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"The joy is in creating, not maintaining." (Vince Lombardi)
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A brief note here to say that Steve Jobs is someone that historians will look back on with the same perspective as Henry Ford and Thomas Edison. In spite of his illness, his creativity continued to produce products that benefited us all. My quote for this post was chosen as much for "who" said it as it was for the point it made.
On to China. Today's NY Times has an excellent article on the study published 8/17 by the Eurasia Group on China's new 5 year plan. You can click on the article link provided to read the study.
Its overall conclusion was that Beijing might meet some of the plan goals but "... ultimately, the country's leaders lack the political stomach and sense of the moment to implement a comprehensive and ambitious rebalancing agenda."
It's an interesting dichotomy to read the report and see that China's leaders have defined the problem and are taking steps but knowledgeable observers don't think the plan, or the resolve to implement it, will work.
China has incentives to change it's macroeconomic model: it's economic policies contribute to wasted resources, vast social inequality and a soaring inflation which leaders fear will fuel social instability. So, what are they doing about it? They're putting out a new 5 year plan that says they need to rely less on exports. So, what happened to the $586 billion in stimulus money they spent in 2008? Well, at the same time, they loosened lending by state banks which lent to local governments that borrowed heavily: a rough estimate from Victor Shih at Northwestern University puts the upper end of that debt at $3.1 trillion, or half of China's GDP in 2010. Again "so," while the $586 billion was being spent on roads, trains and entire cities that are not yet occupied, "loans" were given to economic entities with the potential not to perform on those loans.
Thus, overall, there would appear to be a shaky economic model on which the new 5 year plan is based.
Yao Yang, an economist at Peking University interviewed by the Times, said Chinese leaders knew that the domestic economy put too much money in the hands of corporations and the government. Again, so they knew that was wrong but felt they had no choice. Later in that same interview, Mr. Yao said that the aging of China's 1.3 billion people, and the dwindling of its young, cheap labor, "... naturally means more domestic consumption and less exports, therefor going towards a more balanced economy."
This is one way to look at a demographic time bomb. Another would be that China's economy will tank because of an aging population and there is nothing they can do about it.
The Eurasia Group has done an excellent analysis of China's situation but a future economy built on non-performing loans and building empty cities doesn't look like real GDP growth to me.
At whatever point China's economy reaches "stall speed," we'll watch unemployment take off and then what?
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