Following my previous post on China’s fast catching-up with the developed countries, Economist Magazine has done some more interesting map works, matching China’s output-income data by provinces to the world’s individual countries. The map vividly shows the huge income gap among different Chinese provinces/regions.
More similar maps here.
Jim O’Neill, Chairman of Goldman Sachs Asset Management, discusses his outlook on China and global economy.
China vs. US in key economic metrics, from Economist Magazine.
Bear in mind two things:
1. China’s population is roughly 4 times of the US, so it’s natural for China to be bigger;
2. But size does matter, and matters a great deal.
Interview of Jin Liqun, Chairman of China’s Investment Corp. (or CIC), China’s sovereign wealth fund, with $460 billion assets under management.
Jin offers his views toward Europe and her economic and political systems. He also explains why CIC is unlikely to inject large rescue investments as per European leaders’ request. I’d say Jin’s views toward Europe is quite typical in China.
Starting from 12″10′ in the video interview, Jin had some really strong (yet painfully true) comments toward European welfare system.
Ronald Coase, Nobel-winning economist, whose economic theory on property rights has had a profound impact on China’s economic reform in the past 30 years, prescribes medicine for China’s long-term sustained economic growth: to have a free market for ideas.
What Coase essentially argued was that China needed to have a free and open society. This would immediately mean the transformation of the current political regime.
Watch this ten-minute video:
Two sharp charts on why China will remain as global manufacturing base for a long time, despite the sharp rise of its worker’s wages recently.
Economic historian Naill Ferguson on the six “killer apps” (or institutions) in the West that generated the Great Divergence since 1700s, up until the recent rise of China. And he argues that gap between the West and the East is coming to an end, with China fast catching up with the West, leading to a re-convergence of the world economy.
In the interview, Naill Ferguson had many claims in his sharp observation of the history. However, despite being deeply intriguing, most of his claims remain to be just hypotheses. As a China watcher, I am not so certain at this moment that China’s surpassing of the US on per capita income level is inevitable, although I am positive that China’s total GDP will pass the US in no time.
For readers who are interested in the topic of the Great Divergence and Re-convergence, I would recommend two additional readings: The first is a classic by Ken Pomeranz, “The Great Divergence: China, Europe, and the Making of the Modern World Economy“; and the second is by Ian Morris, “Why the West Rules -For Now.”
Do you feel everything is progressing in China? Or rather China is like a fast car without a reverse gear, destined to crash?
Watch this interesting video analysis, featuring Michael Pettis.
(video courtesy of Journeymanpictures)
Here I included two pieces to address the question whether China will have “hard landing” or not. Hard landing is a fancy phrase to describe the situation when government tries control high inflation, it slams on the brake to dramatically slow down the economy, often leading to the outright recession. In China’s case, a hard landing, along with rising interest rate, may trigger the burst of the housing bubble.
The first piece is by Stephen Roach, former Chief economist, and Asian Chairman at Morgan Stanley, now a professor at Yale University. The second piece is a recent interview of Jim O’Neill, Chairman of Goldman Sachs’ Asset Management (or GSAM). Both are leading authorities on Chinese economy.
Roach took a big-picture view, and argues China is more likely to have a soft landing, not hard landing.
China’s economy is slowing. This is no surprise for an export-led economy dependent on faltering global demand. But China’s looming slowdown is likely to be both manageable and welcome. Fears of a hard landing are overblown.
To be sure, the economic data have softened. Purchasing managers’ indices are now threatening the “50” threshold, which has long been associated with the break-even point between expansion and contraction. Similar downtrends are evident in a broad array of leading indicators, ranging from consumer expectations, money supply, and the stock market, to steel production, industrial product sales, and newly started construction.
But this is not 2008. Back then, global commerce was collapsing, presaging a 10.7% drop in the volume of world trade in 2009 – the sharpest annual contraction since the 1930s. In response, China’s export performance swung from 26% annual growth in July 2008 to a 27% contraction by February 2009. Sequential GDP growth slowed to a low single-digit pace – a virtual standstill by Chinese standards. And more than 20 million migrant workers reportedly lost their jobs in export-led Guangdong province. By late 2008, China was in the throes of the functional equivalent of a full-blown recession.
Thanks to a massive fiscal stimulus, China veered away from the abyss in early 2009. But it paid a price for this bank-funded investment boom. Local governments’ indebtedness soared, and fixed investment surged toward an unprecedented 50% of GDP. Fears surfaced of another banking crisis, the imminent collapse of a monstrous property bubble, and runaway inflation. Add a wrenching European crisis to the equation, and a replay of 2008 no longer seemed far-fetched.
While there is a kernel of truth to each of these China-specific concerns, they do not by themselves imply a hard landing. Nonperforming loans will undoubtedly increase in response to the banking sector’s exposure to some $1.7 trillion of local-government debt, much of which was incurred during the stimulus of 2008-2009. But the feared deterioration in loan quality is exaggerated.
Jim O’Neill Interview (courtesy of CNBC): He thinks the chance for a hand landing is very slim.
Update 1 (Oct. 30, 2011):
Jim Chanos share his recent view on China – he continues to short China’s banking sector and real estate developers. He believes Chinese banking system just started to have cracks; there is more to come.
Charlie Rose’s interview of Gao Xiqing, President of China Investment Corporation – China’s Sovereign Wealth Fund.
Ordos, the little known prairie city in China’s inner-Mongolia autonomous region, now has become the extreme example of China’s housing bubble. Due to extreme housing speculations and land sale (mostly grassland), loads of local farmers became instant millionaires: its GDP per capita recently surpassed Hong Kong; people with assets of 1 million Yuan (or $150,000) are actually considered “poor”; in 2010, 90% sale of Land Rovers (the symbol for power and masculinity in Chinese taste) in mainland China found its buyers in Ordos…and imagine a cleaning lady driving a Toyota Land Cruiser to work?
I am shocked by this video news from SOHU (in Chinese):
You may also watch a similar Youtube video in English, but with less drama:
All this can’t be due to China’s fast economic growth. This is simply not sustainable. I see a classic asset bubble forming, reminiscent of many bubbles in history. It will burst eventually no matter what.
Nobelist Michael Spence discusses with Charlie Rose on the next convergence, where China and India and other emerging economies potentially catch up with the industrialized world.
The convergence is in reference to the Great Divergence that sent Great Britain, France and other Western European countries into the leading world economies.
This transition, most likely, will not be smooth. I am writing a paper on what could stall fast developing economies, like China, into a middle-income trap, where income growth becomes stagnant and gets stuck in around $12-15K range.
