I am a big believer in China.  BIG…. but, even I have my limits.

Last week while attending a discussion at Three on the Bund, Economist Jeffrey Sachs said that China’s GDP would pass the United States by 2030.  According to him, that would mean that China (currently about the same size as Germay) would need to grow 4-6 times its current size.

Then, while following a paper trail of articles, I bumped into this PWC press release where  John Hawksworth, head of macroeconomics at PricewaterhouseCoopers LLP says:

Our latest projections suggest that China could overtake the US in around 2025 to become the world’s largest economy and will continue to grow to around 130% of the size of the US by 2050.

At the discussion, I asked Professor Sachs (A man whose work in poverty alleviation and country building is amazing), just how this would be possible when the country is already running out of coal, water, petro… is trying to control inflation… is having a hard time with depleting agricultural land…

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Real quickly.

Following my post earlier this week on the World Bank’s call on its Quarterly China update, I have been passed the link where readers can go to see the transcript of the call.

In reading through the transcript, there are a few questions that I think were quite interesting, and the responses were as well including the question from Chris Jeffrey on FX sterilization and the three part question by Deborah Chu.

however, and I’ll open this up to you the reader, in the transcript it is said several times that inflation has not gone beyond food to a lare extent, and that the government is taken action to prevent it.

In my mind though, the actions of the government are actually preventing an accurate read of just how serious the spillover is. they have frozen a number of prices for goods in a number of sectors, and while the recent CPI figure was announced at 7.1%, many believe that it is much higher.

So, and I am opening this up for comments, has inflation been largely contained? Or has it been hidden with price freezes?

I have a request in to speak with the leaders of the call for this, but I would enjoy reading any perspectives on this issue as I am growing more and more weary of the statistics I am seeing, and how people read them.

They both scare me more than Chinese toothpaste.

This afternoon while reading through some back stories on the U.S. China Economic and Security Review Commission, I came across an op-ed piece written by Kerri Houston for the Cincinatti Post called China’s business practices threaten jobs here.. and I was shocked.

Keep in mind, on the About Us page of the USCC website, it says:

The Commissioners are supported by a professional and administrative staff with extensive backgrounds in trade, economics, foreign policy, and U.S.-PRC relations. Some are fluent or proficient in Chinese (Mandarin), and most have significant prior working and traveling experience in China and Taiwan

So, I was shocked really to see a commissioner use this level of fear mongering, slander, and bs in writing up the core of her op-ed.

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Following a recent post called Is China Export Led, I recently found another paper written by Albert Kiedel of Carnegie Endowment for International Peace, who wraps up his summary of his article China’s Looming Crisis - Inflation Returns (PDF HERE) by saying:

U.S. intelligence analysis of this overheating risk should refute the conventional wisdom that China’s growth is export-led—it is clearly domestically driven.

Policy makers need to realize that China’s rapid economic rise is homegrown and sustainable. The United States should quietly remind China that harsh handling of inflation-related unrest could seriously damage U.S.-China relations—especially in a U.S. election year.

Far more aggressive than Jon Anderson in attacking common wisdom, Kiedel’s audience is obviously policy makers who he see are looking at China though McCarthy eyeglasses (tinted with Lead painted Barbie)… and that gives his analysis a much different feel (both reports are well written and as a lay person I have no trouble following the logic of either)

In his article, the tied between exports and the economy is actually a secondary concern as his primary concern is that inflation is a real threat to the Chinese economy (he pulls out a lot of stats in support).

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UBS Managing Director Jonathan Anderson recently released an excellent report entitled Is China Export-Led? that is a must read. It is one of those documents where everyone will learn something or have a myth busted

Part of their Asia focus, Jon and his team have 1-2 reports that come out each week, and this week they have decided tolook at one of the biggest myths (”The Granddaddy”) surrounding China and its development… that it is led by exports.

Peeling the layers of the onion off, Jon and his team structured the report to address the following issues (many of these issues are supported by their own reports) to understand the actual contribution of exports to China.. and more importantly what that means in terms of global exposure should something occur (US recession…)

Please note: as I am not a master or PhD in economics and as it has been 10 years since I have looked at an econ book, I would suggest you read the report yourself as what I am about to write may not fully reflect what UBS found… but here goes.

1) How “big” are China’s exports?

For anyone who has been to China, it is clear that exports have historically played a large role in the macroeconomic picture. The cities on the east coast have outgrown the cities in the west, central, and northeast, and that phenomenon has defined China. But counter to the thoughts of many, this report shows that China actually may not be as dependent on growth from exports.

In building this, the first thing the report does is address the statistics, and how looking at a pure export/ GDP ratio is not the best way to measure. After all, were that the true measure, then HK would have exported its economy twice over (exports/ GDP = 2 in HK).

So, to get to the real figure they:

we need to restate the headline export figure in valueadded terms, and this means two things: (i) stripping out the associated import content to find out how much of export revenue actually accrued to the domestic economy, and then (ii) converting that domestic content share into value-added terms by subtracting input purchases from other domestic sectors.

and what they found through their exercise (read report for to understand adjustments), they found that the 40% figure was reduced to under 10%.. a much different perspective

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