China

[Willers]

Very interesting discussion. I spent a bit of time in China in the past year on business and made some observations. Papadad, feel free to correct any that you think I got wrong:

I was incredibly impressed by the work ethic and entrepreneurial spirit among the business owners and managers I met. It was energizing. Free enterprise? Yes, for those with the right connections and with gov't approval. Not really for those without. Communism? Maybe, but not equality. The owners I deal with are driving BMW's and Porsche's, their workers are driving bikes.

Business ethics? Relationships are really important and, on the surface, so is trust. There is a very different standard though. Cheapen a product a bit and slip it by? That can be OK. When we catch it they don't see it as a negative; rather they are impressed by our QA.

In general, it appeared that workers are being treated better than in the past, with higher pay and better working/living conditions. Yes, there are still some medieval working conditions in some areas, but that is no longer the rule.

The rail system is awesome. I grew upon the east coast where the systems are pretty good, but they don't compare to the Chinese system. Air travel can be spotty, but overall it isn't any worse than here. I agree that roads and bridges are pretty good. The strange thing for an American to understand is the sense of the size of individual cities. I had someone "run me across town" to see a factory. 90 minutes later we were there (with no traffic).

Some of the stories we hear are true; the pollution in many cities is still horrendous and the water marginally drinkable for a foreigner.

Overall, I love their business spirit. I also don't think their businesses can be judged by American standards. They are just to different and our normal rules often don't apply. I'm guessing more than a few of the well connected feast on insider trading info.

 

[Fermion]

After both of our cats died because of melamine poisoning in their Chinese supplied IAMS cat food (Added to fool sensors into thinking it had more protein), I am suspect of Chinese business practices and perhaps would be cautious riding their high speed rail.

 

[NW-Bound]

...Cheapen a product a bit and slip it by? That can be OK. When we catch it they don't see it as a negative; rather they are impressed by our QA...

As most, I often see shoddy Chinese products. It's not because they are not capable of doing better. I think it's because they compete fiercely on price, and need to cut every corner. A lot of cheap Chinese consumer products are sold as no-name brands, or as OEMs.

Once a Chinese firm has built a recognizable brand name for it to protect and to enable it to charge a higher price over competitors, it will turn out more reliable products I hope. Until then, caveat emptor for the buyers.

 

[Willers]

As most, I often see shoddy Chinese products. It's not because they are not capable of doing better. I think it's because they compete fiercely on price, and need to cut every corner. A lot of cheap Chinese consumer products are sold as no-name brands, or as OEMs.

Once a Chinese firm has built a recognizable brand name for it to protect and to enable it to charge a higher price over competitors, it will turn out more reliable products I hope. Until then, caveat emptor for the buyers.

Agreed. In my experience, they are capable of very high quality manufacturing when the incentives are right. Due diligence is everything. We visit the office, the factory, the warehouse...everything. We QA every shipment on the way in. They know that so we have few problems.

Meet a vendor at a trade show and trust that you are getting to get what you ordered? No thanks.

 

[Willers]

After both of our cats died because of melamine poisoning in their Chinese supplied IAMS cat food (Added to fool sensors into thinking it had more protein), I am suspect of Chinese business practices and perhaps would be cautious riding their high speed rail.

I'm very sorry to hear about your cats. IAMS should never have let that happen and the manufacturer should be cut off forever.

I haven't seen the product manufacturing shortcuts carry over to public projects. My speculation is that they view business with foreigners differently than internal projects. I guess we'll see if, over time, they have the kinds of accidents that occur at Amtrak.

 

[neihn]

Your understanding is quite correct. Hukou (household registry) reform is a major topic of discussion and has been cause for social unrest at times.

However this is not a communist invention. Hukou has existed for thousands of years through major dynasties. It is a way to control population and migration a tool ensuring those in power remain in power.

It's an amazing place. Not amazing as in greatest place on earth but amazing in the historic perspectives and dynamic nature of modern china today. Truly Fascinating.

You are wrong Hukou started with communist regime. From Soviet to Vietnam. Only after the communist taking over. It was the only way for people to get their rations, a brutal way for the gov to control people. I was there. No communist in any form for me. Thanks.

 

[NW-Bound]

I'm very sorry to hear about your cats. IAMS should never have let that happen and the manufacturer should be cut off forever...

Food safety issues in China do not stop at pet foods. The government penalties appear strict, and several offenders have been executed (one would hope that the real culprits and not some scapegoats faced the firing squad). Still, the doubt persists. Recently, I read about Chinese tourists bringing back as much baby formula cans from abroad as they could, because they did not trust locally produced baby food.

In the early 1900s when Upton Sinclair published The Jungle, the meat packing industry here in the US also had unsanitary and callous practices that showed total disregard for the consumers. It was after this exposé by Sinclair that food safety regulations and the USDA were created.

Some unscrupulous people will not stop at anything in order to make illicit profits. It takes a system in place to monitor, deter, stop, and penalize the malefactors.

 

[NW-Bound]

You are wrong Hukou started with communist regime. From Soviet to Vietnam. Only after the communist taking over. It was the only way for people to get their rations, a brutal way for the gov to control people. I was there. No communist in any form for me. Thanks.

I do not believe that any communist country ever implemented the ideal and impossible system like Karl Marx envisioned. Instead, from Stalin, Mao, to their pupils like Ho and Castro, it is really about promising the peasants a heaven on earth to get their support, while consolidating their grip for a dictatorship. By the time people figure out, it's too late. Oh, people will never learn. They will always fall for one hollow promise or another. Animal Farm by George Orwell should be a required reading in schools. Of course it is banned in some countries.

 

[neihn]

I do not believe that any communist country ever implemented the ideal and impossible system like Karl Marx envisioned. Instead, from Stalin, Mao, to their pupils like Ho and Castro, it is really about promising the peasants a heaven on earth to get their support, while consolidating their grip for a dictatorship. By the time people figure out, it's too late. Oh, people will never learn. They will always fall for one hollow promise or another. Animal Farm by George Orwell should be a required reading in schools. Of course it is banned in some countries.

NW-Bound - you are 100% correct. And yes, people don't learn. Me included, I was so naive to think Vietnam was opened up back in 2004 (they was trying to join WTO) and planned to go back and help. But after they got what they want (WTO member) they started to tighten up their grip, arresting dissents, human right activists. There is no other country in the world that has so many human right lawyers in jail as in Vietnam or China for that matter.

I do learn now, no communist of any form for me. Period.

 

[MichaelB]

Why don't we try to get back on topic - the recent stock market volatility in China.

 

[NW-Bound]

OK. I cannot fathom this Chinese stock volatility to make money out of it. I have not lived under a communist regime to be able to figure it out.

 

[NYEXPAT]

I understand the market has been [-]rigged[/-] fixed like we did in 2009 and it won't go down anymore.

 

[Walt34]

As most, I often see shoddy Chinese products. It's not because they are not capable of doing better. I think it's because they compete fiercely on price, and need to cut every corner.

I'm probably dating myself, but I remember a time when "Made in Japan" was an emblem of shoddy work and poor quality. Japan sure turned that ship around and there is no reason China cannot do the same. They are certainly capable of producing quality products.

Then too, the Japanese thought price was the only issue that mattered but then they realized there is more to the equation than that. I'm sure China will figure it out eventually too.

 

[papadad111]

You are wrong Hukou started with communist regime. From Soviet to Vietnam. Only after the communist taking over. It was the only way for people to get their rations, a brutal way for the gov to control people. I was there. No communist in any form for me. Thanks.

No. I am not wrong with respect to start of hukou. In fact it existed before the party took power in china. The Kuomintang also required a household registry.

In fact, the foundations of hukou or household registry have existed for centuries. See wiki https://en.m.wikipedia.org/wiki/Hukou_system under the history section for some insight.

According to the Examination of Hukou in Wenxian Tongkao published in 1317, there was a minister for population management during the Zhou Dynasty named Simin (Chinese: 司民), who was responsible for recording births, deaths, emigrations and immigrations.

Guan Zhong, Prime Minister of the Qi state 7th century BCE, imposed different taxation and conscription policies on different areas.[6] In addition, Guan Zhong also banned immigration, emigration, and separation of families without permission.

Further .. Xiao He, the first Chancellor of the Han Dynasty, added the chapter of Hu (Chinese: 户律, "Households Code") as one of the nine basic law codes of Han (Chinese: 九章律), and established the Hukou system as the basis of tax revenue and conscription.

As for the market. My personal opinion is that a temporary government sponsored floor is now in place to halt a panic and likely the market will drift around this level for a few weeks to months and then I suspect it will drift lower as the lockup on trading specific shares expires (not all at once mind you) and the government will continue to prop up the market via a quantitative easing mechanism where the PBOC may be the buyer of last resort.

Consumer confidence is the real issue now in china with housing flat, markets down significantly, and GDP now liked below 6 percent. Inflation has been running less than 3 percent too... A real worry. Rest of the world needs to worry about consumption of china. Auto industry is going to be in trouble later this year if china doesn't boost consumer confidence via tax incentives as they did in late 2007 post Olympics. Also I suspect those plans are already on the drawing board ...

 

[RISP]

Wow! I knew that our mass transportation system trails that of other countries, but some of that is because Americans love their car too much to give it up. For long range travel, they like to fly more than taking the train, even if it is available.

But our highways and roads suck?

I have not been to the US Pacific coast yet, so I cannot comment on that. When we travelled across New England in 2009, we were very surprised about the poor condition of many roads and highways, even major ones. I was quite happy about the soft suspension of our rental Chevy, given the size and depth of some of those potholes.

 

[Fermion]

I have not been to the US Pacific coast yet, so I cannot comment on that. When we travelled across New England in 2009, we were very surprised about the poor condition of many roads and highways, even major ones. I was quite happy about the soft suspension of our rental Chevy, given the size and depth of some of those potholes.

Go drive in South America or Central America then you will come back to the USA and marvel at our roads.

The nice thing about parts of South America though is you don't have to remember which side of the road they drive on...they always drive on the better side.

 

[NW-Bound]

In the past 5 years, I have logged about 35,000 miles (56,000 km) of RV travel. Driving a motorhome with its tire pressure running 2x to 3x the pressure of passenger car tires, plus carrying pots, pans, and dishes that rattle makes me very sensitive to the road condition. A class A with fancy air suspension may be a lot better, but mine is just a low-end class C.

So, speaking from this experience, which may not mean much because the US has 4 million miles of road, I have seen that the road condition can vary quite a bit. Interstates and major highways are usually better maintained than rural roads with less traffic, as can be expected. Occasionally, we have seen heavily traveled interstates that were just terrible. The best roads tend to be the ones most recently built or resurfaced. I think new technologies allow the newer roads to be better, while the older ones will stay lousy until it's their turn to get updated.

And in rural areas where population density is low, of course the road is bad. There's just not enough money. The subdivision of my 2nd home in the high-country barely has a road running through it. It has not been maintained since the developer cut a path through the forest perhaps 40 years ago. The county only maintains the road up to my lot, and that is a gravel road. Further down the road from me, my neighbors fend for themselves (need 4-wheel-drive vehicles with high clearance even when it's dry). This means they often get locked in when it snows in the winter, as the county snowplow turns around right at my lot.

The above are stick-built homes with values of a few hundred K's, and taxed as highly as homes in the cities. There's no mail service (one goes to the post office), no garbage collection (drive your own garbage to the county dump), no city water (need private well), no city sewer (use septic tank). But people like to stay in the high-country boondock among the evergreen trees to enjoy cool clear air, and that's what they are willing to put up with to be where it is not crowded.

Oh, by the way, once you get out to the highway, it's silky smooth. I don't know how anyone can make a road better than that, except to pave it with marshmallow.

 

[RISP]

Go drive in South America or Central America then you will come back to the USA and marvel at our roads.

I wasn't aware that 3rd world countries are the new benchmark for the US. You're kinda proving my point.

But remember:

 

[clifp]

So the Shanghi market is down %3 eventhough Chinese GDP growth was 7% which was above expectations, I guess there markets make as much sense as ours do most of the time. .

I think that I'm puzzled about is what I look at a broad base international fund about 6% of the assets are in China for emerging market the number is 20-25%.

Yet what I hear is that foreign ownership is very restricted in the Shanghai exchange. But the Hong Kong market is more open. So do all these international funds invest via Hong Kong or some other way?

 

[NW-Bound]

China indeed has been on a road building binge. Their expressways linking major cities are fairly good, and that's what impresses visitors.

See this 2011 article: Road-Building Rage To Leave U.S. In Dust - China Real Time Report - WSJ

Note that many expressways are toll roads, as how they are financed.

Sometimes, they build so fast that they fail to coordinate between different projects.

But these are major highways. I have not found any number citing the total mileage of roads in the country to compare with 4 million miles in the US. Of course the US has had a lead of decades in building roads going to remote places, the like of those in China are not visited by visitors.

In a Wikipedia article (https://en.wikipedia.org/wiki/China_National_Highways), a photo of a rural highway was posted.

Then, as the US has more secondary paved roads, we have to remember the cost to maintain them. I have not found the total cost for road maintenance in the US vs. China for comparison.

As I described earlier, Chinese people like to live in cities in high-rises, in order to enjoy the modern amenities. So, it makes sense for them to speed up the expressway projects to link them.

The US has the interstate system, but then US people still like to be spread out, and still have the same luxuries. Maintaining roads over low-density areas costs a lot of money, yet people may not appreciate it.

 

[NW-Bound]

So the Shanghi market is down %3 eventhough Chinese GDP growth was 7% which was above expectations, I guess there markets make as much sense as ours do most of the time. .

I think that I'm puzzled about is what I look at a broad base international fund about 6% of the assets are in China for emerging market the number is 20-25%.

Yet what I hear is that foreign ownership is very restricted in the Shanghai exchange. But the Hong Kong market is more open. So do all these international funds invest via Hong Kong or some other way?

A recent article in Bloomberg said the median P/E of Chinese stock is 60. In 2007, it reached 68. If we discount the value of the stocks back to the norm even accounting for the 7% growth to allow the P/E to be higher, then China stock market is fairly small relative to its GDP. I read that many businesses and factories there are still operated by the government. Perhaps those are not captured in the total market capitalization.

About the 7% growth, another article said that China debt load grows even faster. I have trouble finding that article again to link here.

PS. OK, I found it here: China's Debt-to-GDP Ratio Just Climbed to a Record High - Bloomberg Business.

Excerpt:

While China's economic expansion beat analysts' forecasts in the second quarter, the country's debt levels increased at an even faster pace.

Outstanding loans for companies and households stood at a record 207 percent of gross domestic product at the end of June, up from 125 percent in 2008, data compiled by Bloomberg show.​

Note that these are private and not public debts. I wonder what the equivalent number is for other countries. The growth rate of the debt is quite high, considering that GDP also grows.

 

[DEC-1982]

China announced that it once again hit its gross-domestic-product growth target of 7%.

Read more: There's a dead giveaway that China's growth numbers are fake - Business Insider
​

This reminds me of Bernard Madoff and his steady returns for 30 years.

 

[neihn]

China announced that it once again hit its gross-domestic-product growth target of 7%.

Read more: There's a dead giveaway that China's growth numbers are fake - Business Insider
​

This reminds me of Bernard Madoff and his steady returns for 30 years.

Ha. I would not trust the communist for anything. But that's me.

 

[Mulligan]

Ha. I would not trust the communist for anything. But that's me.

I bet they gave serious consideration to saying 6%, but the 7% ers outvoted them in the "smoked filled room".


Sent from my iPad using Tapatalk

 

[imoldernu]

A NYT link to a 5 minute video of the build out of China's largest city.
Very worthwhile, especially for anyone who has a problem visualizing a city of 130 million people.

The title of the article is:

in-china-a-supercity-rises-around-beijing


Hopefully that headline should get you around the paywall.