The natives are restless, and as predicted, the CCP will try to keep them pacified with the only thing in China that talks. And we all know what that is.
When Chong Yik Toy Co. went bankrupt, the bosses fled without meeting their payroll and angry workers took to the streets in protest. Less than 72 hours later, the local government came to the rescue.
Armed with bags full of cash totaling half a million dollars, accountants began distributing the money so the 900 former employees would have something to get by on. The Chinese officials who made the emergency payments on Oct. 21 called it an “advance,” part of a “back-pay insurance fund.”
But the reality was obvious to everyone: It was a government bailout.
It’s a scary article. Even though China’s economy is soaring, especially compared to the competition, a drop from 10 percent to 8 or 9 percent is still catastrophic. The plans to spread the wealth to workers in floundering manufacturing businesses are widespread and dramatic. The cash is already being doled out, and the government is doing everything it possibly can – like relaxing anti-pollution regultions – to keep the factories up and running. The big question is, can China make the switch from an export-driven economy to one fueled by domestic spending? Personally, I think they can, but not without a lot of pain in the process. They have the cash on hand to make it happen.
The article is an important reminder, however, that we haven’t even seen the start of this crisis yet. Wall Street soared back recently and there’s a sense that the bailout has put everything back in place, and the worst is over. All I can say is watch the earnings reports in the days and months ahead, and we’ll all see just how deep and cruel this recession is. It’s so easy to forget all about it as we get swept up in the joy of seeing the Republicans dethroned. But Obama is inheriting a headache beyond comprehension, and once the confetti’s swept up and the empty champagne bottles dumped in the trash, we’re all going to have to deal with a new world order, namely, an emasculated America, an eagle with seriously clipped wings. And a China that’s still rising, if not as robustly as in recent years.
1 Posted at www.conspirama.com
Bags of cash help assuage the Guandong recession blues…
All I can say is watch the earnings reports in the days and months ahead, and we’ll all see just how deep and cruel this recession is. It’s so easy to forget all about it as we get swept up in the joy of seeing the Republicans dethroned ……
November 4, 2008 @ 10:41 pm | Trackback
2
By Oab
Are you starting to see the big picture Richard ?
Now keep your eyes open for what’s coming next…
November 4, 2008 @ 11:18 pm | Comment
3
By Richard
What’s coming next will only come well after the election, and maybe even as late as Christmas. But it’s definitely coming.
November 4, 2008 @ 11:23 pm | Comment
4
By Serve the People
According to this article, the government is only handing out a few million dollars to the laid off workers. A tiny sum compared to the 700 billion US bailout.
November 4, 2008 @ 11:40 pm | Comment
5
By Richard
But it’s just starting, Serve. Still, the cost to the Chinese government won’t compare to the US bailout. Just about nothing on earth can compare to that. Most Americans simply haven’t absorbed the enormity of the number. It’s still an abstraction. The cost of the entire 6-year Iraq war, handed over to the Wall Street bunglers on one day.
November 4, 2008 @ 11:44 pm | Comment
6
By Oab
The cost impact in China won’t the chump money they give to these poor people that lost their jobs. The real cost is the money that they now have to invest in their local economy to boost internal consumption. So it’s an indirect bailout that somehow can benefit to China.
But as Richard said, can it be done so fast ? I personally don’t think so. Building internal consumption to a self sustainable level takes years if not decades. So dark days are definitively coming for China, at least on the short term.
As usual, please bear in mind that this is not my wish, but just trends that I envision that could become real. I wish no harm to the China nation.
November 4, 2008 @ 11:57 pm | Comment
7
By MT
Richard,
Still, the cost to the Chinese government won’t compare to the US bailout. Just about nothing on earth can compare to that. Most Americans simply haven’t absorbed the enormity of the number. It’s still an abstraction
700 billion is only about 5% of America’s GDP. Compared to other bailouts in history, it is small. For example, Japan’s bailout cost 24% of GDP.
Here is a link from The Economist, comparing the costs.
http://media.economist.com/images/20080927/CBB116.gif
“When the loans to AIG and Bear Stearns assets are added in, the gross public backing so far approaches 6% of GDP, well above the 3.7% of the savings-and-loan bail-out in the late 1980s and early 1990s (see chart 3). That would still be much less than the average cost of resolving banking crises around the world in the past three decades, which a study by Luc Laeven and Fabian Valencia, of the IMF, puts at 16%.”
November 5, 2008 @ 2:48 am | Comment
8
By Oab
MT
Zzzzzzzzzzzzzzz…. And off I go to this world now… Good night MT, sleep well.
November 5, 2008 @ 2:52 am | Comment
9
By Richard
Oab, he doesn’t get that it’s just starting…. He’s in that state of mind where the bailout was the end of the meltdown, not the beginning.
November 5, 2008 @ 8:30 am | Comment
10
By MT
Richard,
You don’t have to put words into my mouth. I can speak for myself. I never said 700 billion is the end of the bailout. I was just responding to your hyperbole about what an insanely large figure 700 billion is.
I do think that the recession is going to get worse. I also think that US stocks and some foreign stocks are good bargains now and am adding to my portfolio. It does help that my portfolio was all cash before the Sept.
November 5, 2008 @ 12:59 pm | Comment
11
By Si
@richard
Isn’t the risk here Richard that the CCP might blow its money on piecemeal handouts when maybe a better way of spending the money would be to attempt to set up some sort of rudimentary social security?
@oab
had a look at the article, but is china/russia really going to stop using us$? what are they going to use instead…rubles, yuan, euros? i don’t think so, and i say that as a european (euros being the only credible alternative). people may rant about the us being the source of all evil, but when push comes to shove…..
as for your other point, how do you build internal consumption through govt policy? increases tariffs on foreign products might not be possible, and the increasing strength of the yuan is going to make good quality imports more attractive. as you say, dark days ahead for china
November 5, 2008 @ 8:57 pm | Comment
12
By Not_a_Sinophile
800 million farmer class Chinese living on subsistence wages do not make for a great consumer market. Unless the Chinese government (central and provincial) start spending resources on real infrastructure development rather than skimming most resources there will not be much change in the plight of the farmer class. Even the recent land reform measure allowing the sale of agricultural land use rights will be probably do nothing but enrich unscrupulous local and provincial officials and their cronies.
November 5, 2008 @ 10:32 pm | Comment
13
By Oab
That’s actually what I meant… The only way to deal with this is to build up infrastructure for the long run. Eventually this will create more consumers (but this is a long shot, not a month’s process).
But now, people are quick to forget that China’s population is mainly composed of very poor peoples and farmers.
People get fazed and blinded by Shanghai, Beijing, HK, etc and how modern they are. This represents just a fraction of the reality here. It’s not representative of the real situation.
Just go to any tier city 30 mins from Shanghai and you’ll see the real face of china and where it truly stands now.
The government is bailing out some companies, when the local provincial government is capable of doing so, but what will happen in poor cities, where the local government will be unable/willing to untie the purse’s rope.
For example, I just don’t understand the current real estate bubble: I was reading about the average price of downtown properties in Shanghai (300 000 USD / 140 Sqm apartment).
Who the hell is going to buy that when the average salary in the city is around 3000 RMB ? Right now, only the rich tycoons from all around China and HK and some foreigners are betting on this market, but how come people are surprised it’s bursting big time ??? It’s totally disconnected from the reality.
November 5, 2008 @ 10:46 pm | Comment
14
By Oab
Serve the People
“According to this article, the government is only handing out a few million dollars to the laid off workers. A tiny sum compared to the 700 billion US bailout.”
Really, are you sure ?
http://www.chinadaily.com.cn/bizchina/2008-11/06/content_7178938.htm
The transport ministry is considering a plan to spend 5 trillion yuan ($730 billion) on road and port infrastructure projects over the next three to five years, in a bid to stimulate domestic demand, the Shanghai-based China Business News reported on Wednesday.
November 6, 2008 @ 11:19 am | Comment
15
By Kim
This quote seems to have a word out of place…
Even though China’s economy is soaring, especially compared to the competition, a drop from 10 percent to 8 or 9 percent is still catastrophic.
If this is “catastrophic” then what words have you got left to describe something really disastrous? Sorry if this comes across as pedantic.
November 6, 2008 @ 11:32 am | Comment
16
By Si
@kim
i understand that high growth is needed due to the youth of the country and the vast numbers of people entering the workforce each year. “catastrophic” is a little over the top, but futher falls would certainly be concerning
November 6, 2008 @ 4:35 pm | Comment