China's future is hitting a new Great Wall
The decades-long flood of peasants into cities in search of work is altering the nation's economic landscape.
In spring 1979, I was an exchange student in Hong Kong. The U.S. had just normalized relations with China, and I was able to get a place on a short tour into Guangzhou, the city most Westerners knew then as Canton.
Rather than travel by train across the border like most people, our tour had to fly the 80 or so miles from Hong Kong (then a British Crown Colony) into Guangzhou. As we gathered on the tarmac, waiting for buses into the city, we could see a construction crew on the other side of the airport. We passed that group of workers as we drove out. Dozens of people, men and women, were carrying on their collective shoulders a long section of concrete drainage pipe maybe 10 or 12 feet in diameter.
And I remember thinking at the time: That's the personification of the word Americans know as coolie -- the bitter strength (ku li) of the Chinese peasant.
Those peasants have a long history of traveling to find better opportunities. They helped build America's railroads 150 years ago. And people closely watching China's growth say the hundreds of millions of peasants moving to China's cities today are propelling its economy into a new crisis.
This year marked the first time in history that more than half of China's 1.3 billion people officially live in cities. Compare that with 1982, when according to data quoted by Britain's Telegraph newspaper only 20% of Chinese lived in cities, or even from 2000, when that figure was 36%.
Paul Krugman, the Nobel Prize-winning economist and columnist for The New York Times, dealt with that issue last week in a column that's been getting a lot of attention. He says the engine powering China's decades of dramatic economic growth has reached its limits and is in trouble.
That engine, he says, has been China's "surplus labor" -- those ambitious, newly arrived peasants in China's cities, making a pittance in urban factories.
Countries in the early stages of economic development, such as China was in the 1980s, can invest in factories, construction and infrastructure without running into the issue of diminishing returns because, according to Krugman, "they can keep drawing in new labor from the countryside." At the same time, he notes, "competition from this reserve army of labor keeps wages low even as the economy grows richer."
But the dramatic exodus of China's rural population to its cities is changing that formula. As Krugman bluntly puts it, China is running out of surplus peasants, and those peasants-turned-city-workers are also demanding a bigger piece of the economic pie.
Wages are rising, he writes. "Ordinary Chinese are starting to share in the fruits of growth. But it also means that the Chinese economy is suddenly faced with the need for drastic 'rebalancing' -- the jargon phrase of the moment. Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does; consumer spending must rise dramatically to take its place."
Krugman later described the Chinese economy as a runaway bicycle -- incapable of slowing down but in danger of falling over if it stops moving forward. And "running out of peasants creates a wall" that's looming in front of that runaway bicycle, he says.
The Chinese have always being will to go anywhere in search of work and profits. Their history shows they are undeterred by foreign lands and discrimination. They believe as many here used to do, that hard work, saving, and trying to make it better for the next generation are the only things that are important. Sacrificing the current generation for the next, like that of the Greatest Generation facing the Great Depression and WW2, creating the worlds's greatest country and making a large middle class the envy of the world.
Now it's about the destruction of that same middle class and the greed and selfishness of it's businesses and leaders than can't see beyond their own personal gains at the expense of everyone else. And as we fall into second or third tier world status, we can only wonder what went wrong.
This isn't news. Most economists foresaw this. Growth cannot continue unabated in perpetuity.
Don't worry all...They'll be calling in their "loans" to us very soon if funds are this short...
A dis-satisfied customer and voter...
What writer Bruce Kennedy and economists like the grossly overrated Paul Krugman fail to understand is that VALUE OF MONEY is what is lacking in China.
The whole world is following the BAD EXAMPLE of the U.S. Federal Reserve Bank. Nation after nation devalues its currency in the name of increasing exports. To do so is to put exporting ahead of one's own people! Why do people work hard for a living? 1) To survive. 2) To have a better life. If the FRUITS of one's LABOR are EXPORTED to the United States, then one has NOTHING to show for working hard. This is the problem of the poor Chinese worker.
China needs for Premier Li, who is a free marketeer, to let the yuan rise so that the workers gain purchasing power. Unfortunately, the Politburo, including the Premier Li's senior partner, President Xi, is still willing to prop up the U.S. dollar via massive purchases of Treasuries.
You, the reader, can see the dilemma. For all the sabre rattling by our politicians about Chinese currency manipulation, the truth is that China is DOING US A FAVOR by devaluing the yuan vs. the dollar. If other countries do not prop up the dollar, then the store shelves at Wal Mart, Target, et al are going to be nearly empty and the U.S. government will suffer a partial shutdown!
If you want life to be better for the hundreds of millions of Chinese peasants, you need to understand that if their standard of living improves, our standard of living will probably go down.
What would it take for workers in BOTH countries to prosper? The governments must allow currency to gain value when workers produce goods that other people want. In our case, we must go back to manufacturing consumer goods. This means less regulation and taxes in addition to having sound money so that small businesses can start more easily and survive more easily. MILD DEFLATION is reviled by Krugman and Fed Chief Ben Bernanke, but it is the worker's best friend. What makes the super rich even richer is having inflation transfer purchasing power to them, and having regulation/taxes give them the advantage of economy of scale. Less government would help the American worker tremendously. Less government would help the Chinese worker, too, but of course, the Communist system is a built-in hindrance!
Time for a little revolution in the PRC.
You can do it People!
YOU CAN DO IT!!!
Bitter lesson: "Two Wongs don't make a Wright" (Belly solly could not leesist.)
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[BRIEFING.COM] The stock market finished an upbeat week on a mixed note. The S&P 500 added just over a point, holding its weekly gain at 1.0% while the Nasdaq lost 0.4%.
The major averages began the day on an upbeat note, but relinquished their opening gains during the first 90 minutes of action. The early sentiment was boosted by a better-than-expected nonfarm payrolls report for February (175K versus Briefing.com consensus 163K), but a closer look into the report suggested that ... More
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