The urbanization fallacy

The latest default bull argument supporting higher levels of growth in China than I believe possible is the urbanization argument. Beijing is planning another major urbanization push, and according to this argument China can resolve the problem of wasted investment by investing in the urbanization process, that is it can engage in a massive investment program related to the need to build infrastructure for all the newly urbanized. Here is the Financial Times on China’s urbanization policy:

Li Keqiang, the country’s recently appointed premier, has vowed to put urbanisation at the core of his economic and social agenda. Government departments are drawing up a set of policies, expected to be announced this year, that are intended to guide more than 100m rural citizens into cities over the next decade.

The prospect of a concerted push for urbanisation is viewed with excitement by everyone from mining companies to property developers and local officials to stock brokers. As China’s growth slows, they hope the urbanisation campaign will give the country a boost. They are counting on it to unleash a fresh wave of investment, create a vast body of consumers and ultimately propel China past the US as the world’s biggest economy.

China, which is already highly urbanized for such a poor country, is determined to urbanize further, and Beijing plans to move hundreds of millions more people out of the countryside and into the city. Moving so many people off their farms and into new cities should create a surge in demand for housing and infrastructure, so much so, that urbanization has become the new reason to predict that Chinese growth rtes have already bottomed out and will soon begin to surge again.

With so much future demand for apartments, roads, hospitals, schools, subway systems, and so on, after all, how could China not possibly grow by 7% or 8% a year for many, many more years? Tom Holland has a good, if skeptical,summary of the bull argument in the South China Morning Post.

Any conversation about China these days rapidly turns into a discussion about the economic promise of urbanisation. Urbanisation is not just the centrepiece of new Premier Li Keqiang’s economic policies. According to enthusiasts, it is the engine that will power China’s future development, justifying sky-high investment levels, and even propelling a long-sought switch to a more sustainable consumption-driven growth model.

Believers in the potential of urbanisation point out that today only just over half of China’s population lives in cities. If that proportion were to rise over the next couple of decades to 75 per cent, in line with the rich world’s levels, they reckon 300 million people – equivalent to the entire population of the United States – will have to migrate from the countryside to the cities.

To accommodate them, China would have to build a new city the size of Shanghai every year for the next 20 years. That would entail massive investment in housing and infrastructure, supporting everything from commodity to property prices. What’s more, argue the enthusiasts, because city-dwellers earn more than their country cousins, urbanisation will boost consumer demand, accelerating China’s economic rebalancing.

Like so many of the earlier bull arguments, however, this new belief that urbanization is the answer to China’s growth slowdown is based on at least one fallacy and probably more. The first and obvious reason is that urbanization is not an act of God, and therefore indifferent to earthly conditions. Urbanization itself responds to growth. Countries do not grow because they urbanize, in other words, they urbanize because they are growing and there are more good, productive jobs in the cities than in the countryside. In that sense urbanization is not a growth machine. It is simply a pro-cyclical process that accommodates growth when growth is rising and reduces it when it falls.

And pro-cyclicality is a bad thing, not a good thing. It means that increases in growth are enhanced but reductions in growth are exacerbated, so it adds costly volatility to the economy. As the economy slows, in other words, urbanization itself slows, thus subtracting economic activity. In May I re-read Eric Hobsbawm’s excellent bookThe Age of Capital, and remember his pointing out that within three years after the 1873 crisis the number of European immigrants landing on Ellis Island dropped by nearly 70%. Do not expect, in other words, migration to stay high once growth drops.

The second, more important, reason is a little more complex and has to do with the source of urbanization. Let me explain by using an example. Let us assume the state government of Illinois decides to raze Chicago to the ground and build an identical new city a few miles away. Would Illinois and the US become richer?

It depends. If the new Chicago were exactly the same as the old Chicago, and the workers in the new Chicago produced just as much as the workers in the old Chicago did before it was razed to the ground, then Illinois and the US would become poorer by “re-urbanizing”. There might be the temporary illusion of wealth created by all the new building, but remember that this new building would have to be paid for by taxes, and the resulting reduction in household income over the repayment period would also cause a reduction in household consumption during that period that reduced jobs and productive expenditures elsewhere. What is more, if people with productive jobs left their jobs to build the new Chicago, the true economic cost of transferring workers from those jobs to building the new Chicago would be very high.

Urbanization accommodates, it doesn‘t cause, growth

But let us suppose that working and living conditions in the old Chicago were so bad, and unemployment so high, that the creation of the new Chicago required very few productive new workers (most of the workers were previously unemployed and so producing nothing) and caused a surge in productivity at a very low real cost as the facilities in the new Chicago greatly outclassed the facilities in the old Chicago, allowing workers to be many times more productive. If the higher output generated by Chicagoans in the new Chicago were greater than the cost of building the new city, then Illinois and the US would indeed be richer.

This is the key. It is not the act of building all this stuff that creates wealth or real, long-term growth. It is only if building the stuff caused overall productivity to rise by more than the cost of capital and labor employed in building it that a society gets richer.

The same is true of urbanization. Of course if 300 million people move from the Chinese countryside to the cities, we would need to build lots of new apartment buildings (assuming the existing apartment buildings are already full, which is an heroic assumption in China), roads, hospitals, schools, and so on to accommodate them, but these do not make China any richer. They have to be paid for, and their cost is equal to the cost of capital (resources, machines, steel, copper, etc.) plus the total amount of labor that workers building all these things were doing (and no longer can do) before these things were built. We can assume, if we like, that all of the labor was previously unemployed, in which case the labor cost of urbanizing will be zero, but there will still be a tremendous cost of resources.

Paying for these resources would require transfers from other sectors of the economy, so that the economic activity created by all this building would be exactly equal to the economic activity subtracted from the economy. Why? Let’s say that it costs $1 trillion RMB to house all these urban migrants. This $1 trillion would be paid for by direct or indirect taxes on Chinese households, which would of course reduce their disposable income.

As their disposable income dropped, they would spend less on food, shoes, holidays, education, health and lots of other things, and so the only way China would be “wealthier” is if the value of the new stuff created was greater than the value of the stuff that would have been created but no longer can be. If you believe that migrant workers would prefer to stay home but only move to the cities because conditions at home are terrible – a plausible assumption – then it is hard to believe that Chinese households are really happier by spending more on apartments to house migrants and less on food, education, clothing, and so on.

So does this mean that urbanization must always result in less growth and lower overall wealth for China? Of course not. It can result in greater overall wealth if there are so many jobs in the cities whose productivity levels are so much greater than the productivity levels in the countryside that the increase in overall Chinese productivity is greater than the cost of building all this stuff for 300 million migrant workers.

Once again this is the key. If China is growing so quickly that it desperately needs to move people out of low-productivity jobs in the country and into high productivity jobs in the city, then urbanization is wealth enhancing for China. But urbanization itself does not make China richer. It only allows China to become richer if there is already desperate need for workers in the cities.

So as in the case of razing Chicago to the ground, urbanization itself will not cause growth. It will allow growth to happen if the conditions are already there for rapid growth, and if urbanization allows a transfer of labor from lower productivity jobs to higher productivity jobs. If China isn’t already growing quickly, however, forced urbanization will make it poorer, not richer.

But what if you are Keynesian? Didn’t Keynes say that simply creating work would make an economy richer, even if that work consisted of digging holes and filling them up again? Isn’t it better to build an apartment building than to dig a hole and fill it up again?

No, and Keynes never said that. Keynesian pump priming only works if there is high unemployment caused by the self-reinforcing tendency of lost jobs leading to lower demand leading to more lost jobs as factories fire workers. Spending in itself does not create wealth, and Keynes never said that it would. Spending can create a process that under some conditions can cause the economy to grow faster and under other conditions simply creates an unnecessary expense.

If unemployment in China is extremely high and rising, and if as it rises it causes demand to drop, which causes factories to fire workers, therefore causing unemployment to rise and demand to drop even further in a devastating downward spiral, then building buildings, roads, and services for 300 million new city dwellers is positive for China’s economy. But it is positive only because it prevents the economy from collapsing in on itself.

Notice what this means. “Keynesian” spending on urbanization is not a way to keep GDP growth sustainably above 7%. It is a way, if China’s economy slows so dramatically that unemployment is surging, for Beijing to respond with a massive make-work program to prevent the economy from spiraling out of control.

This why the argument that China is forcefully urbanizing, and that this urbanization will guarantee growth rates above 7-8% for many more years, is almost sheer nonsense. Urbanization is a cost, and if China borrows to fund this cost, its debt will grow enormously. It is only if the resulting increase in productivity on other projects – that is on economic projects that have nothing to do with housing the new migrants – is much greater than the increase in debt that China will get richer, not poorer.


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  1. There is already overcapacity in China for manufacturing and fixed capital investment projects.

    It is possible to stimulate more demand with more debt, but this is just an illusion of employment until the expanding debt is written down.

    China needs to move into higher-valued activities, in order to generate wealth, otherwise doing more of the same is making them poorer (using a forward valuation when the current unpayable debt is written-down).

    But to move into higher-valued activities requires knowledge creation and knowledge creation requires fine-grained annealing (link contains a reference to Taleb’s Antifragility math). This is why I’m confident China can not rebalance without a Minsky moment implosion that topples their top-down manner of collecting and directing capital.

  2. “Urbanization accommodates, it doesn‘t cause, growth”

    Indeed. I think an excellent example of this is the American Rust Belt, in particular Detroit. While once upon a time Detroit was a thriving industrial center, but now it’s a hollowed out hulk. In response, people left in droves and today it has half the population it did 50 years ago.

    “No, and Keynes never said that. Keynesian pump priming only works if there is high unemployment caused by the self-reinforcing tendency of lost jobs leading to lower demand leading to more lost jobs as factories fire workers. ”

    I have to question the assertion. Yes it’s true that it will keep unemployment lower in the short run, but seeing as to how it is done artificially then when you remove the stimulus won’t the unemployment rate just go back up again? And what about the debt overhang, both from the banking crisis itself and the new debt created to finance the pump priming? I think the evidence is pretty clear from the American experience in the 30’s and the Japanese experience in the 90’s that all it leads to is a prolonged stagnation at best. US unemployment in 1940, 10 years after the start of the Depression, was still 15%. I don’t know how anyone can look at that and say pump priming is a successful policy.

    I think a fair comparison is with the Panic of 1873 where in 9 years unemployment had returned to pre-recession levels.

    “Notice what this means. “Keynesian” spending on urbanization is not a way to keep GDP growth sustainably above 7%. It is a way, if China’s economy slows so dramatically that unemployment is surging, for Beijing to respond with a massive make-work program to prevent the economy from spiraling out of control.”

    But isn’t that exactly what China did in 2008 with their massive stimulus program? Respond to a sharp growth slowdown with massive make work programs in infrastructure? I think we can all agree that it just made the imbalances worse, so why advocate for more of the same?

    • Keynesian pump priming only works if there is high unemployment…

      I have to question the assertion.

      FDR devaluing the dollar in 1934 (and confiscating gold to get ‘er done) was necessary to write-down the illusory capital (e.g. lenders debts were devalued since borrowers can pay back in cheaper money) from the roaring 20s and set the USA back to a more competitive position, which enabled the USA to bottom. Japan is in the process of doing this now and thus should bottom 2016.

      Backstopping people so that 33 – 50% of the population doesn’t starve, become sickly, stop educating their children, etc.. is more productive than letting the economy spiral into an abyss. But taking it too far to protect 100% of the people from 100% of outcomes is unproductive.

      WW2 pretty much destroyed the productive capacity of the rest of the world and left the USA with the best infrastructure remaining (sans Pearl Harbor).

      In theory the free market would work best, except that a large society (much inertia in top-down) doesn’t respond as a free market even if given the opportunity. We have to live with what works. But preventing fine-grained annealing of the private sector while responding with appropriate Keynesian spending, which is what is developing now in most of the world developed and developing. For example, I read yesterday India has banned gold imports and made it illegal to transact on gold without a license.

      I am working on a better Bitcoin now, it is going to be interesting to see what happens if anarcho-capitalism destroys the ability of governments to tax and spend through this long crisis ahead (my demographically-based expectation is to at least 2033 for the west when the boomers turn 78).

      • But preventing fine-grained annealing of the private sector…

        …will cause a massive implosion of the global economy. Money velocity is down significantly since 2007 and hasn’t recovered as the other markets did. Something very nasty is brewing…

      • “Backstopping people so that 33 – 50% of the population doesn’t starve, become sickly, stop educating their children, etc.. is more productive than letting the economy spiral into an abyss.”

        I’m not advocating against that, it’s well and good to run temporary deficits to prop up something like public schools, ongoing scientific research programs and food stamps, etc.. The problem I have is with piling up debt on wasteful make work infrastructure projects, interfering with liquidations, piling on excessive regulations, etc.. The Japanese Zombie Economy of the 1990’s should have put such notions to rest, but somehow it didn’t.

    • With regards to the Keynesian pump priming, I think it’s important to pay attention to a nonlinearity that begins to develop. When government debts are many multiples of tax revenues, debt service costs move exponentially to shifts in the cost of capital while tax revenues move linearly with respect to inflation. This is a major problem when you’re debt service costs are actually falling even though your debt stock is increasing because you’re refinancing your capital at lower and lower rates. Then all of your capital is refinanced at what are effectively flat yield curves across the ZLB, then debt service costs take off exponentially. At this point, there is no way to grow out of your debt burden because any shift in interest rates detonates your debt bomb(see Japan today).

      This nonlinearity is what begins to drag on growth and it does so in an extremely nonlinear manner(see above). There are other nonlinearities that form as well and just worsen the feedback loops.

      Basically, there is a limit to deficit spending(regardless of what the MMT guys say). The Keynesian endpoint is at its maximum when government debt service costs reach 100% of tax revenues. When you hit that point, there is absolutely no way out.

      • Don’t forget the velocity of money is also in the equation M * V = P * Q. Spending that is productive (i.e. positive return) would increase taxes by more than the increase in M, and this occurs via an increase in V.

        But that is not what is happening in the world since 2007. Rather V is way down. Why? Because the QE is going to the elite and being accounted as a debt on the balance sheet of the public. The portion that ends up in the public is not for fending off dire unemployment, but rather for sustaining a high-quality of life for the boomer generation (since they have the most votes).

        Don’t forget that the sovereign debt is denominated in the currency that can be devalued, which thus writes down all those who made a based investment lending to a society that failed to produce enough. This is a jubilee and resets the economy so it can restart from a lower level (imports become very expensive).

        But the boomers will have none of that common sense aproach. They demand the governments confiscated, tax above the Laffer limit, and burn the money velocity into another Dark Age, if we don’t blink and stop it.

        • The currency can be devalued, but a restructuring will eventually be forced in one form or another. Due to the nonlinearity above, when government debts are many multiples of tax revenues, inflation is no longer a solution because if interest rates move up at all, the move in debt service costs is far higher than the tax revenues gained from more inflation. If a currency debasement creates inflation(this will usually be a cost-push inflation too) and interest rates rise, you’re back to square one.

          The central bank can theoretically move in to peg the yield curve, but when the market catches on to what’s happening, the currency is going to collapse. If you just use Japan as an example today, what Japan has is not a budget(the Japanese government spends twice what it makes). 50% of tax revenues go to debt service and 70% of tax revenues go to social security with a rapidly aging population where the death rate exceeds the birth rate and in a society with the longest life expectancy in the world. The JGB yield curve has been basically flat and any sort of shock would completely blow up the entire system. In the end, Japan will be forced to restructure and the Yen will crash.

          • inflation is no longer a solution because if interest rates move up at all, the move in debt service costs is far higher than the tax revenues gained from more inflation.

            You ignored my point about velocity. It is where the QE goes that is key. If it goes to the broad private sector (“dropping cash from helicopters” which never happened during Bernanke’s term), they can speculate which can increase velocity. If it goes to the elite bankers, they can sit on it (domestically at least and use it as reserves to create leverage to speculate in developing markets and/or mop up assets cheaply as velocity plummets into deflation).

            Japan can inflate away its obligations to the 50+. I had a link in the prior blog that they culturally throw their 50+ off the job roll, unlike the west.

            Yes Japan will restructure with a devalued Yen, exactly my point. You default on all those who invested in the debt bubble. Japan’s deflation dragged on so long because they refused to do this writedown on their savers who had invested in the debt bubble (via the big banks). Now they finally get to the writedown when those savers are elderly.

            There are two ways to restructure, hyperinflation/default or default-but-not-in-name (i.e. some new bonds that pay out over a longer period at a low interest rate as interest rates rise).

            The western boomers are following the same model of delaying the writedown. I wish Bernanke had dropped cash from helicopters, but you can’t hyperinflate the reserve currency. Never happened in history of empire collapse. Instead you form a police state with the political backing of the vested class (the boomers) and spiral the toilet bowl into the abyss where the world just runs from the currency and the cities, i.e. a Dark Age. In Rome the population fell from 1.4 million to 40,000. No one could survive the taxes.

          • I can’t really disagree with anything you’re saying. I do agree with your point on QE, but I think QE is basically a modern version of a currency war. It is the worst possible way to inject money into the system.

          • Thanks. There is another logic problem with your non-linearity interest rates point. If existing sovereign debt is large relative to new government borrowings, then depending on term of average maturity then average interest rates don’t necessarily rise nearly as fast as the current increases. So if you pump up taxes by dropping money into consumers’ pockets thus stimulating both M and V for a non-linear rise in GDP, then devalue the future social services liabilities of the government if they are not indexed to the true CPI increases.

            That would have been a better outcome. Instead it looks like the western governments will pursue a combination of bail-ins (with derivative trading losses taking precedence over depositors), austerity, and taxing above the tolerable Laffer limit. The austerity impacts disproportionately onto the youth, e.g. youth unemployment and youth in the USA running up massive college students loans because it is better to go to school on debt to study an unemployable liberal arts degree than to have no job. Which means implosion onto itself in deflation, every increasing police state as the need to extract more taxes accelerates

            Also the average term has moved more short-term as society has maintained debt service on the existing debts by borrowing at the lower interest rates on the short-term maturity.

            I am very sleepy at the moment, so I am not sure if the above is complete or makes sense.

          • If you do pump in money and increase M and V, it either has to go into P or V(assuming you’re pumping it into the real economy). Don’t forget about the Fisher effect. If the economy is extremely depressed, what you’re saying is absolutely spot on. However, I don’t see Japan(4% unemployment) or even the US today as extremely depressed. It really depends more on the initial conditions because of all the complexity and feedback loops than anything else.

            As for the term structure of the debt, you’re absolutely right. The only problem is that longer term structures have higher interest rates, so a government would be paying a premium by choosing to roll over its debts less often. Either way, I don’t see any way out for Japan that really does avoid very high levels of inflation as the Japanese will be forced to restructure. If we don’t change what we’re doing in the US, we’re headed in the same direction.

            If an inflation were to break out in the US or in most of the developed world today, I don’t see a scenario where killing the inflation doesn’t force the US government to restructure. I agree with you on the impact of austerity and the decisions of the Western governments. It’s just based on mass delusion and what effectively amounts to free lunch economics.

            In the case of Japan, how do you think the scenario plays out? Any sort of upward shift in bond yields could easily trigger a full blown bond crisis. The BOJ would be forced to buy up all the bonds and I think the Yen would crash like no other currency we’ve ever seen before. There is no lender of last resort for Japan; the country is too big. I don’t see how any feedback could be stopped. I’m reading The Volatility Machine right now, where Prof. Pettis talks about what mechanisms in the capital structure exacerbate volatility. In the case of Japan, every single problem in the capital structure exacerbates volatility. The population demography has basically turned the entire situation into a massive Ponzi scheme. How do you think it’ll play out?

          • As for the volatility issues, let me describe them to you how I see them. 95% of JGBs are held internally by the people via the banks, insurance companies, pension funds, etc. The JGBs the most negatively convex instrument relative to any point in history, so a small move in yields would force their price to plunge, right? If there was a relatively small selloff in JGBs, debt service costs would move up while there would be major pressure on the Japanese financial system. If the BOJ didn’t move in to inject more liquidity into the system, a major bond crisis could easily be forced. However, more BOJ buying could cause more JGB selling worsening the feedback. Both the selloff in JGBs combined with the BOJ’s increased buying would put downward pressure on the Yen, which would, in turn, increase inflationary expectations and put more selling pressure on JGBs. This process continues as the BOJ will either be forced to contract the money supply sharply(raising interest rates sharply) in order to choke off the inflation, but that would cause more JGB dumping as the Japanese government’s balance sheet worsens sharply. This would worsen the selling pressures on the Yen as more and more people would start to move their money out. Is there any way to stop this feedback? I’m having difficulty picturing it.

            If we keep doing the same thing in the US, wouldn’t the same thing happen to the dollar at some point down the line? What would the worldwide impacts be of such a situation where the country was the world’s reserve currency, world’s largest economy, in a crisis situation? Of course, most of the retirement money in the US in invested in American stocks and businesses, so it wouldn’t be as bad as in Japan, but still. I’m sure that much of the public debt and deficit also looks a lot more sustainable given that the Fed is pegging the short end rates at 0% and all of the debt is being rolled over on a very short term basis(the debt that’s not held by the Fed anyways). Of course, the US is basically the Saudi Arabia of food and we don’t import all of the food and energy that we need like Japan. We also have population growth in the US and the structural issues aren’t as bad, but can we can’t keep monetizing deficits like this. As we all know, there is no free lunch, but still. I’m really worried about the situation throughout the world. The US is in better shape than the rest of the world, but the situation is still terrible.

          • However, I don’t see Japan(4% unemployment) or even the US today as extremely depressed.

            Agreed that is why I wrote upthread that Michael’s Keynesian stimulus only applies to the minimum social welfare, not to giving people 100% of everything. Stimulus is much more productive too when it is difference between wasting away in squalor picking your nose all day or maintaining primary+secondary school education (post-secondary education is more dubious since the benefits only surely apply in the STEM fields). Agreed in the USA, the boomers refuse to lower than standard-of-living in order to write-down the capital stock. Ditto what happened to Japan over past 23 years. Japan had the benefit of an trade surplus. The USA has a trade deficit. My understanding is that Japan was forced to Abeconomics when they moved into trade deficit this year. The USA has the benefit of being the reserve currency with the strongest military. So the western boomers (and their guaranteed Medicare $5 trillion per year accrual-based budget deficit, etc) will not go down without a fight– the USA Laffer-limit-be-damned, taxman cometh with an M14.

            Japan will have a currency crisis, and I think it is in 2014. Then Japan will bottom and begin a slow recovery U-shaped recovery. Japan (and South Korea) may lead Asia in hitech 2033+ as Asia rises to be the largest economy in world. Some Japanese corporations and investors are now exiting with their capital and buying up SE Asia.

          • I think you’ll agree at least most of this speech. It’s by the current head of the Dallas Fed, Richard Fisher. Personally, I think this is the guy that needs to be the Fed Chairman.


          • Read your summary of the Japanese dilemma. It would be different if Japan didn’t need to import its raw materials and energy and was still in trade surplus, so inflation from Yen devaluation would be positive for exports and minimal impact on inflation from imports.

            Is there any way to stop this feedback? I’m having difficulty picturing it.

            Default-but-not-in-name. I expect it 2014, perhaps 2015 at the latest. This is easier for Japan too because (as you point out) almost all the bond holders are domestic. They will finally write-down the capital stock that was wasted in the debt bubble pre-1990. Then international capital can flow back in to invest in the undervalued economy. Growth will resume U-shaped recovery.

            If we keep doing the same thing in the US, wouldn’t the same thing happen to the dollar at some point down the line?

            Yes that is why I see a bottom of this crisis in 2033, 26 years after 2007 start. Japan’s crisis will end 2016, 26 years after 1990 crash. Now you see why I am seeing that Martin Armstrong’s Pi cycles match reality. He claims to have backtested the model throughout recorded history to 10,000 B.C..

            Don’t forget that the actual liabilities to the boomers are piling up at $5 trillion per year deficit, if accrual accounting is employed. The USA is not recovering, there is just a bounce to 2015.75, due to capital flows out of the rest of the world into the dollar and USA. But this is driving equities and high-yield bonds up, thus a rush out of Treasuries, thus forcing interest rates higher. That will break the back of the US economy post-2016, which is going to be much worse than what we saw in 2008. One of my little anecdotes is that as house buyers panicked as rates started rising this summer, they chose to lock in 5/1 ARMs to avoid the 1% rise in fixed rate mortgages, thus they just put a bullet to their financial head.

            What would the worldwide impacts be of such a situation where the country was the world’s reserve currency, world’s largest economy, in a crisis situation?

            And now you get to the reason I am praying for anarcho-capitalism and am working on a better Bitcoin (Bitcoin has serious flaws, e.g. the blockchain can’t scale to 1/10 of Visa scale, anonymity isn’t integrated, transactions take 10 – 60 minutes to confirm, etc, etc).

            The USA (+G20) can tax the society into the dirt as Rome did. And the G20 (France’s Hollande leading the way) is hell bent of tracking down all capital. They don’t want to write-down the capital stock, rather they will wipe-out all the millionaires so we are left with an elite class (with no competition against them, remember smaller things grow faster) and a lower class dependent on the state. This is how Dark Ages form.

            Luckily anarcho-capitalism is a reality, still quite small but growing exponentially fast (USA recently called every key person of Bitcoin in for interrogation showing it is becoming a recognized threat). And Asia has a lot of youth. So I think the west (+ the elite in Asia) will lose, and anarcho-capitalism + Asia’s masses will win. But it could get quite ugly before it gets better.

            Conceptually anarcho-capitalism is as the guy who stood in front of the tanks at Tiananmen Square. Yet the difference is the USA (Israel as a proxy) doesn’t stop, they roll over you and crush your skull. So we need this peaceful anarcho-capitalism defense weapon which the nation-states can not defeat (but the devil is in the details and Bitcoin isn’t there yet).

            My opinion is we are heading into a form of MadMax (forcing the states to respect the Laffer-limit) but the frontier to prosper will be cryptography. We (the youth) win in the end. But the boomers will hang on and strangle the economy for as long as they technically have the power to do so.

            I am 48, so technically I am not still in the youth (mirror don’t tell me that!), but we X-gen were dominated by the boomers so we have to extend our range to the next generation to make our biggest impact. I see Michael entered college 1976, 7 years after I did, so he must be about 55 so he is borderline boomer/X-gen. My guess is Michael’s music interests place him more as X-gen (we grew up on punk rock, grunge, and other alternative styles).

          • Typo: 1976 was 7 before I went to university.

            I think you’ll agree at least most of this speech. It’s by the current head of the Dallas Fed, Richard Fisher.

            In anarcho-capitalism, there is no central bank. It is impossible to control the supply of the decentralized crypto-coins, because their debasement is hard-wired from the launch. No one person or group can make a change unless 51% of the peers adopt it. Btw, I am proposing a 5% rate of debasement for my altcoin, because this was the average nominal change in GDP since 1790 in the USA. I use the USA as the reference economy, since it was in the position that Asia will not assume for global growth after 2020s. Fluctuations in money velocity and other competing forms of money can provide the flexibility needed to modulate that 5% in the free market. Note the money supply needs to grow at the rate of GDP, else at-risk investors are penalized relative to savers who just sit on capital.

            Obviously anarcho-capitalism will be very hard on Keynesiam, so it is going to be interesting to see how this plays out. The Chinese curse, “may you live in interesting times”. Chinese seem to love guarantees and security. I prefer flexibility and independence over insurance, but that is the traits of western X-gens.

          • I think if the US makes the right decisions, we can avoid the fate that Japan will soon take. I can’t see this country accepting the massive amounts of taxation that we see in Europe. I don’t think Congress would do it. I can’t see China overtaking the US in the next few decades because of the demographic issues(along with other structural issues) that China and Asia is facing. The US endured a Civil War, I don’t see how the US falls to this economic crisis. How many crises did the US go through in its past? US politics is the single most dirty politics in the entire world and it always has been. The one good thing about the US Congress is that there’s such a logjam that nothing gets through unless it’s absolutely dire.

            As for the monetary system, you basically want to return to the monetary system the US had pre-Civil War: system of competing currencies with no central bank. The reason you state is the reason why the charter for both the First and Second BUS were never renewed and why the US never had a central bank for the longest time.

          • On July 8, it was reported that “number of Americans receiving food assistance has surpassed the number of full-time private sector workers in the U.S.“.

            Don’t forget my point that every year the actual deficit when using accrual (instead of cash with off balance sheet items) accounting is $5 trillion.

            The USA that we knew, is no more. It is now the United Socialist States of Amerika.

            When the constituency relies on debt (which is future taxation) and you have the reserve currency with the most powerful military, then you go the direction of end stage Rome, where the state is corrupt yet it oppresses by redistributing all capital from producers to itself and its constituency. This is like a cancer, but it also must eventually kill its constituency too.

            This a very dangerous time. Sorry to be so melodramatic, but I don’t think serious economists have studied history as to what happens when reserve currencies are in this stage.

            Indeed it is true that there is a still a small sector of the USA committed to liberty. They will try to go some where. Either they fight with their guns or they go to anarcho-capitalism or flee to the mountains. Rome had all but the middle choice available. I believe this time, they go to the middle choice, because it is the path of least resistance and the least disruptive/lethal.

          • If you look through history, the basically had the reserve currency until the 1930s. The US (and the entire world’s) economic cycles basically revolved around the flow of gold into and out of London. It’s the same way with the dollar, but I agree the global financial system will need to be reset and it won’t be reset by governments. It will be reset when markets begin to implode on central banks.

            However, I still can’t see the US suffering the fate that you say it will. There’s a lot of hope left in this country. This country is still the most welcoming country to immigrants and there is no better place for risktakers and entrepreneurs to succeed(I see it every single day here). I think the debts in the US will end up being written down like they have to. Once you pass the Laffer limit of taxation, there is no point in going beyond there. That becomes the point when the debts will be written down.

            Eventually, the baby boomers will be put in their place. I’m in my early 20s, but the US understands the problem. This is not the first time in history where we’ve had governments make promises that they can’t keep. One other thing you’re forgetting about the US in relationship to Rome, the geography of the US is very, very different. I think you could be right about the anarcho-capitalist solution of many different currencies, but that route would force the US government to get its act together. Eventually, the US government will have no choice but to get its act together, and it will. This country endured a Civil War; it can endure some economic crisis.

            I see $200 trillion of off-balance sheet debt and I don’t even blink. I’m simply not worried about it. Why? Cuz that money can never actually be paid. You can tax and tax and tax, but there’s only a certain amount you’re ever going to get. I’m going to end my response with a quote.

            “We can always count on the Americans to do the right thing, after they have exhausted all the other possibilities.”–Winston Churchill

          • Qualitatively, we live in a very different world than the days of the Roman Republic. In today’s society, information gets out so much faster than it ever has before. One of the main problems in the fall of the Roman Republic was the removal of the land requirement from being a Roman soldier. This led to soldiers having allegiance to their generals rather than to Rome itself. In the US, most of the middle class are land and homeowners. Another problem in Rome was leaders effectively just killing each other. Today, information gets out so quickly and there is so much information out there that the kinds of political backstabbing can’t really happen like it did in Rome.

            I actually think it’s very difficult for a top-down organization(governments) to control the movements of all of their citizens as it becomes more and more difficult for them to differentiate between the noise and the signal(virtually impossible as the complexity blows up much faster than the ability to understand it). The fall of both the Roman Republic and the Roman Empire was in a very different qualitative world. Today’s world doesn’t really have a lot of those traits any more and it’s virtually impossible to have that happen today.

            As for governments resorting to war, I could see some sort of war, but I don’t really know how considering that Pakistan has the ability to destroy the world several times over. So it really doesn’t matter as any country pulling the trigger would basically wipe everyone off the face of the map.

          • Suvy, I agree with you, we won’t sink into a Dark Ages, because the internet will be “the mountains”. For London and the Sterling, the USA was “the mountains” to run to. Germany, Japan, and USSR tried to descend into Orwellian Dark Age, but there was too much synergy of capital escaping to USA a wide-open frontier. This time the frontier will be the internet and the youth will just ignore the governments (and the boomers noose) because they will have the power to do so. But we actually have to do the work on the anarcho-currencies to make the G20’s taxation extortion plans impotent.

            This time it won’t be gold moving between USA to Asia that is the most important factor, it will be real wealth (knowledge of high-tech) moving to the internet and the youth. I plan to be right there with you all 🙂

            Let’s do it.

            Of course it won’t be all internet and high-tech. Asia and the developing world can make big strides on privatization and removing top-down control, and the is not much standing in their way (no vested boomer class, except in Japan but no strong military and no reserve currency so easy to throw them under the bus).

            The USA has a lot of fixed investment opportunities in the midwest and this is booming both for oil and gas, as well for example Google putting 1 Gbit internet in Kansas City and plans for others.

            But until 2033, Obamacare and the vestiges of the boomers is going to be trying to tighten that noose and go beyond the Laffer limit. There will be some struggle and some sharp adjustments along the way.

          • Suvy, your generation is already standing up and saying “hell no”. Look at Edward Snowden’s sacrifice. But be prepared to fight for it, as he did.

          • Suvy the problem with the political adjustment you expect is even your age group doesn’t seem to understand economics. Here follow the result of an online poll running today at Yahoo Finance.

            President Obama plans to ease the burden of paying for college. What’s the solution to college debt in the U.S.?

            37% Make college fees tax deductible (26739)
            40% Put a cap on tuition rates (29391)
            4% Increase government spending to offset costs (2692)
            19% Use online resources to lower costs (14355)

            They don’t seem to realize that the availability of college loans guaranteed by the government is what is driving the cost of college higher (and bankrupting the youth and misallocating their capital as measured in the units of years). Debt pulls demand forward, thus increasing demand. Law of supply and demand is that as demand is artificially inflated, then price will be also. Simply put, most of them shouldn’t be at the university, rather working or in some hands-on skills apprenticeship.

            Well perhaps because the poll doesn’t include a choice for “none of the above”, yet still the majority go for socialist solutions of price controls and more government spending (tax deduction is way of subsidizing one group).

          • You’re right. There’s only one solution to solving a bubble, you have to remove the supply(usually debt growth). In the end, the debts will have to be written down.

            I actually have my own solution to solving the student loan bubble: make student loans bankrupt-able. Either that or you could make try an equity based solution where the government gets 5-10% of your income for the next 7-10 years. I’d actually prefer to have an entire financial system based on equity rather than debt; equity is far more robust and doesn’t create systemic issues.

            A cap on rates should theoretically work, but it would work by choking off the supply and I don’t think it’s the best idea in the world.

          • Suvy, some readers may not know that in the USA, student loans aren’t dischargeable in bankruptcy since 2005. This is debt slavery. And I believe most have an adjustable interest rate, so the youth are going to be stuck with double-digit interest rates on their student loans 2020+. Per the link above, they will have a 15% discretionary income garnishment for 25 years. This is essentially a tax. You see how the system is going to tax above the Laffer limit. The youth should get control over the politics by 2033, when the boomers will be dying.

          • It can be debt slavery. Many of those students will easily be able to pay off that debt if they get the kind of jobs that provide them higher incomes. I have many friends for whom that was the case. I never had to take on any debt to pay for college since I got through via a mix of scholarships, help from parents, and working part-time jobs.

            For most students, I don’t think they need to be walking out of college with ridiculous amounts of debt though. If you go to community colleges for the first couple of years and then transfer to a regular college/university, tuition and expenses are extremely cheap. Students can even live with their parents for an extra year, maybe two if necessary while working part time jobs over summers. Also, in state tuition is much cheaper than out-of-state tuition. So it’s possible for students to get through college without much debt if they really work hard while being fiscally responsible. It’s easier than some for others and for some, doing all of the things I said above can be either impractical or simply not possible.

          • If you get a degree in something like computer science, it’s very easy to walk out making $60-70k/yr easily. Considering that most kids walking out of college don’t have kids and are still young, that’s easily enough income to take care of your debts very, very quickly. It just really depends on the person, the degree they get, and the amount of luck they have. I went to a university which is primarily known for engineering, so none of my friends really had any issues.

            For me, I walked out of college(I’m doing a graduate degree now) with zero debt and several thousand dollars of savings. I’m very averse to debt and I basically avoid it at all costs. I never had to take on any debt and I don’t ever plan to unless absolutely necessary.

          • @Shelby wrote:

            I am 48, so technically I am not still in the youth (mirror don’t tell me that!), but we X-gen were dominated by the boomers so we have to extend our range to the next generation to make our biggest impact.

            Note that the two leading journalists publishing the Snowden revelations are Glenn Greenwald age 46 and Laura Poitras age 48.

            The leaker Snowden was age 29, who believes everything might work out okay if the people become aware what is going on. His naivety got him stuck in Russia, because he didn’t plan for the near-term reality that the political transformation he wants will take a years or a decade or more. There is an interim reality which we X-gen look at realistically.

            In the link I provided upthread about traits of us X-gen, we are untrusting and see through BS to the truth behind the curtain. We don’t believe in “don’t worry, everything will work out okay”, because it didn’t for us until we strived to make it us. Thus, our idealism is measured in results.

            Timing is important. Gold will go higher than $2300, but first it will come back down again to $1050 or below (after this fall 2013 deadcat bounce). Because capital is flowing out of the rest of the world into the dollar, and a stronger dollar and booming USA equities meaning a rush out of gold temporary. Until the dollar gets too strong, the US Treasuries interest rates too high (choking off the USA economy), imports to rest of world cratering, and the ingress capital flow stops or reverses, then the world collapses and then gold rockets as the only remaining safe haven. Yet don’t forget we have the decentralized digital currencies coming as another outlet for capital yet this is probably too small to absorb $40 trillion (but we will see, I’ll be content if I gain 0.0001% = $40 million of that for my programming efforts).

            @Suvy wrote:

            Many of those students will easily be able to pay off that debt if they get the kind of jobs that provide them higher incomes.

            You and your smart STEM fields student body are not the problem.

            My point is that a significant percent (probably the majority or nearly so) are pursuing liberal arts not STEM degrees, the aggregate statistics show they are accumulating significant per capita debts, they are able to support themselves (tuition, boarding, food stamps perhaps) with this funding (would otherwise be unemployed given the bad economy), thus the economy will implode faster once they can’t borrow more, and they will have no choice but to throw their political support to socialism (along with the boomers) to tax higher than the Laffer limit. Remember debt is always future taxation, even if you write it down the misallocation cost was already incurred. Just think about the effects of getting the wrong kind of degree, of not being young any more, of having kids already, etc..

            On top of that, I want to reiterate my point from my prior comment, that as we write down the capital stock, the remaining capital is going to be scarce and so interest rates will skyrocket. Thus the (strictly undischargeable in bankruptcy) student loan debts will grow, not shrink. It is your non-linearity point about interest rates and debt rising beyond 100% of GDP (an individual’s annual income). Thus this will become a 15% discretionary income garnishment tax (paid to the bankers or the government is the same now, same entity) for 25 years by law.

            The new proposals are for all new federal student loans to be indexed to Treasuries plus 1 or 2%, and Obama’s version has no cap on the interest rate!

            Even homebuyers are locking in 5/1 ARMS because the spread between fixed rate mortgages increased by a percentage point this summer. Crazy.

            The above is the reason I want to crash the system as soon as possible with a new decentralized digital currency (that can scale to Visa-scale, Bitcoin’s current blockchain design can’t). The sooner we can stop the youth from destroying themselves with debt, the better for the future.

          • Shelby wrote:

            Agreed in the USA, the boomers refuse to lower than standard-of-living in order to write-down the capital stock. Ditto what happened to Japan over past 23 years. Japan had the benefit of an trade surplus. The USA has a trade deficit. My understanding is that Japan was forced to Abeconomics when they moved into trade deficit this year. The USA has the benefit of being the reserve currency with the strongest military. So the western boomers (and their guaranteed Medicare $5 trillion per year accrual-based budget deficit, etc) will not go down without a fight– the USA Laffer-limit-be-damned, taxman cometh with an M14.

            Could that be why the G5 appears (to me and others) to be hellbent on inventing a false-flag to start a war in Syria?

            The G5 has no other option to maintain control as it spirals the global sovereign debt toilet bowl.

    • Illumined, you said: “Yes it’s true that it will keep unemployment lower in the short run, but seeing as to how it is done artificially then when you remove the stimulus won’t the unemployment rate just go back up again?”
      In fact no, because the point is simply to reverse what is essentially a positive feedback loop. Rising unemployment causes declining demand which causes rising unemployment. By hiring the workers that are fired, you break the loop. This is really the Keynesian point. He never said that government spending was always good, even when non-productive.

      • I understand the point of propping aggregate demand, but I’m looking around to find some undisputed examples of that leading to something other than a prolonged stagnation, and not seeing anything. The Myth of War Prosperity casts some doubt on how much World War 2 helped the global economy, although I admit I haven’t read it yet. So in my view that still leaves the US in the 30’s and Japan in the 1990’s as the great experiments in Keynesian policies to fight a depression. By 1940 the US still had an unemployment rate of 15% that wouldn’t go away until the draft started which removed millions of wage earners from the economy. In Japan stagnation continues as it heads towards some sort of massive debt default. So, if the real life application works as the theory says it should, then shouldn’t the results have been better?

        I’m willing to accept your premise that Keynes’s theories were being misinterpreted, and from statements about the free market by people like Krugman it would seem that it’s not only politicians who misunderstand him but also his own school of thought. But since Keynes’ theories require that people with political power interpret them correctly, and it would seem that never happens, then aren’t Keynesian policies doomed to fail by default?

  3. Anyone who has observed and managed urbanization – rural to urban migration – would be able to tell you that urbanization is the consequence of employment opportunity growth, not the cause of it. You can speed up the migration a bit by making it easier and more convenient, like building infrastructure ahead of demand a little bit, and industrialize the farming industry to release manpower from farms (assistance in investing of farm machinery, education of farmers in modern farming practices, etc.), but you must have the employment engine running to attract people to the urban centers. Once your employment engine slows down, down goes your rural to urban migration.

    It is true that rural to urban migration stimulates consumption, but it was only stimulated by migration, whether it is rural to urban, urban to rural, or urban to urban. When you move in to a new house, there must be a new house, new furniture, new decoration, new deck, new fence, etc. no matter where you move. Actually, for the same level of convenience, rural residences consumes more in infrastructure – longer roads, longer power cables, water pipes, sewer pipes or septic tanks, etc etc. If stimulation of consumption is the objective, encourage city people to country side with large acreage and similar living standards as in large cities.

    • If stimulation of consumption is the objective, encourage city people to country side with large acreage and similar living standards as in large cities.

      Everything you wrote before that last sentence was economically correct, but this is uneconomic because the rural sector is less productive as valued in money. This is why (unless “cityslickers” move out there and spend savings or debt) usually rural houses are less luxurious amenities are lower.

  4. Prof. Pettis,

    I want to get your take on what the BOJ is doing along with the public debt situation in Japan. How do you think the scenario will play out? Do you think the BOJ really has any choice but to continue what it’s already doing? How would such a scenario impact the Chinese economy?

    Also, how would a slowdown in China impact the Japanese economy?

    • This is too big a question for me to answer quickly, Suvy, but I do think that until Tokyo gets its arms around the debt, it is going to have a terrible time. Remember that the debt can be serviced as long as interest rates are very low, and interest rates can remain low as long as GDP growth is negligible. If growth picks up, Tokyo faces a very difficult choice about what to do with interest rates.

      • Right now Japan spends around 50% of its tax revenues on debt service. I view the mathematical threshold of debt unsustainability at the point when 100% of tax revenues go to debt service. The Japanese government projects a 14% yoy increase in debt service costs for next year. If you assume a 15% increase in debt service costs(which is, from the numbers I’m looking at, very conservative), the Japanese government’s debt service costs would more than double in five years. If tax revenues were assumed to increase 5%/yr, debt service costs/tax revenues would hit 100% in about 7 years tops. That being said, I think Japan’s population decline would make a 5% increase in tax revenues virtually impossible. I’m also not accounting for increases in Social Security(which runs at around 67% of tax revenues).

        By looking at the numbers, I don’t see how Japan crosses 5 years without resorting to selling FX reserves. I’m also not including yields moving up or a falling current account balance or if expectations shift. If you add in all of the other stuff, how does Japan make it past 3 years without selling FX reserves? After all, 5 is the mathematical limit.

  5. As Andy Xie pointed out in the forum -Will China property and share market be better?
    Many of the workers who are from the rural heartland are already in the cities spread across China,the only thing is that they do not enjoy the city dweller status and do not purchase houses,nor do they have the means to buy houses.Professor,this is indeed an urbanization fallacy being promoted by many prominent economists.
    Will China property and share market be better? 2013 August 06
    中国经营者 2013:谢国忠 楼市股市会好吗? 130608

  6. The same can be said of QE, inflation accommodates growth, artificially generated inflation does not generate real growth.

  7. It seems like many of the stories I read about Chinese ghost towns and out-of-control real-estate projects, the places are usually on the outskirts of town. In a 60 Minutes piece (link below) about the ghost cities, it was mentioned that governments in China are restricting purchases to the point people can no longer buy more than one apartment in the same city (one-apartment policy).

    Does that mean that some large real-estate projects on the outskirts of cities are a way to sell property to those who meet such restrictions, and not necessarily to urbanize?

  8. Your argument that urbanization is the result of growth and not the other way around reminds me of the Clinton era policies that promoted home ownership in the U.S during the 90s and up to 2008. Government policymakers reasoned that since people who owned their homes were more likely to have stable educated families, commit less crime and so on, they launched an unprecedented increase in home ownership (vs. renting) believing that it would be better for the society. It never occurred to them that stable families who valued education and committed less crimes were more likely the people who would buy a home.

    I also think Keynes has been misunderstood as politicians around the world have routinely abused the argument for “Keynesian spending” to justify poor government policies sometimes very blatantly.

    • “I also think Keynes has been misunderstood as politicians around the world have routinely abused the argument for “Keynesian spending” to justify poor government policies sometimes very blatantly.

      Hasn’t the primary argument behind Keynesianism always been that free markets are bad and need to be “controlled”? Hasn’t the premise always been that government is almost always the answer to everything? Just a week or so ago Krugman said something to that effect by commenting on the Republican party’s “abandonment” of Monetarism (and let’s admit that it hasn’t worked out as planned) and stating that Milton Friedman tried to “save the free market from itself”. In other words, the direction of the economy can only be in one direction, up. Markets can’t be trusted to deliver prosperity to the nation, markets setting prices is dangerous, government is our savior.

      Frankly, we have 80 years of precedence in dozens of countries practicing Keynesian policies to varying degrees, and the results have not been encouraging. The reason Monetarism swept the world to the extent that it did in the first place was because Keynesian solutions just weren’t working anymore. Now that Monetarism has been demonstrated not to work as well as first thought, what new light shall guide our way?

      • I have not read Keynes, but I think his theories were twisted by those who wanted to misapply them for their own vested interests.

        So continuing on my discussion with Suvy above, I offered the following.

        Although money can not be tied to a single tangible thing, because the economy must expand faster or slower than the supply of that tangible thing grows. Notwithstanding if the supply of that thing can be manipulated (e.g. the US government manipulated the supply of silver to drive China bankrupt in the 1920s enabling the socialists come into power).

        So humanity must have an intangible money (sometimes known as fractional reserves of a tangible good, e.g. gold) or the coins must be debased, so that debt can be created otherwise how can you pay back the lender (i.e. saver) if the economy grows faster than the supply of the tangible thing grows? Well if the value of the tangible things grows due to its limited supply, then the saver is rewarded even with an interest rate lower than than nominal GDP growth rate. But the saver takes all the increase in productivity. And what about the at-risk investor who is responsible for capitalizing those investments that create those increases in productivity? Lenders can’t do that, because they refuse to take a loss, i.e. they want a guaranteed ROI– the interest rate. So in a fixed (rate of increase of) supply money system, the saver takes the ROI from the at-risk investor. Thus society sinks into a Dark Ages, which is what happens when hoarding takes place into a tangible money when humanity loses confidence in intangible money, debt, leverage, and thus civilization collapses. Go back in history and you will not find any exception, including Byzantine (if you know the details of the history well).

        But it isn’t debasement of the money supply that is bad, as it can end up in workers’ salaries increasing minus the portion taken by the at-risk investors who deserve it. Any worker has the opportunity to become an at-risk investor too.

        What is really deleterious is when an elite group can control the debasement of the money supply. Then they can buy the regulators and run amok, e.g. the New York bankers “Club” (as Armstrong calls them, but I think he is naive and the “Club” is global including the Asian elite!). I expect Asia will cast aside its elite top-down managed economy in the coming crisis so it can rise to be #1.

        Here follows the main point I want to make.

        We now have the technology for money that can be debased on a set schedule that can’t be controlled by any elite.

        That technology is the Proof-of-Work system in Bitcoin.

        However, the urgent challenge is that Bitcoin can be attacked by the “Club” using anti-money laundering laws to force everyone to reveal their identity (this is what the Edward Snowden/NSA stuff is really about), pay taxes (on capital gains earned on money itself….what a racket!), and confiscate (in the cause of fighting terrorism or tax shelters).

        However, there is a solution to this. There is a combination of anonymity technologies that can be applied to an alternative bitcoin (and a new name), such that the “Club” will be impotent.

        Stay tuned…

        • Here’s a great article by Keynes on his views of inflation and governments resorting to money printing to finance a funding gap. Quite simply, he wasn’t too fond of it. Keynes hated deflation, but he also hated inflation and he certainly wasn’t this big government guy that the “Keynesians” always paint him out to be. He felt that government budgets should be balanced most of the time, he didn’t like freely floating exchange rates(he wanted fixed, but adjustable pegs), and he felt that taxation should never be above 25% of the total economy.

          • I will probably make this my last post on this topic, because I know the following in controversial. And it doesn’t serve any purpose to repeat it over and over. Most people are not going to get this, and I best focus on programming, not talking.

            You see what G20 did this week at a UK airport to a cohort of a journalist who is releasing Edward Snowden documents.

            The problem is that government is inefficient, because a) top-down is not as efficient at finding diversity of fitness as bottom-up (i.e. simulated annealing is only known global optimization algorithm), and b) vested groups corrupt and paralyze the centralized coffers. Right now we have bankers who keep the profits, yet socialize the defaults on their proprietary trading. QE was a way to buy the shit the bankers didn’t want and give them more money to go gamble with– it was never about getting more loans to businesses and restarting the real economy. And now we see the depositors will be bailed-in, but the defaults on proprietary trading will take precedence over the bank depositors and bond holders in bankruptcy. The G20 has turned into one huge fraud. So that is why I say upthread, don’t think your 20-something age bracket is going to win easily and that the politics of the boomers+corruption won’t succeed in taxing above the Laffer limit for a while as they spiral this sucker down into a police state.

            So the Laffer limit is basically the breaking point where capital says “hell no” and goes to hide in a hole (in gold, but now we have a new technology). This is well underway as money velocity is way down globally and now it is falling over a cliff as you see all emerging markets reporting slowing and falling stock markets this week. I warned that this would happen and capital would run back to the dollar before the final big crash 2016.

            It is not inflation that is the problem. We need inflation. The problem is that control over inflation is centralized, because money is a function of the majority. Fortunately we now have a technological solution that never existed before in the history of mankind.

            Obliterating the myth that currency supply doesn’t need to expand.

            I am referring to item #6 is the following document:


            The following is unarguable. I will refer any more of the above genre of nonsense to the following proof.

            A Gold-only Economy:

            1. Miner adds 2oz per year.
            2. Investor invests his 100oz per year.
            3. Workers are paid 1oz per year by investor.

            The workers buy their production with their salaries as funded by the investor. The miner can also buy this production. So the maximum return on investment for the investor is 102oz per year, i.e. 2% per year. This is if the investment doesn’t fail, so the risk is the investor will get 0oz back.

            This economy can never grow, because no investor is going to take that loss (downside) risk for that tiny amount of upside return.

            A rebuttal point is that some investors can lose and some investors can gain, thus providing for the winning investors to earn more return than the money supply increases.

            But the problem is that capital will over time move to those who are consistently able to increase production. Thus over time the rich can no longer get more than 2% return. So what do they do? They turn to lending at a guaranteed interest rate provided by a public backstop, because it is the only way they can deploy their capital safely (because even if they are successful 90% of the time, it doesn’t offset only a 2% upside).

            On top of that, the workers (consumers) will not turn over their money as fast, i.e. they will sit on it, if the production is increasing faster than the money supply is growing, because they are gaining value for the risk-free action of sitting on money.

            Thus the 2% upside potential is reduced to a negative potential on the upside. Loss-loss proposition for investors. So they become usurers, no other choice.

            Understand that inflation is necessary to bleed money from the risk-adverse workers to those who know how to manage risks– the successful investors. Even the Bible says money will grow wings and fly away. It must be this way.

            Also it was never the case that the money supply in the USA was only metal. There always existed loans and fractional reserves.

      • Keynes was a believer in free markets. However, he also believed that government should and could play a role in moderating boom and bust cycles. I think some of Mr. Pettis’ prescriptions for the U.S, Europe and China could be described as Keynesian in nature.

        In my mind, simple Keynesian philosophy would be to repair (or build in countries lacking infrastructure) necessary roads and bridges at the onset of recession. Conversely (and this is just as important) when the economy is heating up, slow down the amount of government spending on road and bridge projects, Simple isn’t it? However if look at the nature of governments and politics it isn’t so easy in practice. Many governments can’t seem to pull away the fiscal stimulus when the economy starts to heat up. Running deficits year after year was never what Keynes prescribed. Then more specifically, there was some frustration in the U.S. with the Obama Administration’s lack of focus in increased deficit spending. President Obama even joked when he thought the camera was off “Shovel-ready was not as shovel-ready as we expected.” Ha-ha, isn’t that a hoot? In the case of China, building redundant bridges would be a case of ineffective spending. Believe me in the U.S. there is no shortage of bridges and roads in need of repair. In the case of almost all governments, the additional spending is routed to political interests and “pet” projects. So “there’s the rub” as we say in English which is to say there is the difficulty with government spending as part of Keynesian solutions.

        For obvious reasons, Republicans tend to favor tax cuts to stimulate spending in a recession while Democrats tend to favor to increase government spending. I think that neither approach is the solution all the time. I have generally supported the tax cut approach in previous recessions. This time I thought the shock was so damaging to the psyche of the American consumer that increased government spending “Keynesian policy” was absolutely the right call. I and many others thought a tax cut would have been mostly saved and not spent. I am also concerned about the increased concentration of wealth that has occurred in the U.S. in the last 15 years. (This a discussion for another time, but it is a real phenomenon.) We know that the wealthy have a lessor propensity to spend and to this extent a cut in their taxes would not impact aggregate spending as much as needed by the economy.

        I don’t always put stock in Krugman’s opinions because I think he is now a media celebrity who is all too willing to whore himself for the liberal wing of the Democratic party. If you watch American television, you will understand that commentators and economists who take positions on the opposite ends of the spectrum find a home on one or more of the television networks. Commentators who do not adhere to a specific dogma (for simplicity let’s describe them as moderates) tend to not get hired by the various networks.

        • Indeed government can never be the solution, thus seatrus’s idea that the government could subsidize just the right things and pick the winners in the future economy, is fantasy.

          We programmers have a saying “talk is cheap, show me the code”.

          We plan on removing the ability of the government to print money. So what ever you think the government should do, is going to become irrelevant. Well not totally irrelevant overnight, but for the movers and shakers who matter for the future, more so…

          We have the technology. We are improving the technology (rock solid anonymity and eliminating the need to use exchanges are very important) and preparing ready to take over as the G20 hunts down wealth and chases in into gold and decentralized digital currencies.

        • “In my mind, simple Keynesian philosophy would be to repair (or build in countries lacking infrastructure) necessary roads and bridges at the onset of recession. Conversely (and this is just as important) when the economy is heating up, slow down the amount of government spending on road and bridge projects, Simple isn’t it? However if look at the nature of governments and politics it isn’t so easy in practice.”

          You’d think that we’d pay more attention to basic maintenance, but the problem has been long term neglect.

          ” So “there’s the rub” as we say in English which is to say there is the difficulty with government spending as part of Keynesian solutions.”

          That isn’t the only problem with Keynesian solutions. For decades those solutions also included heavy regulation and price controls that favored large entrenched corporations by destroying entrepreneurial opportunity, with exhibit A being the airline industry.

          “I don’t always put stock in Krugman’s opinions because I think he is now a media celebrity who is all too willing to whore himself for the liberal wing of the Democratic party. If you watch American television, you will understand that commentators and economists who take positions on the opposite ends of the spectrum find a home on one or more of the television networks. Commentators who do not adhere to a specific dogma (for simplicity let’s describe them as moderates) tend to not get hired by the various networks.”

          It isn’t just him, that kind of sentiment is endemic to the Keynesian school and has been since its inception. You can find a number of debates on Youtube from the 1970’s between Milton Friedman and various Keynesian economists and you’ll see how even in the face of stagflation they still held on to the belief that their policies were right.

      • He never argued that free markets are bad. He argued that they are the best system ever devised for generating wealth but that, among other things, they are prone to disorderly behavior and brutal adjustments from time to time, and that these can have such a heavy social cost that the market system can itself can be rejected. Remember that he was writing at a time when communists and fascists were mounting a serous attack on what seemed like an enfeebled capitalism.

        • Question, yes the readjustments do carry a heavy social cost, but isn’t there a better way to deal with it than what was actually done? One that doesn’t empower politicians to do the wrong things and doesn’t interfere too much with market processes?

  9. Michael, just wondering what you make of Andrew Leung’s commentary in SCMP today. I was startled by these data points and wondered whether they can be valid or are out of context:

    “According to the National Bureau of Statistics, consumption contributed 55.5 per cent to China’s growth in 2011, ahead of investment at 48.8 per cent and net exports at 4.3 per cent. The trend continued in the first three quarters of 2012.

    Further, a report in the Mckinsey Quarterly shows that the number of middle-class consumers, those with US$9,000-US$34,000 of household income, has grown from 4 per cent of the urban population in 2000 to 68 per cent last year. And, already, China is now the world’s largest e-commerce market, according to the McKinsey Global Institute.

    In fact, over the past 20 years, China has enjoyed by far the highest average growth rate in household consumption of any major economy, though capital investment has grown even faster.”

    Would appreciate your thoughts. Thanks.

    • Having the highest proportion of a growth rate is not as impressive until you quantify whether the growth rate is also very high.

      If fixed investment is 50% of GDP and consumption is 33% of GDP, and if actual (non-official) GDP growth is very small because the government uses fault inflation data for the deflator, then a slightly faster rate of growth in consumption portion of the GROWTH of GDP, is no significantly relevant to rebalancing.

      China is not the largest e-commerce market per capita.

      • Shelby,

        You should really consider starting your own blog where you could write endlessly with your thoughts (instead of continuously spamming pettis’ blog. Thank you.)

        • John did you have rebuttal for any of my points? The dictionary has a definition of spam.

          • Shelby, I haven’t looked at your blog lately. Do still prohibit comments? Seems to me you ought to open it up so your notions can be discussed on your blog. I find it some what hypocritical for you to attach yourself to Pettis’ blog, as you do, while avoiding discussion and challenges on your blog. Guess you do not suffer us fools as you are pretty touchy when criticized.

          • Okay I will leave at your request. One last parting shot, Obama starves students. Entirely consistent with my thesis. I’m not touchy when criticized on some issues we are discussing. I don’t understand the benefit of silencing debate. Everyone is free to post and make their counter-points. Must be politics, not discovery. It can also be personality type, I am ENTP. E means Extrovert. I talk a lot. I was hoping someone could present a compelling case to challenge my understanding. That is how I learn by finding counter-facts, then analyzing.

            First they ignore you, then they ban you, then they join you. Cheers.

          • Oh I forgot to answer your point. I don’t have comments at my blog, because 1) I wrote plain html files by hand, didn’t install a blog s/w, 2) I didn’t think anyone was interested to comment on my tiny blog with only four articles thus far, 3) I have thousands of posts of discussion in forums (not blogs) where my thoughts are spread out in volumes of debate, I thought it would be useful for my own understanding as well as to cite in discussions in forums, to organize some of my best themes in a HQ blog which I could link to, 4) I did have a forum open to outside commentators, but I abandoned it for the most part for several reasons including the free provider embedded ads all over and messed up the links in content, etc..

            And that is more than you wanted to know I am sure.

    • There was indeed a little bit of rebalancing in 2011 and 2012, which seems to have reversed in 2013. The problem was that the rebalancing was minimal and was accompanied by a 20-30% drop in growth, if you believe the official numbers. This is the point I have been trying to make all along. Rebalancing can and must happen, but it cannot happen except under conditions of much lower growth.

  10. Nothing to add, I just linked here after reading this on Zero Hedge to say it’s an excellent article. It seems there are way more fallacies about China than any other economy and it’s good to see someone debunking them.

  11. Some years ago the National Golf Foundation predicted the US would need to build a golf course a day to keep up with the projected demand. Many courses were built. Many were upper tier. Many are now gone. Is there a lesson for China and the rest of the world in this?

  12. The situation in China is that immigrant labors have reached 260 million, with an average per capita income of around $4500/year. They are all potential future urban consumers. The jobs are already there, and hundreds of millions Chinese labors will happily take the jobs that millions of college graduates do not bother to do. The so-called Chinese urbanization push is simply to accommodate these 260 million or so plus their family members in urban areas. All Chinese government need to do is to provide subsidized housing, education, healthcare and pension plans. The finance required for these will be easily met by enact a real estate tax nation wide, while reduce or eliminate income taxes and VATs.

    • This $4500 annual income cannot afford to rent an 2-bed room apartment in a city like Beijing. Even in a small city, a typical new apartment costs $100,000. A typical wedding costs $20,000. Food is expensive.

      • That’s an average. Those who work in world class metropolitan areas such as Beijing etc probably get much more than the average.

        • You really need to have a field trip to Beijing to see the living conditions of typical immigrant labors and ask how much they make.

      • Migrant workers can easily make 6000USD a year, some of them much more than that. Garment make make at least 6000USD a year, guaranteed, with actual production it can grow by at least 50%. In addition they get dormitories so they do not have to rent. That USD6000 is practically net — they can save far more than people in Europe and the USA even with such salaries. Many factory dormitories now include TVs and washing machines etc.

        There is a massive shortage for CHEAP labor in China which is why factories are moving out.

        The focus should be on the college graduates, the uneducated masses from the villages have no problem finding work and can save enough to buy property back home.

        I think Prof. Pettis nailed it again with his simplified concepts. It gets down to productivity, then consumption, it’s as simple as that.

        • focus should be on the college graduates

          As far as I can see, you entirely miss Michael’s thesis, which is that the government has to stop repressing the consumer sector, by getting out of the way, i.e. stop manipulating interest rates lower, stop propping up failed and inefficient industries, and stop trying to pick the winners. The focus should be on doing less suppression, not on picking what sector to throw more top-down resources at.

          uneducated masses from the villages have no problem finding work and can save enough to buy property back home

          And you entirely miss the point of this blog that property back home in the rural area is relatively unproductive.

          It gets down to productivity, then consumption, it’s as simple as that.

          Yeah but as far as I can see, you don’t recognize Michael’s key theme on how those will get increased– by rebalancing as the government gets out of the suppression business. Unless I have misinterpreted or misconstrued Prof. Pettis’s writings. In that case, apologies in advance, and I am assume someone will correct me.

          • Shelby,

            My reply was a very specific reply to a very specific post yet you chose to create a strawman and whack it with your usual bat, you have a lot of posts like that — I’m not sure if that’s trolling or just spamming. Do start your own blog…

          • You created the strawman, I just refuted it. If what you wrote didn’t embody your entire position, then clarify.

            Should I suggest you get your own blog implying that you should not comment here?

        • Where did you get these information? I do not think I understand your logic–how uneducated migrant workers can make $6000 EASILY while college graduates have problem to find a job.

          Let’s say your number $6000 is correct and this income can be 100% saved (I know it is nonsense). Buying a new apartment at their hometown still needs more than 15-years of work.

          Don’t you know so many construction workers in Beijing live in crap room without medical insurance and their kids are not allowed to go to local school?

          Many people beg for low pay jobs.

          • Vincent,

            Go around development zones in China and look at the wanted ads. Ask people that work in China and visit factories. These are the numbers. This is why some labor intensive industries are slowly moving out, it’s a long process of course.

            In the west it can be lower but then again the cost of living is much lower.

            As for new college graduates unable to find a job and their salaries are in fact lower than factory workers — plenty of data about this around.

            As for your comment:
            “Don’t you know so many construction workers in Beijing live in crap room without medical insurance and their kids are not allowed to go to local school?”

            Yes, and? They can still make 3000-4000, even more when they get experience.

          • It is not surprising to me that the top-down managed economy can’t provide enough high-IQ jobs. One should start by understanding how knowledge creation is formed and is financed (coolpage dot com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html#KnowledgeInvesting).

            that’s trolling or just spamming. Do start your own blog

            And yeah the first above link is to my own blog, which has also been linked on my name if you weren’t blind 😉

        • $6000 is on the high end. Our factory in Guangdong pays $4500/yr including CNY bonus. But the problem is that a worker in Hanoi is only asking for $1500/yr

    • Then what are the millions of college graduates going to do?

      I don’t really see there being a lack of housing or hospitals or services in Shenzhen at least. If anything, there is still massive overcapacity in housing. shopping malls, and office buildings, even in central downtown areas.

    • Please do not confuse GDP per capita with household income per capita, Seatrus. First, GFDP is wildly overstated by the failure to recognize bad debt. second, and much more important, the problem with China has not been the lack of GDP growth but rather the contracting share of household income. I am a little demoralized that you have been following my blog for so long and you still do not understand what by now nearly every serious economist and policymaker in Beijing understand (albeit very late).
      And you are wrong to imply that this isn’t a problem because it can “simply” be financed by one or another tax. Financing wasted investment has never been the problem in China, because the money is simply transferred from households in the form of explicit or hidden taxes. The problem is the extent of wasted investment, not Beijing’s ability to finance it.

      • Don’t feel bad Michael. I’ve found your analysis of China to be well researched, logical and extremely illuminating. I look forward to reading your future posts.

  13. Are you sure Li Keqiang, or the NDRC, have the same thing in mind as you when they refer to ‘urbanization’? I think they’re banking on something more along the lines of hukou reform and land policy reform. If rural hukou registrations become urban ones, or rural land is subject to laws more like urban property, that could be referred to as ‘urbanization’. I.e. urbanization is another code word for reform, not a measure of the proportion of the population that lives in urban areas.

    • I haven’t heard anything about relaxing the hukou system except perhaps moving rural people into towns, which will be developed into cities. The new policy is called chengzhenhua. You can read more about it here.

    • Eliminating the hukou would be a great step forward in improving China’s social capital (ability to absorb investment), Michael, and increasing the wealth of the household sector, but the very politically powerful large cities are implacably opposed. Last night soem friends who are quite senior in the Beijing government told me that they doubted that there would be serious hukou reform because Beijing could barely cover its current social expenses, let alone pay for a huge increase as millions of its residents are officially recognized. I am sure the same is true of all the first and second tier cities. Hukou reform would require a huge increase either in municipal debt or in taxes on households, and you can imagine how happy the residents of Beijing or Shanghai would be to see millions of underclass residents now competing with them for jobs and limited social services. I regularly tell my PKU students that this is one of the key questions facing them and it will pit the interests of the big-city residents with the interests of the country as a whole.

  14. I guess you have to have certain minimal population density to be designated as urban area. Higher density brings more business opportunities. You cannot open a barber shop in the mid of nowhere. But once the population density is high enough, all kinds of services and business will emerge. The Hukou system has to be thrown out of the window for real urbanization to begin. Financial reform is also a must for small and medium business to get the capital they need to start.

    • “I guess you have to have certain minimal population density to be designated as urban area.” I think this is the misinterpretation of urbanization. We can’t assume the definition of the word in Chinese matches exactly to our understanding of it in English. Population density is not the determining factor. Its merely a question of whether this land is classified rural or urban. In the former case, restrictions on the land use are so onerous, its basically not useful for anything but slightly above subsistence farming. In the latter, the local government gets a huge payday from selling it and, once its sold, the new owners have property rights (but not property taxes) allowing them to do lots of high value added stuff to the land. So, yeah, “urbanizing” the land could be a big growth driver even without any change in population density.

    • I agree, Seatrus, but the question is how this will be financed. If it is financed by households it will not create an increase in demand because every extra RMB that a new resident spends will be one RMB less that an old resident spends. It should be funded by the liquidation of state assets, but of course the political elite is wholly opposed to this.

  15. Hi Michael –

    “No, and Keynes never said that. Keynesian pump priming only works if there is high unemployment caused by the self-reinforcing tendency of lost jobs leading to lower demand leading to more lost jobs as factories fire workers”

    Ultimately economics has to make sense and your argument above just proves it. Economics is complicated and its a complex layer of logical arguments which get you to the right path. Not everyone can follow that so the result is you get these simple thumb rule like the Keynes pump priming above and the logic behind that is lost.

    But anyways, when I think about your arguments, I see that it would be difficult to find universal acceptance for this. There are tons of economist that still don’t agree with you. Some are starting to convert and appreciate the problems of over investment but not to the extent you highlight them. So I am thinking how would chinese policy makers (who could influence) think about it.

    They don’t seem to be total converts but more like the ‘changing color’ economist who see the dangers of unbalanced economy but don’t think that it is that big a problem. At least that’s what it seems from their comments.

    If thats what they think, they are unlikely to correct the problem in short term. Because they try to correct “not a big problem” and short term results produce bad headlines (obviously). After all these actions are not simple economics thumb rules (which everyone accepts by now), raise interest rate when economy is heating and reduce when its sinking.

    The question then is at how do we know whether economy is dangerously close to stall speed. What signs would you look at?

    • Debt, and the ability to refinance, is the key thing to watch. We need to get better statistics on how much new borrowing goes into investment and how much into repaying old debt.

  16. Urbanization without job opportunities is just another “if we build it they will come” variant. It will result in debt fueled short term boom followed by a rationalization of asset prices to a normalized and sustainable level. Second and third tier cities already have this pent up situation and at some point, markets need to adjust to reality. Someone, investors or banks or both will feel the pain.

    The disconnect between those apologists who say China is underinvested and will need much more housing/infrastructure to support urbanization and those such as Michael who argue ubiquitous malinvestment is that over the long run, asset prices will adjust and those see-through buildings will be used albeit at much lower prices. Meanwhile they rot away and the investment/loan capital supporting them is a boat anchor. Someone will ultimately feel the pain.

    Urbanization will make it worse.

    It may be that the bad banks, asset management companies, will become massive landlords.

    • Hua Qiao,

      “It may be that the bad banks, asset management companies, will become massive landlords.”

      Interesting, is that why JPM and GS are looking to buy a stake at those previous-bad-assets holding companies?

      • The banks sold the loans at par back in 1999 and 2003/4. Those same banks rolled the bonds that were used to finance the purchase because there was not enough in recoveries to pay back the bomds. In fact rumor has it that recoveries are less than 20% but of course, no one knows because there is no transparency. So good luck to JPM and GS. Hope you know what you are doing if you buy in.

      • Chinese gov could “recommend” they invest in these bad bonds, if they want a chance at managing future IPOs of state owned enterprises.

        Or there might be an impending investigation of financial firms (like investigations of milk powder companies and foreign pharma). Investing in Cinda or whoever might result in a less…thorough investigation of these companies’ business practices.

  17. China needs to urbanize for precisely the reason that Michael is pointing out: it’s growing so rapidly. It will add $690 billion to its GDP this year alone — more than China or any country in history has ever grown. And that’s with a stable currency and population. It will grow by even more next year. Urbanization is not a choice, it’s imperative.

    • How do you know it is growing? Debt bubbles can be deceiving, especially when the government lies about inflation and real GDP. It appears the marginal-utility-of-debt may be near or below 0, meaning the massive increases in shadow banking (unofficial) debt may be adding near to nothing (or even declining) the real GDP.

      Also the world is global now. You can’t measure China’s performance without taking into account the level of misallocation due to debt in the rest of the world (China’s export customers) partially due to the symbiosis of China’s top-down mercantile policy (i.e. repressing wages and consumer capital to take all the world’s cheap manufacturing).

      The bulls always forget the counter-balancing factors in economic analysis, i.e. they look only at nominals and not the interlinking adjustment factors.

  18. Michael, thank you for addressing this topic, I was hoping you would.

  19. Urbanisation, as nearly everything when one analyses China vis-a-vis the rest of the planet, is nothing like everywhere else.

    Those ‘subsistence level farmers’ end up rich even with the most draconian terms from developers. It is the middle men between the land rights holder and developer who make the huge money. The former farmer will buy a car or two, several flat screen TV’s and computeres, a 13,000RMB gold toned Samsung smartphone, and a 200m2 apartment ‘house’ in one of the many hi-rise tower blocks that now sit on their mu of land.

    These people who ‘urbanise’ – it’s not as you envision. It often entails moving a distance of no more than 500 metres as fields abut urban areas in most of China, and the smaller Tier 4, 5 and 6 cities, it is literally a matter of crossing the street from urban to rural. One can take a photo of a city and simply turn 180 degrees and take a photo of the countryside, and do so standing in the same spot.

    The distances that people will move will be no greater than 2 or 3 miles in many cases.

    In China ‘counties’ fill in as ‘cities’ as you think of them. So, for instance, the county of A will reside within the city of B, and B is a county sized area with an urban centre with the same name that you would consider ‘the city’. Think of them as sub-counties within the county, with a city in the larger county with the same name as the county.

    Due to movement restrictions with family and residence registry, most people in China will only be allowed to relocate a distance of 5 or 10kms at the very most, into the nearest bigger city that aggregates the small villages and towns that surround the city. By ‘bigger’ I refer to moving from an area of 5,000 people to one with 40,000. There is very very little migration of distances greater than 50kms as one loses many rights and benefits when one does so.

    Yet by definition, census, and data, the density of that county will not change because all that is done is shift the people into a smaller area as the county of C has retained its population and land area.

    This urbanisation is occurring in the interior, north, central and western parts of China that are experiencing 300% wage (1000rmb/mo to 3000rmb/mo factory worker) increases over 3-5 year time frames as the Lewis Point was reached recently. Areas such as Guangzhou, Beijing and Shanghai already are completely urbanised with rural fields surrounding these metropolises.

    On a much smaller scale this process is now transforming the lesser known interior of China.

  20. magnificent post, very informative. I’m wondering why the other specialists of this sector don’t notice this.

    You must proceed your writing. I am confident, you’ve a great readers’ base already!

  21. liquid silver The urbanization fallacy | Michael Pettis’ CHINA FINANCIAL MARKETS

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