Intel founder Andy Grove wrote an excellent piece busting some myths on innovation, job creation, emerging markets and the role of manufacturing in a developed economy.
Today, manufacturing employment in the U.S. computer industry is about 166,000 — lower than it was before the first personal computer, the MITS Altair 2800, was assembled in 1975. Meanwhile, a very effective computer-manufacturing industry has emerged in Asia, employing about 1.5 million workers — factory employees, engineers and managers.
The nation’s 13.6 trillion yuan ($2 trillion) of new loans in the past 17 months, bigger than the economies of South Korea, Taiwan and Hong Kong combined, is “unprecedented in 400 years of economic history,” said London-based hedge fund manager Hugh Hendry, co-founder of Eclectica Asset Management, which manages $420 million.
[The Chinese] refuse to allow the yuan to strengthen because they know that once they do that it will mark the real end of the dollar era. So instead they are spending like crazy on infrastructure ahead of them allowing the dollar to plunge. Then the strong yuan will be employed to purchase all the commodities they need to utilize their infrastructure and the OECD gets priced out.
Victor Shih, an assistant professor of political science at Northwestern University, reckons debt at these entities reached $1.7 trillion by the end of 2009. Most will need continuing funding, so that figure could more than double by the end of 2011. Because Beijing supports both the banks and the local governments, this lending should arguably be added to the central government’s debt figures. Doing that, Mr. Shih estimates, would make China’s debt-to-GDP ratio, around 20% in 2009, closer to 71%. By 2011 that could rise to 96%.
Michael Pettis from Beijing University argues that China’s reserves of $2.4 trillion - arguably $3 trillion - are a sign of weakness, not strength. Only twice before in modern history has a country amassed such a stash equal to 5pc-6pc of global GDP: the US in the 1920s, and Japan in the 1980s. Each time preceeded depression.
The global economy is messing up GDP and balance of payment accounting. Think about US companies building their factories in China, whose revenues are included in the Chinese GDP and whose exports from China are added in the Chinese current account.
For all the huge trade surplus that China is purportedly ‘enjoying’ it turns out that little benefit is being derived from it. Over 50% of China’s exports are produced by foreign corporations.
