back to article China to become world's No 1 economy. And we still can't see why

China will become the world's biggest economy this year, overtaking the United States in GDP. As the FT drily notes, "Most economists previously thought China would pull ahead in 2019." So China powers on, at a greater pace than had been predicted by Western economic experts, who are supposed to know about these things. But …

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  1. Richard Tobin

    Dyson???

    If my Dyson vacuum cleaner had lasted as long as my Huawei VDSL modem, I might take that seriously.

  2. Anonymous Coward
    Anonymous Coward

    Three Reasons Why

    1 ) They actually make things in China

    2) They work dame hard

    3) A population of 1.3bn which is bigger than the US and Europe combined.

    1. Anonymous Coward
      Anonymous Coward

      Re: Three Reasons Why..... plus the fourth real reason

      Unfortunately those are but a small part of the reason for China's GDP growth.

      There's another more fundamental reason, and that's that they've printed and imported trillions to fund an unsustainable capital and infrastructure boom. All of the spending contributes directly to GDP, with a further multiplier effect as wages are spent, and materials and services paid for.

      China is drowning in over-capacity of capital asset manufacturing plant, is building properties that there are no occupiers for, has a vast property price bubble (these usually don't deflate politely) and is busy building highways, railways, bridges, airports and ports for which there is no traffic.

      In the first fourteen years of this century China's outstanding credit market debt went from $1 trillion to $25 trillion. China has 1.5 billion (alright, BEEEEELLLIONN) tonnes of steel capacity, with demand about half of that. China has built more apartments standing empty than the entire housing stock of the UK and Germany combined. For me there's one number that sums up how distorted the Chinese economy is: In the two years 2011-12, China consumed more cement than the United States consumed in the entire twentieth century. You can talk about urbanisation, large population, workshop of the world as much as you like, but that doesn't explain either how China has made economic use of this volume of cement (and all related materials), nor how it will get off the treadmill of capital consumption without the sort of bust that will make 2008 look like a stroll in the park.

      The much vaunted success of "red capitalism" is actually anything but. For China this is a toxic combination of traditional state central planning, leading to excess investment, combined with the use of excess debt common in capitalist bubbles. Sooner, maybe later it will end the same painful way as any other debt fuelled mis-allocation of capital.

      1. This post has been deleted by its author

      2. DougS Silver badge

        Re: Three Reasons Why..... plus the fourth real reason

        Fully agree. The author's assertion that China "figured out how to grow without piling up debt" shows an utter lack of understanding of China's financial situation. Their national government doesn't have a big debt load like the US, but their regional/local governments have piled up massive debt. Some of it for useful infrastructure projects that aided the growth and modernization of China, but much of it wasted to line people's pockets. They learned a bit too well from the West, I'm afraid.

    2. Message From A Self-Destructing Turnip

      Re: Three Reasons Why

      You beat me to it, however my three reasons are slightly different anyway.

      1) A vast labour force willing to work for low wages.

      2) A government that typically still acts in the best interests of the country (not individuals)

      3) A government that maintains control of the large corporations (not the other way round)

      In my experience working in China on a large construction project, the belief that they work hard is another myth/stereotype. Two hour lunch breaks with the rest of the day spent leaning on shovels was the norm. Its the vast number of workers despatched to any given task that get things done. Cranes and forklifts were rarely necessary, any large object was easily moved by an equally large number of bodies heaving in unison. It was a bit like watching ants.

    3. Eddy Ito Silver badge

      A fourth reason

      4) Things are pretty cheap in China.

      What many of these recent articles don't say is they are talking about Purchasing Power Parity based GDP not the more general GDP which has the US at about twice that of China. I'll leave the argument over which is a more betterer metric to the "experts".

  3. Mage Silver badge

    Interesting

    Why did School waste time teaching Latin and French as if we lived in 19th century? Of course only about a 1/3rd I think in China actually speak Mandarin.

    We needed companies like Inmos, not ICL and Thorn. By the 1960s most UK electronics was either only interested in UK Defence/Aerospace (Plessey & Ferranti previously in Consumer, though Plessey was OEM for most Big Names from 1920s to 1950s, Co-op, Ever Ready, Cossor, EMI/HMV/Marconi) or medical (Cossor) or outsourcing. Poor Quality Control. Asian makers setting up in 1970s in UK couldn't use most UK parts (quality too poor).

    1. Anonymous Coward
      Anonymous Coward

      Re: Interesting

      I heartily (and sadly) agree and can relate to that. In the late 80's, wanted to import some stuff from ICL (actually insulation sheets for transformers for a third world country). They took 5 days to reply by telex (yes those were telex days, faxes were still in infancy) and gave a stupid price and even more stupid seafreight delivery schedule.

      The German company quoted the next day, quoting 40 percent less and airfreight partial delivery if in emergency.

      You can guess who the order went to.

      ICL , as the name suggest were still living in the Imperial mental image of them ruling the chemicals' world and assuming people will come to them for orders at their choosing. Look where is the company now. Am not surprised at all by the downfall due to sheer arrogance on their part.

      There are countless examples of such attitudes (Thatcher didnt help either by effecting single minded closures at breakneck speed without giving a chance for gradual transformation).

      1. Kristian Walsh

        Re: Interesting

        Without your story losing any relevance as an example, I think you have confused ICL and ICI.

    2. Anonymous Coward
      Anonymous Coward

      Re: Interesting

      Mandarin has to be taught young, while a child still has the capacity to develop the hearing for it. For older learners, it's a lottery as to whether an individual can discriminate between the nuanced tones of the language.

      1. John 62

        Re: Interesting

        "English has to be taught young, while a child still has the capacity to develop the hearing for it. For older learners, it's a lottery as to whether an individual can discriminate between the nuanced consonants of the language." For evidence: east Asians who grow up with English as a second language and cannot distinguish between R and L.

        In fact I am of the opinion that English orthography is not dissimilar to Sinitic, since English has so many rules, you just need to learn them, as phonics can only take you so far.

        Mandarin will become a global language when the majority of research and academic papers use it. Which was how English became the global language.

  4. All names Taken
    Alien

    Obvious answers?

    Growth and opportunity in almost unbridled forms?

  5. SuperNintendoChalmers
    Thumb Up

    Interesting

    Possibly the most interesting thing I've read about China in the media for a long time. Good work Andrew.

  6. deadlockvictim Silver badge

    Rising tide lifts all boats

    Could it be that China is prospering for the very reasons that the United Kingdom and the U.S.A. prospered up from 250 to 50 years ago? Manufacturing affordable and high quality goods? The very same policy helped pull Japan and Germany out of the rubble and ash 65 years ago (with a little help from American money).

    China has a strong and vibrant manufacturing sector, that, unlike places like Bangladesh or Malaysia, seems to be benefitting the employees and the economic wealth is rising slowly but surely..

    We in the West have watched our manufacturing sector be sent to Asia in the last 30 years. Still, at least the suits got their bonuses. And that's all that is important.

  7. Destroy All Monsters Silver badge

    Delusions and Dreams. An Economic Know-Nothings in the FT

    China will become the world's biggest economy this year, overtaking the United States in GDP

    SNORT!

    Why China Will Implode: Its A Monumental Building Aberration, Not An Economy

    The thing to understand about China is that it is not just another booming EM economy that is momentarily struggling to cool-down its excesses in fixed asset investment and make a transition to some kind of more “normal “consumer-based economy. That comforting notion represents an odd-confluence of propaganda from the comrades in Beijing and hopium from Wall Street stock peddlers.

    In fact, China is a grotesque economic aberration that bears no relationship to prior economic history or any conventional economic models-–not even to the export-mercantilism model originally developed by Japan, and which has now proven itself wholly unsustainable. Instead, China is a nation that has gone mad building,speculating and borrowing on the back of a credit bubble so monumental (and dangerously unstable) that its implications are resolutely ignored by observers deluded by the notion that China embodies a unique economic model called “red capitalism”.

    But when a nation’s debt outstanding explodes from $1 trillion to $25 trillion in 14 years, that’s not capitalism, even if its red. What it represents is monetary madness driven by the state.

    1. poopypants

      Re: Delusions and Dreams. An Economic Know-Nothings in the FT

      And then there's this.

      Everyone has their problems.

    2. Anonymous Coward
      Anonymous Coward

      Re: Delusions and Dreams. An Economic Know-Nothings in the FT

      Destroy all monsters, I disagree.

      If the USA with its large economy can withstand the last popped bubble, surely China can too ! After all the economy is big (or already bigger now) and Manufacturing being so strong, can withstand the buffeting. They have no external debts like the US, either.

      Or is it you are implying they are not geared or capable of it?

      Their manufactring and productivity is more dear to them, so will do their utmost to withstand the shocks.(if at all they materialise). Red or not, they will prevail by hook or crook. It will be in no ones interest to let them fall. And what shall we do without all the cheapo electronics without the Chinese efforts?

      Maybe a new Angle for students & professors of economy subjects.

      1. Destroy All Monsters Silver badge
        Headmaster

        Re: Delusions and Dreams. An Economic Know-Nothings in the FT

        It will be in no ones interest to let them fall.

        It is in no-one's interest to splatter oneself on the pavement once the jump out of the window has been committed.

        The fact that it's in no-one's interest is of no relevance.

        In spite of all the crud we are taking from central planners, central bankers, lefties and Krugman or Rupert Murdoch types, the Economy is not subject to direction by fiat, in particular not by direction via money printing or acausal manipulation of metrics pulled out of one's arse.

        It is a system that can be described and for which future developments can be roughly extrapolated. It has its laws. These laws WILL now develop.

        More on this:

        Bingo! Premier Li Keqiang Punctures The Excess Savings Myth

        For two decades now mainstream Keynesian economists have been gumming about China’s remarkable economic boom and its accumulation of unprecedented foreign exchange reserves. The latter hoard has now actually crossed the $4 trillion mark.

        But this whole narrative is PhD jabberwocky with a Wall Street accent. What the People’s Printing Press of China has been doing is simply passing the hot potato by converting the vast inflow of dollars, euros and yen emitted by DM (developed market) central banks into a fantastic flood of RMB. This massive expansion of the domestic monetary system, in turn, enabled the greatest credit bubble in world history.

        Stated differently, China’s total credit market debt outstanding did not explode from $1 trillion to $25 trillion in just the last 14 years because the sons and daughters of rice farmers working in export factories went on a savings binge, thereby enabling a healthy expansion of debt-financed investment.

        ...

        The giant issue facing China, however, is that it is at the end of the money-printing chorus line. It has now absorbed so much excess debt from the West and thereby inflated its credit Ponzi to such an insensible extent, that even its current rulers can see the hand-writing on the wall.

        In a recent speech, in fact, Premier Li let the cat out of the bag, calling China’s massive hoard of foreign exchange for what it is—-a vendor loan to foreign customers who buy but do not sell; who consume but do not produce. Suddenly, what has been ballyhooed for two decades as evidence of the Chinese miracle is officially labeled a “big burden”.

        Actually, it has been a burden all along. The comrades have presided over the erection of a Ponzi of such immense and convoluted magnitude that they have no hope of unwinding it without a thunderous “hard landing”

        1. Alan Brown Silver badge

          Re: Delusions and Dreams. An Economic Know-Nothings in the FT

          "It is in no-one's interest to splatter oneself on the pavement once the jump out of the window has been committed."

          Better that the jumper spatters on the pavement than lands on a few passers-by and takes them out too.

        2. Alan Brown Silver badge

          Re: Delusions and Dreams. An Economic Know-Nothings in the FT

          > The comrades have presided over the erection of a Ponzi of such immense and convoluted magnitude that they have no hope of unwinding it without a thunderous “hard landing”

          The chinese government has been investing in sorely-neeeded infrastructure and as such the landing won't be particularly hard for them. They've always taken the long view

          On the other hand, private investors have been going for short term profits from housing, etc and they will take a bath when the bubble finally pops.

          1. Solmyr ibn Wali Barad

            Re: Delusions and Dreams. An Economic Know-Nothings in the FT

            Not so sure about that. Similar rationalizations were once flowing around about Soviets. No, they cannot be pissing money away just like that, they have to have a master plan. Being brilliant chess players and all. Of course they weren't short of the long view, they had lots of 5-year and longer plans to justify all those monumental projects ^W^W sorely needed infrastructure projects. Only the time could show what utter bollocks these plans really were.

            Is it different with China? Who knows. Little birds are singing that an alarmingly big portion of the Chinese govt projects are just show-offs with mostly symbolic value. Pork-barreling isn't that uncommon either.

      2. This post has been deleted by its author

      3. Anonymous Coward
        Anonymous Coward

        Re: Delusions and Dreams. An Economic Know-Nothings in the FT

        "If the USA with its large economy can withstand the last popped bubble, surely China can too ! After all the economy is big (or already bigger now) and Manufacturing being so strong, can withstand the buffeting. They have no external debts like the US, either."

        The US hasn't withstood the last bubble bursting. The vast bad debt pile hasn't been fully purged, neither trade nor budget are in balance. They've simply put off the reckoning by printing more money and increasing debt levels. That keeps things going for a while, but as any fule noes, the successful answer to a problem of too much debt is very unlikely to involve more debt. The US, UK, Europeans and Japanese are all trying to solve the problems they have by borrowing more, but over time the numbers are clear, that the marginal productivity of debt declines, meaning that when they started, each £1 of borrowing gave them (say) £2 of GDP. That was good, but the more you borrow the fewer good opportunities there are, meaning that now borrowing £1 buys you a few pence of GDP.

        Japan is now exploring how bad things can possibly be made, with limited external debt. They have a declining population, and vast and increasing public debt owed to their own population. If China had learned one useful thing from the West, it should have been about the debt-related life cycles of empires, and the need for balance in all things - investment and consumption, budgets, and international trade. In a desperate bid to make themselves the world's largest economy they've sacrificed all those required balances, and pushed themselves into the same mess as the rest of us.

        The ability of an economy to withstand this depends on having sufficient levels of accumulated wealth to absorb the losses (when they are recognised) from prior mis-investment. The US haven't fully done this because they tried to paper over the cracks with debt, but being a wealthy country they are better placed to take the hit, and have better capital reserves and saver protection. In China, when depositors find that the bank has folded on the back of dodgy property loans to local party officials, and taken their life savings, and the factory has closed leaving them with no job or income, how will that pan out?

        1. DJO Silver badge

          Re: Delusions and Dreams. An Economic Know-Nothings in the FT

          the successful answer to a problem of too much debt is very unlikely to involve more debt.

          If the borrowing is used to service existing debt then you are 100% correct as that just leads to a death spiral. However borrowing to spend on infrastructure puts money into the economy, generates employment in construction and construction supply industries and if managed correctly is a way to climb out of debt - it worked for the US in the 1930s with massive infrastructure projects like the Hoover Dam which was started in the depths of the Great Depression.

          Of course the key words there are: "if managed correctly" which is unlikely given the calibre of politicians these days.

          1. Anonymous Coward
            Anonymous Coward

            Re: Delusions and Dreams. An Economic Know-Nothings in the FT

            Projects like Hoover Dam didn't get the US out of the Depression because they couldn't employ enough people. However, most agree it did buy the US some time. Once Europe's industry got wrecked by World War II, they called for us to help them out. And love or hate, few things boost a manufacturing economy like war: all the military equipment for the effort (which then gets destroyed and usually needs to be rebuilt) and all the destroyed property that needs to be rebuilt (about the only thing that springs to mind that comes close is disaster).

            Someone else did pose an interesting question: is the world overbuilt? Are we actually approaching some kind of "saturation" point beyond which a lot of things we need are already in supply?

    3. John Bailey

      Re: Delusions and Dreams. An Economic Know-Nothings in the FT

      So basically..

      China isn't doing what we do, so it can't possibly work. Even though our economies don't actually work either.

      Consultant.. right?

    4. Pete 2

      Re: Delusions and Dreams. An Economic Know-Nothings in the FT

      > Why China will implode

      It's worth noting that the guy who wrote this (an amercian ex-politician from the Regan era) was a key official in raising the US debt from under $100 Mil. to over $2 Tn in the space of 5 years. So I guess he knows something about huge government debt.

      Nowadays, he spends his time writing this sort of (IMHO) shrill, puff-pieces for right-wing publications in the US.

    5. Notas Badoff

      Re: Delusions and Dreams. An Economic Know-Nothings in the FT

      @DeAlMo

      "hopium" thank you for this.

      Now I know how the US economy went up in smoke.

  8. Pete 2

    It's a numbers game

    > we're no closer to understanding why China is doing so well

    A quick count will give you the answer. Pretty dam' close¹ to 1.4 BEEEEELION people, and up by 36 MEEEEELION in the past year.

    Compared to the USA's 320 Mil who are pricing themselves out of world markets.

    Better start picketing for schools to dump teaching French in favour of Putonghua (and Hindi, if you want them to be truly multi-lingual) if your kids are to make anything of themselves in the next 50 years.

    [1] http://www.worldpopulationstatistics.com/population-of-china-2014/

  9. Anonymous Coward
    Anonymous Coward

    A good balanced article...

    ...here is the reason they are doing better.

    Investement in the long term.

    They have been pouring money into education (go to any UK Russell Uni group and see how many PhD students are Chinese, and have been for many years), into research and into acquisitions. It put nearly every country to shame.

    As for the pathetic US proganda of Ooohh it's funded by the Chinese army, so who cares, NASA, Lockhead Martin, Boeing, all bank rolled by the US military, but I don't see anyone bitching about that.

    1. Spiracle

      Investment in the long term.

      The article is spot on as regards Tech City.

      Importing the worst of Silicon Valley’s cut-and-run VC culture hardly helps build long-term businesses. It places greater incentives on short-termism.

      Luckily there are some counter-examples. One of the factors contributing to the current success of Cambridge (where Chinese graduates have been in attendance since before Xu Zhimo) is that the University's geological-style timescales leak out into it's investment culture and planning.

      The field next to Addenbrooke's Hospital on which the new Biomedical Campus (to which AstraZenica are about to re-locate), for example, was earmarked for the purpose of a medical tech park in 1962 when the LMB built their first new lab at the end of Hills Road. Having been there 800 years or so the University was quite happy to wait another 50 until the moment was right to send in the JCBs.

  10. Anonymous Coward
    Anonymous Coward

    Old history

    For a long time the Chinese and the Indian economies were the biggest in the world. It is only recently, in historical terms, that the US overtook China, and now the status quo is being restored. We can see the frantic militarisation, gun obsession, spying, takeover of foreign companies and bankrolling of dubious Middle Eastern States and their religious fundamentalist nutcases as a sign that the US leadership is trying to reverse the changes - because the litigation culture, broken patent system and failure to educate sufficient US graduates in engineering/science is slowly making the US uncompetitive commercially.

    This article is basically calling for the UK to abandon slavish copying of the US and follow a more Chinese path. So I will just quote a senior Chinese engineer that I got to know at an engineering conference in the 1980s.

    He said "The British mistake was that you invested in India and tried to exploit China. If you had invested in China instead, today the Anglo-Chinese empire would rule the world."

    1. SisterClamp

      Re: Old history

      Totally agree. The only people who would be surprised by this are those who know no history. Western Europe only began to overtake China as an economic powerhouse at the tail-end of the 19th century (Britain first as that's where the Industrial Revolution got kickstarted). The USA didn't get a look in till after WWII and that's because Europe had been bombed to hell and back.

      All we're seeing now is the balance being tipped back to where it had been until, as Arnaut says, fairly recently.

  11. Charles Manning

    Hiring Huawei consultants won't help the west

    The Huawei business model only worked because the workers:

    A) Lived within their means and therefore had money to invest

    B) Were prepared to delay gratification and put in the effort.

    VeThat won't work in the west because:

    A) Most westerners live well beyond their means and have an inflated sense of intitlement. The westerners are broke as nations and individually.

    B) Most westerners have an expectation of instant gratification. Want it now.... on the credit card. How many would invest in the companies they work for? No, just slagging off about the boss and doing the minimum work that doesn't get you fired is about average.

    1. TheOtherHobbes

      Re: Hiring Huawei consultants won't help the west

      If by 'most Westerners' you mean 'rich entitled bullshitters who run things for their own benefit while screwing everyone else' you might have a point.

      In the real world, which seems to be somewhat distant to the one you live in, real earnings - which include actual cash handed over for actual work, and not fake asset price bubbles - have been dropping steadily since the 1980s for most of the population.

      Most people in poverty now have jobs. The jobs don't pay enough to live off. That's why they're in debt.

      So take your ignorant bigotry over to some place that wants it, like The Heritage Foundation.

  12. Anonymous Coward
    Anonymous Coward

    The Govt. has screwed us

    Numerous examples:

    Planning permission (in the name of democarcy).

    Why should a Nimby officer decide the size of my kitchen extension? OR demolish it if it exceeeds by a couple of inches ?

    London Councils have to fund themselves evermore. So they increase buisness rates . Small shopowners close. And big boys move in ( who get exemptions on rates) becasue they create new jobs (shelf filling mostly). They even make driving and parking difficult - almost impossible (to stimulate local shopping/buying and communal spirit in the first place).

    Labour laws and Minimum wages stifle production and invariably moves overseas.

    There is no unified approach to the whole mess and yet our leaders shout at the top of their voices about inclusion for all and pay lip service to reviving local economy.

    We are doomed, I'd say. Its definitely coming, guys.

    1. Gordon 10 Silver badge
      FAIL

      Re: The Govt. has screwed us

      Whilst agreeing with your sentiment its kinda hard to agree with your somewhat lazy and crap examples.

      1. Planning permission - provides a useful service to stop your neighbour building a mini-shard 2" from your kitchen window.

      2. Council funding - this is just swings and roundabouts - the councils that apply the tax brush in a stupid manner sooner or later realise what the concequences are - empty high streets, no tax revenue from empty Theaters etc.

      3. Labour laws and Minimum wages stifle production - really - how many offshored IT jobs were minimum wage?

  13. jb99

    It's like japan in the 1960-70s

    They start my making stuff really cheaply, then they move into making better stuff than the rest of the world almost as cheaply.

    Then the wages they have to pay people, and their exchange rate catch up with them, and they end up with most of their advantages gone.

    Good luck to them, this is not a zero sum game. Any country doing well benefits everyone.

    However it won't keep growing for much longer. Wages and exchange rate will see to that like it has in every other country ever.

  14. Grikath

    Couple of other things that help...

    The sheer amount of people in China and a rather distinct stratification in wealth makes that China itself can source cheap employees that US/Europe has to outsource for. So that money stays within the system.

    The Coöp structure works very well in a culture that places the collective before the individual, as in most of Asia. As opposed to the culture of the holy sanctity of the individual that is the norm in US/Europe.

    Building on that, there's the bit where you tend to get more "Company Loyalty" when your job *and* your investment is dependent on the success of the company. There's a couple of coops chugging along happily in Europe that I'm aware of, and they usually started up after investment companies did a strip-and-sell of otherwise economically feasable businesses. ( another large difference in finance and "profitability" attitude there...) . The model certainly discourages the usual Slacking Off in the Boss' Time attitude that's rather prevalent in the Western World...

    Also, people never learn from history... China has been the dominant factor in Asia for over a millennium, if not close to two millennia, and has at quite a few points in history been more technologically advanced than the "West". You can dislike the way their culture or politics are organised, but they sure as hell are not, and have never been technologically "backwards", and they certainly always have been able to capitalise on new technological developments. It's what made the nation last all these centuries.

    Yet people are surprised that they get their hands on Stuff, and learn how to use and produce said Stuff within a decade... Silly..

    1. Gordon 10 Silver badge
      Thumb Up

      Re: Couple of other things that help...

      Agree that collectives of various different types arent *that* unusual in Europe.

      John Lewis Partnership/Waitrose springs to mind.

      Irizar (I think) or some other coach builders in Spain.

      The Co-op before they lost their way.

      1. TheOtherHobbes

        Re: Couple of other things that help...

        That just proves the point - they're exceptions, not rules.

        There are a few in the US too. There's even a standard legal form of incorporation which includes social benefits.

        But are they usual - no they're not.

        And they could be - to (almost) everyone's direct benefit.

  15. Anonymous Coward
    Anonymous Coward

    My God

    I read the whole article and barely disagreed with a single word...

    Bring back the real Andrew Orlowski!

  16. Dan 55 Silver badge

    Employee share options

    Not that I've had many opportunities to buy them at the companies I've worked at, but when I've had the opportunity I didn't and if I'd had had the opportunity at the other companies I wouldn't. I don't trust 'em enough, having a job for life ended years ago.

    As for China not getting into debt, Fiat currency is Fiat currency, people are people, most people get loans if they can, and China's housing bubble appears to be popping if you believe what you read.

    1. hplasm Silver badge
      Thumb Up

      Re: Employee share options

      Perhaps a lack of faith in Western companies, or at least in their management, who would sell out the whole shebang for a bonus, is to blame here?

  17. b166er

    It would seem the majority of Chinese save 50% of their income (IMF 2010).

    I don't see that in the West.

    To save money is a foreign concept to the majority of people around me.

    1. Dave Stevens

      Chinese labs

      Here's one thing that's missing to the story.

      Because we wanted a share of that pie, we all opened some R&D shops in China.

      In our case, we never saw those sales and the yearly employee turn around was over 40%.

      Basically we were just training Huawei employees.

      Eventually we closed the joint, but the damage was done.

    2. Anonymous Coward
      Anonymous Coward

      I'm a brit living in hong kong. I first visited Huawei 10 years ago, it was awesome then.

      I save a lot , I have an excessive mortgage on an excessively expensive but average flat. I am shitting myself when the bubble bursts across the border and everything of value will evaporate.

      One thing is certain I will be left with debt.

    3. Nuno trancoso

      I'd say it's not just money but generally saving of "resources". Money being just a "general resource" that can be easily traded for other resources. In the western world you're perpetually chasing the latest shinny instead of getting just what you actually need.

      Reminds me of the cybercafe scene around here a decade or so ago. Anything that was "western owned" would open up in the best premises and best gear (borrowed) money could buy at the given time. The "non western owned", mostly Pakistani for some reason, would open in less than stellar premises with (mostly) 2nd hand gear that "nobody wanted anymore". So, while the former were struggling to cut back on their debt, the later were soon into making a profit. Unsurprisingly, when the scene went bust because of widespread cheap internet access, the former were mostly still paying back that debt or at best making pitiful earning while the later had been cashing in for a long time. Guess who is still in business today, even if the revenue stream has diminished tenfold.

      The western world at large seems to have lost it's grip on the concept of sustainable and wholeheartedly embraced a "riches or bust" model. Which works only for casinos since they are the ones that get rich while everyone else goes bust. Or "web 2.0" ventures that get acquired for ludicrous amounts of money...

    4. Pete 2

      Come a rainy day

      > It would seem the majority of Chinese save 50% of their income (IMF 2010).

      > I don't see that in the West.

      From what I have read, the reason people in other countries save large proportions of their pay is not due to sound, prudent, financial disciplne. It's due to the lack of a welfare state. If you fall ill, get pregnant and/or become old and infirm and need some expensive healthcare, there is no NHS to heal you for free - you'd better have the readies errr, ready. Same with retirement: pension? Nope. Same with losing your job: no dole until you find another one - you either live off your savings, sponge off your relatives or stand on the street corner with your hand outstretched.

      So all that money that citizens of some countries save is merely the flip side of paying less tax for a state-supplied safety net. It's necessary, rather than wise and anyway: savings are simply deferred inflation. So when all that cash does get spent, as people age and leave work - look out for large price rises in their economies.

      1. Lars Silver badge
        Coat

        Re: Come a rainy day

        @Pete 2, you a describing life in the USA and Russia.

        1. Anonymous Coward
          Anonymous Coward

          Re: Come a rainy day

          That only works if people get paid some bit more than a living wage. What do you do if you have to work every spare hour and STILL can't pay the bills? And no time (unless you wanna go all zombie and NOT SLEEP) or money (forget school; what about the BILLS) for school, oh no.

      2. Alan Brown Silver badge

        Re: Come a rainy day

        "From what I have read, the reason people in other countries save large proportions of their pay is not due to sound, prudent, financial disciplne. It's due to the lack of a welfare state. If you fall ill, get pregnant and/or become old and infirm and need some expensive healthcare, there is no NHS to heal you for free - you'd better have the readies errr, ready"

        Yup. The problem is so bad in some countries that you should work on the basis of needing double the pay you'd get in the UK in order to cover such eventualities.

  18. Anonymous Coward
    Anonymous Coward

    Well said, Mr Orlowski

    "Our perceptions of Chinese business are coloured by two powerful myths, both of which are from time to time tinged by racism and paranoia."

    It's hard to understand a culture so different to our own, but assuming that difference == inferiority, and to encourage uncritical acceptance of stereotypes is not helpful to understanding.

  19. Anonymous Coward
    Anonymous Coward

    They aren't all like Huawei

    Huawei is an outstandingly successful Chinese company, but you can't infer that they are all like that. It's a bit like writing about America's future prospects based on a visit to Google.

    1. Andrew Orlowski (Written by Reg staff)

      Re: They aren't all like Huawei

      Haier is the world's No.1 white goods company now. Very decent fridges. So it isn't just about Huawei.

      1. I ain't Spartacus Gold badge

        Re: They aren't all like Huawei

        Andrew,

        No, but there are plenty of basket case state owned or state controlled companies. That are as much cash cows for the Communist Party bosses, as they are companies. However they get to borrow immense amounts of cash from local banks backed and controlled by local government. Which are also controlled by the Party.

        That model of local banks with political and social leaders on the boards providing long-term cash worked great for Germany, but horribly for Spain. And there's quite a lot of evidence that it's not been working for Germany for a while either, and that the Landesbanks bought into the madness last decade rather too much.

        It's a mixed bag. The economic figures from China are almost certainly not reliable and there's uncertain rule of law. There are some amazing companies, some good companies and some basket cases. And if some of the stories are to be believed vast amounts of thefts from government coffers.

        One of the things that's allowed China to do so well, is artificially holding down their exchange rate in order to subsidise their exports. This has had many unfortunate effects: Firstly it helped to create the global financial imbalances that caused the last enormous crash. Secondly it meant China didn't get paid, they got credit. Those $4 trillion in reserves - so if the West inflates away some of its government debt, we're basically taking that money back. Thridly it lead to Chinese workers not making as much profits from their own industrial success. That's meant the Chinese economy is too unbalanced and reliant on exports. The mirror image of what the US and UK are accused of. And both are true. Both are also un-sustainable. Thus China can't rebalance its economy to internal demand without hideous inflation. Thus fourthly it's been forced to keep the growth going by massive over-investment into capital. This has meant it's exporting deflation to Japan and the West, and again destabilising the economies of its own major trading partners. But it also means that capital is being hideously mis-allocated (and thus wasted). And builds up a huge wodge of un-payable internal debt. Chinese banks must hold 20% capital reserves, and even this may not be enough to cover hidden losses. And that's not to mention the capital that's gone intot he huge (un-regulated) shadow banking system.

        Basically there's much to admire in what China has done. But also much to worry about. And I'd like to see a bit more realism about how good the UK economy actually is too. It has many weaknesses, but also many strengths. And it's childish to dismiss those strengths in pursuit of some self-loathing praise of every other economic model.

        1. John 62

          Re: They aren't all like Huawei

          On the topic of inflating to balance the trade books: the Euro was set up for precisely that reason. Italy would rack up huge debts buying German goods, then Italy would inflate its debts away thus indirectly subsidising Italian manufacturing, leaving Germany's manufacturers very cross.

  20. Elmer Phud

    Anything new going on?

    Isn't this just the continual movement of the Industrial Revolution?

    We moved it abroad as it was cheaper, we even moved the tea industry to Kenya as it was cheaper to import from there. The 'Commonwealth' arose, the Empire fell as the U.S.A. took over and used Mexico then China to make its stuff.

    The Chinese have been doing the Empire stuff in Africa for ages - railways that connect the important bits, farms run by Chinese management etc.

    We can't exist now without the Chinese manufacturing - we need those low wages, shit living conditions, Foxconn employees topping themselves.

    The Industrial Revolution just moves home now and then to accomodate innovation and the market costs.

    1. Alan Brown Silver badge

      Re: Anything new going on?

      "We can't exist now without the Chinese manufacturing - we need those low wages, shit living conditions, Foxconn employees topping themselves."

      Sure we can. Foxconn is hoovering up robots because humans are too expensive, but once that happens you are no longer reliant on wages and can locate for either better logistics or lower energy costs.

      The next logical step in the race to tbe bottom isn't assembly in vietnam/laos/india/burma/africa, it's moving assembly lines closer to the customers. Robots don't strike or take toilet/meal breaks. They can work 3 shifts with the lighgts off and given appropriate control software on the line they're a lot more flexible than people when it comes to customisation and short production runs.

      1. Anonymous Coward
        Anonymous Coward

        Re: Anything new going on?

        And if one of them DOES break, you can just call in the specialist who bounces from place to place fixing all the robots that break on occasion. After all, it's unlikely every robot will fall flat everywhere at the same time, no?

        Meanwhile, more and more work of all stripes is being replaced by machines. In the race to the bottom of labor costs, more and more people are staring some version of that satirical Robots poster from Aperture (Portal 2 reference) in the face. Soon not even abject slavery will be able to beat the machine, and once that happens, common humans will be priced out of the labor market forever. Capital investors will just find ways to make machines do their work instead, and the machines are learning quickly. "Nature" issues such as uneven terrain and handling plant crops are about all they've yet to conquer, but since the return means slashing labor costs to the bare minimum, someone will go for it, forcing the rest to follow.

  21. Mike Smith
    Mushroom

    "It can't happen to me!"

    So thinketh Silicon Valley. Wrong, it can.

    This article is absolutely bang on. However, there's one aspect that hasn't been emphasised enough, and that's complacency on the part of the West.

    There's a striking parallel between what China is doing to the Western IT industry and what Japan did to the West's automotive industry in the 1960s. Consider this:

    Once upon a time, there was a country called Britain that led the world in motorcycle manufacture. They'd taken a bit of beating during the second world war, but by the mid 1950s, some outstanding machines were being produced by British manufacturers. The Vincent Black Shadow, Manx Norton, BSA Gold Star, Velocette Venom, Royal Enfield Constellation and Triumph Bonneville were iconic machines that were known the world over. Some consolidation took place - BSA gobbled up Triumph and Ariel, AJS and Matchless merged to form AMC - and a few, like Vincent, fell by the wayside. Overall, the picture was quite rosy - British bikes dominated racing, worldwide sales were brisk and generally the industry's future seemed assured. After all, British bikes were the best in the world, weren't they?

    Well now. Towards the end of the 1950s, British motorcycle execs were amused to see crowds of earnest-looking Japanese examining their machines at race events and exhibitions. Doubtless there was some condescending laughter about the hordes of little yellow men taking thousands of photographs of their machines and jabbering away in their idiot tongues. Good to see that the nips appreciate real engineering, old boy, what what? Another pink gin? Don't mind if I do.

    Fast forward about twenty years and it had gone horribly wrong. By the end of the 1970s, only Triumph was left, desperately clinging on to a tiny market share. The once-dominant British motorcycle industry had been swept away by the Japanese invasion of bikes that had the phenomenal cheek to be reliable, easy to start, not need loads of maintenance, and have such fripperies as indicators, weather protection and electric starting. The bikes at the lower end of the market - the small 125s and the Honda and Yamaha step-throughs - made the likes of the BSA Bantam and Triumph Tiger Cub look positively antiquated. And once a new rider had bought one Honda or Yamaha, they were more likely to buy another one.

    Further up the scale, the British bikes held out for a while, but once the Oriental heavy metal appeared, they too started vibrating their way down the slope, which was doubtless made more slippery by the oil pissing out through the joins in their vertically-split crankcases. Nicknames like Bloody Sore Arse and Royal Oilfield weren't bestowed without reason.

    Certainly, the Japanese didn't beat the incumbents on every front at once. British bikes - at least the bigger ones - could still dish out handling lessons to the rice rockets well into the 1980s. I have a fond memory of being able to out-handle mid-range Japanese machines on my elderly BSA A65 during burn-ups on twisty roads. And they made mistakes too - the first Honda CB450 had a reputation for evil handling that was only surpassed by the Kawasaki Mach III - the notorious gas-guzzling 500cc two-stroke triple that you could keep going for ever from a breaker's, provided you didn't need a new front end.

    But the Japanese learnt from their mistakes. Things like reliable electrics, oil-tight engines, indicators, electric starting and sensible maintenance regimes set owners' expectations accordingly. In 1960, crappy electrics, magnetos that conked out in the rain, batteries being boiled by iffy Zener diodes and leaking oil was pretty much par for the course. By 1980, a new rider would regard that sort of crap as completely unacceptable.

    But the thing is that the Japanese would not have had such an easy time of it if it had not been for complacency on the part of the British firms. First there was a refusal to accept that the piddly little Japanese bikes were a real threat to Real Men's bikes. Instead of realising what might happen to customer loyalty - and the BSA group put a lot of effort into securing that, so there's no excuse for the execs of the time not to have understood the threat - they bumbled along by tarting up what were basically pre-war designs while their customer base became slowly eroded. When they finally realised the threat, it was far too late - the Japanese had learnt while the British gazed at their navels, and customer expectations had risen to a point where the British machines were found wanting in too many areas. The car and consumer goods markets weren't far behind the bikes.

    A degree of patriotism did help. In the UK, Triumph survived - just - and Harley-Davidson managed to keep going in the US. But the mass market had vanished like snow in the sunshine, destroyed by a combination of a better offering and the stupidity of executives who could not see a threat until it was too late.

    That's what happened to British automotive engineering dominance. And that's what's going to happen to American IT dominance in the next few years - and for almost exactly the same reasons.

    As the gravestone's gone, the bomb will have to do.

    1. Primus Secundus Tertius Silver badge

      Re: "It can't happen to me!"

      When I was a small boy in the 1950s, Dad took us out in the car on Sunday afternoons. Everywhere we would see broken down motor cycles, and their owners patching them up again.

      Crap machinery. No wonder people started buying the foreign stuff, and the British companies died.

    2. I ain't Spartacus Gold badge

      Re: "It can't happen to me!"

      Mike Smith,

      True. But of course, everything goes in cycles. Sony roundly kicked the arse of many a Western company. To become consumer electronics top-banana. The cash rolled in, their designs were great, they lead in technology, reliability and quality. Now they appear to be a sad basket case. Though I'm sure a turn-around is possible.

      Or to take another great example, the much praised German Mittelstand. That great cohort of globally competitive, family owned / family run, long-term financed engineering companies. They're still powering away, pushing the German economy to ever higher export surpluses. This being the way Britain used to do things, and the way we're urged to go back to.

      But, will it continue? We work for one of the well known ones. 100 years of family owned engineering excellence. And they've become smug, arrogant and inflexible. Germany has no minimum wage, and since the Hartz IV labour reforms last decade, has quite a lot of people on incredibly low wages subsidised by government payments. Which is not a sustainable way to run a company. The families are several generations in now, and some are falling out (as British counterparts did 40 and 50 years ago), or just counting their money and employing external managers - so salaries are rising. Maybe they'll sort it out, or maybe they'll go through a cycle of things not being so great for a bit. Wealth inequality in Germany has been rising faster than most of Europe, their banking system is probably in a dodgier state than ours, and has similar political interference problems to the Spanish - and like China the Germans export too much, and are having to take payment in debt, from customers who can't all afford to pay. Look up Target 2 and the ECB - which is basically money printing to ease the critical imbalances in the Eurozone.

      In summary, things change.

    3. Lars Silver badge
      Happy

      Re: "It can't happen to me!"

      @Mike Smith. You explain what happened very well, but I have a feeling that England was never very good at manufacturing. You let the factories rust away and become old and dirty. I think that if you compared how your workshops looked like around 1960 to those in say Germany and Japan and why not Sweden you could see that clearly. BMW still make good bikes in modern factories. As for copying, I remember the British took a model train set to Japan. Japan then had their own railway system in 20 years. Still this copying thing is a bit silly. Mediterranean countries, Japan and China especially made ships long before the British. Do you fee like having copied (stolen) it. Hardly, nor is there any reason, because it would be silly.

      As for China, I am not surprised at all. They will have their problems too. That reminds me that Jorma Ollila, the Nokia boss, once said that the next boss could very well be Chinese, that did not happen, a pity perhaps, on the other hand he is Indian to day and so is Nadella.

      1. Alan Brown Silver badge

        Re: "It can't happen to me!"

        "Japan and China especially made ships long before the British"

        This is a particularly interesting example.

        Japan took the UK's heavy shipbuilding crown because the japanese developed far superior semi-automated welding techniques (A single lightweight japanese woman could weld the same quantity of plate steel in one shift as 3 shifts of a dozen burly glaswegian men could and to a far higher standard) which workers in british yards refused point blank to implement. No customer in their right mind would pay much higher costs for an inferior product and so those yards - and workers paid the price of being inflexible. FWIW the japanese welder was paid extremely well. This was working smarter, not harder.

        In that case (and in many others) the innovation was definitely japanese. Outside of the UK and across the former empire, "made in britain" became a warning label for poor design and shoddy workmanship from about 1960 onwards.

        As others have pointed out, these things are cyclic. Japanese build quality of motorcycles (particularly frame welds) declined across the 1980s (newer employees didn't work as diligently as the old guard, and jobs-for-life disappeared in Japan during this period), but recovered sharply when manufacturers ditched the problem entirely by automating the welding systems. In the meantime chinese bikes have gone from being low powered, unreliable, uninspiring pieces of rubbish to being worthwhile purchases - and it's rather telling that the japanese response has been to up their game rather than resting on their laurels like the british industry did.

        WRT "copying" - this is relative. I watched japanese manufacturers take an idea I'd prototyped and turn it into a working product which worked 10 times better than anything I could have turned out, at 1/10 the cost and 1/4 the original size (and it just kept getting smaller, before they ditched it for a better way of doing things). Having an idea isn't the same thing as applying R&D to make it into a viable product. The japanese in the 1960s were looking at british bikes as much to see and avoid what they were doing _wrong_ as much as to see what they were doing right.

    4. Anonymous Coward
      Anonymous Coward

      Re: "It can't happen to me!"

      @Mike Smith: Triumph didn't survive, it collapsed and was rebooted as a completely different entity retaining only the name.

      I'm an old bike fan too, and what you say is quite right. But the modern version of Triumph shows that it *can* be done in this country *if* you have the right management and the drive to succeed. Those are factors that we are often short of unfortunately.

  22. Will Godfrey Silver badge

    History again

    I think I right in saying that China has the worlds oldest continuous culture. That might be worth examining.

    The Chinese are innivators by nature and always have been - guess who invented gunpowder. They are also quite happy to mix and match old and new materials and ideas. On the practical side, this was bought home to me on a visit there in the early 1990s.

    I saw buildings being built with strange looking scaffolding. A little closer and I saw it was made of bamboo... held together with industrial strength cable ties!

    They'd also comparatively recently started employing extremely big poly tunnels for vegetable production, but with a difference. They had huge man-height 'top knots'. Returning from a trip near dusk revealed all. Men were going along the tops undoing ties of some sort and rush matting was rolling down the sides. This was in February and they had fully ripened fruit inside.

  23. d3vy Silver badge

    Well, I for one welcome our new Chinese overlords.

  24. Ken Hagan Gold badge

    Another reason

    Crikey! More than a page of comments and still no-one has pointed out that Chinese industry doesn't have to clean up after itself and doesn't have to pay a living wage to its workforce. That double-whammy makes it easy for them to undercut any civilised nation. They don't have to undercut by much to put the competition out of business.

    I doubt Western consumers will ever care how their shinies are made (at least, care in sufficient numbers to matter) but sooner or later the Chinese will hit the same problem as every other tiger economy: the workforce will decide that they've had enough and would now like to enjoy a standard of living commensurate with their countries economic status.

  25. Irony Deficient

    “Huawei” is quite hard for an Anglophone to pronounce.

    Andrew, do you mean that it’s hard for an anglophone to pronounce because of its tonal content?

  26. Anonymous Coward
    Anonymous Coward

    Siemens

    I still have a grudge about how <bleep> stole Siemens' tech.

  27. Sirius Lee

    Can't understand why?

    Robert Peston made a programme broadcast on the BBC at the end of last year about China - from an economics perspective. In it he revealed the secret of China's growth: unbelievably MASSIVE investment sponsored by the Chinese government as a response the the problems in 2008. I'm not an economist so I can't comment but in his programme he left viewers with no doubt that he believes and that most western economists believe, it is a level of investment that is both unsustainable and unaffordable. He showed the fruits of that investment by visiting and giving examples of many cities that have been rebuilt and massively enlarged with all modern trimmings. He traveled to those modern cities via modern trains, on modern tracks between state of the art stations where he could alight and board a modern underground system. Not just in one city in many.

    It would not be surprising, then, if leading Chinese manufacturers did not benefit from some of that investment. It may be that the Chinese work hard, but it is equally likely that its just an effect of having so much money sloshing around. Peston asked the question: what happens when this level of investment has to stop? The answer for China and the rest of the world was a bit too difficult for him to dwell on much.

  28. skerns0301

    The Root Of The Problem

    Walmart owns a fleet of about twelve huge ships--they ply to America loaded to their Plimsoll line--going back to china all they have is water in the hold so they don't capsize. China is (sort of) doing ok--with our money--take that money away and they would sink so fast people would still be talking about it a thousand years from now--so, lets make that happen. Here's how, start ratcheting in a tax on outsourcing--1% the first year, 2% the second--etc--and keep it up until outsourcing is at about the level it was at in 1990. This would put 20 million American back to work, they would pay taxes, and our economy would be booming--yes, "stuff" would cost a bit more--but our economy would be so stimulated that we would easily absorb it (and with our robust economy our rich would become even richer). As for China, well, who'd miss them? What good have they done for you lately, and the weight of their billion plus people would drag them down, well, almost like something falling into a black hole. On the other hand we can continue to export our capital, have tens of millions of Americans jobless, and energy prices going through the roof (because all that capital we ship abroad stimulates those economies to compete with us for a very finite amount of fossil fuel). The bottom line being there simply isn't enough energy available in the world for the billions of third worlders to live like Americans--but if we don't quit stimulating their economies we'll soon be living like they do--this is a choice we have to make.

    Stan

    1. John 62

      Re: The Root Of The Problem

      Wow. That's one of the most horrible comments I've ever read on the Register.

  29. John 62

    History/Economics/Demographics

    From the article, lesson the first is that Huawei is not China and China is not Huawei. Lesson the second is that Huawei is succeeding by creating products people want to buy.

    That's pretty much it.

    China is a vast and diverse nation with corruption problems, colonial disputes (Tibet/Taiwan), poor welfare, a future demographic disaster, both vast reserves of foreign money it can't do anything with and vast debt that could strangle it. But remember, it is a vast and diverse nation. There will be a lot of good going on.

  30. G7mzh

    BT gone?

    " Former UK national telco BT"?

    I hadn't noticed British Telecom jumping ship recently.

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