Posts tagged with ‘china’
Easy credit has led to a debt overhang in China, and it’s a dangerous game:
Neil Gough and Keith Bradsher, Markets on Edge as China Moves to Curb Risky Lending
A complex and loosely regulated network of financial go-betweens has sprung up to profit from repackaging and reselling China’s new mountains of debt, turning loans into investment products. Such products have become popular among ordinary investors in China because they pay much higher interest rates than deposits in savings accounts, where rates are capped by the government to protect the state-owned banking system from competition.
But loosely regulated financial businesses can make a dicey business model, as Wall Street learned in 2008. And they pose a particular threat in an economy where growth is slowing, as it has been in China for the last three years.
“The final users of the money will not be able to earn returns high enough to repay the money and promised interest,” said Yu Yongding, a senior fellow at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences and a former member of the monetary policy committee at China’s central bank. “The chains of lending and borrowing can be long, just like the securitized subprime mortgages. The result can be devastating.”
This is smelling like 2009, all over again.
And meanwhile, back in the States, regulators are afraind to force banks to clean out their collateralized debt obligations. Another mess waiting to happen.
Li Jian — Dark Sword: Chinese stealth drone
On the looming presence of China in American fiction.
The US and Russia are still in a state of high alert, ready to send nuclear missiles at a moment’s notice, decades after the Soviet Union has fallen.
Letting Go of Our Nukes - Lawrence Krauss via NYTimes.com
It is hard to seriously suggest that from a national-security standpoint, 1,000 warheads are not enough to protect the United States. Such an arsenal is literally overkill, sufficient to destroy every major population center on the planet outside of our borders.
We would lose no real strategic security by such a reduction. The New Start treaty called for cuts in the number of deployed strategic warheads to 1,550. But even these levels are an anachronism, left over from the cold war. The president’s proposed level of 1,000 warheads would still provide an equivalent level of mutually assured destruction even against Russia, were it still a cold war aggressor. In the current climate, when more likely possible aggressors have fewer than 10 percent of this level, 1,000 weapons is more than adequate.
If we wish to convince countries like Iran that the development of nuclear weapons is not in their best interest, we need to demonstrate that maintaining or enhancing our own arsenal is not in our interest.
This is particularly important now, not just to dissuade nations like Iran from building nuclear arsenals, and others, like North Korea, from adding to theirs, but also to stem what may be a much more worrisome and unstable situation in Pakistan and India. With each country holding estimated stockpiles of around 100 weapons, and as historic tensions continue to flare between the two, the possibility of a nuclear conflagration there remains very real.
The effects of even a limited nuclear war between Pakistan and India would not be confined to that region. Scientific studies by the physicists Alan Robock of Rutgers University and Owen B. Toon of the University of Colorado, Boulder, and their colleagues found that a nuclear war in South Asia involving the detonation of even 100 Hiroshima-size weapons, far smaller than those in their arsenals, could kill as many as 20 million people from the blasts and resulting fires and radiation, and generate so much smoke that it would block 7 to 10 percent of the sunlight reaching the earth for at least a decade.
Financial reasons are also an argument for a unilateral reduction. Maintaining our nuclear stockpile at its current level is expensive, and infrastructure upgrades at our weapons laboratories and storage facilities to maintain these weapons would significantly strain an already bloated defense budget.
Mr. Obama can also take other steps to increase our nuclear security.
It may surprise people, for example, that the United States still has not explicitly renounced a policy of possible first use of nuclear weapons. If we truly believe that no country should initiate a nuclear attack, why don’t we take a lead by making this our policy? It does not constrain us from responding to any attack.
In this regard, there are 1,800 nuclear weapons in the United States and Russia still on “high alert” that can be launched within 10 to 15 minutes of a perceived threat, according to an estimate by Hans M. Kristensen and Matthew McKinzie in June’s Bulletin of the Atomic Scientists.
This outdated remnant of the cold war, designed to ensure the retaliatory capability of either country in the event of a perceived massive first strike, vastly increases the likelihood of an accidental launch of nuclear weapons. We should cancel this high alert. It is unnecessary now, not only because a massive first strike is no longer likely, but also because warheads on submarines are impervious to a possible first strike.
The US is so incensed about Iran getting nuclear weapons, but I am more worried about Pakistan.
Between ‘09 and ‘10, China was the world’s largest lender, doling out $110 billion, more than the World Bank qote.me/YRtCuA— Stowe Boyd (@stoweboyd) June 2, 2013
The rapid ‘development’ of China since the ’70s has been a compressed and accelerated version of what the West took 100 more years to do, and the result is the Chinese have the exact same problems: a wrecked environment, growing income inequity, and a corrupt elite controlling power and public policy. Wen Jiabao is stepping down from his role as prime minister, and he touched on these issues in his farewell speech, but only very, very gingerly.
Andrew Jacobs and Chris Buckley, China’s Wen Gives Final Speech as Prime Minister
But Mr. Wen, and the departing president, Hu Jintao, leave behind a host of nettlesome problems, including a perilous wealth gap and an economy increasingly dominated by state-owned enterprises and a privileged elite. Increasingly urgent, too, is the pollution that has fouled the nation’s water, soil and air, a point underscored by the noxious haze that settled over the capital on Tuesday.
“Development is still the key to solving all our problems,” he said.
But the speech, his last state-of-the-nation address before he retires at the end of the 13-day congress, was notable for what was missing. In contrast to his speeches of years past, there was no mention of political reform and only a passing reference to the rampant corruption that Communist Party leaders have acknowledged could threaten their hold on power. Instead, Mr. Wen, famous for his liberal pronouncements, coolly reaffirmed the party’s heavy-handed approach to the nation’s political and economic affairs.
“China is still in the primary stage of socialism and will remain so for a long time,” he said.
Meaning: more of the same for the next five years.
James Fallows, Can China Escape the Low-Wage Trap? via NYTimes.com
After another several-month stay in China last year, I came up with one proxy for China’s ability to take this next step: how slow its Internet service is, compared with South Korea’s or Japan’s.
In much of America, the Internet is slow by those standards, but mainly for infrastructure reasons. In China it’s slow because of political control: censorship and the “Great Firewall” bog down everything and make much of the online universe impossible to reach. “What country ever rode to pre-eminence by fighting the reigning technology of the time?” a friend asked while I was in China last year. “Did the Brits ban steam?”
Daniel Bell tells us that we shouldn’t think of China as a conventional Westphalian nation-state. It might be more profitable to think of China as a network of competing — and cooperating — semi-autonomous cities. And these cities might be a harbinger of what other cities elsewhere need to become:
Daniel Bell via NYTimes.com[…] when it comes to economics, China is more a thin political union composed of semiautonomous cities — some with as many inhabitants as a European country — than an all-powerful centralized government that uniformly imposes its will on the whole country.
And competition among these huge cities is an important reason for China’s economic dynamism. The similar look of China’s megacities masks a rivalry as fierce as that among European countries.
China’s urban economic boom began in the late 1970s as an experiment with market reforms in China’s coastal cities. Shenzhen, the first “special economic zone,” has grown from a small fishing village in 1979 into a booming metropolis of 10 million today. Many other cities, from Guangzhou to Tianjin, soon followed the path of market reforms.
Today, cities vie ruthlessly for competitive advantage using tax breaks and other incentives that draw foreign and domestic investors. Smaller cities specialize in particular products, while larger ones flaunt their educational capacity and cultural appeal. It has led to the most rapid urban “economic miracle” in history.
Bell contrasts two very different cities — Chongqing, the size of Austria and with 33 million citizens, 23 million of which are registered as farmers, and Chengdu, 14 million people in the heart of Sichuan — stating that Chengdu has worked on a bottom-up basis with very clear property rights and Chongqing the reverse, with sweeping land grabs displacing millions.
China, it seems, is trying out different models: an evolutionary experiment. Bell fails to mention that Chengdu was the last city held by Chiang Kai-shek and the Kuomintang before fleeing to Taiwan. The Kuomintang had brought a large number of business people to the area as the slowly were pushed out of other regions in China, so it makes sense that the city would be a locale to test a ‘gentle’ approach to urbanization’s dislocations.
Economists say that for China to continue serving as one of the world’s few engines of economic growth, it will need to cultivate a consumer class that buys more of the world’s products and services, and shares more fully in the nation’s wealth.
But rather than rising, China’s consumer spending has actually plummeted in the last decade as a portion of the overall economy, to about 35 percent of gross domestic product, from about 45 percent. That figure is by far the lowest percentage for any big economy anywhere in the world. (Even in the sleepwalking American economy, the level is about 70 percent of G.D.P.)
Unless China starts giving its own people more spending power, some experts warn, the nation could gradually slip into the slow-growth malaise that now afflicts the United States, Europe and Japan. Already this year, China’s economic growth rate has begun to cool off.
“This growth model is past its sell-by date,” says Michael Pettis, a professor of finance at Peking University and senior associate at the Carnegie Endowment for International Peace. “If China is going to continue to grow, this system will have to change. They’re going to have to stop penalizing households.”
The Communist Party, in its latest five-year plan, has promised to bolster personal consumption. But doing so would risk undermining a pillar of the country’s current financial system: the household savings that support the government-run banks.
Here in Jilin City, where chemical manufacturing is the dominant industry, the state banks are flush with money from savings accounts. The banks use that money to make low-interest loans to corporate beneficiaries — including real estate developers, helping fuel a speculative property bubble that has raised housing prices beyond the reach of many consumers. It is a dynamic that has played out in dozens of cities throughout China.
- David Barboza, Households Pay a Price for China’s Growth
So, Chinese ‘growth’ is a new ponzi scheme: using the savings of the frugal Chinese workers to inflate the value of real estate, making speculators and officials wealthy, and of course, making the country ripe for the real estate bubble to collapse.