Respected economist Paul Krugman writes...

All economic data are best viewed as a peculiarly boring genre of science fiction, but Chinese data are even more fictional than most. Add a secretive government, a controlled press, and the sheer size of the country, and it’s harder to figure out what’s really happening in China than it is in any other major economy.

Yet the signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.

Start with the data, unreliable as they may be. What immediately jumps out at you when you compare China with almost any other economy, aside from its rapid growth, is the lopsided balance between consumption and investment. All successful economies devote part of their current income to investment rather than consumption, so as to expand their future ability to consume. China, however, seems to invest only to expand its future ability to invest even more. America, admittedly on the high side, devotes 70 percent of its gross domestic product to consumption; for China, the number is only half that high, while almost half of G.D.P. is invested. (source)

Given China's geographical size and its huge population, you may be surprised to discover that its economy is only a bit larger than Japan's and is less the size of the United States' or the European Union's. China will undoubtedly get things back in balance, but they are a significant factor in the world economy. Much as we view China as an economic competitor, the last thing the world needs now is a huge recession or depression in China. 

Tags: China, consumers, depression, investment, recession

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I am just at a loss on how they keep building cities that no one can afford to live in.

Heh. I think we must subscribe to the same news sources. Its' amazing how many times I see something you've posted and realized I just read that very same article! 

I start each day with a visit to huffingtonpost.com. Probably about 75% of the things I use as a basis for a post come from somewhere on huffingtonpost.com

Does this mean the death of it's biggest customer, Walmart?

One could only hope so.

No surprises here.  The growth rate in China has always been unsustainable.

Krugman had a good follow-up piece where he discusses impacts. In terms of direct impact on the world economy via reduction in Chinese imports, it's actually not that large.  I was surprised.  Krugman's rough cut was a slowdown of 0.3% in world GDP.   Perhaps less. 

Commodity prices would be a bigger deal.  A Chinese slowdown would impact things like oil prices more heavily (making oil and other commodities cheaper).

The bigger issue is Chinese social/governmental instability.  I have a number of Chinese colleagues, and American colleagues with closer Chinese connections than I have.  Chinese social stability under the oligarchic regime has mostly been bought through economic growth.  Absent that growth (let alone in the face of an economic downturn), social stability will be compromised.  That can lead to military adventurism to distract from social issues on the part of the government, or perhaps to a "Chinese Spring" that can proceed any number of good or bad ways.

Damn, where have I been? This story is shockingly huge. 60 Minutes devoted 2 segments to real estate in China, tonight.

http://www.cbsnews.com/video/watch/?id=50152767n

(I saw no way to embed the video.)

What's going to happen to all the empty buildings? Rent them out to the world? In any case, this looks like inevitable culture shock in China.

Of course, China didn't have the huge economic boost of 400 years of slavery, and being on the victorious side in two world wars, nor do they encourage people to go out and do anything in their power to make money, even if it means selling shite products at 3 times their value or tricking lower middle class people into buying mortgages designed to blow up and cost them their homes. To be honest, our grand, nation crushing economy isn't really something to be all that proud of.

On the other hand, what have they contributed to art or technology? When you force a people to develop a strictly monitored mindset, it isn't exactly conducive to creativity.

George Washington Carver, for just one example, couldn't exactly be said to benefit from, "the huge economic boost of 400 years of slavery," yet his keen mind, unfettered, made some incredible developments.

Chinese Opera gave us Kung Fu movies and Wire Fighting. I'd say that counts as art and technology. Plus they make all of ours, so you can't say they don't have the skill for it.

Creation begins in the mind, not the fingers. The ancient Chinese gave a great deal to the world, but modern Chinese, not so much. When a society deadens the brains of its people to keep them from thinking too much, it merely marches in place.

tricking lower middle class people into buying mortgages designed to blow up and cost them their homes

I'm not sure this was the leadership's intention, even with its rampant corruption. Most of the world's bubbles weren't widely predicted, either. Perhaps the majority of Chinese leadership, business, and middle class really thought they were immune.

In any case, they sure do have a lot of excess infrastructure now. It will probably remain usable, if/when they bounce back. Wouldn't it be ironic if half of our service industries were suddenly outsourced, to fill those empty cities.

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