I agree with this explanation. China thinks more about future - namely it tries to utilize its humand capital, and motivate the youth to enter productive activities (instead of ren-seeking ones).  

China and India can dominate

The article doesn't mention water security, agri security, or energy security. Every year if it's not the biggest draught in 50 years in the north, it's the biggest flood in the south in 50 years. Every year in the winter they're drilling deeper and deeper for water in the provinces aronud beijing, where hundreds of millions of people live.

I've never heard a China pessimist claim that China will hit trouble tomorrow. I was just speaking with an oil industry consultant in Brunei. According to him, we're all going to hit trouble not too far off in the future. China's dependant on astronomical growth for stability. Tell me how rising energy costs work into your conception.

If the CPC was as sincere as you make out, if they believed their own propaganda about a harmonious society and the socialist propaganda they wierdly keep about, then why did they let themselves reach the point of having the largest and fastest growing wealth gap in the world in the first place? Why didn't they regulate the environment before over 90% of their rivers were dry or toxic? This isn't 18th century organic pollution, this is DDT, benzine, and heavy metals, stuff that doesn't go away. You're telling me it was impossible for them to make a 5 year plan that didn't address these problems a bit better?

I also find it truely amazing how the soviet union has been whitwashed out of the popular consciousness as an unmitigated aberration-- you see more of the second world war on TV than the decades intervening-- While Soviet methods of coercive social control are spreading around the world, the EU largely bases itself on the Soviet model, and this guy is declaring the 5 year plan as a hallmark of success!

Australia's property bubble depends on China, and China is experiencing a real estate bubble bigger than any in the world, apart from Australia! By all measures (price/rent, price/income, dwellings/population) Australia's bubble is on a larger scale and even less sustainable that the China bubble! Like Australia, China is investing in pointless excessive infrastructure that nobody needs, including the huge oversupply of houses in Australia as demonstrated on AustralianPropertyForum.com. China is responsible for most recent global demand for commodities so when their bubble pops, Australia is doomed! China's collapse will seriously affect Australia and other countries benefitting from China demand. Coal and iron prices will plummet along with oil and other commodities. China's dramatic growth won't go on forever. Most people must realise by now Australia has an unsure future. Nobody knows exactly when the collapse will happen but there's no doubt it will happen sometime and the longer this bubble expands the worse the crash will be. China saved Australia during the GFC but when they fall over the effect on Australia will be devastating. History teaches us that diminishing resources and increasing demand always leads to disaster. China needs our resources and they might do whatever they can to secure them, even if it means war.

Ummester

http://australianpropertyforum.com/blog/main/3206333

Simple and Sustainable

I was born in Shanghai now live in US.

I see a deeper reason why China is different, for better or worse.

China does not have its own deity based religion. The fabric of Chinese society is based on Confucius teachings - summarized in one word - decency.

The west, lead by US, are all too happy to gripe about China's lack of democracy. Polls conducted by US firms show that the democratically elected leader of US has much lower approval rating than the unelected Chinese leader. Go figure.

China is also criticized for her military expansions. Rest assured, China is not stupid enough to drown herself in unnecessary military spending. Thank you very much.

Sincerely,

Pu, WeiTa

When bankers tell you that this is not the time to bet against something -- in this case China, on the argument that its continued growth is inexorable -- that's just the time to bet against it.  To make my point, here are ten reasons why Stephen Roach is wrong:

1.  China's financial sector is in a mess.  Read "Red Capitalism" by Carl Walter and Fraser Howie.  Banks have been going through multiple recapitalizations but there continue to be piles of debt accumulating in a range of Ponzi schemes that would make the traders of Goldman Sachs and Lehman Brothers blush.  And just as the global financial crisis came from nowhere, so will China's.

2.  The seemingly wise, strategic, and committed leadership of the communist party that Roach so extols is as prone to crony capitalism, corruption, nepotism, and political patronage as the most capitalist societies.  The state-owned corporations and banks of China are being carved up between communist party leaders, their families, relations, and friends.

3.   The aggrandizement of China's export success as an example of superior strategy and impressive competitiveness actually rests on ever-increasing subsidies through low prices for energy, land, capital, water, and the environment, a labor force kept suppliant by the communist party, and an undervalued currency.

4.  Continued high investment rates are being achieved by taxing households through a plethora of channels -- including low interest rates, wages well below marginal productivity, and the delivery of health and education services at exorbitant prices.

5.  China's gleaming cities have been built by migrant workers with no access to health, education, or housing services.  Urban areas conduct a discrete form of apartheid where access to basic services depends on where people are born.

6.  Inequality in consumption and income are rising -- and inequality of asset ownership is probably at stratospheric levels.  Yet popular discontent is repressed.

7.  As a senior communist party official once remarked, China has privatized its government.  It can no longer tell the difference between a public or a private good (or service).  Most  government departments and agencies have become profit centers, even the PLA.  The China Banking Regulatory Commission -- responsible for regulating China's powerful banking system -- relies for its budget on the banks it is supposed to oversee.  As it is, information asymmetries are powerful in banking -- the incentives implicit in the Chinese supervisory system make them virtually insurmountable.  The conflict of interest in the west’s credit rating agencies pale in comparison to the practices in China.

8.  Mercantilist policies have created an accumulated environmental deficit that will take years to remedy – although the chances of reforms in this area are low given the close family and patronage ties between heads of large (polluting) firms and senior leaders in the party.  Vested interests in the current arrangement have become very powerful.

9. The practice of “pragmatic, incremental” policy changes that China so prides itself in has created a complex web of interconnected policies, laws, guidelines, practices, and informal arrangements that make it very difficult to untangle.  Even if the Chinese know what they want to change, they are not sure how to do it.  Recent shortages in energy availability are a case in point.  Power generation plants have had to close because of losses caused by high raw material costs and low administered energy prices – but raising energy prices would hurt energy-intensive industry; and raising public subsidies through the budget or banking system run counter to the government’s efforts to withdraw economic stimulus at a time when inflation is high and rising.

10.  Encouraged by the success of the stimulus package, the government’s further encroachment into economic decision making by firms and individuals is moving in the opposite direction to where it should be going – if it is to become an innovative, flexible, and dynamic society.  China’s leaders are drawing the wrong lessons from their past success.  They believe it was because of the government’s superior decision making ability, when in reality it was because of the strength of markets.

Nassim Taleb (author of Black Swan) finds a common characteristic between the Arab Spring and the global financial crisis.  “The critical issue in both cases,” he writes, “is the artificial suppression of volatility in the name of stability.”  It is also the reason why it was impossible to predict their occurrence, because on the surface everything seemed stable and under control right until the moment they unraveled.  The same will probably be true of China.  Its seeming stability and momentum make it seem unstoppable.  But remember Japan in the 1980s, when it enjoyed the same adulation.  The reality is we live in a world we don’t understand, and extrapolation from the past is a cardinal sin for economists.  Far from being different, China’s economy is like every other economy.  It is not special.  The Chinese fall prey to the same vices and are subject to the same weaknesses as everyone else.  And while no one can predict when the music will stop in China – and what will happen when it does – we can be certain of one thing.  It will.

It's important to consider the environmental damage which China's runaway industrial policy has caused. The consequences of this damage must eventually be paid for somehow.

Some have estimated the environmental restoration cost is or will be two percentage points of GDP growth. So, if China's growth rate is 10 percent, it's really 8 percent, and so on. 

Isn't this "dysfunctional political quagmire" what we call democracy? And is it not related to respect for individual freedom and human rights? If the Chinese boom turns out to be a bubble, there will be no political institutions to get rid of a government with the wrong program but turmoil and bloodshed. I prefer political systems that can correct mistakes without bloodshed - even if these systems sometimes seem to be less efficient in the short to medium run. It's the long run that counts in history.

Heraklit: There's bloodshed in China everyday. In the intrest of maintaining it's power the CPC relies on not only daily brutality but the morgaging of the future for growth in the present. If China breaks out into turmoil, it's the CPC's fault for driving it to that situation. Or they can do what Taiwan did and abandon Leninsm for the rule of law, which probably isn't possible without some kind of democracy. It's the vested interests that drive us to turmoil, If it was run well there would be no turmoil, there wouldn't be over 100 000 'mass incidents' a year. The environment would be managed with sustainability in mind, rather than just short term, political-power sustaining growth. 

I used to recall reading articles like this one of Roach, just a few months before the Asian crisis struck. Looking back, I found only two possible explanations, first, it was written by an economist; and second working for a bank that was desperately seeking business from the very countries countries that collapsed later on.

Welcome to the real world. 

I used to recall reading articles like this one of Roach, just a few months before the Asian crisis struck. Looking back, I found only two possible explanations, first, it was written by an economist; and second working for a bank that was desperately seeking business from the very countries countries that collapsed later on.

Welcome to the real world. 

I agree with "Ummester";s comments below. China has not felt the impact of the GFC to the extent that the US and Japan have, mostly due to the unprecedented high level of fixed investments which currently approaches 50% of its GDP. There is however a view shared by leading economists (N. Roubini “China Bad Growth”) that reinvesting 50% of GDP in industrial and civil infrastructure and real estate is not sustainable. I could not agree more. China’s demand for oil in the next 20 years is astonishing. By 2015, China will see 120 million new cars which is equivalent to all passenger cars in Germany, UK and France. The oil demand in China is forecast to reach 17.5 mbpd by 2030 overtaking 2030-US. China is dependent on Australia's coal and iron ore for its steel industry (and future growth) and increased expectations that Australia will sign lucrative contracts on LNG front (currently 79% to Aus's LNG goes to Japan and most of the remaining to S Korea). With shortfall in oil by 2030 (100 mbpd demand vs 9095 mbpd supply) and the possible de-linkage of LNG from oil prices, China looks dependent on Aussie LNG. But LNG seem also to be in shortfall after 2015 which will give rise to a) preference for more spot market and b) more  lucrative contracts with the well establish partners Japan and Korea and less lucrative (in terms of pricing) China. All in all, I believe that China is more  "critically" dependent on Aus resources than Aus exporters are on Chinese markets.

You are not thinking about how countries move into the future. Each day in the future builds on the prior day. In other words, there is a feedback loop. This feedback loop means that every country on the planet will experience collapses. Most collapses will be more like small downturns. Some will be large.

How can a country guarantee that it will experience a large collapse? By simply suprressing all small and intermediate collapses. The West has done that and is now paying the price. China is also working very hard to suppress collapses or downturns. That means China is in big trouble.

Financial market collapses, wars, attacks within wars, sandpile collapses, forest fires and earthquakes are just some examples of systems where the crashes follow the power law distribution. They all have a feedback mechanism that causes them to crash.

China is not the West, but it will not escape a crash.

Two points:

You say "China’s commitment to stability has teeth" - it sure does:  just ask the Uighurs and Tibetans. Indeed, China’s spending on internal public security overtook spending on national defence for the first time last year.  China skeptics don't doubt the ruthlessness of the CCP.  They simply see limits to how far such ferocity against political dissent can carry you.

Regarding rural-urban migration:  first of all, it is possible to raise serious doubts about the quality of information about urbanization.  See, for example, http://silberzahnjones.wordpress.com/2011/05/15/china%E2%80%99s-present-the-world%E2%80%99s-future-and-the-pretense-of-knowledge/  Second, as a story in today's FT points out, due to the Hukou system, rural migrants retain strong links to the land and migration will go the other way if the economy ever turns.

I wrote a very long piece on China's very tenuous situation a year ago, and things look worse and worse the closer one looks. The SOEs would not have any profits if they were not granted below market loans from the banks. Historically, the SOEs have not wanted to pay even those back. Roughly 80% of them have been speculating in land, everything from defense companies, to soybean crsuhers. 

If you look closely, the assumption behind every bull argument for China over the next 0-5 years is an unshaking belief in 9 people to properly plan and control an economy made up of 1 billion people. There are plenty of signs this is failing. They can’t control the thug like politicans at the local level. They were not able to rein in credit growth in time to prevent a bubble, and in fact, initiated it. They have massively missallocated trillions of Yuan into residential, office, and infrastructure, while basic environmental and food safety suffers.

Their bubble is magnitudes larger than the US bubble, which was largely confined to residential real estate. Perhaps China can grow into the overbuilding. Bubble’s often lay the foundation for the next boom, like fiber optic cables that went dark after the internet bubble is now lit by video. But it would take decades to grow into the empty buildings, highways, airports, etc, etc. What’s worse, much of the new construction is built on a shoddy foundation, made possible by corrupt government officials giving contracts to to family or friend connections, who then uses cheap product. As a result, much of the new building is falling apart already. After reading these reports, I wrote that a train wreck would happen that would bankrupt the ministry of railways. Incidentally, yield’s on the ministry of railway’s bonds have trippled since the incident.

The only question that remains is whether the economic collapse will lead to a political collapse.

Maybe it is good if you try to find out by asking direct and visited the campus in question. So that everything will be much clearer.moulin a farine