Comparing Economy Management – China versus the United States

Over at CNN World, Stephen S. Roach wrote a post about America’s renminbi fixation.  Many of the comments that responded to the post were obviously from Internet Trolls that lack the skills for an intellectually reasoned response. Instead, the trolls resort to logical fallacies to divert attention away from Roach’s message (I left a comment and a few replies too).

While many in the West have predicted for about three decades that China is going to have a hard landing after an economic bubble of some sort bursts, it hasn’t happened yet.

I Reblogged Roach’s piece and you may reach it by scrolling down or clicking on this iLook China link.

To research this post I Googled “financial crisis in China since 1980” and found no results that answered what I was looking for.

However, I found this at Princeton.edu, which said, “It is now just over twenty years after China initiated its economic reform in 1978. Since then the average rate of growth of GDP has been a phenomenal 9.5 percent per year. This essay reviews the reform process, discusses the impact of the current Asian financial crisis and attempts to assess the prospects of China’s economy in the future…

“In summary China’s reform process has been an experimental and gradual process. It was to be continued before the Asian financial crisis (1997). State-enterprise reform, financial reform and the opening of the Chinese economy have all been affected by the crisis, but there is no question that as soon as conditions allow the reform process will continue, incorporating the lessons learned from the crisis…

“In conclusion, economic reforms in China are likely to continue in the manner and directions as described above. Because of the strong fundamentals of China’s economy as demonstrated by its good performance during the financial crisis substantial growth will continue perhaps for another decade after the current crisis.”

In addition, in an April 2008 economic study from Harvard, we discover, This Time is Different: A Panoramic View of Eight Centuries of Financial Crises.

The Harvard study said, “As the first paper employing this data, our aim is to illustrate some of the broad insights that can be gleaned from such a sweeping historical database.  We find that serial default is a nearly universal phenomenon as countries struggle to transform themselves from emerging markets to advanced economies.  Major default episodes are typically spaced some years (or decades) apart, creating an illusion that “this time is different” among policymakers and investors.  A recent example of the “this time is different” syndrome is the false belief that domestic debt is a novel feature of the modern financial landscape.  We also confirm that crises frequently emanate from the financial centers with transmission through interest rate shocks and commodity price collapses…

“The ability of governments and investors to delude themselves, giving rise to periodic bouts of euphoria that usually end in tears, seems to have remained a constant.”

Since not much time has passed since China’s economic reforms in 1978, we will look at the United States for examples.

The current total US deficit (national debt) as of today is more than $15.5 trillion and the average credit card debt per household based on 609.8 million credit cards held by US consumers is almost $16,000.

However, “Chinese households save a large share of their disposable incomes and their average saving rate has increased over the last decade and a half. This pattern is particularly pronounced for urban households, which account for about two-thirds of national income. After remaining relatively flat during the early 1990s, the average saving rate of urban households relative to their disposable incomes rose from 18% in 1995 to nearly 29% in 2009.”

In addition, if we study “Panics, Depressions and Economic Crisis Prior to 1930 in the United States”, we discover that “Those most disastrous have usually followed general injudicious speculation in lands or inflated securities. The crisis of 1816-1819 in the United States, it is claimed was due to the speculation and disorder following the War of 1812. The next occurred in 1825. A very memorable panic was that of 1837.” Source: The History Box.com

Akorra.com lists the Top 10 Worst Financial Crisis in U.S. History starting with the Crash of 1929/Great Depression; our current and continuing Mortgage Crisis of 2007; the Panic of 1893; The Banker’s Panic of 1907; the Panic of 1873; the Panic of 1819; the 2001-2002 Recession (known as the dotcom bubble that wiped out $5 trillion in market value of technology companies);  the Kennedy Slide in 1962 which caused a 22.5% drop in the S&P 500; the Panic of 1837, and The Oil Crises of 1973.

In addition, there have also been recessions in 1937, which followed the Great Depression (1929 – 1933); 1945, 1949, 1953, 1958, 1960-61, 1969-70, and 1973-75.

As for China, the predictions of an economic crises/crash keep coming as if they were being manufactured on an assembly line — but one hasn’t arrived yet and it has been 34 years since China’s 1978 economic reforms, while for the same period in the US there have been several economic recessions running from January – July 1980; July 1981 – November 1982; July 1990 – 1991; March -November 2001, and December 2007 – June 2009.

When an economic crises does appear in China (the odds favor that it will), it may be part of a global universal phenomenon as the Princeton and Harvard studies reveal, so it is a good bet that sooner or later China’s economic critics will be able to step up on their soap boxes and crow, “I told you so (a hundred times over the last several decades that it would happen one day)!”

I suggest watching the two videos with this post to learn about manufactured financial panics in the United States, which leads to a question: Is the American fixation on China’s currency manufactured too?

______________

Lloyd Lofthouse is the award-winning author of The Concubine Saga. When you love a Chinese woman, you marry her family and culture too. This is the love story Sir Robert Hart did not want the world to discover.

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6 Responses to Comparing Economy Management – China versus the United States

  1. merlin says:

    I’m currently looking to find a country that has an even better cost of living than China, which articles I read seem to have differing opinions.

    • I read recently about one or two countries in South America being a good place for expats and retired Americans to live. And if I recall correctly, one of those two countries had good, inexepensive health care–at least that’s what the piece said.

      • merlin says:

        Oh, I thought you were going to mention Zimbabwe where a USD = nearly half a million Zimbabwe dollars. Although I’ve read that they’ve switched to the USD, and befoe people were buying a Mcdonalds meal (example) and paying in a briefcase of money. I’m stll curious because I look on real estate sites and they say a house cost half a million, but it has an American dollar sign.

        I’ll check it out, thanks.

  2. merlin says:

    For a lot of expats they’ll never really notice anything besides the flux in exchange rates. I’ve noted inflation on the rise by comparing from the time I hit the ground to the time I lifted off the ground. When I originally began cruising through Auchan near Dongchuan lu, I was paying about 1.5 rmb for a pack of Nikkon noodles (with an image of the man of longevity on the front). I also bought a pack (like a Tropical rush silver juice bag thing) of Hunts spaghetti sauce for around 7-8rmb. I lived on that nearly 2-4 meals a week. In 2011, the noodles jumped to 1.8 and eventually settled above 2.0 rmb. The Hunts sauce on the other hand became limited in variety (italian, parmesian, original, etc) as well as increasing to near 9rmb/bag. An increase of .5rmb and they cut back on foreign imported spaghetti sauce. Many would laugh claiming it’s not an issue, but imagine if you were buying bigger products which had a bigger increase? Or if you were buying foreign products? I used to always get a 14rmb small chunk of Land of Lakes cheese as a snack from a grocery specified in foreign imports. That 14rmb hunk of cheese jumped to nearly 30 and eventually was taken off the shelf. I dont know why it happened because there are many factors that have to be included in the price of a product at the store.

    As for a “bubble” it exists. That’s the housing crisis in China. The government is trying to fix the problem by taxing the crap out of home owners, which is why people are pissed. These rich investors dont care about tax problems because they have money and the rent they collect anyway will be more than enough to cover the tax. As for subleasers like my boss, that’s why she picked up the business because she’s not taxed. Not only that, but the government hasn’t put a limit on how many apartments one can rent, so she can easily operate the business without ever registering her business. She got the idea from a chinese businessman she knew that operated 150 rentals and never paid a business tax. As for why I never got to meet the guy, I would assume because it was during her time as a playgirl at the bars which she wanted to push behind her to marry an LA native.

    Literally everything was at my fingertips. If only I had the visa and the funds I would’ve taken my boss’s business model and rocketed to the moon with it. China doesnt have copywrite laws, and if they did her business was never registered so she wouldn’t have any ground to stand on in the courts. The only problem would be if the house bubble burst like it did in the US. At least the loss wouldn’t be in the hundreds of thousands of dollars as an apartment rental runs under 10k rmb and ownership can run in the 100k+ rmb. With that added benefit, I’d be able to hit the ground, roll, and jump back up again rather than fall down a well as many did in the US.

    • I’ve read and heard about the infaltion in China you are talking about. We just had a guest/friend from Shanghai that stayed for ten days and she said some things in the US were cheaper than in China. She went on a spending spree and returned to China with an extra suitcase to hold all of the stuff she bought while here that costs more there.

      • merlin says:

        It’s funny how simple things we take for granted are easily found at Wal-Mart, yet require a nose for adventure to hunt for the same products in China at a higher price. I always took cheese for granted, but it’s a rarity in China. The only place to buy bricks of cheese is at foreign grocers in big cities such as Shanghai. Outside the major expat city, the closest you’ll ever come to cheese will be on a Papa John pizza or the can cheese placed on Pizza Hut pizzas.

        The waitress I slipped my email to and met on 3 occasions now emails pleading for my return and promises marriage. She’s a year older than me and was always bubbly. It was interesting to note that she was the one dragging me to Transformers and screaming like a little kid when BumbleBee made his appearance. Women and science fictional transforming alien robots….who ever made the cliche that they hate them? The deal breaker for the marriage is an iphone 4s. In China those can be costly and it’s like hunting for a needle in a haystack for an original instead of a Guangdong fake. I’m still leaning more towards the pediactric med student I befriended through a friend at Fudan University. She’s got a career that closely follows my interest/degree.

        Anyways, what I find interesting is even though certain products in the US may be cheaper than in China because of the added import tax, the cost of living is still substantially lower in China.

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