China's Emergence as a Superpower

[Fuchs]

Originally Posted by Uboat509

On the contrary, if the state is going to pour a bunch of subsidies into a business they are usually doing it with the expectation that the business will return to profitability at some point in the future.

You probably haven't heard of the German coal subsidies...

Actually the top rate in the US is %35. Most of the employees will be in a lower tax bracket and will not pay that much. The Corporate tax take will also be lower than that after deductions. The bottom line is that subsidies will not pay for themselves over the long term.

The U.S. is easily in the 40-60% bracket because of second-order effects. Workers may pay up to 35% taxes on their income, but then they pay VAT in many places, pay fees, qualify for less transfers...

I am not sure that is true but even if it is, pouring subsidies into an uncompetitive business simply maintain employment crosses the line from economics to social welfare. As someone pointed out already, as long as the business remains open, new workers will be brought in to replace those who leave thus passing the cost of maintaining the business open on to a new generation.

You really don't know German coal subsidies.

The Ruhr area coal sector as a whole was subsidised, but one mine after another closed. very few new workers were hired, and very few old workers were fired. The sector largely dismantled itself over decades.

You cannot simply ignore the cause of uncompetitiveness. Throwing money at the problem while failing to address the underlying cause is treating the symptom while ignoring the disease. That can only work in the short term. Ignore the disease long enough and it will kill the patient. The question then becomes how many resources will be expended in fruitless palliative measures before the patient dies?

Some diseases cannot be defeated, and simply giving up the countries' industrial base is no option. Without it, the country tumbles sooner or later to a much lower material standard of life.

Which industries have nothing left to innovate?

Many. One example being the producers of ceramic underground sewage tubes.
It's not important, though; specifically the Chinese upstarts are NOT competitive because of their innovation (in)capability.

All of those things will provide short term benefits but ultimately only the persistent innovators can hold market share. Apple did not get where it is through subsidies wage advantages etc, they did so through innovation. The oil companies are continuously innovating (fracking for instance). Auto makers must innovate or die (Saab). In short, anyone who is not looking for a way to provide a product or service that is better, faster and/or cheaper will eventually lose out to someone who is. There are some few exceptions but that is not the norm.

You vastly overrate innovation. Almost all of what passes as innovation is actually merely adaption of others' innovation or superficial fashion stuff.

Again; low prices (at times including subsidy-driven dumping and undervalued currencies) drive the gaining of market shares by developing countries, not innovation.

Innovation is no great problem; the Japanese were the horror of the Germans in the early 90's and only half a decade later the Japanese advantages in management had been adapted.
Companies which fall behind in productivity/competitiveness are much more likely to do so because of a lack of capital investment or because of management errors.

[Dayuhan]

Originally Posted by Fuchs

It's such a non-controversial thing usually that I merely had to do a quick google search to come up with an examples study:
http://www.ncbi.nlm.nih.gov/pubmed/2732771

Nothing there indicating a "vast majority". If "This excess of disabilities then stayed relatively constant at approximately 17 per 100 persons from 5 to 10 years after the shut-down", wouldn't subsidizing that excess of 17 per 100 through retirement be cheaper than subsidizing the entire factory ad infinitum?

Originally Posted by Fuchs

Companies which fall behind in productivity/competitiveness are much more likely to do so because of a lack of capital investment or because of management errors.

Labor cost and regulatory burden don't enter into it at all? Do you really think any level of capital investment and management expertise could have kept, say, the US textile industry competitive?

Subsidies in developed also have a negative global impact, posing a serious obstacle to countries that are trying to develop viable industries

This thread needs to get back to China...

[Fuchs]

Originally Posted by Dayuhan

Nothing there indicating a "vast majority".

Actually,

After the factory closure, the annual employment rate of the study group showed a steady rise to a maximum level of 44% within 6 years, but even after 10 years never matched the employment rate of the controls.

AND I didn't only refer to unemployed, but rather wrote

...the vast majority of those workers will often end up unemployed or employed in such poor jobs that keeping them in their old job means a vastly higher productivity even before taking subsidies into account.

Now look at my emphasis, please.


I don't believe that you think about the same as I do. I think of the economy as something that creates goods & services, sustains itself and distributes the goods and services (and there are some trade effects).

To close a factory in a distressed sector usually means to reduce the goods produced in the country, for the workers don't simply move to another factory.

It's a strange idea of efficiency to favour substantially less output and substantially less consumption only because a company failed on the market.
This makes sense when there's a lot of flexibility, when workers get a new job of at least equivalent productivity and when capital is simply allocated to a better use.

The reality in Germany is that the former doesn't happen and the latter takes the shape of capital export that helps nobody but a handful of big ticket capital owners.
The reality in the U.S. and UK is more about the former, while the latter cannot be said as long as the macro picture includes a substantial net capital import.


Keep in mind that the economic theory that says 'bad' companies shall be liquidated to free up resources for better uses is a very primitive one (early 20th century) and so very basic that it doesn't include the substantial limits on those "better uses".
Moreover, economic theory is not nationalistic-egoistic, but rather totally fixated on efficiency. Studying macro and micro basically means a three to five year indoctrination of aversion against waste of resources.
A nation has different priorities than to optimise the global economy.


Some developing countries have used subsidies to horrible effect (example low oil prices in Iran) while others have become the foundation of the countries' new prosperity (example electronics and shipyard industries in South Korea).
Subsidies aren't only good for attack (gaining market shares), but also for defence (keeping market shares).

Western countries can use subsidies (and other privileges, as subsidies are IIRC a problem under the WTO regime) to help the development of all-new sectors (biochemical technology etc) and to sustain old sectors in order to avoid the after-effects of losing them.

[Ray]

“The new American ‘pivot towards Asia’ is a brilliant illustration of the place of this region which is now key to the balance of today’s world and in defining our security interests. This area is indeed a strategic stake for France which is and will remain a power in the Pacific and Indian Ocean. I came here to affirm that France firmly intends to remain committed to fostering security in the Asia Pacific area.”--------- French Defence Minister Jean-Yves Le Drian, Address at Shangri-La Dialogue Singapore June 03 2012.

http://www.southasiaanalysis.org/pap...paper5081.html

[Bob's World]

France appears to be working aggressively to reestablish influence in many of their old haunts.

When nations wearied of French control and colonialism, many turned to the US for hope. Now it appears it is France that is offering itself as a less controlling option. Ironic.

[davidbfpo]

Bob,

What evidence supports your argument? Leaving aside Libya.

France appears to be working aggressively to reestablish influence in many of their old haunts.

In the Pacific France has retained most of colonies; in Asia I think France is glad to be gone (Cambodia did see some activity when peace was achieved); in Africa she has retreated, in the Ivory Coast she had to "share" peacekeeping with the UN (which failed) and in the Middle East selling weapons in the Gulf and being noisy on Syria hardly fits.

The UK of course has a new, stronger relationship with France and President Hollande has taken a little step to show this:http://www.bbc.co.uk/news/uk-england...shire-18548327

[Ray]

Has France any military assets to spare for the Pacific?

If so, how?

[Dayuhan]

Influence is not achieved only by the deployment of military assets... still, I haven't seen much evidence that the French are trying to build influence in the neighborhood, would be interested in the sources behind the claim.

[Bob's World]

Ray's source is the first I have seen in regard to the Pacific. I had just been noticing in recent months a variety of sources in regard to the recent rise of how residents of the Middle East perceived France as compared to other Western powers.

Here is one source, a youth survey in the Middle East in 2012
http://www.arabyouthsurvey.com/engli...12_English.pdf


"ARAB YOUTH SEE FRANCE
MOST FAVOURABLY
AMONG ALL FOREIGN
COUNTRIES; VIEWS OF
CHINA AND INDIA ARE
ALSO INCREASINGLY
POSITIVE
One year after the start of the
Arab Spring, young people in the
Middle East have changed some
of their views of major foreign
powers, and now look more
favourably upon France, China
and India"

[Dayuhan]

Of course a French Defence Minister on a tour of Asia will make brave noises about commitment to the region, but I have to wonder if those noises are being backed up by any sort of action.

[ganulv]

LINK

[Ray]

French military Strategy

http://www.cfr.org/france/french-mil...gration/p16619

French Foreign, Defense, And National Security Policy: New Initiatives?

http://www.stimson.org/spotlight/fre...w-initiatives/

[Fuchs]

Quick plausibility check:

http://www.census.gov/foreign-trade/balance/c5700.html

"2012 : U.S. trade in goods with China"
"TOTAL 2012 (...) 127,032.0" (imports, million USD)
in 4 months, so roughly 380 billion in a year.

U.S. production of goods (this goes beyond consumption just as the trade statistic):
https://www.bea.gov/iTable/iTableHTML.cfm?reqID=5
"Gross Output by Industry Billions of dollars"
"All industries" "2010"(last available, dunno why) "25811.4"
(Note: U.S. definition of "industries" isn't actually about resource production and manufacturing only!)

Quick check using the gross figures instead of value added:
380/25811.4*100% = approx. 1.5%
So this is probably approx. where they got the pie chart's 1.2+0.7% from.

It looks to be at about the same order of magnitude as the 1.2+0.7% of the pie chart.
This was about gross output. Total GDP of the U.S. is only about 15.1 trillion, though -and only about 20% of it is primary+secondary sector. Obviously, gross output is a poor base for such calculations as it's bigger than the GDP!


Now let's look at value added:
https://www.bea.gov/iTable/iTableHTML.cfm?reqID=5 (direct links don't seem to work well there)

"Agriculture, forestry, fishing, and hunting"
"Mining
"Utilities"
"Construction"
"Manufacturing"
(these are as far as I can tell the true goods-producing sectors)
"Value Added by Industry Billions of dollars"
year: "2011"
"177.8"
"287.6"
"250.8"
"520.3"
"1837.0"
sum: 3037


Now let's have fun and compare the 380 billion with the 3037 billion:
380/3037*100% = approx. 12.5%

I call the pie chart B.S.

(I love it when I make a 15 minute plausibility check and it's not in vain!)

Whoever compiled that chart was either incompetent, did at least one mistake less than me and/or meant to produce wrong propaganda.

After all, the share of Chinese goods in consumables is likely larger than smaller in comparison to its share in regard to investment goods.

[ganulv]

Originally Posted by Fuchs

Whoever compiled that chart was either incompetent, did at least one mistake less than me and/or meant to produce wrong propaganda.

It’s a graphic in an article published via the Federal Reserve Bank of San Francisco. As to whether the authors [1, 2] are culpable on any of those three counts, I suspect…

Originally Posted by Fuchs

Quick check using the gross figures instead of value added:
380/25811.4*100% = approx. 1.5%
So this is probably approx. where they got the pie chart's 1.2+0.7% from.

that the issue might be one of operational definitions. Perhaps that you are not reading <content> as per the authors’ usage? From the article:

Of the 2.7% of U.S. consumer purchases going to goods labeled “Made in China,” only 1.2% actually represents China-produced content. If we take into account imported intermediate goods, about 13.9% of U.S. consumer spending is attributable to imports, including 1.9% imported from China.

[Fuchs]

Their credentials aren't better than mine, academically.

The Chinese are not known for exporting investment goods. Thus most of their exports to the U.S. are about consumption goods.

They produce most of the intermediate goods for their production (metals, plastics) by themselves, so the overwhelming share of their goods exports is really Chinese value added.

Their goods exports to the U.S. are large in comparison to the U.S. OVERALL production of goods.


Sorry, their pie chart flunks the plausibility test badly, almost by an order of magnitude.

Feel free to ask for a 4th opinion.



Besides; it's probably pointless to mention in an anglophone forum, but U.S. econ statistics have become questionable years ago.
Example: FTD "Quadratur des US-Wirtschaftskreislaufes", 6.5.2007
(A complete copy is here, but google translate won't help with so many econ terminology in it.)
Excerpt (one of many inconsistencies mentioned there): The U.S. statistics claimed an increase in capital investment by 4.4% at the same time when the U.S. investment goods industry was supposed to have experienced a 10.2% turnover slump.

[ganulv]

Originally Posted by Fuchs

Their credentials aren't better than mine, academically.

One literally cannot achieve a higher level of credentialization in the U.S. than those two have! Our university system does not offer students the option to habilitate and does not require it of faculty. But that’s neither here nor there…

Originally Posted by Fuchs

The Chinese are not known for exporting investment goods. Thus most of their exports to the U.S. are about consumption goods.

They produce most of the intermediate goods for their production (metals, plastics) by themselves, so the overwhelming share of their goods exports is really Chinese value added.

Their goods exports to the U.S. are large in comparison to the U.S. OVERALL production of goods.


Sorry, their pie chart flunks the plausibility test badly, almost by an order of magnitude.

Feel free to ask for a 4th opinion.

You appear to fail to apprehend that the pie chart is meant to illustrate U.S. consumer spending on all goods and services. The vast majority of American consumer spending is on housing, sustenance, insurance, pensions, health care, and education. Contrary to your assertion, any version of that pie chart which is not mostly grey does not pass the plausibility test. That fact stands even if the authors’ methodology is shoddy and even if the statistics are bad.

[Dayuhan]

Probably exaggerated, still of interest... the list could be a whole lot longer:

http://www.foreignpolicy.com/article...mic_apocalypse

5 Signs of the Chinese Economic Apocalypse

[carl]

Originally Posted by Bob's World

"ARAB YOUTH SEE FRANCE MOST FAVOURABLY
AMONG ALL FOREIGN COUNTRIES;"

Winning friends and influencing people via the Armee de l'Air.

[flagg]

Originally Posted by Dayuhan

Probably exaggerated, still of interest... the list could be a whole lot longer:

http://www.foreignpolicy.com/article...mic_apocalypse

Keep an eye on iTulip.com forum for analysis of the China slowdown.

It's well worth putting on the reading list for analysis on China as well as the entire GFC.

[davidbfpo]

What a great example of inter-dependence from the FP article, my emphasis:

Electricity consumption usually spikes over the summer, as people turn on their air-conditioners to cope with the seasonal heat. But this year, many Chinese appear to be braving the high temperatures to economize. China's ports are piled high with coal that should be roaring in the country's power plants.... Now it looks as if China has imported more fuel than it needs, as hard-pressed citizens, businesses, and factories cut their electricity consumption in order to reduce their bills.

The national price of coal has already dropped 10 percent since late last year. This drop could further dent the global economy, which would in turn cool demand for Chinese exports even more. That's globalization for you: A Chinese person turns off the air-conditioning, and the world economy catches a cold.