How did China get so rich?

[Baas Babelaas]

I might be naive in asking this, but I live on the mainland (Xiamen), and in the course of a five minute walk I see a dozen S-class Mercs (plus the 7-series, A6s etc).

I'm not bedazzled by it, I'm just wondering. Of course the Chinese are going through an extremely healthy period, economically. I have a rich Chinese friend who says she was only buying the X6 because it gave her face.

Perhaps I am bedazzled, South Africa went through a patch where everybody was buying houses and cars because the banks were throwing loans around. Then went through a dip.

Fill me in. I'm a watcher, an observer. I'd like the dirt. I know some of ya's of quite astute. I read the rags, I trawl the net, I have a couple of rich Chinese buddies. But where does does all this money come from? Owning a factory? Being connected?

Because there are still plenty of working class people. And dirt poor people.

[Isha]

Money is coming from the developed world. Labor is cheap in China. Companies charge countries like USA many folds than they actually spend. Funny part is, from the same money Chinese got from USA, they go back and buy out American companies and lend money to America.

[headhonchoII]

It is due to the very rapid economic growth along with credit growth. Same thing happened in Japan in the 80s. These things go in cycles.

[Baas Babelaas]

credit growth

The S600s are bought on loan? China prides itslef on being a cash-up-front nation, no?

[saddletramp]

How long will it last?

http://news.yahoo.com/asia-stocks-fall-big-economies-show-fatigue-032753595.html

On Thursday, data showed China's manufacturing is contracting. An index compiled by HSBC fell to 48.1 in March from 49.6 in February. Figures below 50 indicate that manufacturing is shrinking.
That's a negative sign because growth in China has played a key role in shoring up the global economy since the financial crisis of 2008.
And in another sign of cooling growth in the world's No. 2 economy, new home prices dropped in 45 Chinese cities in February as the government implemented measures to cool property speculation.
Worries about China's deceleration were compounded by a survey Thursday showing slower growth in Europe. An index of economic activity from financial information company Markit fell to 48.8 in March from 49.3 a month earlier. The index combines both the services and manufacturing.

The peasants will not want to remain peasants much longer. Is the economy ready to deal with the loss of cheap labor?

Who will be the next cheap labor center? Viet Nam? India? Indonesia? Philippines?
Hurry and get in the next bubble before it pops, with good timing, your nest egg is set.

[urodacus]

Companies charge countries like USA many folds than they actually spend.

how much is a fold, exactly?


and how do you charge it?

[Isha]

Companies charge countries like USA many folds than they actually spend.

how much is a fold, exactly?


and how do you charge it?

In simple terms, if something costs in US 100 $, China would ask them 70 $ for same product but would actually spend like 35 $ or less on production. I need to check how many firms in US are actually owned by China and Japan. I keep getting news but never looked for stats.

[greenmark]

in 2008 the banks were told to lend to local authorities for them to invest on infrastructure.

that's the credit growth that's ended up on s-class mercs

[Steviebike]

Read a good article on the land grabs (property development) in China and how the property bubble might be about to burst (too much supply). It also told a story of a farmer who sold his land. He invested his money in private loans (grey area loans?), lost nearly all of it when the business partner bunked on him. Apparently that sort of thing is common, both the loans and the bunking off.

Anyway...

Here is the article if you want to read it: http://www.bbc.co.uk/news/magazine-17390729

[headhonchoII]

There are a bunch of factors that are facing big head winds.
Export business grew exponentially but now has maxed out and possibly decreasing. The yuan is rising which is impacting their competitiveness.

Property has been systematically confiscated and rezoned resulting in massive wealth for developers and corrupt officials. The money to fund the deals came mostly from loose monetary policy.
Infrastructure has also been brought up to 1st world standard and more in most cities, but at this stage returns from investment are decreasing rapidly.

Lastly Chinas cheap labour force is going to start shrinking within the next few years.

Now they have to start concentrating on the software like pensions and healthcare and not hardware to get higher living standards and that is not so easy. The number of workers to dependents is reducing steadily.

All economies without fail go through economic cycles and it looks like it is chinas turn to finally take a hit. It was held off by massive credit growth in 2008 butthey cant do that again because inflation will get out of control , the price of oil is going to be a real worry now for them.
If they continue to keep credit loose the eventual bust will be worse and the poor and middle class may revolt due to inflationary pressure, if they reduce credit growth the property bubble along with many businesses could implode spectacularly. I don't think they can get out of this vise.