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PostPosted: Sat Sep 15, 2007 6:14 pm    Post subject: Older Info (before May 30th, 2007) Reply with quote

Compared to its major trading partners, China's share of gains in its economic boom were small and China's share of losses in an economic bust will be large. Nonetheless, China should focus on improving living standards (rather than growth at any cost) for the masses. However, it's a huge task. There may be over 1 billion people in China who earn less than $3 a day (or an aggregate total of about $1 trillion a year, which is one-third to one-half of China's output). China's "middle class" may be over 200 million people. However, most may earn much less than Western minimum wages. China's elite is relatively tiny. So, it seems, income or wealth inequality is huge. China's elite created most of the problems and it can make proper adjustments.

Posted by: Arthur Eckart | Wednesday, May 30, 2007 at 08:27 AM

True Picture, CCP have done a good job on improving living standards (better than many demorcatic goverment of developing country) for the masses. However, it's a huge task. There may be 80 million people in China who earn less than $4 a day, over 1 billion people in china who earn ranging $4-$15 a day, 200 million people earn ranging $15-$70 a day, China's "middle class" may be over 10 million people who earn more than $70 a day, SO, it seems, income or wealth inequality is not a problem. Unlike democratic india government who brag her 300 million "middle class", you can not find any word bragged by the CCP.

Posted by: T Yang | Thursday, May 31, 2007 at 04:09 AM

T Yang, according to your estimate China's GDP is $3 trillion to $13 trillion or more. It can be much more, because your "middle class" includes the elite, which owns most of China (and helps explain China's 50% to 60% saving rate). Based on World Bank loans, China's per capita income reached $1,740 in 2006 (link below) or a GDP below $2.3 trillion (based on 1.3 billion people). Given relatively few receive most of China's income, median per capita income may be around $800.

http://www.china-embassy.org/eng/gyzg/t268200.htm

Posted by: Arthur Eckart | Thursday, May 31, 2007 at 08:34 PM

Arthur Eckart, your data is for Year 2005, the latest one for Year 2006 is $2,040 for China's per captia and $2.7 trillion for GDP according to CCP's propaganda but who cares those number, why? an example is clear that china's individual Income Tax Exemption (not include food,housing,insurance..etc)is Rmb1,600, you do not need to pay a penny if you earn less than Rmb2,400 or $15 a working day if you consider cash allowance for food,housing,insurance..etc, do not tell me that CCP is so kindness to tax hundreds elite only instead of average chinese, you see that CCP can tax Rmb5 rillion ($650 billion) in a year and everyone in china is complaining that they are taxed heavily, is that not amazing? how could you conclude" over 1 billion people in China who earn less than $3 a day "

Posted by: T Yang | Friday, June 01, 2007 at 02:29 AM

when it comes to china and india......i feel that we are lacking accurate data. which is the reason we are not able to assess anything except that we know that they are growing like mad....

Posted by: TECHY2468 | Friday, June 01, 2007 at 07:39 PM

It's interesting to read you guys' posts.

Posted by: marketreflections | Friday, June 01, 2007 at 08:06 PM

T Yang, if income inequality in China is similar to the U.S., then China's median per capita income is roughly $500. Median is half above and half below the middle. However, China has made efforts to lower its poverty rate. So, perhaps, median per capita income is around $800. In the U.S., per capita income is $45,000, median household income is also $45,000, and there are 2.6 people per household. In China, per capita income may be $2,000, median household income may also be $2,000, and there may be four people per household. It seems, for the numbers to add up, over 1 billion people in China earn or live on less than $3 a day (given its middle and upper classes). Unfortunately, there are many contradictions in China's statistics, along with misleading information, which strongly tend to be optimistic. So, links to some U.S. data are below. China has been moving into new economic revolutions, although the shift has generally been from agricultural to industrial. China has focused on total output (including maximizing employment) rather than optimal growth or living standards. Consequently, there's evidence to suggest living standards for most in China, i.e. the poor, have declined in recent years. Also, I may add, what's more unequal, someone earning $100 a month compared to another earning $1,000 a month or someone earning $1,000 a month compared to someone earning $10,000 a month. Inequality is considered equal in both examples, although the $100 a month person cannot afford basic necessities.

http://www.census.gov/hhes/www/income/income04/statemhi.html

http://en.wikipedia.org/wiki/Household_income_in_the_United_States

Posted by: Arthur Eckart | Saturday, June 02, 2007 at 10:32 AM

Arthur Eckart " over 1 billion people in China earn or live on less than $3 a day ,they cannot afford basic necessities", good news, CCP are toppled today by its starving people...., Arthur Eckart's dream.

Posted by: T Yang | Saturday, June 02, 2007 at 01:30 PM

Standard utility theory is based on rationality. Everyone attempts to maximize utility given constraints, and there are differences in tastes and preferences. Identity seems to be within that framework. Also, perfect information seems to be implicit in the theory. So, for example, suicide bombers may believe they're rational. However, they may be only ignorant. Dummy variables have been used in utility models for race, gender, ethnicity, etc. I guess, a dummy variable can also be used for type A or type B personalities, although that may not be "a major factor missing from current economics."

Posted by: Arthur Eckart | Thursday, May 31, 2007 at 01:56 AM

If the yuan were not seriously undervalued, it would not be necessary for the Chinese government to be the buyer not only of last resort, but apparently of nearly first resort, for the dollars brought in by its exporters. Indeed, it would not be necessary or sensible for Chinese exports to be paid for with dollars -- importers could buy yuan and pay in yuan. The reason why there can't be a free market in yuan is that it is enormously undervalued.

It is just bizarre to read so many articles by economists bandying about the term "free trade" with respect to the current global trade regime -- there can be no such thing as free trade in the presence of the kind of currency manipulation going on today.

A currency manipulated to a 40% undervaluation has about the same effect as a 40% across-the-board tariff on imports, combined with an across-the-board subsidy for exports.

What "free trade"???

Posted by: jm | Friday, May 18, 2007 at 04:07 PM

That US unemployment rate is 4.5% is almost meaningless. The US labor participation rate is lower than many western countries. Also, the US standard of living is eroding for the average American. When US workers are forced to complete with those in China and other Countries without modern labor standards there will be and is a race to the bottom for the average wage earner. It's not just apparel that is now manufactured in China, but high tech manufactured goods as well. Decent paying jobs for semi-skilled and skilled workers are eroding in the US.

Few US families can afford a home, health care and education with one working class job as was the case prior to the 1980s. How many families can afford to have the mother stay home as was the norm in the 1950s and 1960s. I know the economists argue that all the stuff we now buy is better than the stuff available in the 1950s and 1960s (more luxurious cars, bigger homes, bigger refrigerators, etc) but I think most people would trade that in for an affordable mortgage, health care and education on 1 income. Free trade with dictatorships like China is only one of but one of the most important reasons. Importation of limitless numbers of unskilled and semi-skilled workers is also another reason.

Posted by: mike bass | Friday, May 18, 2007 at 07:21 PM

Bizarre is right. If the yuan appreciated by 30% overnight who is to say import prices wouldn't drop substantially (though probably less than that 30%), and China would have even more excess dollars to lend further lowering rates here? Someone find a one handed economist.

Posted by: Lord | Friday, May 18, 2007 at 08:21 PM

Trade with China has been a huge U.S. benefit. It has contributed to destroying lower-paying jobs, creating higher-paying jobs, increasing productivity, dampening wage inflation, raising profits, depressing prices, lowering interest rates, etc. in exchange for an eroding dollar, low returns, higher employment, a larger tax base, etc. The U.S. doesn't want to kill the goose that lays the golden egg. So, it wants China to expand at a sustainable rate.

Posted by: Arthur Eckart | Saturday, May 19, 2007 at 01:17 AM

Also, I may add, there's fear of losing jobs, because of household debt and intense foreign competition, which subdues wage growth. Unions and other parts of the economy can't compete with Chinese labor camps.

Posted by: Arthur Eckart | Saturday, May 19, 2007 at 09:21 AM

jm: there can be no such thing as free trade in the presence of the kind of currency manipulation going on today.
Free trade has to do with access to markets, not "currency manipulations". Nobody was fussing when the Japanese employed the same tactic postwar to reconstruct their economy a half century ago.

Why the fuss now? Oh, because it is dislocating jobs in the US and Europe? Well, what can one expect when the world's labor supply was suddenly doubled over the past fifteen years coincident with GATT negotiations that reduced trade tariff barriers in the mid-1990s.

Did we really expect the Chinese, for instance, to remain in their hovels? Or the Vietnamese?

Posted by: Lafayette | Saturday, May 19, 2007 at 04:02 PM

mb: When US workers are forced to complete with those in China and other Countries without modern labor standards there will be and is a race to the bottom for the average wage earner.
Who's forcing America to compete with China in un-/semi-skilled jobs?

Don't you have one of the world's best education systems? Then move your people up the skills ladder and they won't have to compete with Chinese unskilled labor.

Everyone has seen this coming over the past decade. Maybe Americans were more interested in finding WMDs in the Iraqi desert? Well, that is the fault of who?

America has had a free ride for the past quarter of a century. It's over.

Posted by: Lafayette | Saturday, May 19, 2007 at 04:08 PM

Creating higher-paying jobs in China anyway. Decreasing manufactured goods prices, increasing raw materials prices

Posted by: Lord | Saturday, May 19, 2007 at 06:15 PM

Ok, by creating a slosh of cheap money it probably has contributed to a few hedge fund managers jobs here (of somewhat dubious value).

Posted by: Lord | Saturday, May 19, 2007 at 06:18 PM

Globalization has greatly benefited the U.S. One reason U.S. per capita income is about $45,000 in 2007 is older U.S. industries produce higher quality core goods, which are more profitable, because of market power, while the U.S. continues to lead the world in newer industries (e.g. over half of the world's largest Information Age firms and over two-thirds of the world's largest Biotech Revolution firms are American). Also, I may add, even with the Iraq and Afghanistan wars, U.S. military expenditures are a much smaller proportion of GDP than during the Cold War. It makes sense that the U.S. shifted military resources from Western Europe to the Middle East, where it has built dozens of major military bases.

Posted by: Arthur Eckart | Sunday, May 20, 2007 at 12:15 AM

The difference between the US growth rate of 3% vs China's 10% rate suggests a faster revaluation of the rate is appropriate.

"Much of what America buys from China today once came from Japan, South Korea and Taiwan." True, "much" was made in Japan, Korea and Taiwan, but most of what we bought in the past was made in the US.

Surprised anyone would suggest that #2 is a myth. The US has a $600 billion trade deficit with China - or is that a myth too?

Only 4 years ago the Fed said we needed 300K monthly increases in new jobs just to keep up with population growth. When was the last time anyone saw a jobs report printing that kind of increase?

If you are going to defend current US/China trade status quo then at least give us your prediction on the USD/CNY rate 3-6 months and 1-2 years from now.

Posted by: John | Sunday, May 20, 2007 at 05:22 AM

John: If you are going to defend current US/China trade status quo then at least give us your prediction on the USD/CNY rate 3-6 months and 1-2 years from now.
And, what, pray tell, would you like to do about it?

The US should unilaterally raise tariff barriers against Chinese importations? It will be taken before the WTO for breach of treaty. And, it will lose.

The last time the US indulged itself in an international trade tariff war, it helped provoke the Great Depression and inevitably WW2.

There IS an alternative. Stop the wailing and gnashing of teeth and implement a strategic program to retrain the workforce in skills that allow it to climb the competency ladder to levels where they do not (yet) compete with China. In the transition from the Industrial Age to the Information Age, it would be wisest to focus on service-sector jobs (that center about the mental challenge of handling information rather than physical exertion). BTW, that means the males will be competing not with the Chinese but with the females for jobs ...

The two solutions (Europe and the US) are slightly different. Europe's high rate of unemployment is due to its reluctance to ever have reduced labor regulations that it stupidly thought "protected workers". These "protected workers" knew an unemployment rate at least twice that of the "unprotected" American worker over the past quarter of a century.

Europe however actually has a very well developed programs in most countries accessible to anyone who wants to learn a trade/profession (with OJT apprenticeships). It also has tuition-free universities for those who want to undertake a university degree.

The US would be well advised to copy that model. No European student graduates from university with a 10/15 thousand dollar debt to repay. And, the building trades are flat out wherever you look in Europe - with no real estate bubbles, no flipping condos, no sub-prime lending.

The US is suffering from its own laxness in matters of education and training - and an obsessive fixation on light and heavy manufacturing - where people thought they had lifetime employment (at GM) with damn fine wages. All that has changed. Light manufacturing is going to the Far East since it is mostly un-/semi-skilled component assembly. Whilst heavy manufacturing should remain local.

Free trade (globalization) is not a game where one country chooses the rules that either favors or protects their own industry/commerce. It is like any market, you learn to compete where you have a competitive advantage. And, you change the mix of skills necessary to compete.

Or, maybe you would prefer Uncle Sam to nuke China ... ? Reports have it that the Chinese have buried WMDs in the Gobi desert.

NB: Finally, trade (exports plus imports) represents barely 28% of all of the US GDP. It represents closer to three quarters of Germany's, and over 60% of France's, of Canada's and Britain's and 50% of Australia's. So, go point the finger at some other scapegoat.

Posted by: Lafayette | Sunday, May 20, 2007 at 09:58 AM

Even Western European countries agreed Iraq had WMDs before the Iraq invasion. Western Europe has underperfomed the U.S. So, why should the U.S. copy its model? There's no free lunch. Someone has to pay. Creating inefficiencies doesn't improve systems. Also, it seems, Western Europeans have a naive view of the U.S., perhaps a result of its education system.

Posted by: Arthur Eckart | Sunday, May 20, 2007 at 01:54 PM

AE: There's no free lunch.
There's a free lunch when, as a reserve currency, other nations are more than willing to hold your currency and therefore finance your debt.

This has been the case for more than enough decades to gradually come to an end. Which is happening, slowly, slowly, as more countries (namely, China) take the Euro as not only a better investment but as a hedge to the dollar.

When it happens, since it is a question only of time, then American i-rates will skyrocket, thereby lowering overall economic activity.

And, Richard Nixon will turn over in his grave. After all, according to Cheney, "Nixon proved that deficits were unimportant". Yep, nitwit said it. I admire know-it-alls. They have the courage of their convictions, right up to the bitter end.

Posted by: Lafayette | Sunday, May 20, 2007 at 02:30 PM

Lafayette, someone still pays. So, there's no free lunch (it doesn't materialize out of thin air). I doubt Western European countries will change their policies enough for the Euro to become the foremost currency. However, of course, the E.U. is a large economic region with some better investments. In what context did Cheney, the "nitwit," say "Nixon proved that deficits were unimportant?" Also, my statement about "creating inefficiencies doesn't improve systems" applies only to good systems. The Western European attempts to make people more average has lowered the average, in part through inefficiencies.

Posted by: Arthur Eckart | Sunday, May 20, 2007 at 03:07 PM

John, the U.S. will produce over $13.5 trillion of output in 2007. So, obviously, people are buying American goods. Also, from 1993-98 17.6 million U.S. jobs were created and from 2001-06 3.7 million U.S. jobs were created. However, U.S. output growth was only a little higher from 1993-98 than from 2001-06. So, output per unit of labor input increased substantially in 2001-06.

Posted by: Arthur Eckart | Sunday, May 20, 2007 at 03:40 PM

AE: I doubt Western European countries will change their policies enough for the Euro to become the foremost currency.
They will, they are. The Germans bit the bullet two years ago, and the French did so last week. As you say, there's no free lunch ... which they may be coming to realize after decades of profligate state spending.

There's a lonnnnnggggg way to go nonetheless. The Socialist government spent the money from productivity-enhancement long before the productivity was ever realized. The French left was even stupid enough to reduce the work-week.

The Euro is not strong inherently. It is stronger presently because the dollar is weaker. But, the singular difference between the US and the EU is that the EU is much more dependent upon foreign trade as a percentage of GDP. Here are 2006 estimates from the EIU (all numbers are inexact, since they were interpreted from a bar graph):

US: about 30%
Germany: ~80%
France: ~70%
Netherlands: ~130%

Therefore, the fact that euros are kept as a reserve currency - that is, they are effectively parked on foreign accounts - means that they do not become accountable as part of the national deficit, which, in turn, helps to keep interest rates down. This avoided cost of money need not be recuperated in national pricing, meaning that products remain generally more competitive.

This is how it should work. Problem is, the Euro being strong, its products must have an inherent advantage for which the higher cost is justified. This may work for branded products such as Champagne, or even hi-tech Airbus. But for your latest household gadget, relatively common, there is no way it can compete with China. And, so it doesn't.

At the very least, Europe tries to move these types of products (eg: small European designed vehicles) off to production in Eastern Europe. The difference in cost (labor and transportation to European markets) helps off-set the Chinese advantage of much lower manufacturing costs.

Europe's problem is higher internal costs and it will take at least a decade of productivity improvements (currently languishing at a third as much as the US) to help its competitiveness.

Still, there is always hope.

Posted by: Lafayette | Monday, May 21, 2007 at 10:09 AM

For the Euro to become the foremost currency, the E.U. will have to stop protecting large numbers of obsolete jobs, move faster into emerging industries, and make stronger foreign policy commitments. Also, it may have to reduce its social programs substantially. Many policy changes would be needed. If the 50 U.S. states were countries, the U.S. percentage of trade would be much higher than 30%. Canada (a small country) and Mexico (a poor country) are the U.S. largest trading partners. So, I'd prefer to see comparisons of Asian trade. The U.S. has been the engine pulling the rest of the world's economies. It's a cycle of foreign investment and goods feeding U.S. production and consumption. So, even more imports can be purchased and consumed. The U.S. is the only economy that can expand with huge negative net exports. I doubt the E.U. economy can expand with huge negative net exports, at least initially and without major policy changes.

Posted by: Arthur Eckart | Monday, May 21, 2007 at 11:39 PM

ArhurEckart, who can allure chinese factory workers at $100 a month, are hot-courted by those who have to pay $300 more for each worker per month in china.

Beside dormitories, cafeterias, social insurance, my boss have to spend Rmb896,353.43(Usd$115,658)for his 305 employees April salary, however, he is still fearing those workers quiting tomorrow because his offer is lowering than others, this is an average factory in Guangdong.

Don't be surprise, China is being bothered by labor shortage

Posted by: T Yang | Thursday, May 24, 2007 at 09:17 AM

T Yang, The facts disagree with the propoganda (e.g. see pdf link in site below). The Chinese communists exploit its workers to extreme levels. If there's a labor shortage, it's only because Chinese workers would rather live on the farm or on the street than work for Chinese factories. Also, I may add, Chinese communist workers generally can't compete with Western capitalist workers, since most Westerners produce and earn up to 40 times more (measured in a hard currency). Chinese policies are naive and may not help China much in the long-run. Perhaps, an economic collapse will make the Chinese communists less arrogant.

http://www.chinalaborwatch.org/en/web/article.php?article_id=50342

Posted by: Arthur Eckart | Thursday, May 24, 2007 at 12:50 PM

Arthur Eckat,"The Chinese communists exploit its workers to extreme levels", what is a joking! you are ignorant about china economy, let's give you a hint; CCP is controling big state owned enterprise,the most profit sector (eg, elcectricity, bank,telcom & petrol..etc) in China, those SOE are piling up big amount funds (they don't need to pay dividend)and do not know how to spend those funds, and the only way is trying all their best to pay to their workers, for example, my sister is an average worker for Anshun Power Co.( a SOE locate in china's poorest Guizhou province),her basic salary is RMB7,820(Usd1000)and many other welfare including beautiful house(160 squre meter).

CCP is handling out unprofit sector to private enterprises and foreigners who exploit its workers to extreme levels to survive, however, they are no way to compete with those SOE becauase SOEs are enjoying monopolization and free to use state asset (no dividend need to pay).

it is private enterprises and foreigners who are exploiting its workers to extreme levels, not the Chinese communists, understanding?

Chinese communist workers generally can compete with other non-western capitalist workers, it is nosense to say most Westerners produce and earn up to 40 times more if you have any sense of humiliation, hardly to think what USA produce more than china. - vehicle? china can produce 9 million this year,it is equal to USA; Steel? four times than USA, Cement? three times; DVD,TV set,computer,cloth...... God knows how many times.

"Chinese policies are naive and may not help China much in the long-run" how do you define the long-run? china's latest 30 years rapidly devolopment is a short-run? perhaps 300 years is a long run,eh?

China is a big developing country, many arrogant people can easily pick out its problems, but few talented people can understand and explain why the chinese naive polices are making its progressing, if you can, you are worth for Nobel prize, but hopless an ignorant people like you are.

Posted by: T Yang | Friday, May 25, 2007 at 02:28 AM

Why is this no surprise?

Posted by: China Law Blog | Friday, May 25, 2007 at 08:05 PM

This is a great debate about Yuan, very good. Thanks. And I am going to forward the entire piece to the readers of my daily US market commentary.

Posted by: marketreflections | Saturday, May 26, 2007 at 01:03 AM

mr: Today’s stock market is an “evening out process” from yesterday, which may be better described with “the second law of thermodynamics”, as absurd as it sounds.
Not to worry, Cassandra. We'll muddle through somehow.

Pray tell, what is it about the imminent end of life on earth as we know it that so enthuses posters like you .. . ?

Posted by: Lafayette | Monday, May 28, 2007 at 10:21 AM

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