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TMFMmbop (33.95)

China 2009: The Debrief

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August 31, 2009 – Comments (5)

Hey, folks. Here's the first cut of a presentation I'm slated to give tomorrow internally on some of the bigger themes that emerged from this year's China trip. Hit me below with comments or questions. If you're a regular reader of this blog, then you will have seen some of these photos and heard some of these views before.


Oh, baijiu. Good thing the Chinese beer is low ABV.


These street markets are just some signs that economic activity is healthy in rural China. Remember that these folks live way outside the global economic network, so the housing downturn in the US, though it drilled export manufacturing in SE China, pretty much left these folks untouched.


The beer gardens in Harbin were bumpin'.


Of course, rural China has benefited from massive government stimulus into the ag sector. This stimulus, however, has more legs than the infrastructure stimulus because it gets at key goals to increase rural incomes and make China food independent. (Slide from a John Deere presentation.)


Government spending has also propped up the infrastructure sector -- see here highways and subways. The problem with the highways right now is that they're not always necessary. But this is why the Chinese stock market dropped today on news of slower bank lending (remember than banks in China are state run). Without the state financing seemingly unnecessary projects, China's growth will stumble.


More government projects to build power plants and ports.


This is a picture of temporary housing for construction workers. The interesting point here is that while construction workers in America ultimately expect to make enough to buy one of the houses they might be building (remember Levittown?), Chinese construction workers are so far down, that they just move from project to project without ever building something they could settle down in. That lack of upward mobility is a real problem that China has to confront, particularly as it seeks to increase domestic consumption.


Yes, they let us get that close. This is like something out of the Industrial Revolution. Note that working with China to make factories more environmentally sensitive is probably far-fetched until they spend first on basic worker safety measures (*cough*safety goggles*cough*).


And then you have the ethnic strife in Xinjiang. The government views this as a product of their being left behind by the economy, but it likely goes deeper. Something to watch going forward, though expect the government to develop western China in an effort to buy their support.


Always close with humor. :-)

5 Comments – Post Your Own

#1) On August 31, 2009 at 1:40 PM, Rehydrogenated (32.23) wrote:

Wow, where do i sign up to go with you next time?

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#2) On August 31, 2009 at 1:58 PM, TMFJake (73.05) wrote:

Thanks Tim!  Paul Kedrosky recently posted some interesting graphs on the gap between private consumption and government investment in China. 

Private Consumption as a % of GDP

Will be interesting see if China can continue to support 8% GDP growth while shifting from an economy driven by government investment (both directly in China and via subsidized exports to the U.S.) to a consumer consumption economy--with reduced subsidies for both domestic consumption and foreign exports.

At least the Chinese government can continue to spend like drunken sailors in the short term without as much risk of the massive hangover that threatens our binge spending in the U.
S.

 

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#3) On August 31, 2009 at 2:26 PM, TMFMmbop (33.95) wrote:

@TMFJake

One interesting thing to remember about China is that it's massive dollar surpluses are not freely convertible into RMB (because if the country started spending all of those dollars in-country it could set off massive inflation and/or cause the currency to rapidly strengthen, both things that would crush the Chinese working poor). Thus, recent stimulus spending has been more of a financial reach for the country than many realize.

Tim

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#4) On August 31, 2009 at 3:41 PM, TMFJake (73.05) wrote:

Another reason China's economic transition is going to be a difficult balancing act. 

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#5) On September 11, 2009 at 3:12 PM, Blindnomore (< 20) wrote:

So where are the recommendations at for the contest?  I still haven't found any list of them.

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