China is in trouble

I Analysts of Chinese savings seem to believe otherwise. Christopher Carroll, professor of economics at John Hopkins University and NBER research associate recently published a paper entitled “How, When and Why Will China’s High Savings Rate Fall?” that was presented at the Conference on the Chinese Economy in Shanghai December 10th, 2010. In it, he says “Most analysts think that Chinese external saving (that is, saving that flows out of the country to investments in the rest of the world) is now unsustainably high, relative either to the rest of the world’s ability to absorb that saving flow productively, or relative to the size of the Chinese economy. Furthermore, however unsustainable China’s external saving had been before the beginning of the ongoing global economic crisis, such flows have become even more problematic now that weak aggregate demand (soon to be exacerbated by fiscal austerity in many countries) has left most rich countries in or near a ‘liquidity trap’ situation where China’s trade surplus can be plausibly interpreted as a “beggar-thy-neighbor” policy, exporting unemployment from a booming China to countries with already high unemployment rates and low GDP growth. So, if the Chinese saving rate is unsustainably high, how will it come down? And will that adjustment, when it comes, be as painful as the American adjustment has been? An optimistic scenario is that a combination of vigorous policy measures by the Chinese government and a natural propensity of spending eventually to catch up with income will produce a relatively rapid “glide path” to a sustainable external Chinese saving rate. Some plausible pessimistic scenarios are much more unpleasant – and will become increasingly likely if visible progress in reducing China’s imbalances is not made soon.” China’s high savings rate is indeed a unsustainable and dangerous phenomenon that could precipitate serious economic consequences much like Japan in the early 1990’s with its high savings rate and high growth rate. Its asset price bubble, which ended catastrophically in what analysts have termed the “lost decade,” had the Nikkei 225 at its all time high in December 1989 at 38,916 yen ($270.95 USD), dropping steadily over the 23 year period to a current price of (11/29/2012) 9,487 yen ($115.49 USD), with Tokyo real estate prices reaching as high as 30,000,000 yen ($217,978.67 USD) dropping to an average of 187,000 yen in 2012 ($2,276.59 USD) according to the Land Institute of Japan. II China’s labor market is, like its savings rate, unsustainable, and analysts from the IMF and World Bank have been pointing this out for decades. In a World Bank study entitled “Sources of China’s Economic Growth 1952-99: Incorporating Human Capital Accumulation” by World Bank senior economist and consultant Yan Wang and Yudong Yao, concluded “...the declining growth rate of human capital accumulation is a matter of concern, especially considering China’s need for building an innovation-based knowledge economy. Funding for basic education is unevenly distributed and insufficient in some poor regions. Government spending on education as a ratio of GDP has been stagnated since 1984. Even though private financing is rising in some cities, its availability is not distributed evenly. The distribution of educational funding is more skewed if the availability of private financing is taken into account. Therefore, China needs to address its insufficient and uneven distribution of educational investment urgently, if China is to sustain its growth and welfare improvement in the next decade.” In a recent Business Insider article, it noted “Societe Generale analyst Wei Yao says hiring is slowing and thinks the situation could worsen. The make-up of China’s labor force has changed significantly in the past few years, according to Yao. Young workers born after 1980 now account for over two-thirds of its 253 million rural migrant workers. Nearly 85 percent of those born after the 1980s have never worked on farmland. This section of the labor population has been prone to changing jobs more frequently, and often chooses no work over manual labor. This change in mentality, along with the rising dependency ratio has created a labor shortage. Moreover, declines in job opening co-exist with a shortage in labor supply. Workers are largely unhappy with wage levels and employers are unhappy with the skills in the labor pool.” III Trying to dodge the problem of corruption in China with semantics is not going to end well for you. Economic crime constitutes misuse and theft of public funds, deceptive and incorrect accounting practices, bribes, providing better services in return for illegal payment, etc. It is not very difficult to discern this. Please offer a concise rebuttal explaining why China’s corruption problem is not serious or concede this point to me. V Again my opponent dodges my argument, stating that I provide no evidence to support my “assertive” claim. In a paper produced as part of the China Environment Forum’s partnership with Western Kentucky University on the USAID-supported China Environmental Health Project, it states that “China is the world’s biggest user, producer, and exporter of pesticides. The growing use of pesticides and chemical fertilizers over the past twenty years has helped promote larger crop yields, but increasingly at a major cost to the environment (e.g., declines in soil and water quality) and human health. China has nearly one-fifth of the world population, but only seven percent of the world’s arable land. In order to meet the food requirements of its large population, increasing food production has long been the priority of the Chinese government. Many Chinese farmers over apply pesticides and fertilizers to get greater yields, in part because they fear some are actually fake—a common problem in China. Farmers thus need more pesticide information and user education to help them use pesticides and other farm chemicals properly. One China Watch report noted that every year approximately 12 million tons of China’s crops are contaminated with heavy metal residues that threaten public health. For example, many insecticides and germicides in China use bluestone solution, a copper sulfate compound that has contaminated many fruit crops and can actually poison consumers. According to State Environmental Protection Administration (SEPA) statistics, about 12 million tons of crops are polluted with heavy metal residues every year, a direct economic loss of more than $2.5 billion.” Secondly, an Epoch Times report noted “Heavy metals have contaminated one-sixth of China’s farmland, according to a scholar from the Chinese Academy of Agricultural Engineering. The amount of contaminated land is more than 300 million mu, close to 20 million hectares (one hectare is equivalent to 2.471 acres) of land. Every year 12 million tons of food is contaminated with heavy metal, resulting in 20 billion yuan ($3.15 million) in economic losses, said Professor Luo Xiwen during a seminar hosted by the Guangdong Provincial Association for Science and Technology on Oct. 10. Industrialized coastal regions have the worst pollution from heavy metal. Mercury, cadmium, and copper are among the most common toxic contaminants. “In Guangdong, only 11 percent of the soil is clean; 77 percent of the farmland is lightly contaminated, and 12 percent is heavily polluted," Luo said. "In the Tai Lake area of the Yangtze Delta plain, one-third of the land is contaminated. In Hubei Province, 40,000 hectares, accounting for 10 percent of farmland, is polluted.” Luo says that water pollution is also a very serious issue in China. Eighty-four percent of the water is not drinkable in Zhejiang Province; in Lengshuijiang City, Hunan Province, 37 percent of rice crops have been contaminated due to the heavy metal pollution in rivers; sea products in Guangdong are heavily contaminated.” Thank you. I look forward to your response.