Reality check: economy of China


First thing first: no countries can grow at a double-digit pace forever.

China, the world’s second largest economic power, seemed to (probably) have learned hard lessons from the recent stock crash that is taking place in the last two months: there are no expected circumstances. No matter how many trillions of dollars the government has been pumping in to support the ailing stock market indices, the money is still lost. And now, more than 5 trillion US$ (pretty much the annual output of Japan’s economy) have all but evaporated from the country’s stock markets in Shanghai and Shenzhen.

The recent crash sparked numerous discussions worldwide about the real situation happening in China’s economy. Google ‘China economy’, and most likely the keywords are overwhelmingly negative; many users even question if the economy is none other than a ‘gigantic Ponzi scheme’. And what makes economic risks in 2015 particularly very distinct – and also unprecedented – from the previous crises in 1998 and 2008 are that the problems are three-fold:

  1. There is uncertainty among US Federal Reserve whether to increase interest rates or not – the first time since 2006. Given that the central bank has pumped more than 4 trillion US$ from 2008 up to the end of 2013 into global financial markets, US economic recovery gradually reverses the quantitative-easing policy, posing countries with massive short-term capital inflows at significant risks.
  2. China’s economic slowing-down ‘exacerbates’ the matter. As the world and China increasingly co-depend on each other – especially in international trade, any economic problems inside the country will translate as bigger problems for global economy as well. If, in case, US Federal Reserve decides to increase the interest rates, this will impose increasing burdens for, plainly speaking, a whole lot of people worldwide – especially companies with bonds and debts denominated in US dollars.
  3. The slowing global economy also pushes commodity prices to unprecedentedly low levels; oil prices continue to linger between 38 and 40 US$ per barrel, the lowest since 2009. Dozens of currencies depending on oil incomes have seen their values significantly decline (Nigerian naira, Saudi Arabian riyal, Malaysian ringgit, Zambian kwacha being the biggest casualties), and in fact, most of the currencies whose commodity exports depend on China’s economy are actually plummeting in values.

Given the tendencies for mass media to make any stories overblown, let us do some reality checks on what is actually happening with Chinese economy in brief points below. Some are indeed alarming, but others may be more soothing, so a delicate balance of views has to be considered. These are the things we need to know:

Soothing: China is different from Greece, and its manufacturing output remains huge

With the country expected to have domestic output at over 11 trillion US$ this year, industry-related sectors account for approximately 45% of the GDP composition, slightly larger than those provided by services-related economies. Even though labor costs are increasing very rapidly in recent years (hint: GDP per capita was already 7,500 US$ last year), China’s manufacturing output remains huge, particularly in coastal regions. Initially, there were worries that Greece’s rejection of financial bailouts would result in a blow on Euro values, and therefore spell a trouble in global economy, until China’s stock market crash took its turn as another headline.

Alarming: China has a bad-debt problem

On paper, and on most statistics offered by CIA World Databook, IMF, and World Bank, China’s external debt and public level debts stand at approximately 25-35% of total GDP. But there is one huge caution: debts generated through ‘shadow banking’ (financial institutions that are not listed in the government records) are not counted in the process, and that is an alarming sign. In fact, much of this debt, whether clean or not, is mostly used to fund projects that turn out to resemble more like ‘white elephants’, say, ghost cities. While estimates provide that the actual debt-to-GDP level for China is more than 280% (which may be true), we truly have no idea how much debt the country has accumulated since the beginning of economic reforms in the last almost four decades.

Alarming-soothing: Some portions of these ‘bad-debt’ amount are actually overwritten

Accounting, no matter how tedious it is, sometimes can have its own magicians. This is particularly the case for Chinese state-owned enterprises that build numerous projects overseas – and end up losing money. The question is, do they actually lose the money, or does the money go ‘somewhere else’? Another controversy is overstating debt amount in order to reduce taxes paid, or even to avoid paying taxes at all. While there has been little research about this area, more works need to be done in the future to understand further about such accounting magic tricks.

Still, we don’t actually know how much China owes the world, and most importantly, its own people.

Soothing: Even at an annualized growth rate of 7% this year, China already ‘grows pretty fast’

Even both President Xi Jinping and Prime Minister Li Keqiang acknowledge that fact. The premier, in particular, emphasized that the economy has entered a new normal, and the world has to accept the reality that China, indeed, can not grow at an astronomical pace forever. With increasing labor costs, China will have to move its factories, one by one, to other emerging markets, and upgrade its economic composition to be based more on services and domestic consumption. China’s appetite for natural resources is also gradually declining, and indeed, the slowing economic growth should be a positive thing to celebrate for environmentalists: they are doing really hard to reduce emissions of carbon dioxide, one side effect resulting from the country’s rapid-fire growth in the last 30 years.

Furthermore, with growth rate at 7% this year, China actually still increases 700-800 billion US$ to its annual output, and that quadruples the amount of real GDP produced by India in 2015, for the first time ever the fastest-growing economy in Asia (with an annualized growth rate at 7.5%).

Alarming: Nobody really knows how the government measures economic growth rate

On theory, economic growth is measured through increase in inflation-adjusted market value of the goods and services produced within a certain time period (usually one year). The real problem here, nonetheless, is not about the definition, but WHAT classifies (or constitutes) as the components of growth by the government. Building buildings is one thing, but do they house people? That’s another thing worth concerning about.

Alarming-number two: China’s gross fixed capital formation is actually increasing, not declining

To get you acquainted with this economic term, gross fixed capital formation is, in simple terms, ‘investment’. Something that requires us to spend money in building fixed assets, such as factories, houses, equipment, infrastructure, or anything that can’t be moved (but destructible). While it is necessary to increase the percentage of gross fixed investment at times of rapid economic growth, no economies can incrementally add up the figures forever. There is always laws of diminishing returns: if you invest too much, you end up losing money. And that is what China is actually experiencing.

In 2008, during the height of global financial crisis, China’s GFCI was already approximately 40% of the country’s GDP, among the world’s highest. The almost 600-billion-dollar stimulus package introduced in 2009, intended to boost domestic consumption to support economic growth, was ironically channeled to numerous investment projects instead, many of which are simply unprofitable. That’s why one sees empty cities, little-used highways, and losses-generating projects overseas, when in fact many people in China are still struggling to gain access to basic infrastructure, particularly in hinterland areas. By 2012, the gross fixed investment was already 46%, and it is estimated that by this year, the rate is approaching 50%, an increasingly unhealthy level.

Soothing: ‘stock market crash’ may be an overblown title

Even until mid-2014, the average indices for Shanghai Stock Exchange remained below 2,000. It was only after Chinese government decided to allow financial liberalization that tens of millions of investors, many of whom used financial loans, placed them on companies’ stock prices. In less than one year, the scores shot up to more than 5,500, an astronomical pace so markedly Chinese form of ‘rapid-fire growth’, that when it dropped starting from June, it dropped catastrophically.

Yes, the stock indices are now below 3,000, but honestly speaking, that is still significantly more than the indices were last year. While government intervention was, admittedly, very heavy, including ‘persuading’ (or forcing?) managers of companies and state-owned enterprises to buy up stocks to withhold the drop in stock prices, that couldn’t do much to reduce the impact. After all, stock index is one unpredictable thing by its own. If the government is committed to financial liberalization, the government should regulate investors so as not to excessively use loans to buy stocks, but not to withhold the drop in stock prices.

Alarming: China’s currency depreciation is not going to help its exports

Shortly after the ‘stock market crash’ and the resulting free-fall of currencies worldwide, China’s central bank took an unexpected turn it has barely done since early 2010s: devaluating the yuan at over 3%. It sends even further shrills to currencies worldwide, delivering a dramatic drop for currencies whose exports increasingly rely on China’s economic strength, such as Taiwanese dollar, South Korean won, Indonesian rupiah, and South African rand.

Even the bank’s recipe-as-usual policy to reduce currency values to boost export is already an outdated move given the changing face of global economy today: China has had more trade agreements in 2015 than it was back in 2008, when their trade policies back then were largely protectionist. While it will increase its export volume, it will not be significant. The most important thing, instead, is to focus on its own 1.4 billion people as potential consumers, and that is where Chinese government needs to pay attention to.

Furthermore, China also ‘suffers another blow’ after surrendering the ‘fastest-growing economy in Asia’ title to India: it now relinquishes the ‘world’s largest trade-surplus’ title to Germany; while China records the volume a little above 200 billion US$ in 2014, Germany put in more than 270 billion US$ in the same year. German model of capitalism, which focuses on ‘hidden champions’ and mittelstand, is slowly winning.


BONUS: Oliver Wyman, a respected consultancy firm, has previously forecast that a ‘2015 financial disaster’ will occur back in 2011, and now, what currently happens largely echoes what the analysts had predicted 4 years earlier. Read the full report, and understand things better, by clicking on the link here.


Everyone is afraid of the future, and why it’s a good thing



“I’m so afraid I can’t cope up with the lessons.”

“I don’t know if I can survive such a tough university life.”

These are the sentences that my juniors, and also my friends, told me on Facebook. And, yes, honestly speaking, these were pretty much the same things that I once asked my own seniors before I came to university as well. As the first person in my family to study overseas, there are of course tremendous expectations, and also unexpected circumstances, those that one can anticipate, and those that one can hardly hope.

Well, it is so a humane thing to have fear on anything, especially on something that may be existing in our own ‘uncharted territories’. Reminiscing myself two years earlier, I was back then a half-excited, and a half-nervous, soon-to-be university student. Being half an optimist, but at the same time overtly a skeptic, these are the very feelings that I could describe days before coming to the university. My parents were university graduates, but they studied in the same hometown I was born and raised; I would be the first to leave, and to experience, a bigger perspective of the outside world. Meeting new people with completely different cultural values and social norms, yes, I got that uneasy, initial feeling, too; life became split into two possibilities, all in the presence of the unexpected. First, it leads you to rediscovering yourself, or second, you fail to cope with the changes that you just ‘withdraw’ yourself from the existing reality. Thinking of the fact that I have to do laundry myself, get in to surrounding places by my own, organize stuff through my own planning, and to be completely independent in the absence of my family (but I am grateful that my aunt, uncle, and cousin helped me so much in transiting to university life) were the fears I always thought of in the future.

Back then, it was 2013; flash forward to 2015, I’m already on my halfway. I am utterly grateful that I can complete the transition phase fairly well, and truth be told, I am now more open-minded than I was two years earlier. Stereotyping still lingers in my mind, but now in a rather controlled setting. I’ve met a lot of new people from various countries and backgrounds (well, not all of them had my positive impressions), but pretty much I learned to understand their values and their own stances towards certain areas that may not be suitable to our own cultural notions. Yes, I do my best to tolerate them.

Still, it can’t stop me from fear of the future. With Indonesia’s currency values dropping over 40% in the last two years, of course it keeps me worried about my chances of getting into higher, postgraduate education. Or whether in spite of my (relatively) good grades, I can afford to get a stable job in the future. Excluding my random thoughts about any ‘plausible’ (but not necessarily possible) scenarios in the very distant future (perhaps things befalling the elder me or my future generations). It is as though my mindset were set in a constant, survivalist mode.

Fear itself doesn’t have to be a paranoia-inducing idea; you don’t have to kill someone off just to eliminate it, because truth be told, we can’t eliminate fear. It is one of the most powerful legacies that evolution has ‘bestowed’ us within millions of years; fear, if stimulated into a controlled setting, can actually be a good thing by itself. I am not a psychologist, but I would rather derive the benefits from my own understanding and common sense.

One: fear enables us to outline contingency plans

Simply speaking, don’t put all eggs in one basket.

Two: fear conditions us (most of us) to value the present moment

Nothing in this physical universe is destined to last forever; the only constant is change, oftentimes unexpected. I don’t believe in the ideal of ‘benevolent universe’, so much so as I believe in that of a savage one; we see everything, from both sides and the extremes, taking place simultaneously. The universe is just damn indifferent, after all. So, for all the best and the worst, enjoy this moment now.

Three: fear stimulates us to learn something new we have never learned before

We can’t completely anticipate the unexpected, but learning new skills and things beyond our usual passions and expertise can actually help us cope with circumstances much better than having none. Simply speaking, just because we don’t precisely know what will happen in the future.

Four: fear prepares us to adjust to new realities much more easily

There are things we can avoid, and there are things we can’t help avoiding but slowly adapt. Nostalgia is a good thing, but too much reminiscing into the past will not make any adjustment into the future much better. Understanding the impermanence of the present, no matter how difficult or painful it will be (more often than not it is), helps us better in adjusting to new, and constantly changing, circumstances.

Five: fear enhances responsibility

Specifically, our own responsibilities as family members, friends, group members, or wherever any positions we are in charge of. It ‘forces’ us to put out all our efforts to accomplish a goal.

Anyway, not all, or not even any, of my advice is inherently useful. Too little fear induces arrogance, our propensity to underestimate all possibilities, or even a sense of superiority. We have seen enough how conflicts, wars, and other disasters have taken place, oftentimes out of the ignorance resulting from such ‘too little fear’, but too much thinking about them also unnecessarily robs the happiness out of us, making us closer to asylums than to happily living our lives. A balanced dose of fear is necessary, and even beneficial, if one can apply it in a careful, wise approach.

I am just writing as a student, not yet deeply experienced in any real-world stuff by the age of 20. Realizing the day-to-day fear that soldiers, doctors, surgeons, firefighters, police, scientists, entrepreneurs, parents, or even refugees have to face all the time (and almost all occupations inclusive), they surely have more to tell, and much more to share, than I do.

Bonus: some of the world’s best and most serious thinkers do even share their fears of what will happen to human civilization up to 50 million years to come (some exaggeration intended).

Academics and journalists: a difficult relationship

academics vs journalists

Over a year after working in two social science research projects – one focuses on China-Africa economic relations and the other, more recently, about democratic development in countries around the world – I undeniably realize the importance of not solely relying on what the media, in general, will inform us. Already reading dozens and dozens of research papers (I can’t count how many Hong Kong dollars I’ve spent this year), I manage to retrieve information, oftentimes very fascinating and real, but which the media frequently fails to capture.

An ideal world where academics and journalists can work together is this: the former posits a hypothesis, experiments it, and suppose it works (repeatedly), submits the outcomes through papers and articles to journals, and the journalists, in their most embodied responsibility to disseminate the outcomes – already repackaged into news highlights – to the whole society, summarize in brief what the academics have accomplished beforehand.

How much more peace such symbiosis can bring to the world!

The reality is not as fascinating as meets the eye, we must confess. Ezra Klein, one of a handful of ‘brand-new’ journalists, struck the point precisely in this Bloomberg View op-ed about the existing ‘disconnection’ between the two supposedly mutually-reinforcing occupations. The point is: albeit we are living in a world where information is growing at an exponential pace, why does such phenomenon still occur? Why, oftentimes, is the information conveyed by journalists almost completely different from what the scientists, or academics, inform?

There is simply too much data in the world. And as we have to be frankly honest, we don’t yet know how to store the entire mammoth of such capacity in recent times; that could explain why big data industry is still largely on its infancy stage. This is also inevitable in the academic world, when researchers actively post the papers into tons and tons of journals. One simply has to go to SCIMAGO Journal Ranking (among countless websites offering almost limitless archives of journals), and voila!: more than 22,000 journals (from the most prestigious to those good ones you barely heard of to those completely obscure) are readily available in one single click. Narrow down further, say, to ‘Political Science and International Relations‘, you are pampered with over 390 selections. Each of the journals (depending on whether they are completely open-access or subscription-based) could be traced back, say, in between 20, 30, 50 years, or even close to a century. I bet you can’t ever finish, in your lifetime, just to simply read and critically summarize each of the articles having been published in one single journal. It is something unthinkable, even as far as a decade ago. If an academic journal sounded like a lavish item to as close as our parents, Internet has rendered such phenomenon largely obsolescent, in a blink or seconds.

data growth


Taken from a presentation slide in Slideshare.

Which brings us to a new issue that Ezra Klein raised further in the op-ed: how to synchronize academics and journalists altogether? At one point, academics lament that they feel ignored by the journalists, while simultaneously, the journalists also complain that it is still difficult to gain access to their work. What the heck is wrong then?

Subscription fees (some journals charge you with exorbitant fees, say, 25 US$ for one 16-page research paper) are a secondary concern; the real concern, nonetheless, is what shapes the academic integrity of these papers themselves: the rigorous (sometimes notorious) peer-review process. When a researcher wants to publish a paper in a journal, it is inevitable, totally, that their pre-published work has to be reviewed by a panel of anonymous experts. While that is certainly a good thing to reduce the probability of scientists creating something out of a pipe dream, there is one major consequence, however: peer-reviewing process takes an extremely long time, and given the fact that information, as well as numerous scientific breakthroughs – no matter how minor or major they are, can happen in months. When a paper is published, it could have been ‘4 or 8 months, or maybe even a year or more backward’ compared to the real milestones achieved in the present moment. And we know journalists will never put them on the newspaper main cover for your tomorrow’s breakfast.

Actually that is not the worst thing, though. What academics will most certainly denounce, we have to be honest, is that some journalists have the tendency to ‘sensationalize’. Which brings us to the differing perceptions between the two occupations: the former will force you to use your logic, and the latter, done in part by some people driven by numerous agendas, tickles with your emotions and responses. Thus comes the major conflict: with over millions and millions of papers published every year, why does the whole world only pay to attention to, say, 5-10 shocking events that journalists like to cover, or most likely, only a few, very best, selected papers? Let’s say, why do people still believe that Chinese companies only bring Chinese workers and resources to Africa? Does the emergence of middle-class really spark the birth of democracy, or simply because the middle-class wants to replace a regime with a technocratic one, while granting so much freedom? Or even how many people in the world really know that Nigeria actually beat Ebola?

Perhaps journalists and academics need to have a joint consensus. Or more likely, maybe, to become both.

Which is why I am gradually distancing myself from mainstream media, now maintaining an equilibrium between reading academic journals, think-tank papers, and alternative media sources (Vice News, Vox, Quartz, Big Think, AJ+, or some other Youtube channels of popular thinkers). To make long short, just balance out anything that you read.