EconoChina

Local HK media is reporting that 300 workers at the Beijing factory of Korea’s Lotte Group have been striking for 3 days over wages, shutting down production completely.

The workers allege that Lotte, while officially pays them Rmb1,700 a month, deducts many “fees” from their paycheck, resulting in real monthly pay of only Rmb900, which is lower than Beijing’s minimum wage.

The strikes at Honda etc.had received wide publicity and tacit governmental support. Although this newest episode of labor dispute is different in that it happens in the nerve center of China, I expect it to be resolved in favor of the workers, as their quest is inline with the government’s goal of rebalancing the Chinese economy.

Why is China overtaking Japan to be the 2nd largest economy newsworthy? But for some strange reason, it’s all over the place, some more interesting than others. The Economist has recycled Angus Maddison’s data to give some historical background.

As to The Economist’s rhetorical question,

China and India were the biggest economies in the world for almost all of the past 2000 years. Why they fell so far behind may be more of a mystery than why they are currently flourishing.

many readers have resorted to a chicken and egg answer: that China and India had the biggest populations. Hello! Doesn’t having a large population in an agrarian economy in and of itself suggests higher productivity (due to whatever reason), and hence more surplus? Chinese population was almost HALVED after the fall of the Eastern Han Dynasty in 220CE. There were numerous accounts of the horrendous famines and population loss in the early 17th century, before the fall of Ming. So it’s in fact large economies that make large populations sustainable, instead of the other way round.

As to China and India’s sudden fall from the first league, the quick and easy answer is colonialism, which I think is wrong again in terms of cause and effect. Colonialism is like germs that populate our living world. It simply invades countries that have been weakened by other reasons. By the 19th century, China was already in her dying throbs. As such, the GDP share seems like a lagging indicator of a nation’s economic wellbeing.

One of the best books that deal with this fascinating topic is The Great Divergence, by Kenneth Promeranz. Mind you, the writing is horrible, but it’s well worth the effort.

Speaking of collapsing Japanese savings rate, could the Chinese savings rate take the same dive in the not to distant future? BIS has come out with a new report that answers with a resounding yes.

Instead, we argue that tough corporate restructuring……, a marked Lewis-model transformation process…… and rapid ageing process have all played more important roles [in explaining high Chinese savings rate]. While such structural factors suggest that the Chinese saving rate will peak in the medium term, policies for job creation and a stronger social safety net would assist the transition to more balanced domestic demand.

The authors basically see several social and economic factors uniting to drive down Chinese savings rate. First and foremost should be the slowdown in long term economic growth coming from the restructuring of Chinese industries. As China gradually rebalance towards its domestic market, trend growth inevitably slips. You can’t save what you don’t have.

Another factor is simply having less people joining the workforce, having hit the so-called Lewis Inflection Point. The resent labor shortage and unrest in China is another facet of the same demographic change. With less people saving, of course the overall savings will decline.

The last kicker is the aging of the population. Due to the draconian one-child policy, China is aging rapidly. And Japan has already shown the world what happens when your retirees need to draw down on their savings….

If the authors are right, then it doesn’t matter which side of the “savings glut” theory you stand, ’cause it an’t gonna last very long.

What does this mean? Does it imply that China would have to pawn its reserves? Possibly, but I think the reserves would have been long gone by then to pay for the clean up of the bad debts in Chinese banks. It will certainly mean soaring interest rates in China, and across the globe.

Despite soaring June exports, Chinese economy is heading south in the H2, so much so that some banks are quietly relaxing the ban on 3rd mortgages. The practice must be widespread enough to entice speculation that the tough crackdown on property market since April will be loosened up and lifting the share prices of the battered property companies. Naturally, a spokesperson from the China Banking Regulatory Commission came out denying all these as groundless speculation and insisted that the government will continue in its tightening efforts.

But China is at a crossroad, with exports expected to dip in July, there is concern that continuing the tightening measures might knock the air out of the economy. However, the government is also under severe political pressure to “do something” about the runaway property prices which are way above what ordinary Chinese can afford. Relaxing the efforts will be seen as giving in to the rich and powerful, not to mention that further blowing asset bubble is hazardous to China’s long term economic health.

Yes, China is definitely between a rock and a hard place now.

Yes, GM is selling more cars in China than in the US, but this really doesn’t tell us much about the state of the economy.

The fact is passenger car sales dropped 17% from May in China, according to the newest data release from an industry association. This is already the third monthly decline in a row. While sales still grew by 19% over 6/09, it paled beyond comparison when you consider that 6/09 grew 45% over the previous year.

What’s more alarming is that production actually shot up 27% year-on-year, implying  drastic cutbacks in production to clear for inventory built-up down the road.

Currency flexibility means that it can swing both ways…