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There was an interesting buzz on Minyanville today by professor Fil Zucchi about a mass exodus of Chinese workers back to the farms. Let's take a look.
I had a chance to chat at length with a Chinese-American businessman whose company owns manufacturing operations in China. He suggested that the Chinese government has pretty much given up on the notion of being able to transform its export economy to a domestic, consumer-based one.Thanks Fil!
There's an ongoing mass exodus of workers back to the countryside and many many manufacturers of export products are either closing or beginning their wind down process. His sense is that the government will be very active with the regional governments in trying to smooth the transition of workers back to rural area, and that's where most of the "stimulus" package touted by the Chinese government will be focused on.
In my humble opinion, China's appetite for U.S. debt was simply a gigantic vendor-financing scheme, where they lent us money so that we could buy stuff from them. After removing the "buy from them" part, I hope Boom Boom [Bernanke] and company are not counting on the Chinese to fund our current Keynsian binge.
Recession Opens U.S.- China Rift
Bloomberg is reporting the Global Recession Has Opened U.S.- China Rift
Dec. 29 (Bloomberg) -- The global recession is re-exposing fissures in U.S.-China relations that Treasury Secretary Henry Paulson spent more than two years smoothing over.Most of the so called savings glut in China is pure nonsense. See Global Savings Glut Exposed and Bernanke Blames Saving Glut For Housing Bubble for a rebuttal to some truly twisted thinking about savings coming from the lips of Bernanke.
Heightened tensions between China and the U.S. may worsen a contraction in world trade that already threatens to deepen and prolong the economic downturn. The friction comes as President- elect Barack Obama readies a two-year stimulus package worth as much as $850 billion that will require the U.S. to borrow more than ever from China, the largest buyer of Treasury securities.
“The American economic slump is running into the Chinese economic slump,” says Derek Scissors, a research fellow at the Washington-based Heritage Foundation. “It's creating the conditions for a face-off between Beijing and the U.S. Congress, possibly leading to destabilization of the world's most important bilateral economic relationship.”
Paulson refrained from labeling China a currency manipulator and hailed an end to tax rebates on Chinese exports as a sign of improving trade relations. Congressional leaders, though dissatisfied with the pace of progress, shelved sanctions legislation.
China's exports declined in November for the first time in seven years, and economic growth may slow by more than half to as little as 5 percent in 2009, according to Royal Bank of Scotland Plc. That has prompted China's leaders to increase tax rebates on thousands of exported products.
In the U.S., business and labor groups, along with lawmakers, are pushing the new Obama administration to take a harder line with China than President George W. Bush did.
Senate Finance Committee Chairman Max Baucus, a Democrat from Montana, plans legislation that would raise tariffs on dumped imports from China and other nations. And newly elected Democratic congressmen such as Larry Kissell of North Carolina and Dan Maffei of New York have pledged actions to stop jobs from being shipped to China.
Lawyers representing companies such as Nucor Corp., the second-largest U.S. steelmaker, NewPage Corp., a maker of coated paper, and smaller textile and steel pipe makers say they are considering new trade complaints against China.
Officials in Beijing will push back, says James McGregor, chairman of Beijing-based research firm JL McGregor & Co. and author of the book “One Billion Customers,” about doing business in China. Chinese leaders “will do whatever they need to protect their interests and to say to the U.S., 'Do not mess with us on this one,'” he says.
“What separates China from the rest of the world is its incredibly low level of consumption relative to GDP,” says Brad Setser, a fellow at the Council on Foreign Relations in Washington. “What can China do that would most directly help the world economy during a period of very severe weakness? Get its consumption back up to 40 percent of GDP.”
Furthermore (assuming one does believe China is saving on a massive scale) the idea that saving causes economic problems is patently absurd. Savings are not idle; savings provides money for investment and for others to consume.
No, it is lack of saving that causes economic problems. And people like Bernanke, Krugman (please see Krugman Still Wrong After All These Years) and now Sester are promoting more spending as the way to save the world.
Goodbye Yellow Brick Road
The "Yellow Brick Road" theory of the global economy was based on three foolish ideas.
- The US consumer could consume beyond his means for perpetuity.
- China could decouple from the global economy and grow its GDP forever at an 11% clip by taking workers from the farms and moving them to cities.
- It is possible for a county to spend its way to prosperity.
Goodbye Yellow Brick Road
When are you gonna come downThe Yellow Brick Road Theory is rapidly flying apart. US consumers aren't consuming, protectionist tensions are rising, and Chinese workers are leaving the cities, headed back to the plough. Yet in spite of massive logic and evidence to the contrary, Keynesians are still sticking with the belief it's possible to spend one's way to prosperity.
When are you going to land
I should have stayed on the farm
I should have listened to my old man
You know you can't hold me forever
I didn't sign up with you
I'm not a present for your friends to open
This boy's too young to be singing the blues
So goodbye yellow brick road
Where the dogs of society howl
You can't plant me in your penthouse
I'm going back to my plough
Back to the howling old owl in the woods
Hunting the horny back toad
Oh I've finally decided my future lies
Beyond the yellow brick road
Maybe you'll get a replacement
There's plenty like me to be found
Mongrels who ain't got a penny
Sniffing for tidbits like you on the ground
Mike "Mish" Shedlock
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