Comments on: Outlook Bleak for China & the Rest of Us

By: Hugh

Hugh — Wed, 12 Nov 2008 17:53:10 +0000

@guillaume: yes, i agree China will tend to be more careful than the western “freedom of the market” approach to things, but I still think we’re in for “interesting times.” My main premise is that western economies cannot afford the wealth they apparently have been generating for the past 15 years or so, and part of the reason for the fantasy has been cheap (underpriced?) goods from China. Even if China is stable, their growing economy/standard of living is eventually going to put the pinch on us – as manufacturing costs there rise. Then what? To Africa, perhaps.

In any case, I’m not really making any kind of prescriptive claims about what we ought to do (i have no idea), just a descriptive analysis of what seems to me built-in instability in our current economic structures, which is likely to eventually result in pain.

@felix: I don’t have any hard evidence about Chinese pricing, but it sounds feasible to me. I suspect China is doing everything it can to keep job creation healthy: infrastructure investment, below-value pricing, currencies manipulation. As Guillaume says above, they probably have their eye on on the long-term.

But how it’s all going to play out, who knows?

By: perfectlyGoodInk

perfectlyGoodInk — Tue, 11 Nov 2008 02:07:33 +0000

Nice analysis, Hugh.

In terms of China selling below cost, I’m not sure I quite buy that explanation. It looked to me like the way they boosted employment was to artificially strengthen the dollar and weakening the yuan by loaning us all that money. They did loosen the peg a while back, but not completely.

But this explanation has similar ramifications anyway, as this isn’t sustainable in the long term either. Eventually China’s central bank is holding too much of its assets in an overvalued dollar.

By: Guillaume

Guillaume — Mon, 10 Nov 2008 19:02:34 +0000

Hugh, I don’t have any answers, it was just mere feelings. I just feel that the Chinese did not throw themselves into the globalized market without having thought twice. They have a different perception of society, individuals within the society, wealth, power, growth, machines, culture, etc. We are prompt to think they copy and adapt to the western standards, they don’t. They just move their own standards to new levels.

When I travel, I am always amazed to realize how the world is globalized only at the fringe, at a very superficial level. But at the core of cultures and people’s minds, things are still highly “local”. Which is good, I think.

I have no doubt that China will set new economical and social rules for the coming decades. Maybe not for the best, we’ll see… it’s a bit scary though.

I also think that it’s time for the West to think out of the “all economics” box that emprisoned us into a very tight perception of “wealth” and “growth”.

By: Hugh

Hugh — Mon, 10 Nov 2008 17:47:20 +0000

I don’t disagree with any of that, but I am not sure that it solves any of the problems. If China has built a huge manufacturing sector based on exporting goods to the US at below cost, then the whole foundation of their economy; which in a sense is the same foundation as ours, is teetering on the brink.

Whatever the cultural situations, the global economy is all linked together, and if there are big shifts in any direction (whether that is problems in US purchasing power, or problems in Chinese pricing schemas, or whatever else) it’s going to cause significant problems everywhere.

I’m not sure the global economy makes financial sense right now…and if it doesn’t, then it risks getting mighty uncomfortable across the board.

Then again, I am a bit of a pessimist on these things, maybe everythign will work out just fine.

By: Guillaume

Guillaume — Mon, 10 Nov 2008 16:20:08 +0000

China is very often seen as dependant of US and western consumption. But I wonder if a country with such a strong culture and enormous population can ever be dependant of anyone.
My guess is that China is able to feed itself from its own market and will soon start to market “designed in China” products in every domains.
Westerners think too much that the world need them. It doesn’t. We became cash-cows because of our own greed, sacrificing our industry and our ability to have long term vision.

By: Hugh

Hugh — Sun, 09 Nov 2008 04:27:34 +0000

@Ian Well, “consumer confidence & spending” is really just a band-aid solution, as is the recent lowering of interest rates to spur spending. The underlying problem is that we’ve had too much consumer confidence, spending for too long, and now it looks like the piper has not been paid. I don’ know, this stuff is in some sense so abstract – just keep spending and everything will be alright. But it sounds like perpetual motion to me, a house of cards. You are right tho: the alternative is ugly.

@Paul …are you spam? I guess not quite, but it’s borderline.

By: Ian

Ian — Sun, 09 Nov 2008 04:10:36 +0000

I think you’re on the money Hugh. And deflation doesn’t seem out of the question. The big ? in all this is the psychological component, will consumption lock up fast causing the banks to continue to hold back, or will well trained consumers rebound, despite credit constraint, enough for the banks to loosen those same constraints. Although we pride ourselves in being rational, we aren’t really, especially in large groups. We have our moments of clarity but I don’t think there is any logical, predicable course that things will follow. We have strayed into chaotic behaviour and small fluctuations will lead to big reactions until our confidence is rebuilt. For this to happen soon there will have to be a lot of pulling together, especially govt and business leaders, lets hope it brings us together because the alternative will be ugly.