capitalism | iLook China

The Economic Health of BRICS – Part 4/7

January 14, 2012

Because of the structure of China’s land ownership and banking system, the risk of losing money is much less than in the West and when the government resells property that lost value the first or second time around, the government banks collect another 30% to 60% down payment and also makes money off the interest of the new loans, and the property still belongs to the government—it is only leased for 70 years with an option to extend the lease.

In America, private property seldom belongs to the government. Even when the government repossesses property for any reason, it is usually sold at auction for very low prices with little to no chance to make up for what was lost.

In China, however, the government recycles the money mostly in a loop while the US government is not part of the loop—except when baling out private sector banks, and the money flows in one direction toward the private sector while adding to the national debt.

In addition, in China, Bloomberg reported in December 2011, that China’s property sector equals about 12 percent of China’s GDP and then Bloomberg goes on to discuss property values in China dropping 10, 25, 40 and even 50 percent or more—something that is still devastating the economy in America.

To learn more about property values dropping in China, I suggest reading More on Property Downturn at Patrick Chovanec’s An American Perspective from China

Chovanec wrote, “The revenue shortfall is making it hard for some cities to pay for basic services like police and hospitals, much less repay the massive amount of debt they borrowed for stimulus projects – which, according to this report from Bloomberg, may be much larger than official statistics suggest.”

However, before I move on with more about the BRICS countries, let’s not forget what caused China to borrow for stimulus projects in the first place—the 2008 global economic crises, which led to about 20 million Chinese losing jobs. Is it possible that the 2008 economic tsunami from New York is finally being felt in China?

Interestingly, Global Issues.org says, “While Europe and the US consider more socialist-like policies, such as some form of nationalization, China seems to be contemplating more capitalist ideas, such as some notion of land reform, to stimulate and develop its internal market…”

Continued on January 15, 2012 in The Economic Health of BRICS – Part 5 or Return to Part 3

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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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Posted by Lloyd Lofthouse

The Economic Health of BRICS – Part 3/7

January 13, 2012

In China, where do you think most or all of the money from those 30% to 60% down payments mentioned in Part 2 go? For a first-time property sale, the government owned banks loan the money to private citizens or businesses to buy property owned by the government. Once the loan is complete, the down payment and the amount of the loan flows to the same or another government owned bank and then the buyers make payments with interest to the government owned bank that holds the loan.

When re-sales of these properties take place, the first mortgage on the leased property is paid off and the second loan is either 70% (for a buyer’s first home) or 40% (for a second home).

Thirty percent of property in China is bought with cash.

Due to the high required down payment, the risk to China’s government owned banks is much less than the risk in the US private sector banking system, which really has no risk, since the government often steps in to make up for the losses in the private sector while ending up increasing the national debt.

In China, even when property values drop, the bank, which the government owns, may repossess the property (that the government always owned) and resell it. This means after a property has dropped 50% of its value in China, the government may lose either 30% or 10% of the value of the loan. In the US, if a bank cannot re-sell the house at the current value, then it losses all of the value of the loan.

However, when the same property that was repossessed is sold again, the down payment will be between 30% to 60% in addition to the fact that 30% of property sold in China is bought with cash.

In the long run, will the government owned banks in China make a profit or a loss?

Continued on January 14, 2012 in The Economic Health of BRICS – Part 4 or Return to Part 2

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Posted by Lloyd Lofthouse

The Economic Health of BRICS – Part 2/7

January 12, 2012

China’s banking system has undergone significant changes in the last two decades and is functioning more like western banks than before but remains owned by China’s government.

That is a significant difference. For example, in America, there are no government owned banks but the public sector insures any risk taking the private sector banks take. This means that private sector banks may lose trillions and the government will step in, as Washington D.C. did in 2008, and go deep into debt to save the banks from drowning and taking America and the West’s economies down with them into a black hole.

The biggest difference between the west and China is the money trail.

In America and the west, most people borrow from private banks to buy private property and when the value of the property drops, as it has in the United States, and the borrowers walk away letting the bank reposes a property that is worth much less than the loan amount, much of the money is gone—when the house sold, the equity went to the previous owner and any mortgage that existed was paid off. The US government made no money on the deal (property tax goes to state governments).

It doesn’t work that way in China because the banks are owned (and controlled) by the central government and so is the land. A better idea of the difference between buying private property in the west and government owned property in China comes from Global Property Guide.com that says, “The slowdown (drop in property values in China) follows market-cooling measures first introduced in April 2010. The campaign intensified in 2011. The down payment for first-time buyers’ mortgages was increased to 30% from 20%, and for second homes rose to 60% from 50%.”

By comparison, in America, down payments may be as low as no money down or 3.5% and as high as 20% depending on the loan and the qualifications of the buyer/s.

Continued on January 13, 2012 in The Economic Health of BRICS – Part 3 or Return to Part 1

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Posted by Lloyd Lofthouse

The Economic Health of BRICS – Part 1/7

January 11, 2012

In 2001, Jim O’Neill, the chief economist for Goldman Sachs, coined the BRIC acronym to represent the combined economies of Brazil, Russia, India and China. He was also so bold as to predict that by 2032, or sooner, the BRIC would overtake the six largest western economies (which includes America) in terms of economic might.

Then in 2010, South Africa joined the BRIC turning that acronym into the BRICS.

In fact, the International Monetary Fund (IMF) has predicted that China, a member of BRICS, will beat the United States as the world’s largest economy by 2016 with a GDP of $19 trillion compared to $18.8 trillion for the US.

There are about seven billion people on the planet and almost half live in Brazil, Russia, India, China, and South Africa. The US, by comparison [I prefer factual comparisons over opinions], holds less than 5% of the world’s population. However, I thought I’d throw in this comparison as a footnote. The King’s College of London reported that in 2009, “More than 9.8 million people are held in penal institutions throughout the world… About 2.3 million were in the US,” which means 23% of the total global prison population was in America.

About prison slavery in the United States.

Did you pay attention? A country [the US] with less than 5% of the global population has 23% of the global prison population.

By comparison, the five BRICS countries [without the freedom American citizens seem to enjoy] has almost half of the world’s population but only 35% of the global prison population.

What does that tell us—that the more freedom and wealth a country has, the more crooks it grows and attracts?

Anyway, the world’s combined GDP, according to The World Bank was more than $63 trillion (US) in 2010. The GDP of the US was $14.6 trillion, while the BRICS’ combined GDP equaled about $11.6 trillion (US).

Recent drops of property values in China, sometimes reaching 50%, caused dire predictions in the Western media that China’s economy would soon crash and take the BRICS down with it causing their economies to suffer as well.

However, it is best to understand China’s economy and banking system to see if this wishful thinking on the part of China’s Western critics is valid.

Continued on January 12, 2012 in The Economic Health of BRICS – Part 2

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Posted by Lloyd Lofthouse

America’s Lost Work Ethic and the End of its global Exceptionalism – Part 5/5

December 13, 2011

The educational system and labor market in China are based on merit, while in the United States, the emphasis is on self-esteem and feeling good about oneself. In America, merit is not important and the happiness of the individual is.

In China, those that work harder and do a better job, regardless of self-esteem or happiness, tend to prosper. in fact, Asian-Americans have the lowest self esteem in the United States.

Gallup studied China’s work ethics. Not surprisingly, the credo “work hard and get rich” is by far the most popular choice, selected by 53% of respondents. About one in four Chinese (26%) opt for “don’t think about money or fame, just lead a life that suits your own tastes,” while less than a tenth of Chinese identify with all the other responses. Perhaps most telling: Only 2% of Chinese choose the collectivist exhortation to “never think of yourself, give everything in service to society.”

In short, it would appear that the country’s commitment to material self-betterment through hard work is firmly rooted and unchallenged.

However, in the United States, a Yahoo.com, ABC News Piece said, “Between 1979 – 2007, the income of the top 1% of Americans increased by 275%. For the other 99% of the population, income only increased 29%.”

The problem is that when prices of everyday items such as food goes up due to inflation, many people cannot afford to buy them. In addition, equity in homes, where most of middle class wealth is, lost value.

Chinese Education: Social Life and Work Ethic

Studies also show that countries that have a large income gap such as the US, also have high numbers of unemployed, incarceration, teen pregnancy, poor health and lower life expectancy. It may not surprise you that Chinese-Americans [including all Asian-Americans] have the lowest teen pregnancy rate too.

In fact, prison inmates by race breaks down to about: African-American 39.4%, White 33%, Latino-Hispanic 20.6%, and Asian-American 1.7%.

That’s right. For Asians it was one “point” seven percent [1.7%] and Asian-Americans graduate from high school and college in the highest ratios.

In addition, the King’s College of London’s World Prison Population List reports, “The United States has the highest prison population rate in the world,” while China doesn’t even make the top sixteen list.

The US has about 2.3 million people behind bars at 756 per 100,000 people, and China has 1.56 million at 119 per 100,000.

Since the lack of an education often lands Americans in prison, low paying jobs or unemployed, one would think that working hard to earn an education would be popular in the US, but it isn’t. Instead, in the US, it is the old blame game. “It’s the teacher’s fault I earned a failing grade or the class was boring.”

It does not matter if the child does not do homework, study for tests or hates to read [because it gets in the way of video games, Facebook or TV], it’s still the teacher’s fault. However, in China, it is seldom the teacher’s fault and parents often take all or most of the blame for a child’s failure in school.

The Wall Street Journal in From College Major to Career says, “Choosing the right college major can make a big difference in students’ career prospects, in terms of employment and pay… Some popular majors, such as nursing and finance, do particularly well, with unemployment under 5% and high salaries during the course of their careers.”

In addition, the attitude of America’s Baby Boomers is not much better than the children they raised that are now having trouble finding jobs because they did not take earning an education seriously as most Asian-Americans do.

The next question should be, “How long will the United States hold onto global super-power status with attitudes such as these?”

Return to America’s Lost Work Ethic and the End of its global Exceptionalism – Part 4 or start with Part 1

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Posted by Lloyd Lofthouse

iLook China

The Economic Health of BRICS – Part 4/7

The Economic Health of BRICS – Part 3/7

The Economic Health of BRICS – Part 2/7

The Economic Health of BRICS – Part 1/7

America’s Lost Work Ethic and the End of its global Exceptionalism – Part 5/5

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iLook China

The Economic Health of BRICS – Part 4/7

The Economic Health of BRICS – Part 3/7

The Economic Health of BRICS – Part 2/7

The Economic Health of BRICS – Part 1/7

America’s Lost Work Ethic and the End of its global Exceptionalism – Part 5/5

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Email Subscription

Monthly Archive of Posts

Category Cloud

Tag Cloud

Blogroll on China

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Top Posts