcdirmid 12y ago
      People are still getting richer, so birth rates will continue to fall. Besides, it is important to look at where the births happen; i.e. not in the cities, but in the country side.
    - roel_v 12y ago
      China: 1.58 / woman, Netherlands: 1.76, Switzerland: 1.52, Germany: 1.36, Canada: 1.63. So yes all of them below replacement rate, but then again, they all have vastly different demographic and economic profiles from China - most notably in savings per person and reserved money for pensions, of which there is basically none in China. Well unless you count 'current market valuations' for all that empty real estate, that is smirks A country can afford, or at least isn't hurt that badly by, low birth rates when those who are born don't have to support (or at least not fully) the elderly - I don't think it's reasonable to put China on one line with the other countries you mention.
      - throwawayaway 12y ago
        Thanks for your statistics. I'd rather people didn't smirk when they are predicting other people's misfortune. Not everyone has the benefit of your foresight or hindsight.
        roel_v 12y ago
        ? I'm not smirking at other people's misfortune, just at the idiocy of an economic system engineered to shackle the people that have to live their lives under it to workarounds like this ('this' = use assets that could otherwise be used economically productive as stores of wealth), and at the arrogance of claiming a centrally-led economy can provide both prosperity and freedom - two things I find axiomatically fundamental human rights.
jerf 12y ago
"So the worst case scenario is that Chinas GDP growth drops to "only" 6%," Goodness gracious, aren't we trusting of predictions of the scope of economic downturns. People aren't very good at predicting such things, and to be clear, I fully mean that in both directions, not that people always under-predict. I don't know about "worst case" but a very plausible scenario is "revolution in China", and whatever long term effects that may have in the short term it would be a massive, globe-spanning economic contraction. That's at least in the single-digit percentages of probability. I think there's a lot of hanky-panky going on in the books over there, and once there's no longer enough credit to cover over the problems, the full depth of the rot is likely to surprise everyone. (Or at least everyone who has somehow made it to 2014 trusting strong centralized Communist governments to be truthful about their economic health, but, alas, that still seems to be a lot of people. [1]) Just what is making it out of the firewall alone is enough to give me the heebie-jeebies and I seriously doubt I'm getting even the tip of the iceberg. [1]: Before anybody says it, personally I think the US government has also taken some pretty serious steps into deceptive reporting of economic health itself in the past several years.

Lost_BiomedE 12y ago

China is in for some bad times. They have pumped way more money into their economy than the FED has. A lot of that money went into real estate: China's 15 Trillion pump: http://www.zerohedge.com/news/2013-11-25/chart-day-how-chinas-stunning-15-trillion-new-liquidity-blew-bernankes-qe-out-water http://www.zerohedge.com/news/2013-11-25/chart-day-how-china...

seanmcdirmid 12y ago

China needs at least 6 or so % to keep up with new workers coming into the labor market; also, wealth is very unevenly distributed, which means any slowdown in growth will hit lower income workers especially hard. The party is extremely aware that 3% growth in China could lead to another revolution.

simonh 12y ago

The Chinese government believes that China needs a growth rate close to 10% in order to absorb expansion in the available labour force. Already Chinese universities are churning out far more graduates than there are new graduate level jobs. There's also a steady stream of labor from the countryside seeking work in the cities and factories. The economy has barely been keeping up with demand for jobs as it is. The other problem is that local governments in China are massively overextended with vast outstanding debts, mostly backed by property. Chinese local officials are routinely rotated between regions, so they have little long term commitment to the area they run and are only interested in results during their tenure. This has lead to a generation of highly short-term management decisions, ramping up debt to fund prestige projects, with chronic lack of long term planning or infrastructure investment. Much of Chinese domestic driven growth is spending wasted on white elephant construction projects. When those turn out to be worthless, the entire Chinese domestic economy will crash. A third issue is that up to half of the populations of Chinese cities are technically migrant labour and, even if they've lived in the city for generations, they are technically not residents and have no claim on local services or any welfare support and no pensions. When the bubble bursts they'll be left with nothing. Either the flow of labour from the countryside to the cities will reverse, or the system will break.

rwmj 12y ago
The fourth issue is the one child policy which will cause Japan-like stagnation in a few years.
- josai 12y ago
  China's birth rate is above a huge number of countries, including Holland, Switzerland, Germany and Canada. It's a problem, yes, but let's not overstate it.
  - seanmcdirmid 12y ago
    People are still getting richer, so birth rates will continue to fall. Besides, it is important to look at where the births happen; i.e. not in the cities, but in the country side.
  - roel_v 12y ago
    China: 1.58 / woman, Netherlands: 1.76, Switzerland: 1.52, Germany: 1.36, Canada: 1.63. So yes all of them below replacement rate, but then again, they all have vastly different demographic and economic profiles from China - most notably in savings per person and reserved money for pensions, of which there is basically none in China. Well unless you count 'current market valuations' for all that empty real estate, that is smirks A country can afford, or at least isn't hurt that badly by, low birth rates when those who are born don't have to support (or at least not fully) the elderly - I don't think it's reasonable to put China on one line with the other countries you mention.
    - throwawayaway 12y ago
      Thanks for your statistics. I'd rather people didn't smirk when they are predicting other people's misfortune. Not everyone has the benefit of your foresight or hindsight.
      - roel_v 12y ago
        ? I'm not smirking at other people's misfortune, just at the idiocy of an economic system engineered to shackle the people that have to live their lives under it to workarounds like this ('this' = use assets that could otherwise be used economically productive as stores of wealth), and at the arrogance of claiming a centrally-led economy can provide both prosperity and freedom - two things I find axiomatically fundamental human rights.

jerf 12y ago

"So the worst case scenario is that Chinas GDP growth drops to "only" 6%," Goodness gracious, aren't we trusting of predictions of the scope of economic downturns. People aren't very good at predicting such things, and to be clear, I fully mean that in both directions, not that people always under-predict. I don't know about "worst case" but a very plausible scenario is "revolution in China", and whatever long term effects that may have in the short term it would be a massive, globe-spanning economic contraction. That's at least in the single-digit percentages of probability. I think there's a lot of hanky-panky going on in the books over there, and once there's no longer enough credit to cover over the problems, the full depth of the rot is likely to surprise everyone. (Or at least everyone who has somehow made it to 2014 trusting strong centralized Communist governments to be truthful about their economic health, but, alas, that still seems to be a lot of people. [1]) Just what is making it out of the firewall alone is enough to give me the heebie-jeebies and I seriously doubt I'm getting even the tip of the iceberg. [1]: Before anybody says it, personally I think the US government has also taken some pretty serious steps into deceptive reporting of economic health itself in the past several years.