The Chinese are coming! The Chinese are coming!
How many more articles will we see with the theme that the Chinese are gobbling our lunch? How many more breathless reports on tv? How many more warnings that they will gut our manufacturing? They will build a military that will make ours look like a Boy Scout troop? They will totally dominate their part of the world? They will grab all the available oil from the countries where we buy ours?
Looks like the sorts of warnings our media served up about Japan 20 years ago. Japan’s economy was going to dwarf ours. The twenty-first century was going to be Japan’s. Well, since then Japan suffered recession for over a decade. While our economy surged.
If you feel the China story will play out differently, here are a few items to consider.
China’s miraculous growth rates are not as good as those posted by Japan, South Korea and Taiwan. Back when they were moving from underdeveloped to developed. Yes, those countries’ economies boomed with a bigger boom than China’s has.
China’s return on money invested is not as good as India’s. In six major industrial sectors it is not. India’s returns are 80 to 200 percent higher than China’s.
You don’t have to be an economist to understand a basic fact. Return on investment is an important thing. If your return on investment is worse than somebody else’s you are not going to emerge the winner.
Another cloud that will darken China’s future. Young people. It has too few. Old people. It has too many.
A country cannot keep up the surge when a rising percentage of old folks needs looking after. And when a falling percentage of young people has to pay higher taxes for their care.
China has so few young people because it allowed only one child per couple for so many years. It also suffers from too many young males. They will not marry because there are so few women their age. Because so many Chinese abort or smother female babies. A surplus of single males is not great for societies in a number of ways.
There is good reason why China gets such lousy returns on investments. The government and the army control so much of the economy.
What would you expect if our government ran thousands of our biggest companies? What would shopping be like if our government ran all of our shopping centers and Walmarts and Home Depots? That is the case in China.
Government runs nearly 40% of the economy. It runs 56% of industry. It employs over a third of the urban workforce.
Government there is no different than government here. It is heavy handed. It promotes hacks because of their political clout.
Corruption is gigantic. About 150,000 government officials get caught with their hands in the till every year. But only 5 per cent of them get prosecuted.
The World Bank reckons about one-third of big investment decisions in China are stupid. Because they are made by incompetent hacks. And they are made for political cosiderations. Instead of business considerations.
Meanwhile, state businesses are bleeding money. Over 35 per cent of state businesses lose money. One in six of them has more debt than assets. Uhh, that is what we would call bankrupt or nearly so here. Chinese banks have stacks of loans on their books that will never be repaid. Come the day when they have to admit this, some houses of cards will tumble.
China will keep growing. The lives of Chinese will keep getting better. Will they eat our lunch? Hardly. You can bet on China’s future. But I would not recommend you bet the farm.
From Tom ... as in Morgan.
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