Has China Crashed?

[william the wie]

China is known for its ghost cities, data massage and various other economic problems. What I am wondering is there some sort of data series that might indicate when it has crashed or if it has already crashed as the US mortgage crashed in 2006 but the meltdown didn't happen until 2 years later.

 

[Indeependent]

What's the definition of a crash in China?
They get interest on our debt and they're still selling us stuff.
They're main concern is losing their overflow of labor.
They are putting forth a 5 year plan to become a consumer economy.
They will probably send some manufacturing to Vietnam Nam or bring in Vietnamese to do some of their labor.

 

[Toro]

No, not yet.

 

[bendog]

No, not yet.

It will be interesting to see if they can generate internal demand. If they can .... it'd be a central planning miracle.

 

[CrusaderFrank]

No, not yet.

It will be interesting to see if they can generate internal demand. If they can .... it'd be a central planning miracle.

Which is why Central Planning comes with a 100% Guaranteed Fail

 

[Kimura]

No, not yet.

It will be interesting to see if they can generate internal demand. If they can .... it'd be a central planning miracle.

Which is why Central Planning comes with a 100% Guaranteed Fail

China has surpassed the US as the world's largest industrial producer. They're still not a completely developed country as of yet, so they have a another 20-30 years to go before they start to leave the rest of the world behind. Literally. Logically, as I'm sure you're asking yourself, is whether this growth trajectory can continue on its current path. China cruised through it first pull back while the rest of the developed nations are still trying to recover (wrong policies and all).

 

[Kimura]

China has overtaken the US to become the world's largest industrial producer

The period since the international financial crisis began has for the first time in over a century seen the US displaced as the world’s largest industrial producer – this position has now been taken by China. It has also witnessed the greatest shift in the balance of global industrial production in such a short period in world economic history. In 2010 China’s industrial output exceeded the US marginally but this has now been consolidated into a more than 20% lead with the gap still widening further.

In 2007, on UN data, China’s total industrial production was only 62% of the US level. By 2011, the latest available comparable statistics, China’s industrial output had risen to 120% of the US level. China’s industrial production in 2011 was $2.9 trillion compared to $2.4 trillion in the US – this data is shown in Figure 1.

Figure 1

13 08 25 Chart 1 US & China Industrial Production

When the comparable data is released for 2012, China’s lead will have increased substantially– between December 2011 and December 2012 China’s industrial output increased by 10.3% whereas US industrial production increased by only 2.7%. Calculations based on estimates in the CIA's World Factbook indicate in 2012 the value of China's industrial production was $3.7 trillion compared to $2.9 trillion for the US – which would mean China's industrial production was 126% of the US level.

Taking only manufacturing - that is excluding mining, electricity, gas and water production - in 2007 China’s output was 62% of the US level, by 2011 it was 123%. Again the gap has widened in 2012 and 2013.

No other country’s industrial production now even approaches China - in 2011 China’s industrial output was 235% of Japan’s and 346% of Germany’s.

World Bank data, using a slightly different calculation of value added in industry, confirms the shift. On World Bank data China’s industrial production in 2007 was only 60% of the US level, whereas by 2011 it was 121%.

Therefore in only a six year period China has moved from its industrial production being less than two thirds of the US to overtaking the US by a substantial margin. If China was the ‘workshop of the world’ before the international financial crisis it is far more so now

The trends producing such dramatic shifts in such a short period are shown in Figure 2. In six years China’s industrial output almost doubled while industrial production in the US, Europe and Japan has not even regained pre-crisis levels. To give precise statistics, between July 2007 and July 2013 China’s industrial production increased by 97% while US industrial output declined by 1%. Industrial production data for July is not yet available for the EU and Japan, but between June 2007 and June 2013 EU industrial output fell by 9% and Japan’s by 17%.

Figure 2

13 08 25 Chart 2 China & Advanced Industrial Production

It is this enormous rise in China’s output which also drove the much discussed global shift in industrial production in favor of developing countries - in the six year period to June 2013, the latest date for which combined data is available, industrial production in advanced economies fell by 7% while output in developing economies rose by 65%.

As is clear from Figure 3, China accounted for the overwhelming bulk of the increase in the developing economies. Industrial production in Latin America rose by 5%, in Africa and the Middle East by 6%, and in Eastern Europe by 10%. But China’s industrial production in this period rose by 100% - industrial output in developing Asia as a whole rose by 65%, but the majority of this was accounted for by China.

Figure 3

13 08 25 Chart 3 Advanced & Developing Industrial Production

The quite literally historic scale of these shifts makes clear that by far the most important development in world industrial production in the last period is this extraordinary rise of China. Between 2007 and 2011 China’s industrial production rose by $1,465 billion, in current prices, while US industrial output rose by only $88 billion in current prices and declined slightly in inflation adjusted terms. China’s industrial production rose by 17 times as much as the US.
Such a rise in China’s industrial production has consequences spreading far beyond industry itself. Industry has easily the most rapid increase in productivity of any economic sector – notably compared to services. The decline of industrial production in the EU and Japan, and relative stagnation in the US, means China is cutting the productivity gap between itself and the advanced economies. This is crucial for progress in raising China’s relative GDP per capita and living standards.

This rising productivity also explains why China’s exports have been able to maintain their competitiveness despite substantial increases in the exchange rate of China’s currency the RMB. On Bank for International Settlements data, the RMB’s nominal exchange rate rose by 25% between July 2007 and July 2013. But China’s real effective exchange rate, that is taking into account the combined effect of the nominal exchange rate and inflation, rose by 31% But despite this major currency revaluation China’s exports continued to exceed its imports.

The ability of China to successfully absorb such high increases in its exchange rate, due to high levels of industrial productivity increases, directly translates into relatively lower prices for imports and improved relative living standards for China’s population.

This data also settles the dispute between who believed there was a major industrial revival in the US, such as the Boston Consulting Group, and Goldman Sachs and other analysts who correctly concluded no such major revival has occurred. Those in China, such as Lang Xianping, who wrote that a great US industrial revival was taking place and China’s industry was in crisis look foolish in the light of data showing China’s industrial output doubled in a period when US industrial production did not grow at all. The only reason US industrial performance does not appear very weak, with negative net growth over a six year period, is because of the even worse performance of a major decline in industrial output in the other advanced economic centers – the EU and Japan.

It is naturally important not to exaggerate this scale of advance by China in industrial production. China’s industrial output is now considerably larger in value terms than the US, but the United States retains a substantial technological lead which it will take China a considerable period to catch up with. Due to a long period of globalization and consolidation by US companies, both processes which are only at early stages in China, US manufacturing firms are still four times the size of China’s in terms of overall global revenue– although between 2007 and 2013 Chinese manufacturing firms overtook Germany to become the third largest manufacturing companies of any country.

The scale of these changes in world industrial production also make clear that in comparison to developments in China gas and oil ‘fracking’ in the US, which have attracted widespread media attention, is merely a statistical sideshow – as already noted overall US industrial production has not even recovered to pre-crisis levels.

For the first time for over a century the US has been definitively replaced as the world’s largest industrial producer. Such a once in a century shift can literally only be described as historic.


Key Trends in the World Economy: China has overtaken the US to become the world's largest industrial producer

 

[william the wie]

The reason I ask is that I am getting conflicting reports about whether China's banking system has more bad loans than the US banking system has loans.

 

[Toro]

They may have more bad loans.

They may crash.

But they haven't yet.

 

[expat_panama]

...China has surpassed the US as the world's largest industrial producer...

Some people say that, others don't --and imho the bulk of the evidences says they haven't. Just the same, what we're talking about is that a population four times the size of the U.S. is only able to manufacture about the same amount as America does. So the real question now is if China's economy really has collapsed, how would be any different than what we're already seeing?

 

[william the wie]

...China has surpassed the US as the world's largest industrial producer...

Some people say that, others don't --and imho the bulk of the evidences says they haven't. Just the same, what we're talking about is that a population four times the size of the U.S. is only able to manufacture about the same amount as America does. So the real question now is if China's economy really has collapsed, how would be any different than what we're already seeing?

particularly in the early stages. AIG pulling out of the CDS market in 2005 because of poor loan quality springs instantly to mind. Also I perceive you have read the McKinsey report about how US productivity will outstrip Chinese wages by 2015 and probably seen some of the reports about jobs starting to shift from China back to the US.

At this point the US, in the form of iRobot and Rethink Robotics primarily, can replace many low skill workers worldwide being paid more than about $3/hr and combined with additive manufacture that many should be most in about two years. What is slowing down implementation is not just the shortage of robot trainers and repairmen but also the shortage of instructors in those skills.

 

[expat_panama]

...the McKinsey report about how US productivity will outstrip Chinese wages by 2015...

The bulk of the evidence shows American workers are by far the most productive in the world. Meanwhile half the Chinese workforce is out scratching for food out of the ground (even with China still having to buy food from the U.S.) where our Agri-workforce is just one half of one percent.

 

[CrusaderFrank]

It will be interesting to see if they can generate internal demand. If they can .... it'd be a central planning miracle.

Which is why Central Planning comes with a 100% Guaranteed Fail

China has surpassed the US as the world's largest industrial producer. They're still not a completely developed country as of yet, so they have a another 20-30 years to go before they start to leave the rest of the world behind. Literally. Logically, as I'm sure you're asking yourself, is whether this growth trajectory can continue on its current path. China cruised through it first pull back while the rest of the developed nations are still trying to recover (wrong policies and all).

And where were they before they adopted an economy that moved away from Centrally planned communism?

Hmm?

Same country, same people; all they did was change from central planning to something more toward free enterprise (minus rule of law, of course)

 

[Kimura]

...China has surpassed the US as the world's largest industrial producer...

Some people say that, others don't --and imho the bulk of the evidences says they haven't. Just the same, what we're talking about is that a population four times the size of the U.S. is only able to manufacture about the same amount as America does. So the real question now is if China's economy really has collapsed, how would be any different than what we're already seeing?

They have, look at the numbers. Their industrial output has increased 120% to that of current US levels.

China is going to continue with GDP growing at 8% per year for the next 10-15 years or possibly even longer. They've also implemented even more economic reforms to enable them to grow and mitigate any risk.

 

[Kimura]

Which is why Central Planning comes with a 100% Guaranteed Fail

China has surpassed the US as the world's largest industrial producer. They're still not a completely developed country as of yet, so they have a another 20-30 years to go before they start to leave the rest of the world behind. Literally. Logically, as I'm sure you're asking yourself, is whether this growth trajectory can continue on its current path. China cruised through it first pull back while the rest of the developed nations are still trying to recover (wrong policies and all).

And where were they before they adopted an economy that moved away from Centrally planned communism?

Hmm?

Same country, same people; all they did was change from central planning to something more toward free enterprise (minus rule of law, of course)

China still has, and will continue to have, a large state sector. You can thank Deng Xiaoping for the economic reforms which set China on her current path.

 

[Kimura]

The reason I ask is that I am getting conflicting reports about whether China's banking system has more bad loans than the US banking system has loans.

Their three big problems:

a) the copper bubble which was the result of a financing scheme

b) the Ghost Cities as you pointed out

c) black market loan sharks servicing small businesses

These are the result of bad economic planning on the part of the Chinese. All of their fiscal and monetary policy decisions are routinely scrutinized by morons in the West. They really aren't interested in neoliberalism, but continue to pursue oddball policies at times.

 

[CrusaderFrank]

China has surpassed the US as the world's largest industrial producer. They're still not a completely developed country as of yet, so they have a another 20-30 years to go before they start to leave the rest of the world behind. Literally. Logically, as I'm sure you're asking yourself, is whether this growth trajectory can continue on its current path. China cruised through it first pull back while the rest of the developed nations are still trying to recover (wrong policies and all).

And where were they before they adopted an economy that moved away from Centrally planned communism?

Hmm?

Same country, same people; all they did was change from central planning to something more toward free enterprise (minus rule of law, of course)

China still has, and will continue to have, a large state sector. You can thank Deng Xiaoping for the economic reforms which set China on her current path.

...on her current path, which is very different from the failed Centrally planned economy of generations past

 

[expat_panama]

...look at the numbers. Their industrial output has increased 120%...

Let's understand that the numbers you presented came from this website run by the government of the People's Republic of China --those wonderful people that denied the SARS scandal, the river pig epidemic, and the AIDS contaminated blood banks. Don't get me wrong, the PROC's numbers on industrial output may actually be right, but that source clearly has an agenda and other sources with better track records differ.

The bottom line here is that if we're comparing China/U.S. output, then the best we can do is say China's output per capita is about a fourth of that of the U.S.

 

[Kimura]

...look at the numbers. Their industrial output has increased 120%...

Let's understand that the numbers you presented came from this website run by the government of the People's Republic of China --those wonderful people that denied the SARS scandal, the river pig epidemic, and the AIDS contaminated blood banks. Don't get me wrong, the PROC's numbers on industrial output may actually be right, but that source clearly has an agenda and other sources with better track records differ.

The bottom line here is that if we're comparing China/U.S. output, then the best we can do is say China's output per capita is about a fourth of that of the U.S.

Those numbers are extrapolated from the United Nations System of National Accounts. You shouldn't use straw man arguments, they don't work. That's like saying we can't trust FRED data because of the Tuskegee syphilis experiment, the Gulf of Tonkin, or some other cover up by Uncle Sam.

 

[Toro]

The reason I ask is that I am getting conflicting reports about whether China's banking system has more bad loans than the US banking system has loans.

Their three big problems:

a) the copper bubble which was the result of a financing scheme

b) the Ghost Cities as you pointed out

c) black market loan sharks servicing small businesses

These are the result of bad economic planning on the part of the Chinese. All of their fiscal and monetary policy decisions are routinely scrutinized by morons in the West. They really aren't interested in neoliberalism, but continue to pursue oddball policies at times.

The biggest problem in the Chinese financial system are the off balance sheet pools of capital that have been financing construction, particularly residential real estate.

Last year, 42% of all homes purchased in China were second homes.