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Chinese investors are holding their collective breaths to see if the banking crisis predicted two years ago by renowned Chinese economist Li Zuojun will come to fruition in the next couple of months. Li, the deputy director at the Development Research Center of China's State Council, penned an article in Sept 2011 predicting that there will be a major banking crisis in July or August this year caused by excessive local government debt or a housing bubble. Born in 1966 in south-central China's Hunan province, Li graduated with a doctorate in economics from Hubei's Huazhong University of Science and Technology in 1992. Mentored by some of the most famous economics professors in China, Li has worked as a researcher and professor, teaching classes at his alma mater Huazhong and the Chinese Academy of Social Sciences, as well as real estate companies, investment banks and property developers across the country. He has been involved in several major domestic and international research projects and published dozens of articles in major national newspapers. He has also been a leader of more than 20 major research reports for the State Council and penned more than 50 internal papers while working in the private sector. Over the years, his writings have won four China Development Research Awards. Li said back in 2011 that property developers were experiencing worsening cash flow problems after their four main sources of funding — sales, credit, the capital market and trust financing — had all been on the decline or have hit bottlenecks. Despite having made a lot of money from China's housing market in recent years, the developers believed they would not be able to hold on for much longer if conditions did not improve. Housing prices will definitely take a dive, Li said, though it is not clear how far. It is possible that the new Chinese government, led by president Xi Jinping, could maintain tight controls to limit the drop to about 10%-20%, though Li did not rule out the possibility of a US-like collapse where property prices dropped by as much as 50% to nearly 100% in some cases. Li's astounding accuracy in predicting China's economy has led to him earning the nickname "China's most successful doomsayer." GOOGLE TRANSLATION Zuo Jun: China in July and August 2013 economic crisis will erupt This article comes from Financial Network Right next government leaders, faced with a choice, a choice to take over foam, meticulously maintained, no later able to maintain 2015, or 2016, then that is an even bigger crisis. The second option, do not take this bubble, the bubble so soon after taking office to rip; so that the economic crisis may be in July and August 2013 Zuo ‐Jun, the State Council Development Research Center of Resources and Environmental Policy Research Institute deputy director, was hired as a consultant or a plurality of local government chief economist. Under the tutelage of economist. The following is his September 27, 2011 should be invited Huazhong University Alumni
Association, in a report will be made within the ʺ2013 China will be the outbreak of the economic crisis,ʺ the report content. The first big problem the first point ‐ the situation; The first big problem of the second point ‐ the social crisis; On social issues second angle; The first big problem is the third point ‐ the international economic crisis, but also continued; The second major problem ‐ the international economic outlook. The first question, what kind of current domestic and international situation, how, how evolution? And future situation of how you look, how evolution? It may be we are concerned about. The second question, in such a new situation, our business and entrepreneurs, as well as each of us how to do? The first big problem ‐ the situation. The situation in the future, this situation is really very subtle, I would like to focus here on the situation and to tell you three questions: the first question, the future we face some relatively large adjustment even crises. The second question is whether the future is how the international economy an evolutionary trend. The third is our domestic short‐ term economic trends over how big? The first most around these three issues. The second major problem, businesses and individuals how we do? This relates to choose what kind of sector investment, including the choice of what kind of investment, there is a comprehensive enterprise how to respond and so on. First talk about the first one big problem ‐ the situation. The first situation is a problem in the Twelfth Five ‐ Year period, we may have to happen something. One might want to happen during the second five possible an economic crisis to occur. It was strange, is not just an economic crisis broke do? Just outbreak of the U.S. subprime mortgage crisis triggered a decline in our exports, economic growth declined. However, we Chinese people do not own the outbreak of the economic crisis, our banks do not go bankrupt, we Chinese peopleʹs economic crisis is brewing, and that when it broke? I think it was in 2013, and why? For everyone to analyze four reasons: The first reason, for economic reasons, economic reasons lead to the possibility of the outbreak of the crisis there are two, one is the real estate bubble burst, the other is the local debt crisis. Of course, these two issues are related, I focus from the second angle with everyone talking about the local governmentʹ s main source of income has two blocks, one is the industrial and commercial taxes, as well as the most recent coming in 2012, because many of the small and medium private enterprises is not the economy. Some local governments, industrial and commercial tax to be reduced accordingly, the second source of income is income from land sales. Beginning this
year, many local governments have been large reductions in land, a few years ago, 50% or even 30‐40%. A few years ago all we ask the government to give land developers have recently become popular for some time the government asked developers, when you come to buy my land. Why? Because they are already facing balance of payments gap pressure, Beijing land reserve loans a year 250 billion, and there ʹ s interest pressure is very large, light Chaoyang District land bank loan interest a month on more than 10 million. If the land can not be sold, then balance in trouble. Therefore, to reduce business taxes, as well as the reduction of land revenue, many local governments under a lot of stress. Spending it, but is increased, two blocks spending a chunk is the usual expenditure from the national level, this is a defense spending increase in troops wage increases, the South China Sea, the aircraft carrier will need to increase investment from local governments, , but also large‐ scale infrastructure to move forward, 36 million units of affordable housing construction needs government spending, strengthening the social security spending two full coverage of the need for government to strengthen water conservancy facilities require government spending, vigorously develop strategic emerging industry needs government spending, at all costs to maintain social stability requires government spending, so the pressure is very great expense. The other one, not before, now have, and that is the arrival of centralized repayment, debt service pressure soon. A few years ago, four trillion investment in the amount of days of credit, was very handsome, but not come out of the pie, is to also, from the second half of this year, the arrival of the repayment period begins, Ming after two years to repay a 4.6 trillion. Why the recent Yunnan Road, Shanghai, Changsha City Investment and our highways, etc., began to show some of the problems, in fact, this is just tip of the iceberg, because the arrival of large‐ scale centralized repayment period and revenue streams asymmetry caused enormous pressure, So over time, to around 2013, some local governments may go bankrupt, of course, there is the army, put a gun to put here, who said the government go bankrupt? Government is not bankrupt. Whose breaking capacity? Breaking the bank ʹs assets, the money from the bank, the bankʹ s money comes from where? From the majority of enterprises and people are breaking their production. This is the fiscal and financial systemic risk, this is the first economic reasons, the reasons for the crisis. Before a potential real estate bubble burst crisis because of the time does not expand. The second reason is the reason that the international external reasons, a few years ago our country ʹ s rapid economic development, which has an important force, is the large number of international hot money flowing into China, support our economy bubble generation, the hot money is the benefits or reduce the , speculative, that come, say you can walk away, he is mainly depending on the region of the return on investment profits. The reason now to stay in China, because the past few years China ʹs economy has maintained rapid growth, these speculative returns still relatively high, but the Chinese economy is going down, China is gradually emerging risks, there are a number of international organizations began rampant short China concept stocks. U.S. economy is slowly recovering, the appreciation of the U.S. dollar is likely to occur, the United States also may raise interest rates, so these international hot money at some point there may be a large ‐ scale withdrawal. This will cause us Chinese economic bubble burst, it is our response to the Chinese government is not good.
The third reason is political reasons, the Chinese must also have political economy perspective. Why in 2013, because in 2013 the change of government. Before the change of government, the current governmentʹ s term of office in the last year, the highest guiding ideology is not an accident, maintenance of stability at all costs to maintain the stable development of the economy, which is the main thing. Right next government leaders, faced with a choice of two options. Alternatively, the foam followed in the past, and then meticulously maintained, then he will maintain it until when? By 2015 at the latest be able to maintain, or 2016, then that time is an even greater crisis. The crisis of that time who is to blame, who do not know, this is an option. The second option, do not take this bubble, the bubble so soon after taking office to rip. Ruined after the first time will bring the pain, but for a new leader is a good thing, because the responsibility is very clear, is not caused by them, is caused by the front. Secondly, in the foam dancing with down to earth feeling is not the same, after the bubble broke up he could down to earth. Furthermore, the new achievements easier to come up, because it reduces the starting point, after the bubble burst performance is relatively easy to do together, or at the starting point is high time to go upward is very difficult. In general, the new leadership took office, in front of three months, out of political considerations, should inherit and carry forward is certainly prudent, and in three months, I began to gradually exposed some of the problems the former term, showing his new the idea of new initiatives. An enterprise to adopt a new chairman, are also true. So why say that the economic crisis could be in 2013, most likely in July and August 2013 (the second half). The fourth reason, short and long bottom three cycles may be superimposed. Short period is 3‐ 5 years, the current cycle of the economy is down, the next two years may be to the bottom. The cycle is a period of about nine to ten years, we think 1949, 1957, 1966, 1976, 1989, 1998, every decade or so is generally going to toss, then from 1998 to now has been There are more than a decade, and it should come.Originally 08,09 should be to happen, but it was later pushed back because of policy, but it can not be pushed too far. There is a long period of 60 years, a period of six decades, they have to count the period of the I Ching. So, after 2013, China may want an economic crisis broke out, the performance of the economic crisis: some SMEs bankruptcy, some banks go bankrupt, some local governments go bankrupt, this is our next step to face such a situation. Both before and after the five‐ second period, there may be a social crisis broke out. Because of the economic crisis, it may also lead to social problems, at present, down the accumulation of a variety of social conflicts or outbreaks also stormin. The first big problem on the second point ‐ the social crisis I explained from two angles: first a perspective of our society is sick, sick performance was hot. The first heat, the Civil heat. China is the worldʹ s hardest test civil servants, university entrance exam, two or three people in the test one, test Ph.D., a twenty individuals can also test a. But the Chinese civil service exam, thousands of people in the last one before the exam. Why do we Xiaojiannaodai civil service exam? Because the rich and powerful civil servants and security, because we Chinese government has
mastered more and more wealth, more and more power, more and more control of the assets of that land is the Chinese government, a variety of mineral is a government, is the governmentʹ s right to tax, the power of life or death is also the government, many important trade monopoly also in the hands of the government, the Chinese government was amazing, everyone wanted to be civil servants. Civil service reform in the backward reaction. The second heat, SOE heat, heat the central enterprises, the country back. Current central rate of the income year, small and medium private enterprises is the sum of five hundred, China ʹs state ‐ owned enterprises by virtue of central enterprises monopoly privileges, such as the monopoly of land resources, the monopoly of credit resources, monopoly pricing, access to excess profits, which reflects our reform in backwards. The third real estate fever. Nation of real estate, a little bit of powerful enterprises are now engaged in real estate, Haier, Hisense, TCL, Youngor , Romon, Erdos all these outstanding private sector companies are engaged in real estate development, corporate real estate in its interior some proportion is 70 ‐80% or more, I asked some domestic chairman and general manager, I said, why do you engage in real estate development it, you are not doing very good for you Industry? Pretty big do? Then he asked, he said, why I do not engage in real estate development? I do engage in real estate development is a return of more than several times Industries, I engage my foolish, this is some of the larger companies. Then those SMEs do? Then he real estate, he did not directly engage in the development strength, then he industrial hollowing, industry do not do, real estate speculators from Wenzhou, Hangzhou, Scoop, Scoop from Hangzhou to Shanghai, from Shanghai Scoop Beijing, from Beijing Scoop Sanya. Then there is the strength of some individuals do, buy a house, a person buy dozens of sets. And then people can not afford housing? They talk about the house, just a meeting to talk about the house, as long as people see me, they ask, the teacher, you say that the price is up or to fall?When up, when down? All the people all the real estate. This shows what the problem is? Description sick. The fourth heat, speculative fever, is not a real estate stocks, stocks that are not real estate speculators, not real estate on speculation of agricultural products , garlic, ginger your army, beans you play, and now speculation funds, loan sharking, fried in vogue, prevalence of speculation, does that indicate? Description sick. The fifth heat, immigrant fever. When an officer to the naked officials, entrepreneurs have little strength to immigrants. This is China ʹ s current social problems authenticity. On social issues second perspective The gap is caused by too large an important cause of social instability, but also a lot of people on an important aspect of social discontent. Widening wealth gap is how the? The first channel, taxation, since the mid‐ 1990s, we have strengthened the government regulation of the economy strengthened taxed priority is to protect the
national tax, our government taxes every year to maintain 20% ‐30% of the high‐ speed growth, twice three times the GDP growth in the income of urban and rural residents, many of us relish the government took this as an achievement of our GDP may be a bit of water, but the revenues, but real money. This shows what the problem is? Help us fight the government and China Leader to be added to the extent of these early tax cuts, the tax revenue gap is not only a gap at all levels, as well as government and business, the public income gap. Wealth is now controlled by the government too much. A second channel, investment and financing inclined, in this anti‐ crisis process, four trillion investment over the amount of days of credit, invested where to go? Mainly for local investment and financing platform and large enterprises, the majority of small and medium enterprises and private enterprises, the majority of entrepreneurs get proportion is relatively low, it causes a fortune, especially in property and income widening. The third channel, monopolies, monopoly caused by the widening income gap, telecommunications, electricity, petroleum, petrochemical, finance, monopolies monopoly privilege by virtue of excess profits, the income of some monopoly industries is our general competitive industry revenue of ten times. The fourth channel, irrational distribution of land revenue. We have two kinds of land ownership. One is the city state, a rural collectives. Rural collectives, this was constitutional, he is actually a fake, so when the land used for agricultural production purposes, he is the collective, as long as this land to be realized, the establishment of the development, in the process precisely produce large amounts of LAT, but the majority of rural collective farmers receive only 10 ‐20% ,70‐80% by all levels of government, developers away, so why such a big gap between urban and rural areas we are, why we Chinese farmers it is always poorer, farmers in Western countries as long as there is land, then he must be middle class. Test whether we sincerely solve rural issues, the key is that we can not solve two things: first, to not give farmers land ownership; second, allowing farmers not established Farmers. The former is the largest economic interests of farmers, which is the largest political interests of farmers. But these two, we are afraid of. If we take ownership of land to the farmers, or farmersʹ collective, our government finances on land collapsed, more than half of local government revenue sources gone. Therefore, it causes the urban‐ rural disparity. The fifth channel, high prices caused by the widening income gap between rich and poor. High prices are a mechanism of redistribution of income and platforms. Some of our people a lifetime accumulating a lot of money and want to improve their housing conditions, high prices of the three generations of ancestors accumulated money swept away, all of a sudden their colors to the middle class, that money gone too? To all levels of government, banks, developers where to go. The sixth channel, China ʹs stock market, according to Wu Jinglian said that even if the casino is not the place. So in the stock market, China stock market who make money? Asymmetric information to information of that party is to make money. Who holds the information? Listed companies, the Commission, the fund company executives. For those who do not have the information, the majority of retail investors
to make money is not normal, do not make money is normal ,80 ‐90% are losing money. So the stock market is a redistribution of wealth as a platform. In addition to the above six oʹ clock, the hands of the people we have money, they put the money in the bank, but inflation so that the money actually depreciate. Excess of inflation is that inflation, then issuing the right hands of the Government, to print more money in the process is to let your hair tickets change process, which is a re‐ redistribution of wealth. How the widening wealth gap, through these channels to pull him big! Once a young man told me that after the year 2000, I month two thousand dollars, 3800 dollars a month now, and now the 3800 purchasing power of money not as good as the original two thousand dollars, because of inflation. Moreover, in the year 2000, no new three mountains: Buy and medical treatment, schooling. Now three new mountains pressure up, and made me 3800 dollars disposable declined sharply, so I ask Li, my standard of living is up or down? He was telling the truth. But this decade, China ʹ s economy has maintained rapid and steady development indeed, which is why a lot of people right now are social discontent, some people an Internet content not look, only to see the title of the BS‐ ing, why he was BS‐ing? He has emotions, feeling of social injustice, so why should the outbreak of a social crisis. Economic crisis will lead to a social crisis, then this crisis may also be accompanied with the outbreak of the economic crisis. Economic crisis and social crisis does not mean let an, we use historical perspective to see. People have always happens, month also wanes, cyclical fluctuations in economic development, this is normal, we have gone through so many years of rapid development, is the rest of the time. Is a rainbow after the storm, so to the 2013 outbreak of the economic crisis is a good thing for us to win the long‐ term growth opportunities.Meanwhile Forced us through this crisis can transition and reform, so even if the economic crisis have nothing to fear. The first big problem of the third point, the international economic crisis still ongoing. From the moment the performance of the world economy will be able to see it, just the beauty of the outbreak of the debt crisis and the outbreak of the debt crisis is just one of the world economic crisis continues episode. U.S. economic presence in three major issues: The first is a debt that he did not want to fall into too deep in Libya, because no money, leaving Bush to Obama is a fiscal mess, war is the money. Not long ago, the two parties adopted a decision on raising the debt ceiling to 14.3 trillion bill, but the U.S. a year to $ 14.6 trillion GDP, if the value of GDP, more than once, it means that a year after the income of hard enough to repay the interest, this is just debt, the United States there are many other bonds, such as corporate bonds, financial bonds, etc., a total of 60‐ 70 trillion, is the sum of the global GDP a year, if the United States is a normal country, which has long been bankrupt , and the reason is not bankrupt, because he is the overlord of the world, you can use his dollar hegemony exploited peoples of the world.
Americaʹ s second problem is that the entity ʹ s economic recovery than expected. The third problem is the high unemployment rate, currently 9.1%, still more, the U.S. government cares about employment and unemployment in particular, because they are really serving the government. We Chinese government cares about most is GDP and fiscal revenue and land, which is their own achievements and their own income. EU economies, there are also three major issues: The first problem is that we are always talking about the European debt crisis. The second problem is the Euro base currency too, because he monetary unification, but no unified fiscal, the uneven development of various countries, leading to a series of questions. The third problem is the aging population in the whole of Europe there is the whole welfare society, making the whole society forward vitality and underpowered. And the Japanese economy since the slump in the nineties, earthquakes, tsunamis plus triple nuclear radiation crisis it worse, negative economic growth, so the Japanese economy is not optimistic about the future. Involvement of developing countries in the emerging inflation, India ʹ s inflation was over 10%, Russia has more than 10%, more than 6% in Brazil, China than 6.5%. This is the moment the worldʹs major economies, the main condition, from the situation of these economies, we can see that after the economic crisis is not over. Why is not over yet? First, emerging economies over the past 2012 a rapid recovery of bottom bounce, but stimulus stimulus out of the stylus out of the heart beat stronger. As long as booster a withdrawal, the economy will go down. Followed from the historical experience, a major crisis takes time to come out. U.S. Great Depression of 1929, there are two versions, one in 1929 to 1934, a total of five years, the second is 1929 to 1941, a total of 12 years; 1970s oil crisis lasted seven years; 80 years of U.S. savings and loan crisis lasted six years; 1990s debt crisis continues in Japan for eight years; late 1990s Asian financial crisis lasted for four years, then the crisis compared with the Great Depression, not so serious, compared with other, at least as much, so expect 2 ‐3 years in the past, is not so simple. Therefore, the international economic crisis will continue for the international economic crisis continued to give us what? Exports brought great pressure, lack of external demand. The first big problem of the fourth point, international resources and environment crisis. Now international commodity prices in general are high, global warming, natural disasters, the most important are related to China, 1.4 billion people in mass consumption, and consumption affect the environment, our country compared with other industrialized countries, China accounted for led the worldʹs first carbon dioxide emissions, resource and environmental pressures affecting their own development.
The first big problem of the fifth point, American hegemony brought about the crisis in the international clash of civilizations. American hegemony began 10 years ago, when Chinaʹ s international status came in fifth, six, while the United States to suppress China, began to create trouble, such as the South China Sea collision incident, the bombing incident Embassy in Yugoslavia, but bin Ladenʹs appearance attracted Americaʹ s attention, so that the United States concentrate on dealing with Osama bin Laden, Osama bin Laden is now gone, the United States began to focus again turned to China, so in recent years around us began to engage in military exercises, war, such as Iraq, Afghanistan, North Korea, Taiwan problem, the South China Sea, the Diaoyu Islands issue, Vietnam and other issues. United States began to take advantage of trade competition, support a variety of anti ‐ China forces, anti‐ dumping Chinese products so comprehensive means to contain China ʹs development. America ʹ s core national interests is to maintain its hegemony, against all opponents. To combat the Soviet Union, the Soviet Union disintegrate, as against the euro, the U.S. manufacturing events in Kosovo, in order to fight against the Japanese, the signing of the Plaza Accord forced the appreciation of the yen bubble, so that long‐ term sluggish Japanese economy, in order to combat the Asian tigers, Soros making a financial crisis. Now turn to China, China has 1.4 billion population is a big country, a long history of civilization for thousands of years, nearly 30 years to maintain 10% of the high‐ growth, economic output has been routed to the second, in accordance with this trend continues, 10 years 15 years than the United States, this is definitely the United States can not tolerate. Now to see whether China will have more than the previous compressive capacity of those countries, and if not, then the outcome is the same. So now China is facing a more sinister international development environment, surrounded by friends less and less, who told you all day to pursue GDP, big hat and no cattle? Busy all day to achieve catch ‐ up development, turn to overtake, super regulatory developments and other targets under three years, in fact, we ourselves get nothing, others you have to bear with suitable international responsibilities and pressures . The second major problem ‐ the international economic outlook. International economic outlook main emphasis here six points. This six point two years ago, several seminars I have repeatedly emphasized, and now look back at my predictions are basically correct, including the September 11 attacks on the United States after the outbreak of the economic trend prediction, I would say look at the United States how to deal with the September 11 incident, when the United States there are two methods available, the first method is magnanimous U.S. authorities, such as the use of this method to deal with, the U.S. economy will continue to prosper. The second method is the use of massive retaliation, if this is the case since the U.S. economy will decline. In fact the U.S. uses massive retaliation to handle the incident, sure enough, the next time the U.S. economy bruised, battered,
indicating that I was forecast is correct. Another one is a four trillion investment policy after the introduction of the forecast, I had said four trillion investment to economic stimulus effect can last up to a year, in early 2009, when I predicted second half of 2010 China ʹs economy will go down, when China ʹs economy is V plus U‐ shaped, but the second half of 2010 just in an economic turning point, the fact that in the third quarter of 2010 China ʹ s economy does go down. I say now is 2013 to the outbreak of the economic and social crisis, we can verify what I said right. For the past two years, the economic situation in the judgment of the six sentence can also be said to be six point where I insist. The first point is the international economic crisis will continue. International economy will continue at low levels for at least 2 to 3 years, which was two years ago that the first sentence, it seems true, for reasons already explained earlier in this here. The second point is the international trade, investment and employment situation has improved but is still not optimistic. International trade in 2009 dropped by 13%, then rebounded in 2010, although a rebound in 2011, but did not bounce back to the level before the international trade is now the main problem facing the international trade protectionism resurgence, and this is the United States and Europe developed capitalist countries engaged in trade protection, to engage with the past, mainly in developing countries, depending on the characteristics of trade protection, previously developed emphasis on free trade, now is the Chinese emphasis on free trade, which currently kind of trade protectionism signs of the world economy on Chinaʹ s economic development, especially the development of extremely unfavorable. The third point is the U.S. dollar also depreciated from the medium and long term. Why dollar devaluation? We can do a simple analysis, the U.S. national debt is currently high, from now the United States following four methods can be used to repay debt: first, the sale of state‐ owned assets to debt; Second, the gradual development of the economy, the development of industry to debt ; the third, by the refinance old debt; fourth, printing money to repay. Then the United States will take to repay the debt it that way? U.S. will use the first method that is becoming to buy assets to repay you? Currently the largest U.S. creditor is China, the United States is unlikely to apply this method to solve the debt problem. The use of second and third methods to repay debt and it looks too slow too tired. Weigh most likely after the U.S. approach is to print money, because this method is low cost, high effect. The printing of dollars direct benefits are: First, the direct formation of purchasing power, as the worldʹs currency can be consumed directly. The second is a direct reduction of debt burden, the dollar started to depreciate more natural creditors injured. Three is to increase the competitiveness of U.S. exports. Four is a direct reduction of the fiscal deficit. Five is beneficial to the Wall Street financial market activities, as financial innovation, financial derivatives are in U.S. dollars as a means to release more money on Wall Street to promote greater prosperity. U.S. dollar now emboldened greatest clout lies in its possession a large gold reserves, the worst situation is to abandon the dollar, re‐ create a new world currency, and its virtue, but you can easily get rid of their huge debt, so that the dollar will continue to depreciate next time. The fourth point is that a new round of global inflation is inevitable. In fact, inflation has come in emerging countries, the developed countries are also coming, the EU has reached 3%, the United States has more than 2%, the future will evolve further,
the first reason is that countries in order to stimulate their economies have taken low interest rate policy, the policy of lowering interest rates is double‐ edged sword. On the one hand the low interest rates can spur investment and boost the economy; while the other hand, it will lead to asset bubbles and inflation. The second reason is that governments take in order to maintain a high growth policy of printing money, and now in many countries through the issuance of money to maintain the high inflation to stimulate the economy, leading to high prices, creating a bubble economy. The fifth point is the global industrial structure is accelerating molding. Mainly in three aspects: First, increased the proportion of the real economy, virtual economy declined. Because the virtual economy has triggered the financial crisis, risk, so now all countries in the importance of the real economy; Second, the emerging industry in the global economic structure, the proportion will rise. The so‐ called emerging industry refers to new energy, energy saving and environmental protection industries, the current crisis facing the worldʹs three ‐ the energy crisis, environmental crisis, are inseparable from the economic crisis to resolve development of emerging industries; three emerging economic powers in the international community status increase the status of Western developed countries will be somewhat weakened. The sixth point is the worldʹ s major economies, the fiscal deficit and the debt burden will haunt the future development of the world economy for some time. With the government spending more, less income, which led to national development bonds, if the controllable range, there will be conducive to national development, if it exceeds the scope of it triggered the debt crisis. It is obvious from these six international judge in 2023 that in the next ʺ fiveʺ in the first medium‐ term economic situation is still not optimistic. The six big trend will continue to evolve. BING TRANSLATION
Li Zuojun: August 2013, China will break out the economic crisis This article comes from the financial network on June 25, 2013
Sept. 17, 2011 titled, “Economic Crisis Will Befall China in 2013.” The speech was presented at an internal meeting of the Changsha Alumni Organization of Huazhong University of Science and Technology,
For resource and environmental policy, development research center of the State Council Li Zuojun, Deputy Director of the Institute, was hired as consultants or by multiple local Government Chief Economist. From the Economist Wu Jinglian. Following his September 27, 2011, upon invitation by the Alumni Association of the University of science and technology, in an internal report made by 2013, China will report of the outbreak of the economic crisis. 1th‐‐first big problem situation; 2nd largest issues‐social crisis;
The second perspective on social issues; 3rd of the first big problem‐‐the global economic crisis will last; Second big problem‐‐International Economic Outlook. The first question, what about current domestic and international situation, how to evolve? And the future evolution of the situation, what to see, how? This could be the issues are a concern. The second issue, in such a new situation, our business and entrepreneurs, there is each one of us to do? The first big problem‐situation. Situation in the future, the situation was very delicate, I would like to focus on the situation to tell you three issues: first, we faced some big adjustments, even crises in the future. The second question, is what an evolutionary trend in the international economy of the future. Third, our domestic short‐medium‐and long‐term economic trends of what? First majority on these three issues. Second large problem, businesses and we do? it comes kind of sector investment, including investment in some kind of way, there are enterprises how to respond in a comprehensive manner, and so on. First first big problem‐situation. The first issue of the situation, 35 issues, we may have to happen something. Things that might happen, 35 may occur during an economic crisis. It is strange, is not just a financial crisis erupted? Outbreak is the United States sub‐prime crisis triggered a decline in our exports, decline in economic growth. However, we, Chinese peopleʹs economic crisis had not erupted, our banks have not bankrupt, we Chinese economic crisis is brewing, what about when the outbreak? I think it is 2013, and why? Analysis for four reasons: The first reason, economic reasons, economic reasons raised the possibility of the outbreak of this crisis there are two, one is the real estate bubble burst, the other is a local debt crisis. Of course, the two issues are related, I focused from the second angle said, there are two big sources of local government revenue, are industrial and commercial tax revenue, in recent times, as well as the next one to two years, because many private enterprises of small and hard times. Some industrial and commercial tax revenue of local governments to be reduced accordingly, the second source of revenue is land sales. Starting from this year, many local government land sales had been decimated, is 50% a few years ago, or even 30‐40%. Previous years are our developers are begging the Government to, was popular at the time the Government recently asked the developer, when are you going to buy me. Why? Because they are under pressure to balance of payments gap, Beijing municipal land reserve loan of 250 billion a year, interest in it is a lot of pressure, light, Chaoyang District, more than 10 million land bank loan interest payments a month. If the land cannot be sold, the balance is in trouble. Reduction in industrial and commercial tax revenue, as well as land revenue reduction, many local governments under a lot of pressure. Expenditures does, instead is increased of, two chunks expenditures, a chunks is usually of expenditures, from national level,, is defense expenditures increased, forces of wage increased, sea, and carrier are needs increased inputs, from local government for, based construction also to mass forward advance, 36 million set guarantees room construction needs Government expenditures, strengthening social security two a full cover needs
Government expenditures, strengthening water facilities construction needs Government expenditures, strongly development strategy emerging industries needs Government expenditures, To maintain social stability at all costs needed government spending, spending a great deal of pressure. Another piece, not before, now, that was its focus on arrival of the repayment period, debt service pressures. A few years ago, 4 trillion investment volume of credit, was a very handsome, but itʹs not pie in the sky, are, starting from the second half of the year, repayment period started coming, the next two years to 4.6 trillion. Why recently Yunnan Highway, and Shanghai of city voted and we Changsha of Highway wait, began displayed out some problem, actually this just iceberg a corner, is because mass of concentrated repayment period comes and income flow not symmetric caused of huge pressure, so as time of over, to 2013 before and after, has part local government may to bankruptcy, certainly, has army, put barrel to here a put, who said Government bankruptcy? Government will not go bankrupt. Who broke it? Breaking the Bank, money from the Bank, banks are where the money comes from? From the majority of the enterprises and people, is their production. This is the systemic financial risk, this is the first economic reasons, cause of the crisis. A property bubble burst before possible crisis due to the time constraints do not expand. Second due to external reasons why international, a few years ago our rapid economic development in China, which has a major power, was that a large number of international hot money inflows into China, supporting our economic bubble has generated hot money is increasingly limited, and speculative, will come, and say can go, he mainly depends on the return on investments in various parts. Are now staying in China, because China has maintained rapid economic growth in recent years, these speculative return is relatively high, but down Chinaʹs economy, China risks emerging, some international organizations began aggressive shorting China concept stocks. United States economy slowly recovers, United States dollar likely appreciation, United States would also likely raise rates, so these international hot money is likely at some point a large withdrawal. This results in US China economic bubble burst, this is bad government. Third reason is political reasons, must also have a vision of the political economy of China. Why is 2013, 2013 the Government General. In the Government before the general election, within the term of this administration in the last year, the highest guiding principle just donʹt happen, stability at all costs, maintaining the stable development of the economy, thatʹs the main thing. On the leadership of the next Government, faced with a choice, either. One option, followed by the last bubble, meticulously maintained, then he will defend what when? Maintained by 2015 at the latest, or 2016, so that time is a bigger crisis. Who has the responsibility of that time of crisis, and who donʹt know, this is an option. The second option, not the bubbles, let the foam broke away soon after he took office. After the break, first brought a period of painful, but for new leaders is a good thing, because the responsibility is clear, not cause them, are the result of earlier. Secondly, the dance on the bubble with down to earth it is not the same, after the bubble broke him down to Earth. Furthermore, the new record easier, since beginning of the reduced, after the bubble burst performance is relatively easy to do, otherwise a high at the beginning to set them up is very difficult. In General, the new leadership took office, in front of 35 months, out of political considerations, to inherit the spirit must be carefully, and after 35 months, it began to open up some of the previous questions, showing its new thinking, new initiatives. An enterprise for a new Chairman, also. So why is that the economic crisis may be in 2013, most likely in August 2013 (the second half).
The fourth reason, short long in three cycles of the trough may be superimposed. Short period 3‐5‐year cycle, this cycle the economy is down, to specify the year after may hit bottom. Cycle is around 9‐10‐cycle, we think of 1949, 1957, 1966, 1976, 1989, 1998, every decade or so to toss down, then from 1998 to the present are more than 10 years, should have arrived. 08‐09 is to have happened, but later postponed it because policy, but cannot push too far. Also having a long cycle, a 60‐year cycle of the cycle, they count the bookʹs cycle. So, around 2013, the possible outbreak of an economic crisis in China, the economic crisis: some SMEs bankruptcy, part Bank, part of a local government bankruptcies, this is the next step we have to face such a situation. While 35 issues, could also be a social crisis. Since the outbreak of the economic crisis, may also lead to social problems, at present, the build‐up is the outbreak of various social contradictions from intensifying or Lurker. On the 2nd largest issues‐social crisis I set out from two perspectives: the first point is that our society is sick, sick is hot. The first heat, heat for civil servants. Freedo is Chinaʹs civil service in the world, the University entrance exam, entrance examination to a two or three people, Dr exam, one out of ten or twenty people can also get into a. But civil service exam China, thousands of people canʹt pass the previous. Why sharpen head the civil service exam? Because civil servants rich right has potential has guarantees, because we China Government has master has increasingly more of wealth, and increasingly more of power, control has increasingly more of assets, land is China Government of, various mineral is Government of, tax of right is Government of, wield absolute power of power is Government of, many important of industry monopoly is in Government hand in, Chinese Government too cattle has, everyone are wanted to Dang civil servants. Thermal response of the civil service reform a step backwards. The second heat, heat, heat enterprises, State‐owned enterprises Guo Jinmin back. Currently Central enterprises a year income is the sum of small and medium enterprises top 500 private enterprises, State‐owned enterprises in China by virtue of monopoly privileges, land resources such as monopoly, monopolistic credit resources, monopoly pricing, access to excess profits, which reflects our reforms a step backwards. The third heat, hot real estate. Universal is real estate, slightly kind of strength of enterprise now are got real estate, Haier, and Hisense, and TCL, and ya Al Gore,, and Luo Mongolian, and Ordos all these excellent of private economic enterprise are in got real estate development, some enterprise real estate in its internal of accounted for than is 70‐80% above, I asked had domestic of some Chairman and General Manager, I said, you why to got real estate development does, you industrial not do have quite good of did? Pretty big one? Then he asked, he said why I donʹt do real estate development? Real estate is my brick and mortar return several times over, I do not fuck me silly, this is some of the larger companies. What about the small and medium enterprises? Heʹs real, he develops no power directly, so heʹs industrial hollowing, industry does not do, fried fried to Hangzhou from Wenzhou, fried from Hangzhou to Shanghai, FRY from Shanghai to Beijing, fired from Beijing to Sanya. And a strong individual, buying a House, one person bought dozens of copies. The people cannot afford to buy it? They talked about the House, as soon as you meet to talk about the House, as
long as people see me, he asked, teacher, you say that the price is to go up or down? When up, when fallen? Everyone in real estate. That means whatʹs the problem? Note ill. The fourth heat, speculative fever, either real or trading stocks, either stock or real, not real fried products, you garlic, ginger you, beans you like fire funds, loan shark, popular speculation, speculation prevalent, what does that mean? Note ill. Fifth heat of immigration. Politicians want to be naked, entrepreneurs have a little more strength to immigrants. This is the authenticity of Chinese contemporary social issues. Second perspective on social issues Gap is too large to be an important reason for causing social instability, is also an important aspect of many people the society. How to widen the wealth gap? First a channel, tax, 90 generation medium‐term yilai, we strengthening has Government on economic of regulation strengthening has tax, priority is guarantees IRS, we Government of tax annually keep 20%‐30% above of super high‐speed growth, twice times three times times Yu GDP and urban and rural residents of income growth, we many Government on put this as achievements relish, we of GDP may kind of water, but revenue but really gold silver. That means whatʹs the problem? Our Government and competing reached bottom levels, early on the tax cuts, fiscal income disparity is not only the sections of the gap also widened income gap between Government and business, the public. Too much government control of wealth now. The second channel, slope of the investment and financing, in the middle of the anti‐crisis, 4 trillion of investments, hyper‐volume of credit, investment and where? Mainly to local financing platforms and large enterprises, the majority of small and medium enterprises and private enterprises, and lower the proportion of entrepreneurs get, resulting in further widening of the wealth, particularly in property and income. The third channel, monopoly, monopoly of income disparity, telecommunications, electric power, petroleum, petrochemical, finance, monopoly privileges by virtue of monopoly received excess profits, monopoly income is income a dozen times in our competitive industry. A fourth channel, land income distribution is not rational. We have two types of land ownership. A city State, a rural collective. Rural collective all does, this is Constitution provides of, he actually is a fake of, so dang land as agricultural production uses of when, he is collectively‐owned, as long as this land to variable are, to got development, in this process in the precisely produced large of land VAT, but general rural farmers collective only got 10‐ 20%,70‐80% is levels Government, and developers took has, so why we urban and rural wealth gap so large, why we China farmers always comparison poor does, Farmers in Western countries as long as the land, that he must be middle class. Test of whether we really solve the problems of agriculture, the key is we can address two things: first, to give farmers land ownership and, secondly, Yun does not allow farmers to set up farmers ʹ Association. Former farmers ʹ maximum economic benefits, which is the largest political interests of farmers. But these two, we canʹt. If we gave the land to the farmers or
farmers ʹ group, our Government land finance collapsed, more than half of local government revenue is gone. Therefore, results in urban‐rural wealth gap. The fifth channel, high prices caused by the widening income gap between rich and poor. High House prices is one of the income redistribution mechanisms and platforms. We had some people a lifetime to accumulate a lot of money, to improve housing conditions, high accumulation of three generations of ancestors in the price of money swept away back in shape to go to middle class, where does the money? Go to the Governments, banks, developers. The sixth channel, Chinaʹs stock market, according to Wu Jinglian said is, where even the casinos are not as good as. On the stock market, who the Chinese stock market to make money? Information asymmetries of information, that party is making money Who controls information? Listed companies, securities, fund company executives. As for those who do not master the majority of individual investors to make money is not normal, not making money is good, 80‐90% is losing money. So the stock market is also a platform of wealth redistribution. In addition to these six points, we are in the hands of the people and the money they deposited the money in the Bank, but actual inflation so that these money devaluation. Inflation is excess currency in real terms, the note‐issuing rights in the hands of the Government, how is your ticket to get the process of printing money, it is also a realignment of wealth redistribution. How to widen the wealth gap, pulling him through these channels! One time, a young man told me, before and after 2000, Iʹm $ 2000 a month, now $ 3,800 a month, now the purchasing power of $ 3,800 is worse than 2000 dollars because of inflation. Not only that, but no new three mountain at around 2000: buy hard, difficult, go to school. New three mountains press right now makes me $ 3,800 disposable fallen sharply as a proportion of the money, so ask the teacher, my standard of living is rising or decreasing? He was telling the truth. But this ten years Chinaʹs economy has maintained fast and stable development, which is why a lot of people now on social discontent now, some Internet access, without reading the contents, only to see the title Maniang why he Maniang? He was in a mood, social injustice, so why would a social crisis. The outbreak of the economic crisis will trigger a social crisis, the crisis is also possible with the outbreak of the economic crisis were accompanied by. Economic crisis and social crisis does not mean the day out to go unnoticed, we look to history. One unexpected good or bad fortune, Moon Moon has shine, periodic fluctuation of economic development, thatʹs normal, we are after so many years of rapid development, is the rest of the time. Is a rainbow after the storm, so until 2013, outbreak of an economic crisis is a good thing, winning opportunities for our long‐term development. Through the restructuring and reform of the crisis has forced us, so even if the crisis itʹs not so bad. 3rd of the first issue, the international economic crisis will last. From the present performance of the economies of the world will be able to see, just us debt crisis and European debt crisis is just an interlude of the world economic crisis continued. United States economy there are three major issues:
First is heavily indebted, he was not in Libya in too deep, because of no money, Bush left Obama a fiscal mess, war is for money. Not long ago, Two party through has on improve bonds ceiling to 14.3 trillion of Bill, but United States a years of GDP on 14.6 trillion dollars, if once over GDP of value, on means with yihou a years hard proceeds of income also enough reimbursement interest, this just bonds, United States also has other many debt, like Enterprise debt, financial debt wait, Trojan has 6070 trillion, is global a years GDP of sum, United States if is general national, its early bankruptcy has, is not bankruptcy, because he is world Shang of Overlord, can using he of dollars hegemony exploitation world people. United States of the second issue, is the recovery of the real economy than expected. The third problem is the high rate of unemployment, still is above 9.1%, United States Government cares about employment and unemployment, because they really serve the Government. We Chinese care about GDP and land and revenue, that is, his political achievements and his income. EU economy there are three major issues: The first question that we always talk about the European debt crisis now. Second issue is the base currency of the euro, because he had Monetary Union, but no unified, unbalanced development in individual countries, led to a series of questions. The third issue is the entire European population ageing also benefits society as a whole, makes the whole lack of vitality and impetus to social progress. Japan economy 90 just fell apart, earthquakes, tsunamis and the triple crisis of nuclear radiation makes it worse, and economic growth, Japanʹs economic future is not optimistic. Emerging developing countries suffer from inflation, Indiaʹs inflation had exceeded 10%, Russia more than 10%, Brazil more than 6%, more than 6.5% China. That is now the worldʹs major economies mainly from their situation, we can see that, after the economic crisis is not over. Why not over yet? First of all, the past two years seen rapid rebound at the end of the recovery in emerging economies, but policy stimuli, shot out. As soon as shot out, the economy is down. Followed by historical experience, a great coming out of the crisis is to time. United States 1929 years of large depression has two species saying, a is, 1929 to 1934, total five years, II is 1929 to 1941, total 12 years; 70 generation of oil crisis continued has 7 years; 80 generation of United States storage credit crisis continued has 6 years; 90 generation Japan of bad crisis continued has 8 years; 90 generation late of Asia financial crisis continued has 4 years, so this field crisis with large depression compared to didnʹt so serious, with other of compared to, at least quite, so expect 2‐3 years past, Not that simple. So the international economic crisis will last, the international economic crisis will bring us what? Exports brought about tremendous pressure, insufficient foreign demand. 4th sales first, international resources and environmental crises. International commodity prices overall are higher now, global warming, natural disaster‐ prone, the most important are relevant to China, 1.4 billion people of mass consumption, consumer impact on the environment, compared to other industrialized countries, China
dominated, carbon dioxide emissions in the worldʹs first, pressure on resources and environment affect their own development. 5th for the first issue, of dance brings in China and the international crisis of the clash of civilizations. Sino‐US dance 10 years Qian on began, then China international status row in diwu、liuming, and United States to suppressed China, on began manufacturing incidents, as sea hit machine event, bombing resident South Embassy event, but bin Laden of appeared attract has United States of attention, let United States concentrated power on fuladeng, now bin Laden go has, United States began put attention again steering China, so in recent years began in we around got military exercises, and launched war, as Iraq, and Afghanistan war, North Korea problem, Taiwan problem, sea problem, The Diaoyu Island issue, Viet Nam, and so on. United States began to use trade, supporting anti‐China forces, anti‐dumping of Chinese products, and more comprehensive means to contain Chinaʹs development. United States national core interests is to maintain their hegemony, against all opponents. To combat the Soviet Union, divide and demoralize the Soviet Union, against the euro, United States manufacturing events in Kosovo for the fight against Japan, signed the Plaza accord forcing the yen bubble, Japan long‐term economic doldrums, to combat Asiaʹs four little dragons, Soros made the financial crisis. Now itʹs up to China, and China is a great power, with 1.4 billion people, has a long history of thousands of years of civilization, nearly 10% per cent for more than 30 years of high growth, economic output has ranked the second, based on this trend, 10, and 15, over United States, this must be the United States cannot tolerate. Can China now than before the country stronger under pressure, if not, then the outcome is the same. China now faces a hostile international environment for development, less and less people around, who told you to pursue GDP, an impudent attempt to represent the defeat as a victory? Busy all day to do catch up with development and curve passes, Super regulation objectives of development, a difference of three years, in fact, we didnʹt have anything, someone is asking you to assume with corresponding international responsibility and stress. Second big problem‐‐International Economic Outlook. International Economic Outlook here, main emphasis on six points. This six a points in two years Qian of number times seminar in the I repeatedly to stressed had, now back head see see I then of forecast basically are is correctly of, which including on 911 event outbreak Hou United States economic trend of forecast, I then on said see United States how to should 911 event, then United States has two species method can selected, first species method is United States authorities magnanimity, as used this method to should, United States economic will will continues to prosperity. The second method is the use of massive retaliation, if that is the case United States economy will decline. In fact United States work through the massive retaliation to this incident, and sure enough, United States economy over the rest of scarred, sapped, indicating that my prediction was correct. Also a is on 4 trillion of investment policy introduced Hou of forecast, I then on said 4 trillion investment on economic stimulus of effect up can continued a years, in 2009 early of when I forecast 2010 second half of China economic will will down go, then China economic is v plus u shaped, but 2010 second half of just is economic of inflection point, facts proved in 2010 third quarter China economic does down go. I should say right now is economic and social crisis in 2013, we can examine my right. For judging the economic situation more than two years of six‐word can be said to be six main points here, and I insist on.
1th international economic crisis will continue. International economy remains low, at least in 2‐3, it was two years ago that the first sentence now seems true, for reasons explained earlier, I am not going to say any more. 2nd international trade investment and the employment situation is eased, there is still optimism. International trade in 2009 declined has 13%, then in 2010 appeared has rebound, while in 2011 also has rebound, but also didnʹt reply to rebound Qian of level, international trade now faced of most main of problem is international protectionism again rise, and this is beauty Europe developed capitalism national in got trade protection, with past to developing mainly got trade protection of features different, yiqian is developed stressed free trade, now is China stressed free trade, Current signs of trade protectionism on the development of the world economy were negative on Chinaʹs economic development. 3rd is the medium and long term fall in the dollar. Why the fall in the dollar? We can make a simple analysis, United States current treasuries high, now United States following four methods may be used to pay off debt: first, the sale of State‐owned assets in debt; second, the progressive development of economic development industry debt; the third, take new debts and old debts; IV, printing money to pay. One way then u take to pay off the debt? United States will adopt the first approach is to buy assets to pay his debts? Current United States biggest creditors are China, United States is unlikely to adopt such a solution to the debt problem. Second and third way to pay off debt and looked slow and tired. Balance United States the most possible way is to print money, because the effects of this low cost, high. Print directly benefits: one is directly purchasing power, as a world currency can direct consumption. Second is to directly reduce the debt burden, starting fall in the dollar, natural creditors were injured. Three is the United States rising export competitiveness. Four is a direct reduction of the fiscal deficit. Five active is beneficial to Wall Street financial markets, financial innovation, financial derivatives are in United States dollars as a means of issuing more currency prompted the Wall Street market more prosperous. United States against the dollar now have no fear of greatest energy is large gold reserves at their disposal, the worst situation is to finally give up the dollar, again creating a new world currency, but it can easily shake off its huge debts, so next time will continue to fall in the dollar. 4th is a new round of global inflation is inevitable. In fact, inflation in emerging countries has arrived, coming in developed countries, the EU has reached 3%, United States more than the 2%, will further evolve in the future, the first reason is that States adopt a policy of low interest rates to stimulate the domestic economy, policy of lowering interest rates is a double‐ edged sword. Low interest rates can spur investment and boost the economy on the one hand, on the other hand but could lead to asset bubbles and inflation. A second reason for Governments to adopt a policy of printing money in order to maintain high growth, but in many countries is through the issuing of bank notes to maintain high inflation to stimulating the economy, leading to higher prices, creating a bubble. 5th is the global industrial structure is being accelerated. Mainly in three aspects: first, real economic weight rise, share virtual economy declined. Because virtual economy raises risk of financial crisis, so now all attention to the development of the real economy; second, the share of emerging industries in the global economic structure will rise. The so‐called new industries mean new energy, energy‐saving and environmental protection industries, the three current global crises – resolve the energy crisis, the environmental crisis, the economic crisis is inseparable from the development of emerging industries; third, the emerging economic
power rising status in the international community, will diminish the status of the Western developed countries. 6th is fiscal deficits and debt burdens of the worldʹs major economies will be troubled for some time in the future development of the world economy. As government spending, less income, this leads to national bonds, if within the controllable range will also be conducive to the countryʹs development, if it is thrown out of the debt crisis. Judging from the six it is easy to see the international in the next two or three years that is ʺTwelve‐Fiveʺ the first medium‐term economic situation remains bleak. Six large trend that will continue to evolve. ʺAuthor: Li Zuojunʺ (Editor: Chen Jun) Keywords: Li Zuojun EPOCH TIMES SYNOPSIS An economics researcher in China’s State Council, the equivalent of the Chinese regime’s cabinet, predicts an economic meltdown in the country next year. His remarks, which were made almost a year ago, were given renewed attention recently as China’s economy actually begins to slow down and his predictions start to look not far off the mark. Li Zuojun, a researcher with the National Development and Research Center of the State Council, delivered a speech on Sept. 17, 2011 titled, “Economic Crisis Will Befall China in 2013.” The speech was presented at an internal meeting of the Changsha Alumni Organization of Huazhong University of Science and Technology, according to Deutsche Welle. Recently the speech has spread widely on China’s Internet. An Aug. 23 post on Weibo, China’s largest social media site, was forwarded more than 9,000 times. The information was also widely reported by mainland media portals, including Sohu and Sina. In summary, Li noted that the bankruptcies of small and medium‐sized companies, banks, and local governments are all signs of a nationwide economic crisis. Li gave four reasons for his prediction: Economic A bursting real estate bubble and the worsening local debt crises are two causes Li attributes to a potential economic meltdown. He reasons that the overall economic downturn led to financial hardship for small and medium‐sized companies, which subsequently resulted in reduced industrial and commercial tax revenues. Local governments suffered from reduced revenues due to the depressed real estate industry.
Nevertheless, local governments are under a lot of pressure to keep spending more money on items such as national defense, local infrastructure, housing construction and social insurance policies, improvement of hydraulic structures, and, most important of all, “maintaining social stability.” At the same time, maturity of local debts is adding further pressure and forcing some local governments into bankruptcy. This will inevitably lead to banks also declaring bankruptcy, and debts being passed on to Chinese citizens. As a result, Li predicts a full‐blown economic crisis is imminent. Hot Money China’s economy is slowing down while the United States is experiencing an economic recovery, therefore large sums of international hot money will flow out of China. This drain will also contribute to an economic implosion, he says. Political China’s 2013 leadership transition brings new leaders to the helm that might not be so anxious to address China’s economic woes. Li thinks they won’t expose any of the past problems until three to five months after they take their positions. So, the most likely recognition of an economic collapse, according to Li’s estimation, is July or August of 2013. “Following the economic bubble bursting, there will be a subsequent period of suffering. But for the new leaders, this is nothing bad, since they are not to blame for the suffering,” Li said. Furthermore, “With the economic bubble bursting, the new leadership can adopt practical approaches. … New political achievements will be gained more easily, since the starting point is comparatively low.” Cycles The valleys of short‐term, mid‐term, and long‐term cycles converge in 2013, Li said. A short‐term cycle spans three or five years. Currently, this cycle is moving downwards and will reach bottom within the next two years, Li said. A mid‐term cycle spans about nine or ten years. According to Li, mid‐term cycles in China occurred almost every ten years, in 1949, 1957, 1966, 1976, 1989, and 1998. Li said it has been over a decade since 1998, and the cycle should be around the corner. Initially, this cycle should have arrived in 2008 or 2009. Economic policies at that time delayed the cycle’s valley, but it shouldn’t be delayed for too much longer, he said. There is also a long‐term cycle, which spans 60 years, Li said, giving his speech a traditional Chinese inflection with a reference to the I‐Ching, also known as the Book of Changes, a classic Chinese text on divination. From Li’s estimation this cycle is also approaching. With the economic crisis, social problems will also result. The current intensification of “mass incidents,” or large, often violent protests, can be seen as a forewarning of future turbulence, he said.
CHINASCOPE VERSION China’s Economy Faces Nine Major Challenges Written by TS, AEF, AT [Editor’s Note: Li Zuojun, Deputy Director of the Institute of Resources and Environmental Policy Research at the Development Research Center of the State Council, published an article discussing the major problems that the Chinese economy faces. The Development Research Center of the State Council (DRC) is a leading policy research and consulting institution directly under the State Council. According to Li, the nine problems are: declining economic growth, inflation, economic bubbles, the changing economic growth engines, adjustments in our industries and regional business structures, environmental constraints, the social costs of development, the deteriorating international environment, and resistance to reform. The following are excerpts from Li’s article.]  Now that the stage of Chinaʹs 30 years of rapid growth has ended and the restructuring and development stage has begun, the Chinese economy faces the following problems and challenges. The Challenge from the Slowdown in Chinaʹs Economic Growth First, Chinaʹs economic growth is slowing down. It is a fact and a trend. The 2012 second quarter GDP growth rate dropped to 7.6 percent. This is not temporary, but, rather, it reflects the marketʹs direction. The slowdown in economic growth means that the demand for products has subsided, orders have declined, and markets have shrunk. It means that many companies may incur losses to the point of bankruptcy, leading to a reduction in jobs. An important reason why we pursued rapid economic growth in the past was to solve the unemployment problem. As Chinaʹs economic growth has slowed down, the pressure of unemployment has increased. We must constantly adapt to the economyʹs slowing down and actively respond to the challenge. The Challenge of Long‐term Inflation In 2011 Chinaʹs CPI was as high as 6.5 percent. In June 2012 it dropped to 2.2%, but may rebound any time. The past two years saw negative interest rates (rates that were lower than inflation). Now we finally have positive interest rates. What we need to be concerned about is whether inflationary pressure is a short‐term problem, an intermediate‐term problem, or a long‐term one. It is most likely an intermediate to long‐term problem. So we must increase our tolerance for inflation and our resilience. What has long‐term inflation brought us? Inflation means that the wealth of the people has shrunk, that their standard of living has declined, that the wealth has transferred from one social class to another, that the gap between rich and poor has widened, that the costs for the development of some industries have risen, and that the environment for economic development has deteriorated. The Challenge of Accumulating Economic Bubbles
Along with the rapid economic growth, economic bubbles have also accumulated. High housing prices are one good example of an economic bubble. High‐priced assets represent another bubble. We no longer engage in manufacturing. Rather, we have all dived into the financial market, which in and of itself has created a bubble. Many industries suffer from serious overcapacity, another bubble. Many local governments have invested a great deal in development and spent heavily on financing, directly ʺengaging in the business of landʺ and ʺcity management,ʺ with low efficiency and with many ʺrepercussions,ʺ which is likewise a bubble. Many people are concerned that these bubbles will burst. If the government uses a superb macro‐control technique, lets the air out of the bubbles little by little without triggering an economic crisis or social unrest, and timely cultivates new economic growth and new competitive advantages so that businesses are restructured and upgraded, this would be considered a ʺsoft landing,ʺ and the bubbles would not burst. However, in 2013 there will be unprecedented pressure, which will warrant a high degree of vigilance and attention. The Challenge of the Changing Economic Growth Engines After 30 years of sustained rapid growth, Chinaʹs economy is facing changes, mainly in four areas. First, the transition from relying primarily on external demand to relying on domestic demand; second, the transition from an economy driven by investment to one relying on consumers; third, the transition from relying on government investment to relying on private investment; and fourth, the transition from relying mainly on traditional elements of production to advanced elements of production. China must promote the restructuring of its economic growth engines in order to maintain its growth momentum. Otherwise, Chinaʹs rate of growth may be difficult to maintain. The problem is whether this transformation will be easy to achieve. It is probably not so easy. Japan and Latin America have gone through this transformation, but they did not do well and fell into the ʺmiddle‐income trapʺ or the ʺhigh‐income trap.ʺ We also face this challenge. The Challenge of Adjustments to Our Industries and Regional Businesses Structures Changing the structure of the economy is the main direction in transforming economic development. It involves a number of factors. The most important is to change how our industries and regional businesses are structured. To change our industries, we must solve two problems. We must eliminate over‐production and upgrade our industries. To shut down businesses that are over‐productive involves changing the views of many interest groups, none of which want these businesses to be done away with. Even if they must be forced to close, [we] must prepare well in order to compensate them. Industrial transformation and upgrade require technology, highly qualified personnel, and modern management. We can make the leap forward only when all the conditions to do so are present. This is a thrilling jump, and many companies may not make it. So far, few regions and companies have successfully transformed or upgraded. The central and western regions are developing rapidly. These regions depend mainly on the advantage of having many resources and on industries that consume substantial energy. However, we must now increase our efforts to conserve energy. This presents a problem for the central and western regions. The central and western regions hope the government and the eastern regions will compensate them because they must now focus on protecting the
environment. Unfortunately, the nationʹs fiscal revenues have decreased substantially and economic growth in the eastern regions has slowed down, resulting in a corresponding decline in the ability to provide compensation. The Challenge of the Increasing Constraints of Resources and the Environment Greater pressure has resulted from the fact that the prices of energy and raw materials have increased. China accounts for between 70 and 80 % of the increased global demand for crude oil. This demand influences the price of the worldʹs available energy and raw materials. At the same time, pressure is growing to protect the environment. Due to global warming, China faces increasing pressure in the international arena to reduce carbon emissions. Chinaʹs 2008 carbon dioxide emissions were the highest in the world. If this pattern continues, by 2020, China will produce more than 30 percent of the worldʹs carbon emissions. At that time, China will face unprecedented international pressure. The Challenge of the Increasing Social Costs of Economic Development In recent years we have emphasized economic and social development because economic development is not an end in itself. Rather, meeting human needs is the goal. However, from the economic point of view, social development increases expenses. Governments and people must pay for these expenses in order to make sure that pensions, health care, housing, education, and other social undertakings are well covered. For many local governments, the pressure on spending continues to increase. Administrative expenditures, infrastructure spending, the construction of affordable housing, social welfare spending, and stability maintenance expenditures are mandatory or must increase. Government revenue, however, is declining, industrial and commercial taxes are declining because small and medium enterprises have less income, and government income from land use is also decreasing because of falling housing prices. The Challenge of a Deteriorating International Environment for Economic Development First, the international environment is less interested in Chinaʹs exports. The main reason is the ongoing international economic crisis. As the international economic crisis continues, the international economy will remain depressed for two or three years, having a greater adverse impact on our exports. Second, the international environment for Chinaʹs overseas investments is deteriorating. ... Other countries do not welcome our investments, unlike the way we welcome their investments. When we want to invest in their high‐tech companies and projects, they are worried that we will steal their technology. When we want to invest in their resources, they say we will control their resources. When we want to apply our experience from the construction of our domestic development zones, they say we will control their land. In short, they restrict Chinaʹs investments under the pretext of national security or other reasons. Third, the international environment regarding adjusting the RMB exchange rate has not been good for some time. ... So, [Western countries] have been pushing to weaken the competitiveness of Chinese exports through RMB appreciation.
Meanwhile, the RMB exchange rate is also directly subject to changes in the U.S. dollar: If the U.S. dollar depreciates, the RMB automatically appreciates. At the same time, Chinaʹs overall external environment has deteriorated. Because China is the worldʹs second largest economy, the United States places more emphasis on China as its main competitor and has shifted its strategic focus to the Asia‐Pacific region. The Challenge of Increased Resistance to Reform First, vested interests resist reform. In the past three decades, the reform strategy has been uneven, leading to a serious imbalance and a lack of coordination in political reform, cultural reform, social reform, and economic reform. Along with rapid economic development; the reform has also brought a widening gap between the rich and the poor. This process has bred vested interests. Vested interest groups have benefitted from this imbalance and the lack of coordination in the transition. These vested interests have thus become an obstacle to the next round of reform. Second, there is resistance to reform due to notions. .... For example, many people attribute the widening gap between the rich and poor and the increase in corruption to market‐ oriented reform. As everyone knows, market‐oriented reform did not bring about these problems. Rather, they were brought about by incomplete reform and the imbalance between political reform and economic reform. Endnote:  Shanghai Security News Online, ʺNine Challenges that Chinaʹs Economy Faces,ʺ August 8, 2012. http://news.cnstock.com/hgjj/201208/2192857.htm.
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