 |
 |
 |
 |
 |
|
| ||
|
December 13, 2005
You are on the invidual archive page of China's overnight economic miracle. Click Simon World weblog for the main page.
|
|
China's overnight economic miracle
Somewhat amazingly, life goes on outside of the WTO conference. And today's papers contain three related but interesting reports on China's economy. I bet you didn't know China's economy grew 20% overnight! More worryingly, China has done an economic census and discovered it has undercounted its GDP by US$300 billion! From the SCMP: China's booming economy, already the seventh largest in the world, has been understated by as much as US$300 billion, the country's first nationwide economic census has discovered. The sum, equal to nearly 20 per cent of last year's US$1.65 trillion gross domestic product, highlights the serious understatement of data on the nation's sizzling services sector, according to mainland economists who have been briefed about the census results.We've talked previously about China's dubious economic statistics, but this takes the cake. Then China's consumer prices rose only 1.3% in November, a figure lower than expected. This will give the government room to ease fuel and electricity pricing controls but has again sparked worries about deflation. But for the monetists out there, work this out. China's money supply growth is expanding rapidly, according to the SCMP: China's money supply expanded at the fastest pace in almost two years last month, the People's Bank of China said yesterday on its website. M2, which includes cash and all deposits, grew 18.3 per cent from a year earlier after expanding 18 per cent in October, the central bank said. It was the biggest gain since March last year.A brief diversion into economics for those of you lucky enough to have avoided the topic. Inflation is the measure of how quickly the prices of goods and services are rising. Money is a good, just like anything else, with its own supply and demand and price (called interest rates). If the supply of money is rising rapidly, allowing for growing demand for money (via increasing wages and economic growth), then more money chasing the same amount of goods means prices (ie inflation) should be rising. So to how explain this disconnect between roaring money supply and low inflation? There's two possible answers: one is that the money supply figures are wrong and/or meaningless, of which there's a high chance in China's rapidly changing economy. Secondly, the extra money is going into areas not measured by the inflation numbers. This has happened in many Western countries. What would be those areas? Asset markets: in China, property is the main one, although some would also go into shares and other markets. Can you say bubble? Update: This seems appropriate: why is Shenzhen's real estate market going crazy? posted by Simon on 12.13.05 at 10:26 AM in the China economy category.
Trackbacks:
TrackBack URL for this entry: http://blog.mu.nu/cgi/trackback.cgi/137419 Send a manual trackback ping to this post.
Comments:
I don't think so. Asset prices have levelled off in the last year. What I think the answer is is..... Remember all those factories and huge amounts of fixed investment that got built in the last two years? They are starting to churn out huge amounts of goods. When people talk about a bubble economy, they are thinking in terms of Japan in the 1990's or the Soviet Union in the 1980's. The thing that people forget is that China is at a very low level of development and it's at least two or three decades from getting to late-Soviet levels of development and probably at least fifty years from Japanese levels of development. China is at the stage that you can get huge amounts of development by increasing capital intensity, even if overall productivity isn't growing much. (Think Japan or Russia 1950.) If that's true, Joseph, that's more of a worry because it implies massive excess capacity being built up. If inventories are being built up, GDP growth will look good now but slump as companies work to sell down their excessive stock holdings. It's an interesting question as to what level of capital intensification is sustainable for a given level of productivity. I suspect China is running ahead of its sustainable rate. posted by: Simon on 12.13.05 at 11:27 AM [permalink]How much to worry depends on what theory of economics one subscribes to. In the absence of inflation, I don't think that excess factory capacity is an issue. The government can keep the economy running and people employed by keeping the factories running and tossing the production into the ocean. posted by: Joseph Wang on 12.13.05 at 12:04 PM [permalink]Property prices are edging back, but I do expect that there is much more room to fall. Excess fixed-asset investment is still a problem and there are overcapacities in just about every industry that can be named. I expect much of it to be exported (among others, the grossly overinvested auto sector looks increasingly that it's going to follow that route). a stupid question: That's not a stupid question, Sun Bin. Most measures of CPI include some measure of rent and imputed rent (ie the rent you would pay in theory even though you actually own your own house) - this is why Hong Kong had several years of deflation. But that's not the same as measuring rising house prices. posted by: Simon on 12.13.05 at 01:52 PM [permalink]Who will be the Henry Ford of China? I don't mean Ford the inventor, but Ford the idealist/economist? Ford really revolutionized America with both his development of the assembly line and his decision to PAY workers enough money to buy his products! There is bound to be serious friction with China producing so much stuff and taking more and more production share from people who used to previously make this stuff. Wouldn't one way to alleviate some of the potential problems of overproduction (deflation, trade friction, increasing American isolationsim) would be to pay Chinese factory workers more money to buy more stuff? Forget about the problems in raw material and commodity prices -for now- there are bound to be far more serious problems if something is not done to sop up the production. How do you say Schumer-Graham tariff act in Chinese? posted by: PHS on 12.13.05 at 10:19 PM [permalink] |
|