China is the next USA?

Economics Economics Questions
1

Not that Peter Schiff is unaware of China’s negatives, but he does tend to be bullish on China. And of course, he is not the only one.

I only know bit’s and pieces about China. This is a lot of anecdote, but it builds a picture…

Motorola built a plant in China, slated to only cost $500 million.

  • Construction workers tended to lay down and sleep when they became tired
  • Workers tended to take anything that wasn’t nailed down, including the nails
  • Motorola fired the 1st security co, hired and fired another, and ended up hiring three security companies to watch each other and the workers.
  • Final cost of building the plant: $1 billion.

From this I take away:

Chinese workers make even the most beligerent US Union workers, whom I detest, look like honest, productive individuals. Of course, in the case of US Union workers, you can hire 20 Chinese to do what one union worker does, for less wages, and still have a better product. Nonetheless, there seems to be a very deep, pervasive attitude among the Chinese of “from each according to his means, to each according to his need.”

Nokia built a plant in China several years ago, intending from the beginning to build cell-phones there that would be sold to the Chinese, primarily. Just as they were ready to begin production, Chinese officials informed Nokia that they would be exporting 65% of their production. Since Nokia had not planned for this, they had to suddenly shut down a plant in Ft. Worth, Texas. I worked at an automation company in the DFW area at the time, and Nokia was giving away automation workcells and industrial robots, capital equipment, from this plant. My company picked up about twenty of these free systems, components of which we utilized in equipment we subsequently built.

From this I take away:

China can and will mandate what a manufacturer can and cannot do with little respect to any sort of constitutional law, or basic concepts of property rights.

From: The Bitter Truth about the Olympics by Phil Hearse

Building the Olympics sports facilities and transport facilities has cost a huge sum. The main stadium, the ‘birds nest’ designed by Swiss architects Jacques Herzog and Pierre de Meuron, cost about half a billion dollars. The National Theatre cost $350 million; the National Swim Centre $100m and the Beijing Wukeson Cultural and Sport Centre, incorporating a hotel and shopping mall, another $543million.

Associated with the holding of the Olympics is the Beijing airport third terminal designed by British architect Norman Foster, coming in at a cool $1.9bn and the new headquarters for China’s central television network, CCTV, that cost another $600 million. And these are just some of the major projects.

The private sector is involved in the building of these facilities, and despite their public funding, the private builders will become the operators of these new facilities for a 30-year period. In other words, huge amounts of Chinese state funding is being used to guarantee the profits of Chinese companies for years to come.

In order to clear the way for these new prestige projects, that will project Chinese power and influence on a world scale, 1.25 million people have had their neighbourhoods and homes demolished or their land confiscated. The many people who have complained or organised protests about this have been silenced by jail sentences or violence – not surprising in a country that has one of the most corrupt, violent and repressive state apparatuses in the world.

A famous case is that of Ye Guogiang, who on China’s National Day in October 2003 tried to kill himself by throwing himself off a bridge in the Forbidden City in front of hundreds of onlookers, in protest at the forced demolition of his family’s home and restaurant. But he survived and was sentenced to two years in jail for ‘disturbing social order’. His family continued to protest and were continually harassed by the Chinese authorities. There are many similar cases.

While the cost of the Olympic-related construction projects is enormous, outside China it would have been vastly more. What China had at its disposal was huge amounts of cheap labour. Construction workers, typically migrant workers unable to find work on the land, were usually housed in barracks on the construction site, paid an average of $4.7 a day and forced to work seven days a week. Many of these workers are employed by subcontractors and late payment or no payment of wages is common. The Chinese government itself estimated unpaid migrant workers’ wages in 2003 at more than $12bn."

From this I take away:

  1. Property rights are, in practice, seem to be reserved for those who are well-connected.

  2. It almost doesn’t matter what the cost, if the government wants a building, it will get built.

  3. Emminent Domain in the US is bad enough, but nothing compared to what goes on in China.

  4. Despite some pundits blithe references to ‘Chinese capitalism’, they are still a nation of Central Planners.

I read somewhere recently where a recent visitor to Shanghai was marveling at the incredible building going on there. The statement seemed to be one of awe at the incredible economic activity occuring there. But is it rational activity, or is it misallocation on a massive scale?

Now in light of the lack of a true free-market in the US, and the distortions, misallocations, and malinvestment that government interference has caused here, how can China fundamentally be any better. They’ve certainly benefited by the relocation of manufacturing from many Western nations to China, undoubtedly. But all of the above seems to tell me that the current and future misallocations in China must be significant, and I don’t see how they cannot be in for their own version of a deep recession or something worse, though it may take a decade or three to come to pass.

2

I’m not sure what the question is.

But the good thing about “Chinese capitalism” is that in the face of the recession they’re letting people go bust.

Lots of them.

3

That’s hard to believe…

4

Am I the only one who finds it funny that the Chinese central television network is called CCTV?

5

Bean counters just wanted to get the stuff off their books. I scratched my head too, but I think it might have made sense. We got some Adept robots, and custom cartesian robot workcells. After cannibalizing this stuff, we had rooms full of shelving loaded with pneumatic cylinders, optical and inductive sensors, conveyor motors, safety controllers, motor controllers, and lots of other stuff we used in subsequent projects. They probably did sell some of the more-easily liquidated industrial SCARA robots, but the stuff we got would have taken almost as much money to liquidate as they would have gotten for it.

6

The question is more implied than outright stated, so I’m sorry about that.

Q: Since Schiff is predicting the collapse of the dollar, which I think would wipe out a lot of China’s national savings to some degree (the collapse will quite possibly be initiated by China’s move to protect their savings, so how much would get wiped out is unknowable) while simultaneously eliminating America as a customer, and given that China may be more prone to misallocations than even the US, is it really a good bet that China will be the next USA?

Given the $12bn in unpaid wages of migrant workers in a single year, and the ‘confiscation’ (Chinese law has created “land use rights” that are analogous to US property rights, permitting real-estate activity, but it has a built-in assumption that all land is fundamentally owned by the State) of land legally ‘owned’ by lower- and middle-class citizens, it is hardly surprising that they are letting a lot of people ‘go bust’. But they’re still planning a ‘stimulus’, and I doubt well-connected people have been allowed to go bankrupt, much like certain corporations in the US. General Electric, anyone?

BTW, I’m fully aware that in practice, the US and Chinese ‘land-use/ownership’ rights are at least somewhat similar, what with Emminent Domain abuses in the States, propery taxes, etc., but as I understand it, if land confiscation with little or no compensation was happening in the US on the scale that it occurs in China, the US would already be experiencing some degree of civil war, in my opinion.

7

After thinking about the manufacturing that’s been relocated to China for a bit, something else occurred to me. The misallocations aren’t just, or primarily, by the Chinese, but by Western companies building plants in China. So some or a lot of that comes back to the West, but does that mitigate anything for China?

8

Chinas advantage is that they have increased production. The partial liberalizations have allowed dirt poor rice farmers to work with more productive construction and in factories. That’s what has change China. The US and the West in general, however, have instead increased their debts during the last decades in order to consume made-in-China goods in exchange for made-in-US pieces of (soon) worthless moneypaper.

I know so little about Asia that I’d have problems finding it on a globe (oh, well, its so big that one might find it by chance…) But I think that the above paragraph summarizes Shiff’s basic point about being long China and short US.

For sure, operative problems are huge in China, of course. But operative problems are huge here too! It’s at least partly an illusion because it is so much easier to see inefficiencies in other systems/cultures than at home. They might find it as natural that the gov dictates exoprt quotas, as we find it natural that the gov steals lots of our money as tax. But the key is that they are changing in the right direction, while we are moving in the wrong direction. Extrapolate that trend a few decades!

Fundamentally, the Chinese have experienced the poverty and oppression of communism. They know what it means and they’d prefer prosperity and liberty. In the West, however, naivity is dangerously high and many are explicitly prepared to sacrifice both liberty and prosperity for “the greater good” as dictated by the holy government (be it the climate or “jobs” or anti-trrrsm). Those are bad omens, for us. Freedom was the one thing that separated the West from the rest when the West conquered Earth. Without the advantage of being free, we’ll be “flied lice”…

9

Once I was doing a project on CCTV, and did a simple google search, and was given that.

Does that count as ironic?

10

So, with “Chinese math”, unpaid salaries in China one year was less than $10 per capita. What was the corresponding number in the US? China is a country of many large numbers.

The global depression will of course affect China. And it will be horrible even for very liberal Dubai. But it’s the US which will be at the epicenter of this earthquake, while the parts of the perifery where productivity has increased thanks to liberalizations, seem to have better chances of dealing with the correction, especially because they don’t try as hard to “rescue” it.

11

“$10 per capita”

Why do you change it to ‘per capita’? Are 100% of the Chinese population considered to be ‘migrant workers’? The ‘$12 billion’ was the Chinese government figure for the unpaid wages for just migrant workers in 2003, the point being that, since a high percentage of the 2008 Olympics venues were built with this labor, the price tag for the structures are significantly smaller than the price tag for something similar built in Europe or the US.

Another way to look at the figure is that if a migrant worker works full-time all year, and they failed to receive half of their pay for the year, it would take 16.37 million migrant workers to equal the $12 billion figure.

Anyway, I don’t necessarily see all nations ‘participating’ in the ‘global depression’. But to address my original disscussion point, I’m beginning to think that China already IS the next USA in a way. Our increasingly un-free, and centrally-managed economy is having problems. China may be following the same path. However, the fact that they are net producers, not consumers, at this point, means they’re three or four decades behind us.

12

To be fair to Peter Schiff and not give anyone the impression that he has explicitly said “China is the next USA” (though he may have said this at some point), I think I’ve generally heard him say “Asian”, and I thought “Chinese”, and it has been some others who have been calling China the next USA. But his main point is that any nation that is a net saver/producer is where you want to go long in.

13

You extrapolate to where? Sinapore? Japan? I might just as validly extrapolate to Hitler Germany. For my money, they really haven’t had any sort of fundamental, wide-spread enlightenment on commmunism, but if they have, they’re busy replacing it with fascism. Am I wrong? Pleas discuss! [:)]

Americans are losing it, I agree. But I also think we are cycling on a pendulum-like swing. People may be ‘fine’ with Keynsian vodoo economics, at least at first, but I think there will be a back-lash, and possibly less willingness to exactly duplicate the mistakes of the New Deal, if that’s even an option. If we do go into a serious depression, it won’t be the same as the GD. Our money won’t be ‘fundamentally’ sound this time. ‘Ugly’ is the only thought that comes to mind. I’m preparing for the possibility of that kind of future, but I have no idea how likely it is in the next few years. Serious budget cuts might forestall it, but so far, it sounds like Obama’s ‘budget-cutting’ sleepover is more of a show put on for international observers with little real substance.

14

These two would seem connected.

15

Well, yes, but TWO of those you mention made pretty nice cars, didn’t they? (I do think they did)

Beyond politics and Obamagics, most westerners don’t understand that they have a fire under their ass. But they/we do indeed have that! So stand up and greet the return of competive economics…

I don’t think that even the Chinese Communist party has the power to reverse the “greedily productive” feelings of many millions of chinese anymore. It’s more like an astronomical phenomena. We westerners had something once, but now that stuff has removed itself to the other side of the planet.

16

Jaycephus, I think you make good points. I myself do not agree with Peter Schiff that investing in Asia is better, or anywhere in the world to be honest. He thinks the Chinese government is going to smarten up and quit buying t-bills. I do not see it happening as long as the U.S. is the world’s powerhouse. As far as I know, every industrialized country in the world is practicing fascism/socialism.

I once had a history professor say that his greatest fear is that “we would become to reliant on the system”, meaning the market. I have since come to learn that his greatest fear should have been that the government would have so many restrictions on the market, that the market would not be flexible enough to react to change. This is what we are seeing in the world. Governments are completely inflexible and they are restricting the market through regulations, bailouts, and subsidies. It is not only in the U.S. Other governments are bailing out their banks. The EU is just one big book of regulations. Not one industrialized country in the world has a free currency market. There really is no where safe to put your wealth as long as governments can steal it at will through a printing press.

17

To be fair, estimates from Chinese sources of the number of migrant workers vary between 120 million and 280 million. At 120 million, the average unpaid amount per worker would be $100; at 280 million, it would be $42.86. Not insignificant if your annual income is around $1,700, but not necessarily crippling, either.

18

My hope is that you are right, AND that China doesn’t go along the path of fascist Germany.

We do have to start to ‘produce’ things here in the US again, or we become the next Great Britain.

19

Bruce, thanks for the missing number, though its fuzziness makes the US estimated number of illegal aliens look dead-on accurate. To the degree that we can trust them, it doesn’t sound ‘too’ bad…

But 280 million migrant workers? That’s on the order of the whole US working population roaming around China as migrant workers?

Anyway, the original point was simply that the reported costs of the Olympic venues were large, but building the same thing in a western country could have been greater. Although now that I think about the factors contributing to the ballooning cost of the Motorola plant I mentioned, maybe the productiveness of a US worker would have turned those numbers around!

Also, Thanks spideynw and ProudCapitalist for the inputs.