Ambrose Evans-Pritchard suggests that a looming problem festers in the East, “China is putting off the day of reckoning with its crisis response, which is to build yet more plant to flood the world with yet more over-capacity.”
Darn those Chinese people making widgets and then selling them overseas! And darn them for making so many of them! And darn them for sailing thousands of kilometers and dumping them on foreign beaches and down chimneys — without demanding anything in return!
China should immediately adopt a manufacturing quota policy, devised by committees of really clever people, to decide how much of certain goods to produce.
Otherwise, Western consumers being drowned in cheap products will have no other recourse than that of unrestricted submarine warfare. That would help alleviate China’s capacity issues! Perhaps AEP could also outsource to enterprising privateers in Somalia to balance this imbalanceness problem thingy.
Seriously though, the boilerplate surrounding “capacity” is so mindbogglingly nonsensical. Have columnists forgotten where all of their goods come from and the win-win benefits of international trade? If Chinese firms cannot turn a profit, the “overcapacity” issue is entirely self-correcting.
And for the record, if there is one big economic problem facing China, it is with regards to yuan convertibility, as Jim Rogers recently noted.
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Don’t be silly!!! The solution to this problem was explained in the (satyrical) novel “The year of the angry rabbit.” When Australia conquers the world with a superstrain of myxomatosis, countries have to produce as much as before to keep the world economy going, so excess goods are pushed into the sea! World saved!
So where do you have land you want filled? An inconvenient valley or dale? And China can make a solid bridge between itself and Taiwan! Double-plus happiness all round!
AEP doesn’t grasp economics too well huh? He could be in government with what he knows nothing about!
It sounds like AEP (whether he realized it or not) is describing malinvestment, of which the Chinese economy is producing vast quantities for sure. China is the next house of cards to fall – the so-called “stimulus” of money printing and government spending will have predictable results – an artificial boom followed by an inevitable bust. China doesn’t need MORE productive capacity, it needs more PRODUCTIVITY in order to reap the benefits of real economic growth. Unfortunately the information being transmitted through the price system is telling Chinese entreprenuers to build more factories and empty buildings when there are already too many of both. If this sounds familiar it’s because the laws of economics do not recognize national borders, languages or cultures.
The sad part is that the Chinese massive savings rate should be creating capital for productivity enhancement, but it has been used instead to devalue its currency, a pure mercantilist policy that will end like all mercantilist experiments. The Chinese government has taken vast sums of Chinese capital and invested it in nearly worthless US treasury bonds – importing capital from the developed world to build their factories for them. When the people figure this out there will be blood in the streets.
Why do people who use Austrian economics to analyze the world seem to believe that the rules don’t apply to China?
Sorry, but Chinese overcapacity is an artificial condition brought about by China’s political imperative of employment vs. social unrest.
Input subsidies, government loans, artificial currency pegs, barriers to imports… these are all ways China has leveraged to the hilt to maintain social order at the expense of productivity, domestic consumption and trade partner health.
US public policy regarding jobs and manufacturing failed because developing nations will not play by any rules. We (the US) killed ourselves, with great assistance from China.
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