{"id":232,"date":"2015-09-11T23:30:59","date_gmt":"2015-09-12T03:30:59","guid":{"rendered":"http:\/\/commoncents.blogwyrm.com\/?p=232"},"modified":"2023-05-06T18:57:45","modified_gmt":"2023-05-06T22:57:45","slug":"china-syndrome","status":"publish","type":"post","link":"https:\/\/commoncents.blogwyrm.com\/?p=232","title":{"rendered":"China Syndrome"},"content":{"rendered":"

The year was 1979.\u00a0 Not a lot was known by the public about China, its people, its politics, or its economics.\u00a0 Nixon\u2019s historic visit to the mainland had only happened about 7 years earlier and it was still a common occurrence to hear China referred to as Red China.\u00a0 On March 16th<\/sup> of that year, the movie entitled The China Syndrome<\/a><\/em> was released in theaters. The idea behind the movie was that negligence and corporate malfeasance at a nuclear plant led to a nuclear meltdown where the core metaphorically sinks through the earth all the way to China.\u00a0 Eerily, a scant 12 days later, the accident at the Three Mile Island (TMI) plant<\/a> in Dauphin County, Pennsylvania occurred. \u00a0Suddenly, it seemed, all our worst fears about nuclear power were realized and the word \u2018China\u2019 had suddenly taken on a sinister meaning independent of the nation in the Far East.<\/p>\n

Now with the benefit of hindsight, we can see that the TMI disaster, while serious, was not the catastrophic event that we feared.\u00a0 Even the far more serious nuclear accidents at Chernobyl and Fukushima-Daiichi have had little in the way of global impact.\u00a0 Simple analysis of the size of the stored energy in these plants relative to the size of the planet suffices to show that.<\/p>\n

However, we are witnessing a meltdown of the Chinese economy, and the impact of this event promises to have a global impact.\u00a0 Curiously, there weren\u2019t any prescient tales speaking the precarious nature of the Dragon\u2019s economy released to theaters.\u00a0 Not even a book that made it onto the best-seller list.<\/p>\n

Just to set the stage, let\u2019s consider for a moment where we were just a few short years ago, and what the popular wisdom was.\u00a0 The common idea, spoken by pundit and plebian alike, was that the \u2018Middle Kingdom\u2019 was soon to be the dominant player on the world stage.\u00a0 The reign of the US dollar as the reserve currency was drawing to a close and soon the Yuan Renminbi would be what all the cool countries used.<\/p>\n

I was deeply skeptical because I have a long memory and remembered the depressing and relentless drum beat of the 1970s and 80s heralding the United States\u2019 economic doom at the hands of Japan (footage from Johnny Dangerously<\/em>).<\/p>\n

\nhttps:\/\/commoncents.blogwyrm.com\/wp-content\/uploads\/2015\/09\/Japanese-Gangs.mp4<\/a><\/video><\/div><\/center><\/p>\n

By the early 1990s, it was clear that the strength of the Japanese economy had been exaggerated and its\u00a0systemic weaknesses ignored.\u00a0 By the turn of the century, the world started talking about Japan\u2019s Lost Decade<\/a>, and their economy has yet to recover from that slump, now roughly a quarter of a century later.<\/p>\n

I can\u2019t be certain why this cautionary tale was forgotten 10 years later, when economists were all agog with the \u2018new economy\u2019 engendered by the internet, and the dot com bubble came and went.\u00a0 Nor why the message was lost again about 5 years later when almost everybody was considering flipping houses, and the sub-prime bubble grew and burst.<\/p>\n

All that is certain is that the message got lost once more \u2013 drowned in incessant chatter about the new powerhouse on the world stage.\u00a0 Never mind that China was following a \u2018if you build it they will come\u2019 strategy that piled up debt.\u00a0 Never mind that China played with its currency and subsidized oil purchases to keep gasoline costs low.\u00a0 Never mind that the Chinese government built entire cities in which no one lived.\u00a0 All that mattered to the intelligentsia was that the Dragon of the East had figured out what we in the West couldn\u2019t \u2013 how to get around the law that says there is no such thing as a free lunch.<\/p>\n

Of course there were voices out there that said something was wrong, but they were in the minority and weren\u2019t heeded then.\u00a0 Now you can\u2019t hear anything else but words of woe on China.<\/p>\n

So how bad is it and for how long should we have known?\u00a0 It isn\u2019t clear how to answer either of those two questions.\u00a0 By some measures, China is much better off than other countries.\u00a0 Consider the following table that shows the ratio of Government Debt to GDP for select countries.\u00a0 Compared to the US and Japan, China\u2019s central government holds significantly less debt (source:\u00a0 http:\/\/www.tradingeconomics.com\/<\/a>)<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
<\/th>\n\n

Government Debt to GDP Ratio<\/p>\n<\/th>\n<\/tr>\n

Country<\/strong><\/th>\n2007<\/strong><\/th>\n2008<\/strong><\/th>\n2009<\/strong><\/th>\n2010<\/strong><\/th>\n2011<\/strong><\/th>\n2012<\/strong><\/th>\n2013<\/strong><\/th>\n2014<\/strong><\/th>\n2015<\/strong><\/th>\n<\/tr>\n
US<\/td>\n63.9<\/td>\n64.8<\/td>\n76.0<\/td>\n87.1<\/td>\n95.2<\/td>\n99.4<\/td>\n100.8<\/td>\n101.2<\/td>\n103.0<\/td>\n<\/tr>\n
UK<\/td>\n43.4<\/td>\n44.5<\/td>\n52.3<\/td>\n67.1<\/td>\n78.4<\/td>\n81.8<\/td>\n85.8<\/td>\n87.3<\/td>\n89.4<\/td>\n<\/tr>\n
Greece<\/td>\n106.1<\/td>\n105.4<\/td>\n112.9<\/td>\n129.7<\/td>\n146.0<\/td>\n171.3<\/td>\n156.9<\/td>\n175.0<\/td>\n177.1<\/td>\n<\/tr>\n
Peru<\/td>\n33.1<\/td>\n30.4<\/td>\n26.8<\/td>\n27.1<\/td>\n24.4<\/td>\n22.4<\/td>\n20.5<\/td>\n20.3<\/td>\n20.7<\/td>\n<\/tr>\n
Brazil<\/td>\n56.4<\/td>\n58.0<\/td>\n57.4<\/td>\n60.9<\/td>\n53.4<\/td>\n54.2<\/td>\n58.8<\/td>\n56.8<\/td>\n58.9<\/td>\n<\/tr>\n
Germany<\/td>\n67.6<\/td>\n64.9<\/td>\n66.8<\/td>\n74.5<\/td>\n80.3<\/td>\n77.9<\/td>\n79.3<\/td>\n77.1<\/td>\n74.7<\/td>\n<\/tr>\n
Japan<\/td>\n172.1<\/td>\n167.0<\/td>\n174.1<\/td>\n194.1<\/td>\n200.0<\/td>\n211.7<\/td>\n218.8<\/td>\n224.2<\/td>\n230.0<\/td>\n<\/tr>\n
China<\/td>\n31.5<\/td>\n34.8<\/td>\n31.7<\/td>\n35.8<\/td>\n36.6<\/td>\n36.5<\/td>\n37.3<\/td>\n39.4<\/td>\n41.1<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

But, by other measures, China is in bad shape. According to Forbes Contributor Kenneth Rapoza, its total debt to GDP ratio is approximately 280%.\u00a0 Is that bad, it\u2019s hard to tell since the US\u2019s total debt ratio is about 332%<\/a>. What is needed to put debt into perspective is a measure debt to assets<\/a>, something I am sure is hard to come by for China's economy. That said, it is likely that the ratio of China's total debt to its assets is much higher than that of the US. Further on, the same article has this to say about China\u2019s growth in debt:<\/p>\n

\n

\u2026China led all emerging markets and was ahead of most developing markets in terms of an increase in total debt to GDP over a seven year period ending in the first half of 2014. Only Portugal, Greece, Singapore and Ireland saw their debt burden increase, but that is mainly due to massive corrections in economic output<\/p>\n

-Kenneth Rapoza<\/div>\n<\/div>\n

Perhaps the most telling point is that China itself feels that it is in trouble.\u00a0 It took the unheard-of step of adjusting its currency three times in a short period of time this summer.\u00a0 It also has been buying stock on its own exchange.<\/p>\n

Will China fall?\u00a0 It is hardly likely.\u00a0 What is more likely is that its spend-now-and-pay-later expansion is coming to an end.\u00a0 China will still be an economic giant, and that\u2019s probably good; after all, it has an incredible comparative advantage just due to population size.\u00a0 But it is very unlikely that it will ever dislodge the West from its pre-eminent position until it corrects its internal problems with liberty and human rights.\u00a0 Unfortunately, that isn\u2019t a movie plot that can sell.<\/p>\n","protected":false},"excerpt":{"rendered":"

The year was 1979.\u00a0 Not a lot was known by the public about China, its people, its politics, or its economics.\u00a0 Nixon\u2019s historic visit to the mainland had only happened... Read more ><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-232","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/232","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=232"}],"version-history":[{"count":10,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/232\/revisions"}],"predecessor-version":[{"id":1207,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=\/wp\/v2\/posts\/232\/revisions\/1207"}],"wp:attachment":[{"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=232"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=232"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commoncents.blogwyrm.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=232"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}