China And The Curse of The Skyscraper

There has been a debate on whether or not the Skyscraper Index, which measure the proclivity of record breaking buildings and the GDP cycle, can accurately predict a bubble cycle is much debated.  The most recent study has indicated that the announcement of super tall skyscrapers do not correlate with the on coming of an economic collapse, however, the growth rate of GDP does correlate with the height of announced sky scraper projects.  In other words, while the skyscraper index alone cannot indicate whether or not an economy is on the cusp of a crisis, the tallest skyscrapers are started during the height of the economic boom/bubble cycle.  The announcement of record breaking buildings will not necessarily indicate that we are about to enter an economic crisis, but the announcement of those skyscrapers do indicate that the economy is very 'hot'.
 

Stratfor: The End of The Economic Miracle In The East

There have been some posts that I have had sitting in the docket either unfinished or are simply nothing more than a tag line with a few links, this has been due to my work and personal schedule being completely overloading these last few weeks.  Fortunately, will I wouldn't say normalcy has returned, the load has returned to manageable levels.

Now, I have a link to an article from Stratfor that doesn't require a subscription to review title 'Recognizing the End of The Chinese Economic Miracle.' The article goes at length about the growing realization by many academic and business elites realizing the problems that China now faces.  Statements about an impending economic crisis have been going on for quiet some time, I believe Gordon Chang has been predicting an economic crisis in China for over a decade, but those arguments have always been postulations or possibilities rather than something that is happening.  For the first time we are seeing acknowledgement that China is having trouble. A quote from Paul Krugman below:
 

Stratfor: China's Real Estate and Geopolitical Implications

Here is a video from Stratfor concerning the geopolitical effects of China's real estate policies. My thoughts below.

Now can any economy were upwards of 30% of their entire GDP is dependent on real estate production be considered healthy? After all, 48% of steel consumption in China is real estate related. If real estate dries up then almost half of China's real estate consumption, and it's related steel fabricators, would be in serious trouble.  Furthermore, what about China's heavy government investment in infrastructure? Add in infrastructure and manufacturing and the share of their economy now goes to 50%. This isn't a balanced, or healthy, economy. While investment in manufacturing is good, the utility of manufacturing investment is that it supports production. An empty, or under utilized, manufacturing plant, much like an empty or near empty office building, adds little to real economic growth. In fact, those products are a net drain on the economy since they are dead weight.

The video also raises another important issue, and that is certain nations dependence on China's growth. There has been a lot of speculation by many individuals on libertarian, alt-right  and manosphere blogs on what they will do when the US sees another painful contraction, and perhaps another major shock towards economic collapse. Many have theorized moving overseas to locations that are not as in poor shape as the US, but many of the nations I have seen bandied about, Australia and Brazil being some examples, are much less secure than they appear to be. Many quickly growing economies today are dependent on first world economies since their largest sector of growth has been the exporting of much needed commodities.  Russia too has shifted from a heavily industrial focus to a commodities one as commodities require less fixed capital investments and are very profitable.

This video has inspired me to do a blog post on what I would call the global economic pyramid, showing the tiers, strengths and weaknesses of certain major nations, or group of nations, in our global economic system. Suffice it to say, it will illustrate how the next cycle of economic contraction will be felt world wide.

China Working Population Decreasing

Demographics is destiny, it is something that I believe is true, and have used one of the many reasons why China will not be the next super power. Their demographic outlook is poor, and no society ever thrived while in demographic decline.  Essentially a lot of analysts have summarized China's situation as 'they will get old before they get rich.'  This is a known problem in China, but like all governments, their own has failed to even try and mend the situation. But there maybe a reason why, they may have already gone over the edge.

According to the Chinese National Bureau of Statistics, via Gordon Chang at Forbes, announced that 2012 saw a decline in the working age population from 2011 to 2012. And some demographers have postulated that 2010 was the year of peak employment numbers for China.  This is not good, as it essentially means China has gone over the event horizon.  While China had expected their peak population age to peak, it wasn't supposed to do so for another four years.  The fact that it has happened earlier raises another specter. 

It is estimated that China's population will start declining in absolute numbers around 2030, however, if peak employment as occurred before expected, then this means that peak population might occur sooner than anticipated. In fact, according to Gordon, some Chinese officials now expect the population peak to occur in 2020, fully 10 years before the official estimates.

The threat of a top heavy population distribution curve is well articulated in the United States, it is one of the reasons why we have unfunded liabilities around $ 80 trillion, but as bad as that is for America, Europe and Japan, wealthy industrialized nations, this is even worse for China. China, based off of 2011 statistics a per capita of just under $5,000, making it 114th according to the world Bank. Argentina, which just barely squeaks by into the highly developed category, had an income of just under $ 11,000 in 2011. And for nations that have traditionally been considered '1st world', Britain, with an HDI of .86 has an income per capital of over $ 38,000 in 2011.

To just reach the level Argentina is at now, China would have to double their income in the next 10 years.  While China has experienced tremendous income growth over the last decade, it becomes harder to have exponential gains as time goes on, and given the global economic outlook. It would be very difficult for China to repeat its feat. Adding in China's real estate/infrastructure/government money bubble, and the outlook isn't good.

Is Michigan A Future Glimps of China?

Gordon Chang, an an article in Forbes, notes some of the changes that are happening to China's manufacturing economy.  According to him six cities, including Shenyang a city I once visited, are now allowing defunct and abandoned industrial sites to turn into farmland. Now this doesn't necessarily indicate a larger trend, though I do find it interesting that a city I had visited less than two years ago, and was growing at an exorbitant pace, is allowing land to return to nature.

What is even more interesting is that the rising costs of manufacturing on the east coast of China have forced manufacturers to either move inland or overseas. This is nothing new, and has been documented for some time now, China is getting more expensive and losing it's competitive advantage. This is interesting because China has always had issues with regionalism. The wealthier coasts will probably do everything they can to try and keep industry where it is while the interior will do everything it can to take industry away.

China's Recovery Is As Strong As The Mist

Meaning that it is very ephemeral. As Gordon Chang writes, China has indeed experienced recovery, however, China has loosened the money spigot even more than the United States. China's M2 is double their GDP while in America it is around 75% of ours.  In absolute terms America has unleashed a fantastic amount of money, yet in relative terms China's might be more dangerous. Gordon Chang says, from one of his sources, that the good news should last through November, and then there will be no more good news.