Why the 21st Century Belongs to China

• Report this Comment On February 03, 2009, at 4:34 PM, catoismymotor wrote:

  Do you want to get that competitive edge back?

  www.fairtax.org

• Report this Comment On February 04, 2009, at 1:38 PM, JakilaTheHun wrote:

  There are some holes in this hypothesis. I agree that China will be a bigger growth story in the 21st Century than the US, but this analysis ignores a lot of trends:

  (1) Business has become increasingly globalized, so who's to say American companies won't benefit as much as many of the Chinese companies for Chinese growth?

  (2) While people often scream out "ECONOMIC LIBERALIZATION!" as their rallying call, one of the reasons for the dramatic growth in US equities in the latter half of the 21st Century was the regulatory scheme put in place in 1933 and 1934 under the FDR Administration. Without that, we wouldn't have "10-Qs" and "10-Ks" with auditor's statements included for the entire public to read and scrutinize.

  There is still a question of how open companies in many emerging markets are - we haven't seen anything as scary as Satyam in China, but it's still tough to say it's as open as the United States.

  (3) While China as a whole will probably outgain the US, individual companies in China are going to be more difficult for Americans to analyze than American companies. This might suggest that China ETFs are the route to go; or at the very least, one should diversify their holdings from China more thoroughly based on increased risks and uncertainty.

  Overall, I agree with the author's basic hypothesis, but think the issue is not quite as simple as simply going in and buying a bunch of Chinese companies over American companies.

  I also believe the China story often overwhelms even bigger growth stories in the Middle East.

• Report this Comment On February 04, 2009, at 4:20 PM, efhouse wrote:

  See George Friedman's "The Next 100 Years" for a counterpoint to this on China.

• Report this Comment On February 04, 2009, at 4:41 PM, LorenzaLaM wrote:

  You miss the essential reason 'the 21st century belongs to China'. It has a huge labor pool that is willing to work for wages that would not put food on the table, much less a roof over one's head, in the United States. The simplest of economics. When something is staring us in the face, let's not waste time getting fancy.

• Report this Comment On February 04, 2009, at 4:49 PM, owlbert wrote:

  China will never be more than a 3rd world sweat shop until such time as they start paying their workers a wage where they can buy the goods they produce. That is why their economy crashed with ours. If they were producing goods for their own people, what happened in the US would not have mattered. So much for the theory of the uncopling of the world economy from the US.

• Report this Comment On February 04, 2009, at 5:56 PM, baseballbill730 wrote:

  Every time I hear Kudlow or anyone else comment on the U. S.'s onerous corporate tax rates I want to wretch. One paragraph in the IRS code stipulates the corporate tax rate. The very great majority of the remaining 60,000 pages of the code are there so that U. S. corporations do not have to pay that rate.

  An interesting article would enumerate how much each of the NYSE- and NASDAQ-listed corporations actually paid in U. S. corporate federal taxes over the past five years.

• Report this Comment On February 05, 2009, at 4:09 PM, venkytalks wrote:

  Chinese growth was more extensively investment driven than people realise.

  A lot of Chinese capital investment will have to be written down - that has not happened yet. It is my belief that the exposure of overinvestment in China and loan defaults there, will herald the nadir of the current economic and stock market downturn.

  If the Chinese govt tries to cover up bad loans, it will probably evaporate the 2 trillion dollars they have accumulated. Not all of that is a trade surplus, a big chunk is dollar investment made in China after conversion to local currency. There will be flight of capital out of China in such a situation.

  Chinese inductry is also heavily energy dependent. If they resume their growth path, it will push up energy prices with sudden spike in oil prices, which will ensure that the growth in China and everywhere else is nipped in the bud. A growing Chinese economy is synonimous with rising oil prices - no wonder Buffet invested in energy recently. Unfortunately a standstill Chinese economy is also bad news because Taiwan, Japan and USA along with other world banks have made heavy investments in China and their investment returns will suffer.

  China is between a rock and a hard place. It cannot grow anymore. Its choice of being the manufacturing factory for the whole world means it is dependent on other people buying what it produces, to push its population from agriculture (under/un-employment, basically) to manufacturing jobs. This model cannot employ more than 4-500 million people. It is already close to this level.

  Any further increase in factory employment will mean taking unacceptable levels of jobs away from US and Europe. It also requires heavy investment in training and high tech manufacture - that means high wage jobs, not going to be ceded so easily by USA and Europe. China will have no cost advantage in this realm - training a high tech worker will cost the same in US and China, so why move to China.

  The next 20 years are going to be hard for China. The easy growth they have witnessed will now be more difficult to come by. They will have to be a lot smarter in producing what people want, and things people cannot do without. Most of the gadgets they currently make, are unfortunately the first useless expense that people are going to cut back.

  The whole world is switching to a more sustainable economic model, where there will be less waste. Thats the only way 3 billion people in third world countries can become globalised - the earth cannot sustain 1 billion Indians, 1 billion Chinese and 1 billion from other countries in an American style of life. America itself will move away from it, this recession will force the issue. Life style will change in unprecedented ways. Old ways of analysis will not be valid anymore in the new economy.

  Most of the investment made in China assumes that the current lifestyle will sustain for 20 more years. They have made massive infrastructure investments on this assumption. These investments are never going to bear fruit - people are not going down this road anymore - after they just finished building the road! :-)

  So all those investments are down the toilet. So far, only their stockmarket has tanked some 60% from the highs. Where is the rest of the bad news?

  It is my belief that the Chinese are keeping things quiet so that they dont precipitate a crisis like what happened when Lehman went under. They are sh*t scared, but are playing their cards close to their chest. The Chinese have mastered the capitalist game as well as anybody could - and they know that one whiff of failure will mean massive flight of capital, since people will want to cut their losses.

  Are you kidding me that Chinese banks made only good loans and that they will continue to be services. No way!

  Capitalism doesnt work that way. After the binge comes the hangover. A poker face is not going to hide the massive splitting headache in the Chinese economy.

  I am a China bear. But I am also worried. China is likely to respond to any really bad downturn in their economy by attacking their neighbors. They may figure that the only way to give employment to their millions is as cheap cannon fodder - the same way USA got out of the depression!

  I thought a world recession would be caused by spiking oil prices. I was wrong - bad loans did that.

  A combination of bad loans and spiking oil prices can still be the triggering factor for a really bad Chinese recession. which it would export to the world.

  Be Foolish, not foolish. The writing is on the wall

• Report this Comment On May 05, 2009, at 12:34 PM, A6EIntruder wrote:

  Remember when it was going to be the Japanese Century?

  I agree that the present rates of growth for China are unsustainable in the mid-run. I also suspect that the Chinese banking system also has its own transparency problems (you don't grow a nation of creditors/debtors overnight without growing pains--just look at the rate of cc defaults in NA).

  I think there are golden opportunities in China, but it ain't all peaches and cream. And let's not forget that it's the wages that make China attractive--for now. Over time, as more and more wage earners taste the fruit of material comfort, they'll want more. Wages will rise, and manufacturers will begin to grow expertise outside of China as well.

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