“The End of the Chinese Miracle”
After years of big wage increases in China, the supply of cheap labor is coming to an end. The migration of rural populations to cities, which in practically no time created over 250 cities with over 2 million inhabitants, is also coming to an end.
As the cost of labor has soared, the manufacturing base is now migrating to cheap-labor countries like Vietnam, leaving less work in Chinese cities for migrant laborers. With few options left, they’ve started to return to their villages. This leaves China with massive challenges, just when its debt-burdened economy can least afford them.
Given China’s size, “the demise” of its economic-growth model has “huge implications for the global economy,” according to the Financial Times’ fascinating, informative, and dark documentary, “The End of the Chinese Miracle.” It’s only 15 minutes, and worth every second of it:
For the wealthy Chinese, buying a home in the US or Canada has been an effective way to launder some money and get their wealth out of harm’s way. In the trophy markets on the US West Coast and in the Canadian cities of Vancouver and Toronto, rumors of a massive influx of Chinese money have swirled with growing intensity for years. In Vancouver, 33% of sales are to Chinese investors, according to new estimates of National Bank. Read… Desperate Chinese Investors Flood US, Canadian Housing Markets, But Real Numbers Are Taboo
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
It’s in the best interest of the US, Canada, and other players in the developed world to welcome the elite (and their laundered money) fleeing the oppressive clutches of the Chinese communist party. It’s going to get ugly on the mainland.
welcome the Chinese elite with their laundered money and their morally bankrupt behavior? They might come to regret that, once the money has been spent on keeping the US housing bubble alive. I doubt this new elite will work happily together with the existing US elites …
I am not sure I agreed with you. The “Elite”, as you alluded to, may very well be the beneficiaries of the current political system in China. God knows how they became bloody rich over night. They will bring laundered money to the US along with all the dirty tricks they use to use in China. Is it still in the best of our interest?
So WE can end up with lots of criminals and a foreign culture?
Send them home to FIX China, not bring the disease of CORRUPTION here.
at least the US and Canada are getting rich criminals that probably pay for their own needs, instead of poor (or pretending to be poor) foreign criminals and freeloaders with a way more backward culture, like us in Europe ;-(
NOPE! but thanks for playing..and we’ll give you a consolation prize!
This is exactly why we need incredibly strict immigration laws and walls.
You don’t allow the flood of immigrants in to the USA or Canada at the expense of those who have worked hard, You force the scum bastards in the countries of oppression to change.
Except it forces gentrification on the local population, who have not seen the kind of wage growth and prosperity as Chinese elites. Do we really want major US cities to become unoccupied ghost-towns, pushing artists, musicians, servers, blue collared workers, teachers, firemen, policemen, and even techies on a wave of forced-gentrification?
I am all for it, if the foreign residents who buy investment property (not their primary home) to be taxed significanly higher, and the $$ goes to the local economy.
I guess Japan has exported deflation to China now.
Good luck in dealing with that…
…then it is quite true that perhaps the entire “Chinese Miracle”, right back to 1979, has amounted to a huge global Keynesian central bank-inspired ‘misallocation of capital’ stemming from fake world demand created by massive expansion of the supply of money and credit.
And much production and many people’s jobs are turning out to be fake, too.
Fake jobs, or not, it fed families, sent kinds to schools, etc.
What is real , what is fake. Most of wall.St is fake, but they are as real as it gets.
It’s a global Ponzi…that sustained well, seemingly.
I could agree with you that from 2010 onward demand was manipulated by the chimera that China was something it wasn’t any longer but from 1979 up until things came undone in 2008 the Chinese miracle was quite real.. Lots of misallocations of capital for sure with ghost cities along with their malls with no customers but for the most part what China has done is bring up the living standards of millions in an amazingly short time.. Let us hope it doesn’t fall as fast or as low..
Just when the US has reached ‘peak stuff’ and so little time to shop when glued to these tiny screens. So much to buy, no money to do so with and no place to put all that stuff.
My favorite stuff are the decorative pillows we spread by the dozens over the made bed. So decorative! But what happens when you want to go to bed? Where do you put all these decorations? Out the window is where.
My favorite stuff related state….the massive ‘personal storage’ industry in N. America. The average person has a cargo container full of ‘stuff’ just sitting in storage charging rent.
Well at least China was manufacturing real stuff. The US was meanwhile busy producing Investment Bankers, Lawyers, and other support staff for trading papers.
Update for an old joke:
How do you make a small fortune in San Francisco real estate?
Start with a large fortune and buy it now.
Another failed attempt at centralized economic management, the worse it fails the tighter they’ll manage.
The position of the current Chinese government is finding themselves more and more in the position of the old KuoMinTang under Chiang after WWII. The current government is vividly aware that Nationalists lost China not because of any supposed mysterious superiority of Mao and his reds but because of the overwhelming corruption and incompetence of the former. This lead to wholesale starvation and the complete collapse of the Chinese economy. The Nationalists failed because they were overwhelmingly and decisively rejected by the Chinese people and the Communists were the only ones in a position to fill the resulting void.
The current leadership is well aware that if their corruption and incompetency create famine and economic collapse, they will almost certainly meet a similar fate, being dragged out into the street before mobs howling for their blood to be public ally executed as traitors to the people of China.
When evaluating the decisions of the leaders of China, keep in mind that they are not just dealing with investment opportunities and growth strategies, they have to keep the basic economic machinery going and meet the fundamental needs of the people or their lives will be on the line.
Yes, but there is no large, organized, armed resistance waiting in the wings. However corrupt the Party is, their armed ‘control’ wing is organized and pervasive. It’ll be a while before they surrender power.
You are correct of course but the leadership will not be so blaise’ about it. It may no longer be popular to speak of the “social contract” in the West but it has been a fundamental concept of the Chinese world view since the beginning of their long history. They called it “Tyan Ming”, the Mandate of Heaven. If the ruling power stopped promoting the welfare of the nation, then the people had the right to rise up and overthrow them. The leaders are keenly aware of this.
The nationalists in China, the Koumintang, failed because the US pulled out the rug and withdrew promised support in order to support the ‘moderate’ Chinese communists of Mao, ‘moderate’ because the embedded communists in the State department said they were.
When the nationalists fled to Taiwan, the US promised to support them.
Then the US promised the Taiwan seat in the UN to China, and the US traded the Taiwan seat to China.
Then the US promised to support Taiwan with military support.
“To be an enemy of the US is dangerous, to be a friend is fatal.”
That is just shallow superficial silly propaganda from the McCarthy era. I am embarrassed that you would put an ancient lie like that up here. The readers of this site are more sophisticated than that. You sound like a Bircher. The communists didn’t win China so much as the Nationalists lost China. Their mismanagement and corruption had grown so gross that they were no longer viable as a political force in China. Both the U.S, and Russia (Stalin deeply mistrusted Mao) strongly supported Chiang at first who was in a very strong position vs. Mao after the defeat of the Japanese. It was the people of China who rejected the Nationalists and drove them out to Taiwan. First the Russians then the Americans became aware of the real situation and the Americans in particular were revolted at Chiang for what he had done. Mao for his part at first made every effort to sound reasonable although this of course changed once he assumed absolute power. There was no meaningful way to “support” the Nationalists, they were already dead in the water. Mao just took advantage of the situation and filled the resulting vacuum.
I have a B.A. in Asian Studies Chinese Emphasis and learned to speak and read the language. I intensively studied the history and culture of China. I lived in Taiwan which I still have fond memories of and know their history in detail. Please do not pontificate to me concerning a subject about which you clearly know nothing!
There are so many misconceptions about wealth. A person or family can be wealthy with
a roof over their head, a garden to eat from , a cow,sheep or goats for meat , milk, cheese and a small vineyard for wine and raisins. Materialism ruins reality!! A job and a mortgage and car payment make humans a slave to materialism!!
You betcha! If you have all you need you have all the wealth you need! ^,..,^
Well, history may provide some guidance. Since the late 1700’s the USA suffered through multiple recessions and depressions, panics and even a civil war! It seems only reasonable that China will follow a similar path in its’ economic trajectory. It actually sounds like the normal course of events for countries. All this hand wringing over China sounds to me, like a jealous wife who sees her own declining physical beauty and attacks her husband for looking at other women.
China has, throughout it’s long history, gone through many empires, with their attendant rises, declines , and falls…..and, yes, they’ll no doubt repeat the process……as will we!
China is suffering because it has bought into the same Big Lie that has infected all the rest of the major economies. That Big Lie is that it is somehow possible to borrow an economy into prosperity.
It has never worked, it doesn’t work, and it will never work.
With a more centralized, totalitarian government, its always a lot easier to rob Peter to pay Paul and, as long as you’re Paul (the kleptocrats, oligarchs, etc.) it works like gangbusters. But if you’re Paul (peasants, citizens, taxpayers), then you’re SOL because sooner or later, one way or another, you’ll be handed the bill.
Wow – after watching the video, the first thing that jumps out at me is how companies will never hesitate to pack up and move to wherever labor is cheapest (or at least cheaper). This is an old story that never changes but still it is always heart-wrenching to see the personal accounts of people who lose their jobs to cheaper-labor countries – decade after decade.
Word of caution: ” Do not underestimate Chinese”.
They been largest world economy for centuries.
“As the cost of labor has soared, the manufacturing base is now migrating to cheap-labor countries like Vietnam, leaving less work in Chinese cities for migrant laborers. ”
Perhaps you can post some stats on this. Did average hourly wages rise 5% or 15%? I’ve read that hundreds of thousands of Chinese are being laid off in coal and other industries, so it seems local political matters would still be pushing wages down.
I think the real issue is the dollar is rising and the Yuan is pegged to the dollar. (just imagine if there is a BREXIT!)
The reason money is flowing to North American real estate is the Chinese fear a massive devaluation of the Yuan. (You’ve got a real estate bubble to confirm that)
I’m not sure what % labor costs are ‘local issues- i.e. migration to cities’ vs foreign exchange.
Possibly the Chinese are sick and tired of being abused and hence the flight to Vietnam by the more brutal companies that steal wages and such.
Here’s a chart of Chinese average yearly wages, going from 21,001 yuan in 2006 to 57,361 yuan in 2014. A 173% jump during a time when wages stagnated in many countries, including the US.
And yet, most Chinese make a hair over $10,000 a year, when the average apartment costs $100,000.
The Yuan has also risen dramatically during that time period. Putting the two together you get a relatively expensive work force. Hence outsourced labor from south east Asia. This is also incentivizing the rise of robotics in China which will displace millions of workers over the next decade.
As we all know, the easiest way to reduce the cost of labor would be to devalue the Yuan.
China “Could Push Whole World into Fresh Economic Crisis”
This headline need’s work.
china has KEPT the whole world in a Financial/Economic Crisis, since 2008.
Its Currency meddling, Blatant economic lies, and massive bubble blowing, have pushed that Financial/Economic Crisis, and associated Debt, to levels never seen before, as a %, in Human History.
china has done similar, several times before, the results have always been catastrophic, for everybody, including china.
Some people/nation’s, they never learn.
Those who fail to study History, are fated to repeat it.
Victors History, is not History, it is the Victors Propaganda.
Those who Studied Economics, and History, under the CCP Maoist system. Have Studied, Propaganda, Fables, and Fallacy’s, which they unfortunately believe, just as fervently.
As the Koran, and associated texts, are believed, by militant, deranged, muslim’s (AKA Jihadist’s).
As FeverentlyKims Propaganda is accepted, and loud lip service paid to it ,by anybody who wants to live better than a rat in the gutter, in DPRK
As Fervently as Kim’s Propaganda is accepted,
For some reason a lot of people want to conflate the rise of Japan with China’s. There is a least one huge difference- Japan has become known for its high quality- China for its low quality.
The victims of China’s ongoing devaluation will be its low cost competitors-Vietnam, Cambodia, India etc.
Japan has been trying to devalue- so far without success, but if a country is determined to do so surely it can.
The North American auto industry is just one ( although a big one) that needs to worry lot more about Japan than China.
Older folks may remember the restrictions placed on Japanese imports when the first flood of econo-boxes hit. Like the Datsun 510, a huge value and a minor collectable today.
So the US got quotas on Jap imports- on the NUMBER of them, not their value. How much louder can you tell the guy to make more expensive cars?
If the yen devalues by 15-20 % which looks inevitable- the North American industry is in trouble.
Ahhh! The smell of fresh crisis in the morning.
We need to move quickly, wealth is concentrating so fast the global economy is going to self-destruct.
2014 – “85 richest people as wealthy as poorest half of the world”
2016– “Richest 62 people as wealthy as half of world’s population”
Doing the maths and assuming a straight line …….
5.4 years until one person is as wealthy as poorest half of the world.
So much money to invest and so few investment opportunities.
The globalist oligarchs never could work out who the consumers were that bought their products and services.
Some time ago …..
The globalist oligarchs sat around looking for the best places to feed.
They identified China with its lax regulations and poorly paid population.
They poured their money in and began to feed.
If the conditions were too bad for the workers they could always put up suicide nets on the factories. It was more cost effective than clearing up the mess after they jumped from the rooves of their factories.
Eventually all the cheap labour had moved from the farms to the cities and wage costs started to rise.
The globalist oligarchs became concerned, the return on their capital was decreasing, and it was time to move on.
They looked for new feeding grounds and identify Vietnam and other poorer Asian nations.
The money gets pulled out of China and moved into the new feeding grounds.
Not sure why you’re blaming the ‘globalist oligarchs’, China is incredibly insular, and most businesses there are state owned. What China desperately needs are political reforms (the only way to combat systemic corruption and societal stagnation); even the likes of Vietnam, Cambodia, and Myanmar are doing better on the political front than China. Then of course, there is India, with a massive population yearning to move up the ladder.
Haven’t you noticed yet that the main narrative from many posters could be drawn straight from Marx or for that matter the National Socialist German Workers Party ?
It’s never the fault of voters or politicians- it’s a secretive cabal that runs the world- with tentacles in the FED, the IMF, the BIS, etc.
It is rather silly of them to gather at the Bildenberg conferences, thus making it easy to figure out that Soros is one but…
They didn’t engineer low interest rates to stimulate the economy, they did it to fool people into borrowing money and become serfs of capital.
Back in the 90’s- towards the end of the USSR, there was one of the last meetings of the Comecon, which was kind of the bloc’s equivalent of the World Trade Organization. At the end one delegate summed up to a journalist: ‘the idea that there is a more efficient
creator of goods and services than the market is dead’
Capitalism could be efficient if there was no advertising and marketing, then firms would produce what people wanted rather than manufacturing demand for things they don’t really want.
All the surplus stuff that no one really wanted in the first place is a tremendous waste of the world’s finite resources.
The human resources wasted on advertising and marketing doesn’t even bare thinking about.
Efficient it is not.
In the UK we have storage units all over the country full of the surplus products that this system produces.
Even while having trouble grasping the magnitude of the bubble, there are flashes of the Road Warrior intro scene coming to mind when trying to imagine the humongous (no pun) figures presented. To say this won’t end well, is most likely the biggest understatement in recorded history.
I strongly advise anybody wanting at least a glympse into why China became the world’s factory to read Poorly Made In China by Paul Midler. If you worked even briefly with Chinese contractors it will strike a painful (possibly very painful) chord.
Let’s just say low wages, lax environmental legislation etc had only a hand in it: other countries offered the same if not better.
Regarding the whole China fiasco, one only needs to look at German exports to EM’s. If sanctions on Russia and depression in Brazil weren’t enough, China is doing her bit to make large German exporters sweat as copiously as their Japanese competitors.
Cars down 29%, industrial machinery down 21%, power generating equipment (industrial diesel generators, gas turbines etc) down 27%. A field of red as far as the eye can see.
If this is 7% GDP growth I don’t even want to know how “steady 2% growth” looks like.
So let’s recap:
1) Rampant corruption in a centralized economy
2) Epic miss-allocation of capital
3) Declining quality of output
4) Currency manipulation and
5) Capital flight
6) Rising militarism to divert domestic attention
7) Government sponsored theft of global IP
8) A looming environmental disaster
That is not what some might call a healthy outlook. The Chinese elite have painted themselves into a corner and I do not believe there is a historical precedent upon which they can rely. The capital flight is the key indicator for me. “Mr Bumble – can I have some more gold and high grade corporate bonds please.”
The party is not over yet!
Moving from “cheap” Latin America to “cheap” Asian Tigers to “cheap” China to “cheap” S.E. Asia, then on to India and if and when the wars are over in Islamic Asia, on to there, and lastly to Africa.
This story has been going on for some centuries now and the “lessons” have not been learned too well by those who continue to live well (and why would anyone who lives well want to learn this?!!).
Exploitation for the benefit of European, U.S.Americans, Canadian, Australian, Japanese populations of consumers and the pocket-books of those selling to said consumers still has room in this world to get what consumers want and ‘need’.
The question remains:
If it was China who carried the global economy who will take their place during their times of turmoil?
The answer: Nobody.
Keep some powder dry folks, commodity producing nations are going to have some lovely real estate for sale at some wonderful discounts.
It looks like at a minimum the remainder of April is being set for an implosion.
First, after Janet Yellen just recently assured everyone that the US economy was OK, the Fed hit the panic button and called a closed session emergency meeting for Monday.
That meeting appears to be connected to the most recent publication of the Atlanta Fed., showing that in only a few weeks everything started to go downhill. In four weeks time, the Atlanta Fed has revised its GDP growth rate from 2.3% to just the 0.1%, the tipping point between a growing economy and the first signs of a new recession, and the decline is at a rate that is terrifying, unless the revision substitutes 2015-2016 facts for prior fantasy.
And now we have this China story that demolishes the China soft landing propaganda stories of the last 2 years.
I would surmise that tomorrows “closed session emergency” Fed meeting, is also due to Wednesday’s IMF & G20 global financial meeting, to take place in Washington DC.
The global financial “threadbare” cloak, has begun to unravel at an increasing pace. Catching the powers that should not be off balance and reeling from blow after blow, of simply atrociously financial/politico news.
The present global financial system is in the midst of late stage failure. The system is not going to survive in it’s present mode. A global rebuilding or reset, must occur fairly quickly to avoid major global financial upheaval.
The narrator had an english accent so I kept listening. But in the end it did not offer anything new or insightful.
Bernie Sanders 2016!
Bernie Sanders 2016!
Guarantees global Economic catastrophe 2017.
The left will reap what it has sown very soon.
Nothing is ever FREE.
in 1942, american ships were being sunk off our shores. times were tough.
on the other hand, every 8 year administration has been followed by a mess. every one of them.
but i’m optimistic. i have to be.