I have never been able to make the math work on cheap Chinese stuff. Somebody, somewhere, was losing money. I wonder if this is just the beginning?
I have never been able to make the math work on cheap Chinese stuff. Somebody, somewhere, was losing money. I wonder if this is just the beginning?
In reply to Streetwiseguy :
To be honest, i didn't understand half of tgat article. But it appears to say that china owes everyone money and a lot of their industry is going to go belly up.
Right?
Their government was subsidising the E36 M3 out of "private' industry. They are slowing it down now.
Not China as a whole, just one company in China. Other companies are probably overly leveraged also, and may default.
Sounds like they may be doing a version of the housing boom / bust in the US. Essentially borrowing (for fast growth in this case) using assuming increased future value, but the outlook is not as good now.
Time to stock up on $100 turbos then, right?
While this story is about one particular company, I wouldn’t be surprised if it was indicative of most of the Chinese economy. This links up with other items I have read, although several years ago so I can’t really recall the sources, about the “strength” of the Chinese economy. A lot of it is debt manipulation that sounds like black magic to the lay person, and the bedrock of the Chinese economy is the US economy. If China tried to call our debt and collapse our economy, they would go down too.
Dusterbd13 said:In reply to Streetwiseguy :
To be honest, i didn't understand half of tgat article. But it appears to say that china owes everyone money and a lot of their industry is going to go belly up.
Right?
Pretty much. But the slightly longer answer is they need unsustainable GDP growth to keep people from revolting against the current government. SO they pushed really hard and the government backed a lot of shady players.
This is a drop in the bucket compared to how leveraged they are in real estate which is so large it could bring down the global economy for a long long time.
Plus their GDP numbers are highly exaggerated (we can tell despite their being a closed economy because they aren’t importing anywhere near enough raw material to support their claimed output). As a result, their debt to GDP ratios are much higher than they claim.
This sounds a lot like someone using a new low intro rate credit card to pay down their existing credit card balance. Then repeat as necessary...
Hint...it never ends well.
Pete
Economics is voodoo and I don't pretend to understand it, but I was wondering about something the other day:
Is China now kind of like a reverse OCP or Jennings & Rall? Instead of a corporation that bought a government, it's a(n ostensibly communist) government that became a for-profit corporation?
In reply to Streetwiseguy :
Don’t forget though that China holds a lot of American debt.
I’ve read too that China’s debt issues are bigger than previously explained. There is a lot of city and state debt with no good mechanism for repayment.
Having said that, I don’t expect China to suddenly fold up and quit.
American experts are predicting a Slowdown by spring here in America as well. The steady growth out of the Recession of 2008 appears to have peaked and a serious slowdown is likely on the way.
How much is going to be caused by the ongoing trade wars and how much by the slowing economy is uncertain.
China has a difficult problem to solve brought on by their one-child policy: The generation set to retire is a lot larger than the one that's going to be paying for their retirement. And attempts to make that one child a boy means the generation after that's going to be even smaller. So they're trying to get their country so prosperous that won't even matter, and they don't have much time to do that. I'm not sure they can pull that off, and they've tried some similarly questionable means to boost prosperity before.
The talk about China kind of reminds me of the articles like "The Japan That Won't Play Fair" in the '80s. Predictions that we'd all end up working for Japanese zaibatsus and all. OK, I did wind up working for a Japanese corporation right out of college, but that wasn't how things turned out for most of us.
In reply to MadScientistMatt :
I remember lots of hysterical articles claiming that Japanese investment was going to own a major portion of US urban real estate.
Regardless of what else happens in global economics, there are two major crashes coming in the stock market:
2021, right before it's time to cash in the 529 Coverdell fund for my son's college education
2033-35, right before I plan to start cashing in my 401(k)
Guaranteed crashes, people. Invest accordingly.
Brian said:While this story is about one particular company, I wouldn’t be surprised if it was indicative of most of the Chinese economy. This links up with other items I have read, although several years ago so I can’t really recall the sources, about the “strength” of the Chinese economy. A lot of it is debt manipulation that sounds like black magic to the lay person, and the bedrock of the Chinese economy is the US economy. If China tried to call our debt and collapse our economy, they would go down too.
That isn't the way it works. There isn't a debt to 'call' like a credit card or bank loan. They buy up a bunch of securities, because the US has traditionally been a safe investment, even if the interest rates are low to negative.
Knurled. said:Brian said:While this story is about one particular company, I wouldn’t be surprised if it was indicative of most of the Chinese economy. This links up with other items I have read, although several years ago so I can’t really recall the sources, about the “strength” of the Chinese economy. A lot of it is debt manipulation that sounds like black magic to the lay person, and the bedrock of the Chinese economy is the US economy. If China tried to call our debt and collapse our economy, they would go down too.
That isn't the way it works. There isn't a debt to 'call' like a credit card or bank loan. They buy up a bunch of securities, because the US has traditionally been a safe investment, even if the interest rates are low to negative.
I'm always a bit surprised at how often that comment comes up. Where did that misunderstanding come from?
China could flood the market with cheap US securities (since they're legal to resell) in order to hurt the sale of new debt, but that likely wouldn't last for an extended period of time and they'd be cutting off the nose to spite the face.
The biggest threat is China making it harder for US companies to do business in the country. Since the state controls so much of the economy it wouldn't be that hard to throw up some extra barriers and it would have a real consequence in the US economy due to the amount of capital tied up there.
Honestly I'm not even sure why most companies started doing business in China to begin considering the amount of forced intellectual property transfer that took/takes place. Short term gains for shareholders I guess.
The0retical said:Honestly I'm not even sure why most companies started doing business in China to begin considering the amount of forced intellectual property transfer that took/takes place. Short term gains for shareholders I guess.
Several billion people about to become wealthy enough to buy some of the stuff we all take for granted would be reason #1. As to the intellectual property part, if you have a presence in the country, you may be able to identify the problem earlier, and might (might) be able to do something about it. Copyright laws are no doubt next to useless there, but maybe you have the right area commissar in your pocket...
Duke said:In reply to MadScientistMatt :
I remember lots of hysterical articles claiming that Japanese investment was going to own a major portion of US urban real estate.
I was surprised to read the other day that Japan has passed China as the largest US bond holder. Last time I looked, several years ago, China was #1 by quite a margin.
The Japanese real estate thing kinda took care of itself naturally, the same way Ferrari prices did at about the same era. Some guys lost their shirts by over extending themselves.
Streetwiseguy said:The0retical said:Honestly I'm not even sure why most companies started doing business in China to begin considering the amount of forced intellectual property transfer that took/takes place. Short term gains for shareholders I guess.
Several billion people about to become wealthy enough to buy some of the stuff we all take for granted would be reason #1. As to the intellectual property part, if you have a presence in the country, you may be able to identify the problem earlier, and might (might) be able to do something about it. Copyright laws are no doubt next to useless there, but maybe you have the right area commissar in your pocket...
Started was the wrong word. Companies started manufacturing there because labor was cheap. Continuing to move investment there on the other hand, seems unnecessarily risky given the technology transfer requirements and the fact that the Chinese government is pretty transparent about what industries they're attempting to push domestically (mostly tech.)
Cheap labor seems to be shifting to SE Asia while everyone hopes the African continent stabilizes enough to become the next hub for cheap labor is what I'm seeing.
You do know that China has been projecting itself into Africa with new missions and military bases.
Africa (most, not all )is the last major area that could support large scale production at very low cost.
Donebrokeit said:You do know that China has been projecting itself into Africa with new missions and military bases.
Africa (most, not all )is the last major area that could support large scale production at very low cost.
Roads. Africa has very poor or no roads. That’s the number one problem with accessing the cheap labor pool of Africa. Getting and delivering goods and services needed for modern production.
China started building roads in Africa and found the cost too high to sustain. Between bandits and warring tribes, religious groups and kidnapings. It cost too much to build roads
frenchyd said:Donebrokeit said:You do know that China has been projecting itself into Africa with new missions and military bases.
Africa (most, not all )is the last major area that could support large scale production at very low cost.
Roads. Africa has very poor or no roads. That’s the number one problem with accessing the cheap labor pool of Africa. Getting and delivering goods and services needed for modern production.
China started building roads in Africa and found the cost too high to sustain. Between bandits and warring tribes, religious groups and kidnapings. It cost too much to build roads
The irony: The US was able to start utilizing the West by building railroads across the expanses where wagons might have been intercepted by bandits, warring tribes, and religious groups. Railroads largely built by imported Chinese labor.
I wonder why they haven't considered putting rail lines in. Or, if they have, what the difficulties are.
Knurled. said:frenchyd said:Donebrokeit said:You do know that China has been projecting itself into Africa with new missions and military bases.
Africa (most, not all )is the last major area that could support large scale production at very low cost.
Roads. Africa has very poor or no roads. That’s the number one problem with accessing the cheap labor pool of Africa. Getting and delivering goods and services needed for modern production.
China started building roads in Africa and found the cost too high to sustain. Between bandits and warring tribes, religious groups and kidnapings. It cost too much to build roads
The irony: The US was able to start utilizing the West by building railroads across the expanses where wagons might have been intercepted by bandits, warring tribes, and religious groups. Railroads largely built by imported Chinese labor.
I wonder why they haven't considered putting rail lines in. Or, if they have, what the difficulties are.
The same thing that allowed America to build the West is what stopping Africa from developing into a developed continent. Cheap labor!
America took in cheap Irish and Chinese immigrants who’s own freedom and ambition built the railroads and settled the west. Their reward was land ownership and the rewards and opportunities ownership offers in exchange for their hard work and sacrifice.
Africa is settled, land is owned. So wages are all that can be offered. Decent wages to endure the ordeal of road construction in the hot African sun, with warring factions eager to seek any and all opportunity to attack and kill for just a few dollars. Would need to be massively higher than that of going to a nearby factory.
Factory jobs can and are being done by robots that can be purchased for under a dollar an hour and will work non stop 24-7-365 without beaks for meals, toilet, or social requirements. Plus they will do that work close to where the demand for that product is.
Africa is dependent on itself to bootstrap itself from its current malaise. Too bad because that sort of neglect is exactly what led to 9/11.
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