Workers walk out from a construction site at the Central Business District of Beijing, China Tuesday, jan. 20, 2015. China's economic growth slowed to 7.4 percent last year, the weakest expansion in more than two decades. The numbers released Tuesday, are still miles ahead of growth rates in major industrialized economies, but represent a sharp decline from double digit growth in previous years. That adds to pressure on the country's communist leaders as they try to prevent a sharper slowdown in 2015 while overhauling the economy. (AP Photo / Andy Wong)Workers walk out from a construction site at the Central Business District of Beijing, China Tuesday, jan. 20, 2015. China's economic growth slowed to 7.4 percent last year, the weakest expansion in more than two decades. The numbers released Tuesday, are still miles ahead of growth rates in major industrialized economies, but represent a sharp decline from double digit growth in previous years. That adds to pressure on the country's communist leaders as they try to prevent a sharper slowdown in 2015 while overhauling the economy. (AP Photo / Andy Wong)

Chinese entrepreneur Guo Xueming shares his experience partnering with Japanese business investors in China. This is a direct translation of his account posted to his Wechat account maart 7. - Epoch Times vertaalteam

One day in October 2012, Matsumoto Moria, the Japanese Consul General in Shenyang, invited me to eat with him at the Japanese restaurant inside the Isetan Department Store in Shenyang. He wanted to know my take on the anti-Japanese demonstrations, including the smashing of Japanese cars, that were taking place in various parts of China.

Dhr. Matsumoto advocated friendship between Japan and China. As a diplomat, he actively helped China attract Japanese investment. I met him at the groundbreaking ceremony of the Modern Architecture Industrial Park in the spring of 2010. Soon after, he came to my company to see me.

During our first visit, Dhr. Matsumoto wanted to know how I was able to bring two top Japanese companies, Kashima Group and Lixil Group, to China in just a few months. These were Fortune 500 companies and top construction and building materials enterprises. Japanese companies are very conservative, and Kashima, founded in 1840, is even more conservative, hij zei. Our company was registered in October 2009, and we signed contracts with Kashima in December 2009, with the relatively small registered capital of 100 miljoen yuan (US$14.5 million).

“Your company was set up only a couple of months ago. How did you introduce them to China?” Mr. Matsumoto asked.

I summarized the three main points for Mr. Matsumoto.

een: The city of Shenyang has a diameter of 200 km. This construction area is equivalent to the total building area in Japan.

Twee: There is a big difference in building material quality between China and Japan, especially in prefabricated construction, where China has zero and Japan tops the world. Japan’s prefabricated construction technology therefore has the advantage in China. It is able to take the market.

Drie: Although our company was very small, our team members were all entrepreneurs and familiar with the market. Japanese companies that want to invest in China need a partner who understands the market.

My three points are actually just one: markt, markt, markt.

What business cares most about is the market. Japanese companies came to China’s market. We signed contracts with Kashima, which brought Lixil. They also brought 17 affiliated companies to investigate the Chinese market.

Echter, during our meal at the Japanese restaurant, Dhr. Matsumoto commented that with China’s anti-Japan sentiments, many Japanese companies had reservations about the prospects of investing in China. He asked for my perspective, as a Chinese entrepreneur, on the future trend of Sino-Japanese business cooperation.

I was very optimistic and told him that China’s three decades of development had benefited from the open-door policy. The future wouldn’t diverge from this policy.

voorts, consumers are very practical. There was no need to worry that there wouldn’t be a market for good products, I assured him. Nationalist emotional outrage and pragmatism in shopping are not the same thing.

En tenslotte, those who boycott foreign products and smash cars on the streets don’t represent most Chinese people, I told him.

Dhr. Matsumoto agreed with my analysis. He talked to me about the Japanese government being sincere about Japanese-Chinese friendship and about clearing Japanese companies’ doubts about China. He also talked about a plan to build a Japanese road in the Hunnan district of Shenyang to provide a favorable environment for Japanese businessmen there, and he invited us to invest in the road.

Shortly after my meeting with Mr. Matsumoto, a young man who had smashed a car in Xi’an was sentenced to prison. But Japanese companies remained sensitive, realistic and conservative; it did not help much to create a more optimistic attitude.

Een paar maanden later, the Kashima Group and Lixil Group decided to withdraw from the Chinese market. The plan of 17 related Japanese companies entering China also evaporated.

As their partner, we tried to find viable solutions. I asked twice to hold talks with the high-level executives of the three companies to study the issue of product adaptability in China and solve operational difficulties. But they refused to talk. They did not even listen to solution proposals. They were determined to withdraw and bear the financial and credibility losses. This was clearly not a decision based on cost. They had lost confidence in China’s market discipline. If a business is confident about the market, it will first think about solutions to problems instead of closing down without even listening to any solutions.

Kashima and Lixil left. Although we took over their technology and team and carried on, it was difficult to get expected returns from the tens of millions invested. Our team’s dozens of trips to Japan to negotiate—which we took great pride in—came to nothing. Our dream to build safe, earthquake-resistant residential housing in China based on Japanese architectural norms was difficult to achieve in the short term.

Chinese people are the biggest losers.

I do understand the Japanese firms. Investor confidence is based on predictability. If a country’s market is not determined by the key economic element of scarcity, but instead by uncertain factors, such as political, diplomatic, and nationalistic emotions, it will shake the confidence of foreign capital. Those with capital are not willing to risk it in an environment that offers no security.

The most important foundation of the market economy is the protection of private property. Customers are resources that are part of that property, and they are the only source of return on investment. Encouraging boycotts of products is in essence encouraging infringement and deprivation of property rights. If non-economic factors of resistance are regarded as legitimate and correct, and often happen in a society, it will fundamentally shake the foundation of a market economy.

While China’s anti-Japan protests were brief, companies see what they imply. Just like seeing a maggot in the corner of a room, one’s immediate conclusion is that the room itself is dirty.

In de afgelopen jaren, many foreign-funded enterprises have withdrawn from China. The Isedan, where Mr. Matsumoto invited me for dinner, also went bankrupt. The success rate of introducing foreign investment has substantially declined. Natuurlijk, there were many factors. By sharing my own experience, I just want to remind everyone of the harm we inflict when we direct our patriotic sentiments toward foreign companies.

I think politicians and diplomats should garner the wisdom, means, and patience to resolve disputes between countries. They should not motivate the public to smash foreign cars, or boycott foreign supermarkets or foreign fast food chains, which undermines the overall open-door policy and the basis of the market economy.

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Chinese sales staff walk along an aisle paved with gold bars at a gold exchange house in Kunming, China, december. 11, 2012. (STR / AFP / Getty Images)Chinese sales staff walk along an aisle paved with gold bars at a gold exchange house in Kunming, China, december. 11, 2012. (STR / AFP / Getty Images)

The world is full of golden rules. There is one for every field: ethics, communication, fashion. But there is only one that counts, the golden rule of money: “Who has the gold makes the rules.”

China, it seems, wants to make the rules in the international monetary system, which is why it has been acquiring vast amounts of gold both through private and official channels.

Because of the obscure nature of the Chinese gold market and the reluctance of Chinese officials to show their hand, nobody has been able to accurately calculate how much gold the Chinese have amassed since about 2000, when they began amassing it.

Enter Koos Jansen, an analyst with Singapore bullion dealer Bullion Star. He has studied the Chinese gold market for years and recently came up with an estimate of total Chinese gold holdings: 19,500 metric tons, of 21,495 ONS. tons, at the end of January 2017.

“They have promoted gold ownership as a store of value since at least 2002, but more so when they introduced the ‘storing gold with the people’ concept in 2004,” says Jansen, a campaign encouraging private citizens to buy gold.

Private Hoard

According to Jansen’s estimates, total private holdings, including those of individuals and firms, are 15,500 metric tons. The official reserves of the People’s Bank of China (PBOC) are around 4,000 metric tons.

This would make Chinese the second biggest holders of gold after India, where citizens are estimated to hold 20,000 metric tons of gold in jewelry and other forms. Private sector holdings for the United States are unknown, but the Treasury still holds 8,134 tons in official reserves.

But where did China get all this gold when in the year 2000 it only had 4,000 tons in total?

The first piece of the puzzle is domestic mining.

“In the 1970s when China needed foreign exchange, that’s when they started their mining industry. They were supposed to start exploration and the people were incentivized to mine gold. That’s why there are so many gold mines in China.” He pegs the number at around 600.

Those 600 mines produced 490 tons of gold in 2015, making China the biggest producer ahead of Australia with 300 tons.

Importing Into a Black Hole

The next piece of the puzzle are imports. According to Jansen’s estimates, China imported about 1,300 tons of gold in 2016, mostly through Hong Kong but also directly from Switzerland and the United Kingdom.

Hier, Jansen points out a peculiarity regarding Asian buying: “Asian demand is strong when the price goes down. Western demand is strong when the price goes up. In april 2013, the gold price collapsed and a lot of gold was exported from the West to China, mostly from the UK.”

When the gold gets into China, it is then sold through the Shanghai Gold Exchange (SGE), which also handles scrap supply and domestic mining.

Curiously, Jansen points out, none of this supply is going to the central bank but rather to consumers and companies.

“In the domestic market, there are laws and incentives to push supplies through the SGE. Scrap, domestic production, imports, all go through SGE at first. The withdrawals from the exchange are equal to total private gold demand.”

Private demand includes individuals who want to diversify their assets or institutional investors, like pension funds but also the gold sold to jewelry companies for later resale.

“Companies and individuals buy gold for the same reason. Get out of the Renminbi, diversify, protection, enz," hij zegt.

As for the central bank, Jansen says that their purchases don’t show up in official import statistics and are kept a tight secret.

“The Chinese army even has a special division, I call it the gold army. This gold army can still be active, they can pick it up directly in the UK," hij zegt. The central bank also uses commercial banks who buy in Switzerland or South Africa and secretly ship the gold to China.

Bijvoorbeeld, the total gold holdings of the London Bullion Market Association dropped by 2,750 tons from 2011 naar 2015 but net exports were only 1,000 tons. dus, those 1,750 tons are unaccounted for and most likely ended up in official Chinese reserves.

According to Jansen’s contacts at Chinese banks, official holdings are closer to 4,000 tons rather than the published figure of 1839 tons.

What does China need that gold for? “They buy official gold to internationalize the Renminbi. If there are enough reserves behind it, they can make it a credible currency.” He who has the gold makes the rules.

That’s also why China doesn’t allow even one ounce of gold and silver to leave its shores once it enters. “The West has been selling gold into a black hole,” says Jansen.

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Chinese sales staff walk along an aisle paved with gold bars at a gold exchange house in Kunming, China, december. 11, 2012. (STR / AFP / Getty Images)Chinese sales staff walk along an aisle paved with gold bars at a gold exchange house in Kunming, China, december. 11, 2012. (STR / AFP / Getty Images)

The world is full of golden rules. There is one for every field: ethics, communication, fashion. But there is only one that counts, the golden rule of money: “Who has the gold makes the rules.”

China, it seems, wants to make the rules in the international monetary system, which is why it has been acquiring vast amounts of gold both through private and official channels.

Because of the obscure nature of the Chinese gold market and the reluctance of Chinese officials to show their hand, nobody has been able to accurately calculate how much gold the Chinese have amassed since about 2000, when they began amassing it.

Enter Koos Jansen, an analyst with Singapore bullion dealer Bullion Star. He has studied the Chinese gold market for years and recently came up with an estimate of total Chinese gold holdings: 19,500 metric tons, of 21,495 ONS. tons, at the end of January 2017.

“They have promoted gold ownership as a store of value since at least 2002, but more so when they introduced the ‘storing gold with the people’ concept in 2004,” says Jansen, a campaign encouraging private citizens to buy gold.

Private Hoard

According to Jansen’s estimates, total private holdings, including those of individuals and firms, are 15,500 metric tons. The official reserves of the People’s Bank of China (PBOC) are around 4,000 metric tons.

This would make Chinese the second biggest holders of gold after India, where citizens are estimated to hold 20,000 metric tons of gold in jewelry and other forms. Private sector holdings for the United States are unknown, but the Treasury still holds 8,134 tons in official reserves.

But where did China get all this gold when in the year 2000 it only had 4,000 tons in total?

The first piece of the puzzle is domestic mining.

“In the 1970s when China needed foreign exchange, that’s when they started their mining industry. They were supposed to start exploration and the people were incentivized to mine gold. That’s why there are so many gold mines in China.” He pegs the number at around 600.

Those 600 mines produced 490 tons of gold in 2015, making China the biggest producer ahead of Australia with 300 tons.

Importing Into a Black Hole

The next piece of the puzzle are imports. According to Jansen’s estimates, China imported about 1,300 tons of gold in 2016, mostly through Hong Kong but also directly from Switzerland and the United Kingdom.

Hier, Jansen points out a peculiarity regarding Asian buying: “Asian demand is strong when the price goes down. Western demand is strong when the price goes up. In april 2013, the gold price collapsed and a lot of gold was exported from the West to China, mostly from the U.K.”

When the gold gets into China, it is then sold through the Shanghai Gold Exchange (SGE), which also handles scrap supply and domestic mining.

Curiously, Jansen points out, none of this supply is going to the central bank but rather to consumers and companies.

“In the domestic market, there are laws and incentives to push supplies through the SGE. Scrap, domestic production, imports, all go through SGE at first. The withdrawals from the exchange are equal to total private gold demand.”

Private demand includes individuals who want to diversify their assets or institutional investors, like pension funds but also the gold sold to jewelry companies for later resale.

“Companies and individuals buy gold for the same reason. Get out of the Renminbi, diversify, protection, etc.,” he says.

As for the central bank, Jansen says that their purchases don’t show up in official import statistics and are kept a tight secret.

“The Chinese army even has a special division, I call it the gold army. This gold army can still be active, they can pick it up directly in the U.K.,” he says. The central bank also uses commercial banks who buy in Switzerland or South Africa and secretly ship the gold to China.

Bijvoorbeeld, the total gold holdings of the London Bullion Market Association dropped by 2,750 tons from 2011 naar 2015 but net exports were only 1,000 tons. dus, those 1,750 tons are unaccounted for and most likely ended up in official Chinese reserves.

According to Jansen’s contacts at Chinese banks, official holdings are closer to 4,000 tons rather than the published figure of 1839 tons.

What does China need that gold for? “They buy official gold to internationalize the renminbi. If there are enough reserves behind it, they can make it a credible currency.” He who has the gold makes the rules.

That’s also why China doesn’t allow even one ounce of gold and silver to leave its shores once it enters. As Jansen put it: “The West has been selling gold into a black hole.”

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Gordon Chang was a bit early when he wrote the book “The Coming Collapse of China” in 2001.

He predicted the collapse of the Chinese economy and the downfall of the communist party within ten years and his prediction is four years overdue.

Echter, the core arguments he made in the book are more valid than ever as Chang continues to provide us with an uncensored behind-the-scenes view of the Chinese political economy.

Epoch Times spoke to Chang about a superficially stable China in 2017 and what is causing the real friction under the surface.

Epoch Times: China managed to stabilize its economy in 2016, will the regime be able to continue in 2017?

Gordon Chang: China looks strong but it’s actually weak. It has passed the point of no return.

They put in an enormous amount of debt, and they did stabilize the economy. The manufacturing sector is a beneficiary; we are starting to see some inflation. But the cost of this is enormous. It’s the old tactics of using debt to generate growth. It shows desperation more than anything.

There are some things that China should do regarding reform in 2017, but they won’t get it done because of the political imperative. This year we have a half a decade event, the party congress in the fall of this year, where they will either announce a new leader or Xi Jinping remains in control. That is a critical one.

I think they will be successful holding the line through the party congress. Daarna, they are going to fail.

So they are going to try and hold the line. Xi Jinping has relentlessly taken the economics portfolio from Li Keqiang. He gets the credit, but he also gets the blame. He is not going to want to see a major disruptive event between now and the party congress. It should be obvious, but a lot of people take this into account.

I think they will be successful holding the line through the party congress. Daarna, they are going to fail. They are going to prevent adjustments for as long as they have the ability to do so. Their ability to create jobs, holding the GDP growth close to 7, all of this stuff they are going to try and do.

Even if it was growing at the official rate, China is creating debt 5x faster than incremental GDP. Beijing can grow the economy with ghost cities and high-speed railways to nowhere but that’s not free, it’s not sustainable.

After the party congress, China is going to go into free fall.

The only thing that can change the Chinese economy is fundamental economic reform. But they are moving in a regressive manner, Beijing is stimulating again. It’s taking China away from a consumption economy, toward the state, away from private companies.

China is not going to have another 2008, it’s going to be a Chinese 1929.

The Chinese dream wants a strong state, and it’s not compatible with market reform. Even if Xi were up for liberalize and change, it would be too little too late. Stimulus is going to increase the underlying imbalances. That’s going to make it more difficult to adjust.

Epoch Times: What is happening beneath the superficial stability?

Dhr. Chang: Look at what happened last year, capital outflows were probably higher than 2015. And 2015 was unprecedented, somewhere between $900 billion and a $1 trillion dollars.

The Chinese people see what other people have seen and it doesn’t make sense anymore. They see the economy is not growing. People are concerned about the political direction of the country, and people see the end is not that far away, so they move their money out.

People are also leaving. Young Chinese used to come to America to get an education; then they went back. Now Chinese kids get an education, they try to work for an investment bank, and they try to stay. Things are not as good at home as Beijing maintains.

To stop the capital outflows and maintain stability, they put in draconian capital controls starting in October, november 2016.

They put some real limitations on outbound investment for corporates and multinationals. They can do this, but how much longer? They are disincentivizing people to put money into China because they don’t know they can take it out again. In spite of the controls, they had record outflows. Capital outflows in the second half, when the controls started, were higher than in the first half.

They are going to continue to smooth things out after the Congress, but they won’t have the ability to continue the game. The whole thing is about confidence, and there is a failure of confidence in China.

Epoch Times: They are also using their foreign exchange reserves to manage the decline of the currency. The International Monetary Fund (IMF) for example says the $3 trillion they have is enough to run the economy.

Gordon Chang: They can just give you any number, and you don’t know whether it’s the right one, just like GDP. You cannot go to the State Administration of Foreign Exchange (SAFE) and look through their books. They can report anything, and you don’t’ know. They have a high incentive to fake that number.

We also know they have a synthetic short position because they are selling derivatives through the state banks. If you look at the estimates of foreign exchange reserves each month, they always outperform the surveys. China always outperforms, it doesn’t take a genius to figure out that the FX number can’t be right. Misreporting their FX reserve declines minimizes the problems, so people keep believing in the currency.

They can report anything, and you don’t’ know. They have a high incentive to fake that number.

So I think they don’t have the $3 biljoen. They have done the trick Brazil pulled in 2014 of selling derivatives instead of actual dollars. According to my sources, there’s $500 billion dollars still to be accounted for.

Then there are illiquid investments in the Chinese foreign exchange reserves, rond $1 biljoen. According to my estimates, you are then down to $1.5 trillion in usable money to defend the currency. The FX reserves aren’t as big and as liquid as Beijing wants them to be.

Epoch Times: So they will have to devalue sooner or later.

Gordon Chang: I don’t think they are going to devalue before the 19th party congress later this year.

Then they are going to devalue, but not as far north of eight [current rate is 6.9 per dollar] as it needs to be. The insufficient devaluation will shake confidence; people think it’s not enough, it has to be more. tenslotte, someone is going to figure out that their reserve numbers are wrong. But the one thing they need to defend their currency is foreign currency.

Xi Jinping says the Chinese dream is a strong China. So he is responsible for everything and depreciation never benefits the Chinese consumers. They continue to make stupid decisions. It’s the political system; the political imperative is too strong. It would be too embarrassing to do wholesale reform. He wants to appear strong. They have always tried to prevent natural economic adjustments—by doing that they have made the underlying imbalances bigger.

So in the end, China is not going to have another 2008, it’s going to be a Chinese 1929.

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Noot van de redactie: The following column is about Cao Dewang (or Cho Tak Wong), a well-known entrepreneur in the glass industry and a top philanthropist in China. About two months ago, Cao revealed an investment plan in the United States totaling about $1 miljard, which is expected to create thousands of jobs. A recent interview with Cao, where he explained why he made the decision, led to intense discussion in China about the country’s economy and the obstacles to doing business in China. The following column by finance columnist Dao Feng was among the most popular on the topic.

A year ago, Chinese real estate tycoon Li Ka-shing massively sold his real estate holdings in mainland China and “escaped” to the UK. Vroeger, an article titled, “Don’t Let Li Ka-shing Run,” widely circulated online. But maybe because of Li’s Hong Kong citizenship and not being a mainlander, state media refrained from taking his retreat very seriously. Echter, a year later, Cao Dewang, chairman of Fuyao Glass Industry Group, the second largest manufacturer of auto glass in the world, is leaving for the United States to build factories and plans to invest $1 miljard. This time Chinese media has responded in an uproar.

Why is Cao, the king of glass and China’s number one benefactor, going to the United States? The reason is the high cost of doing business in China. According to Cao, except that wages are lower in China, land, taxation, energie, logistics, and other costs are much higher in China than in the United States.

As a key figure of China’s manufacturing industry, Cao’s economic evaluation, though it makes China lose face, demonstrates the thinking of a true entrepreneur. Capital naturally chases the highest return, and if this is true, Cao is voting against China’s poor real economy with his feet. Now the Chinese media is demanding that Cao stay put. But even if Cao Dewang stays, will Zong Qinghou, Dong Mingzhu and other entrepreneurs do so?

We need to seriously consider how to really keep these Chinese manufacturers and support the development of the real economy in action.

Fixing China’s Real Economy

To create the “slow bull” market, the China Securities Regulatory Commission (CSRC) has recently cracked down hard on “monster stocks,” a term referring to those with unreasonably spiking or plummeting prices, even at the cost of serious financial market losses. Apparently, Liu Shiyu, Chairman of CSRC, understands politics very well. In response to the call from the top to transform the economy from virtual to real, CSRC has been determined to deleverage, squeeze the bubble, and guard against risk. It seems they now realize that the revival of China’s real economy cannot be further delayed.

During the recent Central Economic Conference, high-level officials set the tone, with the main focus being reducing bubbles. According to this rationale, the stock market will experience short-term adjustment and pains, but this is said to serve as the basis of the 2017 slow and steady bull market. Also predicted, echter, is a long-term capital scarcity.

Why doesn’t China’s real economy make money? Because of insufficient demand. Why is the demand insufficient? Because people have no money to spend. Why don’t people have money? Their money was taken away by real estate speculation and various financial scams. Bovendien, many years of government stimulus spending created asset bubbles, have made the rich become richer and the poor become poorer. The growth of M2 mostly benefits high-income groups, but their need to consume will not grow as much due to diminishing marginal utility.

Since the recession hit the real economy beginning in 2014, a flood of hot money inflated bubble after bubble. in het begin van 2014, the bond market rallied, followed by the stock market in the second half of that year, the real estate market in 2015, then the commodity market in 2016. Daarnaast, use of the Internet has led to an acceleration and bubble in the virtual economy during recent years. Many companies raised billions of yuan just by telling a good story via powerpoint presentations.

If we want to go back to the real economy, we need to come up with courage and action, otherwise the whole business community will run away.

Cao Dewang’s story also exposes a major sore spot in China’s economic recovery plan: high taxation. China has the world’s most government investment projects. It therefore has to impose the highest taxes in order to maintain itself. Bovendien, when local governments’ land sales revenue comes to an end, tax pressure will become even higher. Right now, tax cuts sound like just fairy tales!

Voor een lange tijd, China’s per capita income growth has been lower than the country’s GDP. GDP growth has been lower than tax growth. Burdens increasing for enterprises is an indisputable fact, and in the long run, capital escape is inevitable.

The solution lies in smaller government, including the reduction of project approval processes, large-scale dismissal of the civil service staff, reduction of all kinds of ineffective investment, and substantial tax reductions. The outcome would be that the growth of people’s income will surpass that of GDP, and the growth of taxes will be less than GDP.

This is an abridged translation of a Chinese article posted on the author’s personal blog at Sina. Dao Feng is a well-known Internet blogger and stock analyst. Writing pseudonymously, Dao Feng produces a high volume of articles analyzing China’s stock market and economic issues, and is one of China’s most influential financial bloggers, registering millions of readers monthly.

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A water container delivery worker drives on a street in Beijing on Dec. 9, 2016.  Economist Ma Guangyuan says that China needs to develop genuine property rights to enhance economic growth. (Nicolas Asfouri/AFP/Getty Images)A water container delivery worker drives on a street in Beijing on Dec. 9, 2016.  Economist Ma Guangyuan says that China needs to develop genuine property rights to enhance economic growth. (Nicolas Asfouri/AFP/Getty Images)

During a sea battle in 1571, a Turkish general hid 150,000 gold coins in the cabin of his warship. He was defeated, and his entire wealth ended up at the bottom of the sea. Why did he bring along all this gold when going off to war? There was no property protection in Turkey back then. People’s belongings could be stolen or confiscated at any time.

Scottish economist Adam Smith, in his now classic book An Inquiry into the Nature and Cause of the Wealth of Nations, first published in 1776, made a comment that still holds true today: “In a rude state of society… The individuals, who hoard whatever money they can save, and who conceal their hoard, do so from a distrust of the justice of government, from a fear that if it was known that they had a hoard, and where that hoard was to be found, they would quickly be plundered.”

This now brings me to China’s present economic situation and the need to address private property protection that was recently laid out by senior Chinese officials in a published document.

How important are property rights?

The right to own property is the cornerstone of a healthy economy, the foundation of trust, the premise for innovation, and the key and prerequisite for understanding economic growth since the time of the Industrial Revolution.

ONS. financial expert William Bernstein, in his best-selling book The Birth of Plenty, How the Prosperity of the Modern World was Created, attributes this rapid economic growth to four factors: property rights, scientific rationalism, capital markets, and efficient communication and transportation systems. He argues that a country can only prosper when all four factors are in place. Bovendien, he ranks property rights at the top. In his view, the protection of private property is the very premise and foundation of an economy.

Being able to own wealth motivates people in their pursuit of success and happiness. Whether a country has laws that allow citizens to acquire wealth, and provides legal protection for this wealth, is not only of great importance to the wellbeing of the individual, but also vital to the development of society as a whole.

In his 1981 book Structure and Change in Economic History, renowned economist Douglass C. North states that by comparing economic effects of different social systems over a long period of time, he discovered that countries that guaranteed property rights and provided a predictable solution to economic disputes, create an optimal environment for economic development. The rise and fall of Western powers, and the ups and downs of modern countries, have proven this point: countries that protect private property rights can overcome various traps in the process of development. Britain and the Netherlands surpassed France and Spain in the 17th century mainly because of their effective recognition of property rights and their robust political and legal systems.

In China, where state ownership predominates, the development of a property rights protection system has not been easy. The conception of a free market economy, private property rights, and the introduction of property laws, are steps that require the hard work and lofty ideas of many individuals.

The provision of laws in China means that property rights are not, in werkelijkheid, being properly protected. We can see that in actuality there are still many deficiencies in the protection of property rights, especially in the protection of private entrepreneurs. During the past years, some entrepreneurs under investigation, even when proven innocent, found it difficult to continue running their businesses, and in some cases their assets were even seized. With irregular business practices being the norm in China, entrepreneurs live in a constant fear of punishment. This environment has become a big factor in Chinese entrepreneurs’ lack of trust in long-term economic prospects.

The recently published document specifically mentions these prominent issues: The use of state power against private property rights, and frequent illegal sealing, seizure, and freezing of private property. It also stresses the need to protect the various forms of economic entities as well as citizens’ property rights according to law and to enhance people’s sense of confidence regarding the security of property and wealth.

As China is determined to become an innovative economy, the importance of property rights protections is more urgent than ever. Negative expectations in regards to property rights have an unprecedented impact on China’s future. The key to whether China can become a country of innovation is tied to the respect of property rights and the rule of law. It is the premise and key of China’s successful economic transformation.

In a country where private property right are violated every day, entrepreneurs will not feel the impetus for innovation. Why do Chinese entrepreneurs transfer large amounts of assets overseas? And why do Chinese companies show so little motivation to innovate? The answer lies in the lack of property rights. This is the problem.

This is an abridged translation of Ma Guangyuan’s Chinese article, posted to his public WeChat account op november. 30, 2016. Ma Guangyuan is een bekende onafhankelijke econoom in China. Ma appears as a financial commentator on China Central Television, and his columns have been published in Financial Times Chinese, Southern Weekly, and elsewhere.

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Deng Xiaoping’s ‘cat theory,’ parodied by the political cartoonist Rebel Pepper. (Rebel Pepper)Deng Xiaoping’s ‘cat theory,’ parodied by the political cartoonist Rebel Pepper. (Rebel Pepper)

Noot van de redactie: China’s rapid economic growth over the past three decades began with a privatization process pushed forward by former Chinese Communist Party leader Deng Xiaoping. Following the decade of extreme political oppression during the Cultural Revolution, Deng presented his famous “Cat Theory” to propagate his introduction of a capitalist market economy. The theory states: “It doesn’t matter if a cat is black or white; as long as it catches mice, it’s a good cat.” In essence, the “black cat” and “white cat” stands for “planned economy” and “market economy,” and Deng was saying that whichever one gets the job done will be adopted. Echter, meer dan 30 years after Deng’s proclamation, with China’s economy in the doldrums, massive government corruption, and extreme social inequality, many now question China’s economic model. The following blog article is an example.

In Deng Xiaoping’s home, there is a painting called “Two Cats” by renowned painter Chen Liantao. An inscription in Chinese calligraphy says: “It doesn’t matter if a cat is black or white; as long as it catches mice, it’s a good cat.”

In 1985, Deng was voted “Man of the Year” by Time magazine. The white cat, black cat theory was also featured in Time magazine. That year, Deng’s “Cat Theory” spread from China to the world. Since the Third Plenary Session of the 11th Communist Party’s National Congress, the “Cat Theory” has become the theoretical mark of China’s transition to economic development.

Cats Catch Mice

Cats are born to catch mice. Human beings have human nature, without which people are not humans. But humans also have a selfish side, a tendency to look after their own self-interest. Almost everyone wants to get rich, from the emperor to the common people.

Enterprises share the same nature in terms of market competition. The impulse to “catch mice” is completely different in private enterprises and in state-owned enterprises. Private enterprises are driven by a strong impulse of self-interest, similar to the nature of a wild cat. State-owned enterprises are different, because “catching mice” is not directly related to “eating mice.” Therefore their nature has changed. Bijvoorbeeld, Chu Shijian created the Red Pagoda cigarette kingdom that paid tens of billions of yuan in taxes each year. But in the end, Chu was sentenced to decades of imprisonment just for stealing a “small fish.” The Chinese communist regime made the cat look at the fish, but didn’t allow the cat to eat.

Allowing All Cats to Catch Mice

Why can some cats catch mice, but others cannot? In a given social environment, it depends on whether they are allowed to do so, or which ones are allowed to do so. All cats have the nature to catch mice. But if some cats are locked up in a cage, they cannot catch mice. Vanuit dit perspectief, the statement “regardless of white cat or black cat, the cat who catches mice is a good cat” is a false proposition.

The same is true for a profitable industry. Take the financial industry for example, it is easier for state-owned capital to enter the field, but very difficult for private enterprises to enter. Is it that private enterprises do not know how to manage their finances? Of course not. In order to protect “state cats,” some “wild cats” are not allowed to catch “mice.” In an unequal market environment, it is not possible to know which cat is a good cat.

Cats catching mice is not the secret of success. The secret of success is that we can all catch mice. Why are you the only one allowed to catch mice?

Not All Rich Cats Were Good Cats

White cat or black cat, those who became rich first were not necessarily good cats. Letting some people get rich first was a strategy of the “Cat Theory.” This strategy enabled some people in China to become world-class tycoons. It also made China grow into the world’s second largest economic power. Echter, not allowing white cats to catch mice made black cats become very large. After black cats became rich, they did not have the intention to let white cats join them in catching mice.

In the three decades after China’s reform, the vast majority of rich Chinese entrepreneurs and tycoons have benefited to a certain extend from this inherent injustice in the system. The reason you caught mice was not because you were more capable than Jack Ma, but because you were allowed to do so by your master.

Dysfunctional Distribution System

Voor een lange tijd, a dangerous economic policy tendency has prevailed: the introduction of “demand side” or “supply side” policies. These ended up furthering the interests of a few people by letting them reap profits. Eigenlijk, many times polices were made to benefit the entire population, but they often ended up benefitting only a small number of people. This is the reality.

The “demand side” and “supply side” reforms developed by western economies are unable to unlock China’s economic gridlock. The real issue of the Chinese economy is that its mechanism of “distribution” is degenerating. It cannot regulate the fair distribution of social benefits. The “distribution side” of the machine has rusted and shut down. Eigenlijk, it is accelerating the process of the wealthy getting richer, and the poor getting poorer.

In het verleden, we used to refer to dysfunctions in the distribution system as a problem of income distribution. Eigenlijk, this is a one-sided view. In today’s Chinese society, the ways to become wealthy are diversified, with income being only one of the channels and no longer the main channel. Regardless of how rich the wealthy are, who became rich through labor income? Heel weinig.

Having the majority of people become rich cannot be limited to labor income. Income from labor is limited. One needs knowledge, capital, human relationships, and opportunities. Bijvoorbeeld, if a small shopkeeper wants to open up a shop or expand his business, he needs liquidity. Getting the capital is critical for him. Without capital and relying only on savings from his income, he may not be able to achieve his dream of opening a shop.

Financing opportunities are related to the distribution of capital, access to knowledge and education. Opportunities to accumulate wealth are related to social equality and fairness. How a society distributes resources equally among all members of society is not only an issue of income distribution, but also an issue of fair competition. Without fair competition, opportunities are controlled or monopolized by a few people and society will accelerate the polarization of wealth.

Why are black cats fatter than white cats? It is not because there is a difference in their genes, or that black cats are smarter, more capable, or work harder. The problem resides with the owner.

Fan Di is an independent economist and part-time professor of Peking University and Sun Yat-sen University. He obtained a Ph.D. at the University of California, Berkeley, supervised by Li Yining of Peking University and Nobel Prize winner George Arthur Akerlof. Fan has been a senior executive and consultant at major banks, financial firms, and large companies. This is an abridged translation of an article posted on Sept. 9, 2016 on his public WeChat account.

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An elderly Chinese farmer stands outside her home on farmland backdropped by a new housing development outside Beijing on Nov. 21, 2014. (Kevin Frayer / Getty Images)An elderly Chinese farmer stands outside her home on farmland backdropped by a new housing development outside Beijing on Nov. 21, 2014. (Kevin Frayer / Getty Images)

The size of China’s government is enormous. Door 2007 China’s fiscal revenues had reached 5.1 biljoen yuan ($770 miljard), which accounted for 21 percent of GDP and was equivalent to 370 million urban residents’ annual disposable income — or the annual net income of 1.23 billion farmers.

Imperial China’s Fiscal Revenue

How does China’s fiscal revenue under Communist Party rule compare with the era under imperial rule? In 1766, during the mid-Qianlong era, the government’s fiscal revenue was 49.37 million taels of silver.

The Dutch East India Company conducted detailed investigations around 1760 on income and consumption of people in Beijing and Guangzhou. According to historical archives, the annual income of an ordinary Beijing citizen was about 24 taels. daarom, 49.37 million taels of silver was equivalent to 2.05 million ordinary Beijing citizens’ annual income. The income of just 2.05 million Beijing citizens was sufficient to support the entire Qianlong government. Duidelijk, it was a small government.

Natuurlijk, some people might say that we cannot compare any country’s government revenues and spending with a period of the past, because those were traditional agricultural economies, and government revenues were therefore low. Modern economies, echter, are complex and depend on various kinds of government assistance. This reasoning makes a certain amount of sense. Zo, let’s use a different example.

United States’ Fiscal Revenue

Let’s use the United States, a modern country, as comparison with today’s China. de U.S.. financial securities markets, intellectual property sector, and private enterprises are the most developed in the world. Daarnaast, it also plays the role as world police. daarom, its government spending would not be lower than any other country’s.

In 2007 het U.S.. federal government’s fiscal revenue was $2.4 biljoen, of 18 procent van het BBP, and was equivalent to 85 million average American citizens’ annual disposable income. That is to say, in order to support the U.S. government’s spending, it took 85 million Americans’ disposable income. This is far lower than the 370 million Chinese urban residents required to support the Chinese government in 2007.

China has 540 million urban residents, en 800 million farmers. Their total disposable income last year was 10.7 biljoen yuan ($1.62 biljoen). The Chinese government’s fiscal revenue was 50 percent of Chinese citizens’ total disposable income.

Daarentegen, total disposable income in the United States was $8.4 biljoen. De $2.4 trillion government fiscal revenue was equal to one quarter of U.S. citizens’ disposable income.

dus, the Chinese government is much larger than the U.S. government in terms of fiscal budget.

Private Wealth Structure Comparison

Chinese citizens do own wealth, including real estate, corporate equity, financial securities, bank deposits, enzovoort. But these citizens are mainly urban residents. Chinese farmers do not own land, nor do they have much savings. They have little wealth.

According to a National Development and Reform Commission (NDRC) estimate, by the end of 2005, the total asset value of Chinese urban residents was 20.6 biljoen yuan ($3.11 biljoen). If adding 15 percent to adjust for inflation, it would have been 27.6 biljoen yuan ($4.17 biljoen) by the end of 2015, less than one third of the 88 trillion yuan worth of state-owned assets and state-owned land.

The total of China’s private and state-owned assets was 115.6 biljoen yuan ($17.5 biljoen), equivalent to 4.7 times of GDP. In tegenstelling tot, het U.S.. government basically does not own income producing assets. It only holds a small amount of land. By the end of 2007, total private assets in the United States were $73 biljoen, 5.4 times of GDP and slightly higher than China’s ratio of total assets versus GDP.

Although the ratio of total assets and GDP of the two countries is roughly the same, wealth distribution between the people and the government is completely different. In China, meer dan 76 percent of assets are owned by the state, with people owning less than a quarter. In the United States, assets are basically in the hands of the people.

Of China’s 115.6 trillion yuan of wealth in 2007, alleen 27.6 biljoen ($4.17 biljoen) belonged to people, the remaining 88 biljoen yuan ($13.3 biljoen) was owned by the state. If in 2008, China’s asset value and GDP increased by 10 procent, then private citizens earned 2.76 biljoen yuan, and the government earned 8.8 biljoen yuan. The government’s share of asset appreciation from economic growth was three times greater. This is the reason why asset appreciation has so little effect in driving China’s domestic demand or raising internal consumption.

Where Did the Government’s Money Go?

I mentioned above that the government’s fiscal revenue was 5.1 biljoen yuan ($770 miljard) afgelopen jaar, and state-owned assets and appreciation of land was at least 9 biljoen yuan ($1.36 biljoen). State-owned enterprises had profits of 1.6 biljoen yuan ($240 miljard). The government had a total income 15.7 biljoen yuan ($2.37 biljoen). How was the money spent?

According to former Finance Minister Xie Xuren, in 2007, the Chinese government’s direct spending on people such as healthcare, social security and employment benefits totaled about 600 miljard yuan ($90.6 miljard). This was equivalent to 15 percent of total expenditures and 2.4 percent of annual GDP. Divided by 1.3 billion people, the per capita of social expenditures was 461 yuan ($69), which is equal to 3 percent of urban residents’ per capita disposable income.

In the United States, government spending on the same three categories in 2015 was ongeveer $1.5 biljoen, of 61 percent of total federal spending, en 11.5 procent van het BBP. The per capita spending was $5,000 when divided by the 300 million U.S. population, and it was equivalent to 18 percent of Americans’ per capita disposable income.

It is not that the Chinese government does not spend money, but that it lacks real oversight of the budget process. The Chinese government tends to waste money on high-profile infrastructure projects and government office buildings, and invests in industries with high resource consumption, high pollution and low job-creation. Daarnaast, this all provides a breeding ground for corruption.

Because in China there is too much asset wealth and income in the hands of the government, it is difficult for the masses of people to earn more and consume more, and for service industries to develop around people’s livelihoods. dus, where would demand and investment for tertiary industries come from?

Chen Zhiwu is a professor of finance at Yale University. This is an abridged translation of his Chinese-language article posted on the website Aisixiang, and widely republished on the Chinese-language internet.

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Customers and real estate agents look at several building models at a real estate exhibition in Jiashan, Zhejiang Province on Oct. 19, 2012. (AFP / AFP / Getty Images)Customers and real estate agents look at several building models at a real estate exhibition in Jiashan, Zhejiang Province on Oct. 19, 2012. (AFP / AFP / Getty Images)

China’s real estate market is akin to a Ponzi scheme with the government acting as the dealer, referee, and big player. The market is entirely propped up by loans.

From a market point of view, Chinese real estate has no investment value. To consider it an investment product, one needs to first examine the existence of a bubble based on three indicators: the ratio between real estate investment and GDP, the price to income ratio, and the rental ratio.

The real estate investment to GDP ratio is mainly used to evaluate the anticipated future price and whether real estate investment is overheating. China’s real estate investment and GDP ratio has been high: 14.8 procent 2013 en 14.18 percent in 2015.

Sinds 1960, real estate bubbles have all burst in countries where real estate investment and GDP ratios were higher than 6 procent . When the Japanese real estate market collapsed, real estate investment accounted for only 9 percent of GDP. At the start of the U.S. subprime mortgage crisis, the ratio reached a local peak of 6.2 procent.

Other data, for instance the affordability of housing, as well as rental income from housing, shows that real estate holds hardly any interest as an asset class in China, and is little better than a gamble.

Then why does the Chinese government allow the use of large amounts of loans to support real estate?

Real Estate Dependence Sickness

China’s economy is suffering from real estate dependence sickness, primarily because local governments are financially dependent on land.

China’s local governments all make money on land sales as all land in China is state-owned. Tussen 2003 en 2015, their land dependence ratio (the ratio of land transfer fees to general budgeted revenues) averaged nearly 50 procent .

Bijvoorbeeld, Suzhou city, a second-tier city, had an average land dependence ratio of 82.6 percent during the first eight months of 2016, uit 40.58 procent 2015. in Hangzhou, Hefei, Nanjing and other cities, land dependence ratios were also above 50 procent. daarom, local governments must act as big players in the housing market and keep supplying land to the market.

Daarnaast, the real estate industry has an important position in China’s economy. As early as 2009, Yu Bin, the Macroeconomic Research Department Chair at China’s State Council, publicly stated that the real estate industry accounted for 6.6 percent of GDP and one quarter of investment, with up to 60 directly related industries, and had become the direct lifeline of China’s economy. Once there are huge real estate market fluctuations, dozens of industries relying on real estate will suffer incalculable losses and may even cause the collapse of China’s real economy.

Nu, with the depressed real economy, what would the Chinese regime do if real estate collapsed? daarom, the central bank must be the dealer and keep issuing money and distribute dice to the local governments, real estate developers, and buyers, for them to gamble.

Political Survival

From a market economy point of view, China’s real estate boom will die. Eigenlijk, the world has experienced real estate bubbles about a hundred times. In the last 20 jaar, we watched the collapse in Japan, the world’s second largest GDP, and the United States, the world’s largest GDP. While the bubble in Japan slowly deflated, the United States suffered an instant collapse.

Past experience tells us that China’s real estate bubble will burst sooner or later. The only question is how it will collapse.

For the Chinese government the consequences of a real estate collapse are very serious. The first domino to fall will be a local debt crisis, followed by a financial crisis. Zo, in the government’s view, real estate is the industry that must be saved by all means. In 2015, the majority of the 11 trillion yuan new loans issued went to the real estate market. This trend continues in 2016 and might surpass 2015. daarom, it can be expected that as long as the central bank continues to issue loans, home prices will keep rising.

In the United States, the Ponzi scheme went bankrupt because players, banken, and the government (the referee) are all parties with different interests. In China the government is the referee, the central bank the dealer, and local governments the players.

Real estate in China has become the central bank’s currency pool. Supplying the real estate market with credit has become the Chinese government’s way of maintaining economic stability. The worst consequence of this approach is inflation. Echter, inflation only diminishes social wealth. It does not create external military threats or internal conflicts that are difficult to suppress, and it will not directly lead to the collapse of the regime. Zimbabwe’s hyperinflation was many times worse than China’s but did not lead to the downfall of the regime.

Daarnaast, the Chinese government has long ago put in place a set of market controls, such as purchase limits, sales limits, and price limits. It uses them in whichever way it wants to. Since the government is the referee, dealer, and big player, the bubble can become much bigger than the ones in Japan and the United States. And the government has a lot more room to maneuver.

He Qinglian is a prominent Chinese author and economist. Currently based in the United States, she authored “China’s Pitfalls,” which concerns corruption in China’s economic reform of the 1990s, and “The Fog of Censorship: Media Control in China,” which addresses the manipulation and restriction of the press. She regularly writes on contemporary Chinese social and economic issues.

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A group of potential real estate buyers look at an estate plan by a local developer at a property exhibition in Shanghai on March 19, 2006. (Mark Ralston/AFP/Getty Images)A group of potential real estate buyers look at an estate plan by a local developer at a property exhibition in Shanghai on March 19, 2006. (Mark Ralston/AFP/Getty Images)

Noot van de redactie: For a number of years, both Chinese Western economists have commented on China’s out-of-control real estate bubble. According to all indications, the bubble should have burst a long time ago. But it hasn’t—for reasons all of its own. This article by Cai Shenkun uncovers some of the dynamics of China’s distorted real estate market.

The number one dinner table conversation in Beijing these days is the red-hot real estate market. There seems to be no limit for Beijing’s property market; it boasts the most expensive real estate projects, the largest number of buyers, and the most frenzied investor activity.

Aan het einde van 2014, a friend of mine bought an apartment at the West Fourth Ring Road for under 50,000 yuan per square meter (over $740 per square foot). Now it is valued at over 100,000 yuan per square meter. Another friend bought a property in Hebei GuAn last year for 7,000 yuan per square meter, and it is now worth over 20,000 yuan per square meter. Yet another friend brought a property in Tianjin Wuqing earlier this year for 10,000 yuan per square meter. Nu al, it too is worth over 20,000 yuan per square meter.

It is not purely an economic issue, but also about the survival of the regime.

In Shenzhen and Shanghai home prices are also skyrocketing. Skeptics who forecast the decline in first tier cities are now quiet and have joined the bandwagon of house buyers.

With the downturn of China’s economy, it has become more and more difficult to make money. People find that buying and selling real estate is the only way to get rich, and get rich fast.

As of Sept. 5, 304 properties priced over 100,000 yuan per square meter have been sold this year, nearly five times as many as the 63 sold around the same time in 2015. voorts, a record number of 3,849 homes priced over 10 million yuan have been sold.

The community of Golden Huachen, located in a remote mountain area, just won a “grand slam” award. According to data released by developers, 156 four-bedroom apartments with an average price of eight million yuan were sold out 40 minutes after the sale started at 9:30 ben. An average of four units were sold per minute, with buyers waiting in line since 6:00 ben. The developer grossed 1.3 billion yuan in one day.

The Bubble

People don’t seem to be concerned that China has a big real estate bubble. The observation of one company leader is very characteristic. He said that, based on per capita income, not many people can afford buying homes in Beijing, Shanghai or Shenzhen. The bursting of the real estate bubble is long overdue, hij zei, but the reason the bubble is getting bigger and bigger and indestructible is because of support from the banks. Should the real estate bubble burst, banks would collapse, followed by the government. So the government makes every effort to prevent the bubble from bursting. It is not purely an economic issue, but also about the survival of the regime.

Home loans make up the majority of most banks’ credit. At the end of this year’s first quarter, 18 listed Chinese banks held a total of 14.12 biljoen yuan ($2.1 biljoen) in home mortgages. This does not include the huge development loans given to developers. In 2016 many banks launched a home equity loan program, most of them are in the amount of 3 miljoen yuan ($450,000) of meer. Some banks even do not have an upper limit. Banks are thus giving tremendous support to the hot real estate market.

Many people have disagreed with the statement that real estate has kidnapped the Chinese economy. Now it seems that real estate has not only kidnapped the Chinese economy, but also the banks, the Party, and every family and individual who has purchased real estate through loans.

Based on the law of the market, housing prices don’t only go up, they also come down. Political factors outside the market also affect real estate prices. The “Chinese Model” that people talk about refers in fact to China’s peculiar real estate wealth accumulation pattern. When a country of 1.3 billion people copies the example of Hong Kong, tying land to revenue, how could real estate prices not go up?

Many people have disagreed with the statement that real estate has kidnapped the Chinese economy. Now it seems that real estate has not only kidnapped the Chinese economy, but also the banks, the Party, and every family and individual who has purchased real estate through loans. From the start, the Chinese real estate market was not about providing homes for better living conditions. This is not a normal real estate market. It is all about politics.

Corruption

Many factors are pushing up China’s real estate prices. In addition to currency issuance, land finance, and government intervention, there is also corruption. Almost every fallen corrupt official owns multiple houses.

In today’s real estate market, ordinary people cannot afford to buy a home, yet corrupt officials own large numbers of properties. It fosters a deep sense of powerlessness and frustration among the people. Eigenlijk, housing has become a hard currency. Corrupt officials’ ownership of multiple housing units tells people that abuse of power is indeed very serious in China.

Aan het einde van 1979, China’s RMB currency supply (M2) was 155.5 miljard yuan. In 2006, M2 reached a record of 30 biljoen yuan ($4.5 biljoen), en in 2016 it has soared to 141 biljoen yuan, an increase of nearly 1,000 keer over 1979. Because China’s real economy has little to recommend it, this massive capital can only circulate in the property market, thus continuously boosting house prices. In this emotionally charged environment, people seem to have lost their rationality and sense for numbers. No matter how much new property comes on the market, it will sell out — for now.

This is an abridged translation of Cai Shenkun’s Chinese article, posted on the author’s personal blog. Cai Shenkun is een bekende Chinese econoom en blogger. Hij schrijft columns voor een aantal vooraanstaande business websites en werd uitgeroepen tot een Top Tien invloedrijke Blog Writer op de website van Phoenix Television gedurende drie opeenvolgende jaren.

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Een algemeen beeld van de gebouwen in de verlaten Qingquan Steel plant die in gesloten 2014 en werd een van de vele zogenaamde 'zombie fabrieken in Tangshan op Jan. 26, 2016. (Kevin Frayer / Getty Images)Een algemeen beeld van de gebouwen in de verlaten Qingquan Steel plant die in gesloten 2014 en werd een van de vele zogenaamde 'zombie fabrieken in Tangshan op Jan. 26, 2016. (Kevin Frayer / Getty Images)

Dit is het laatste van een vierdelige serie. onderdelen een, twee, en drie werden eerder gepubliceerd.

Sinds Marx creëerde zijn communistische theorie, China heeft de eerste kapitalistische economische systeem in het kader van de communistische partij regel worden. De Chinese Communistische Partij (CCP) begon zijn bewind door het elimineren-kapitalisme het transformeren van privé-eigendom in staatseigendom, maar was niet in staat om een ​​succesvolle socialistische economisch systeem te creëren. Het moest uiteindelijk om terug te schakelen naar een kapitalistisch systeem om de regel uit te breiden.

Tijdens de hervorming van prive-eigendom, CCP ambtenaren op alle niveaus, en hun families, werd ondernemers, grootgrondbezitters, en enorme financiële asset owners. Hun proces van vermogensopbouw is één van de duisternis en criminaliteit. Ze hadden dus de rode regime om hun eigendom en het leven te beschermen, en ze hadden ook de overheid monopolies blijven vergaren van meer welvaart. daarom, deze mensen zijn de grote voorstanders van het huidige systeem in China, in plaats van facilitators van democratisering.

onrechtmatige Verduistering

Hoe heeft rode elite van de CCP gaan van het bezitten niets aan het worden super rijk in een korte periode van 20 naar 30 jaar? Dit is het geheim van de communistische-kapitalisten 'en de gids voor het begrijpen van het communistische kapitalistische systeem en de toekomstige politieke richting van de CCP belangengroepen. Eigenlijk, ze bereikt het door onwettige verduistering van publieke goederen, het handhaven van monopolies van belangrijke industrieën, en door het manipuleren van het beleid op een uitkering te krijgen en hun autoritaire bewind te handhaven.

Cheng Xiaonong (NTD)

Onrechtmatige verduistering van publieke goederen verwijst naar de CCP elite direct overnemen van kleine en middelgrote staatsbedrijven (SOE) en het verkrijgen van gratis aandelen in grote staatsbedrijven in de loop van het privatiseringsproces.

Het handhaven van het monopolie industrieën verwijst naar grote SOE's in de financiële, energie, elektriciteit, vervoer, telecommunicatie, en andere sectoren waarin de rode elite of hun tweede generatie nakomelingen bezetten sleutelposities. Sommige van deze bedrijven behoren tot de top van de wereld 500 bedrijven. Ze bieden grote hoeveelheden belastinginkomsten om het regime te steunen en liet de rode elite om snel rijk door middel van het verwerven van aandelen worden, smeergeld, betalen en bonussen.

Door het beïnvloeden en manipuleren van beleidsvorming, de rode elite en hun familieleden waren de eersten om betrokken te raken in vele industrieën en projecten en dus gemakkelijk opgedaan enorme voordelen.

Handhaving van autoritaire bewind verwijst naar extreme vijandigheid van de rode elite om democratisering en om hun hoop op eeuwig blijven de rode regime aan de macht, om zo permanent hun voorrechten en enorme hoeveelheden illegale rijkdom beschermd worden door de CCP regime.

Red Kapitalisten

Wanneer een groot aantal ondernemingen van China en welvaart liggen in de handen van de rode kapitalisten, de enige betrouwbare systeem van bescherming voor hen is noch markteconomie, noch de rechtsstaat, maar "de proletarische klasse de dictatuur,"Wat betekent dat hun permanente dictatuur over alle andere leden van de samenleving.

Ze weten duidelijk dat de traditionele socialistische economische systeem is niet werkbaar; ze hebben toegang tot de rijkdom die is gemakkelijker beschikbaar dan rijkdom verdiend door ondernemers in democratische provincies; ze hebben ook een uitstekende politieke positie zonder concurrentie, en ze zijn in staat om politieke democratisering die zouden kunnen leiden tot politieke en economische liquidatie te voorkomen. Dit is de essentie van de "China-model."

Een bejaarde Chinese boer staat buiten haar huis op landbouwgrond backdropped door een nieuwbouwwijk in Hebei op november. 21, 2014. (Kevin Frayer / Getty Images)

Duidelijk, onder het regime van de CCP, deze rode kapitalisme zal niet spontaan transformeren in een kapitalistisch democratisch systeem. Voor een lange tijd, Westerse geleerden hebben de overtuiging verklaard dat, na de economische liberalisering, de rode elite zal natuurlijk omarmen de democratie en de vrijheid. China's transformatie heeft dit idee bewezen dat niet alleen naïef zijn, maar ook verkeerd.

Echter, de rode elite is ook heel duidelijk over het feit dat de Chinese model gezichten constant bedreigd door de onderkant van de samenleving. daarom, zij zijn de overdracht van persoonlijke bezittingen naar westerse landen, terwijl het regelen van hun familieleden te emigreren naar de westerse landen mocht dat nodig zijn. Dit geeft aan dat de toekomst van de "China-model" is eigenlijk erg kwetsbaar.

Revisiting Marx

in het begin van 1989, de Friedrich Ebert Stichting, een Duitse NGO, geregeld voor een aantal academici aan de Karl Marx House in Trier te bezoeken. Iemand schreef in het Chinees: "Dhr. Marx, je ons echt geschaad. "

Nu lijkt deze uitspraak was slechts de helft rechts, als het marxisme werd ook geschaad door de China-model. Als Marx waren in staat om commentaar te leveren op de huidige communistische kapitalisme, hij zou geïrriteerd en blij tegelijk zijn. Geërgerd, omdat de communisten hun vijand getrouwd om te overleven; en blij dat een paar communisten zijn nog steeds rond, het maakt niet uit wat voor soort anti-marxistische theorieën die ze in dienst. Dus Marx misschien het gevoel dat hij niet totaal irrelevant is geworden.

Maar Marx zou nog steeds onthutst door een enorme tegenstrijdigheid. Volgens zijn theoretisch kader "de economische basis is bepalend voor de bovenbouw,"En" geavanceerde productieve krachten onvermijdelijk veranderen een achterwaartse bovenbouw. ​​"Echter, de China-model zou Marx dwingen om volledig omver te werpen zijn kernbegrippen en daarmee de gehele marxistische ideologie, omdat onder de huidige communistische kapitalistische systeem, de bovenbouw van de "proletarische dictatuur" vertrouwt, eigenlijk, over de economische basis van het kapitalisme.

Een gebroken bureau is te zien aan de bovenkant van een afgesloten transportband bij een verlaten chemische fabriek aan de rand van Beijing in april 4, 2016. (Greg Baker / AFP / Getty Images)

Zo, de grote vraag blijft wat het lot van deze resterende bovenbouw van de oude socialistische economische basis zal zijn. Is het om totaal worden op de schroothoop van de geschiedenis, of is het inderdaad een "geavanceerde" natuur die onvermijdelijk een nieuwe communistische revolutie zal fokken communistische kapitalisme uit te roeien bevatten?

alternatief, om te leren van de China-model, Marx nodig heeft om zijn theorie te werken uit, "De economische basis is bepalend voor de bovenbouw" om, "De bovenbouw is bepalend voor de economische basis." Dit zou niet alleen een harde les voor Marx te gezicht, maar vormt ook een onvermijdelijke ideologische crisis van de CCP.

Marx is nog steeds vereerd door de CCP, want hij biedt ideologische legitimiteit aan de bevoorrechte rode bourgeoisie, alsmede de voortzetting van de "dictatuur van het proletariaat" model. De paradox is dat de Chinese model zelf is anti-marxistische.

De CCP's truc om te overleven is om de banner van het marxisme te houden tijdens de bouw en het consolideren van een kapitalistisch economisch systeem dat is het tegenovergestelde van het marxisme. De China-model wordt dus in tegenstelling tot zowel het marxisme en de democratie.

Dr. Cheng Xiaonong is een geleerde van de Chinese politiek en economie die gebaseerd is in New Jersey. Hij is afgestudeerd aan de Renmin University, waar hij behaalde zijn master in de economie, en Princeton University, waar hij promoveerde in de sociologie. In China, Cheng was een beleid onderzoeker en assistent van de voormalige partijleider Zhao Ziyang, toen Zhao was premier. Cheng is een visiting scholar aan de universiteit van Göttingen en Princeton geweest, en hij diende als hoofdredacteur van het tijdschrift Modern China Studies. Zijn commentaar en columns verschijnen regelmatig in de overzeese Chinese media.

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Een paar loopt op een straat in een verlaten industrieterrein van Houjie stad in Donggyuan op Jan. 27, 2016. (Lam Yik Fei / Getty Images)Een paar loopt op een straat in een verlaten industrieterrein van Houjie stad in Donggyuan op Jan. 27, 2016. (Lam Yik Fei / Getty Images)

De privatisering van de Chinese staatsbedrijven (SOE) is een proces van het bouwen van een kapitalistisch economisch systeem geweest. Verschillende methoden van privatisering leiden tot verschillende vormen van het kapitalisme. Aan het einde van 1997, Zhu Rongji gelanceerd SOE hervormingen. Dit beleid werd genoemd "de inbeslagneming van de Grote en het loslaten van de Small."

"Profiteren van de Big" betekende het handhaven van controle over de staatsbedrijven dat grootschalige activa die eigendom zijn en die in verband met de nationale belangen in de financiële wereld, energie, elektriciteit, telecommunicatie, vervoer, enz. na de herstructurering, deze bedrijven mochten lijst op beurzen, en ze konden een deel van hun aandelen te verkopen aan de Chinese burgers en buitenlandse investeringen. Echter, de staat nog steeds eigendom van de meeste aandelen - wat betekent dat de overheid blijft "grijpen" deze bedrijven.

"Loslaten van de Small" betekende waardoor privatisering van kleine staatsbedrijven en mensen met zware verliezen, om zo de regering ontdoen van de last. De tegenprestatie voor de privatisering van kleine en middelgrote staatsbedrijven was die hen en op welke manier zou kopen. In die dagen, de gemiddelde maandelijkse salaris van SOE directeuren en managers waren slechts een paar honderd yuan. Zelfs de rode elite en hun familieleden geen significante financiële activa.

De aanpak van de Chinese Communistische Partij (CCP) bedachten was om SOE managers bestellen om bankleningen te krijgen, en gebruik maken van de staatsbedrijven als onderpand voor het "kopen" eigendom van de staat. Vervolgens kon de managers om de staatsbedrijven opnieuw te registreren in hun naam of in naam van een familielid. Dan, als ondernemers, ze zouden zakelijke middelen te gebruiken om de private leningen terug te betalen.

Een andere benadering was om SOE managers om werknemers te dwingen een deel van het bedrijf kopen. Medewerkers moesten hun familie spaargeld te gebruiken om te kopen in het bedrijf om hun baan te behouden. Maar medewerkers mochten niet betrokken bij de overdracht van bedrijfsmiddelen te krijgen. Ze werden gedwongen om fondsen te leveren, zodat de managers eigendom van het bedrijf kon krijgen.

Tegelijkertijd, de autoriteiten toegestane families van de machthebbers om aandelen in grote beursgenoteerde ondernemingen verwerven door hun persoonlijke netwerken. Ze kregen gratis aandelen en maakte enorme winsten toen de aandelenkoersen stegen.

Twee Privatisering Fasen

China's privatisering begon in de tweede helft van 1997 en is in principe afgerond in 2009. In 1996 China had 110,000 staatsbedrijven, en eind 2008 er waren 9,700 links, waaronder gedeeltelijk geprivatiseerde grote staatsbedrijven met de overheid eigenaar is van de meerderheid van de aandelen. Privatisering was verdeeld in twee fasen.

De eerste fase, van 1997 naar 2001, was de privatisering van kleine en middelgrote staatsbedrijven. De meeste van deze bedrijven werden geprivatiseerd door SOE bestuurders en managers.

ik analyseerde 130 gevallen van privatisering van 29 provincies en vatte een aantal typische trucs en de duisternis van het proces in het kader van het onderzoek voor mijn proefschrift. Hun aanpak was meestal bewust een onderschatting van de netto-activa van de onderneming. Managers dan kocht het bedrijf, met behulp van zakelijke fondsen of leningen van banken of particuliere leners en registreerde het bedrijf in eigen naam of de naam van een familielid. Eindelijk, met de identiteit van de nieuwe business eigenaar, ze terug zouden betalen de geleende middelen met een inkomen uit de onderneming. Zij komen in principe betaald weinig tot niets voor deze staatsbedrijven.

Een algemeen beeld van de gebouwen in de verlaten Qingquan Steel plant die in gesloten 2014 en werd een van de vele zogenaamde 'zombie fabrieken in Tanghsan op Jan. 26, 2016. (Kevin Frayer / Getty Images)

De tweede fase, van 2002 naar 2009, was gedeeltelijke privatisering van middelgrote en grote staatsbedrijven. De aanpak opgenomen notering staatsbedrijven na herstructurering, leidinggevende eigendomsoverdracht, demutualisering van werknemers, buitenlandse joint ventures, en joint ventures met particuliere ondernemingen. Omdat deze ondernemingen in het bezit van grootschalige activa, management konden zich niet veroorloven op de eigendom te nemen door zelf. Ze meestal gebruikt bedrijf fondsen om aandelen te kopen en gedistribueerd aandelen aan het management kaders, alsook aan ambtenaren en families die hielp het goedkeuren van de lijst, de vorming van een gemeenschappelijk belang groep. Deze SOE kaders en ambtenaren werd eigenaars, general managers of bestuursleden van middelgrote en grote beursgenoteerde ondernemingen, zonder kosten voor henzelf, en ze werd rijk.

Volgens gegevens van twee landelijke steekproef enquêtes, over 50-60 procent van China's geprivatiseerde of semi-geprivatiseerde ondernemingen in handen zijn van enterprise management teams. Ongeveer 25 procent van de kopers waren investeerders van buiten de ondernemingen; minder dan 2 procent van de aandelen in handen zijn van buitenlandse investeringen; en minder dan 10 procent van de bedrijven zijn mede-eigendom van het management en de werknemers. Het management staat niet toe dat de aandeelhouders werknemer te worden betrokken in asset management en transfers.

Deze vorm van privatisering is gelijk aan de werknemers betalen van het management om de onderneming bezitten. Deze "hervorming van staatsbedrijven" kon het publiek diefstal en de verdeling van de activa onder corporate management worden genoemd, lokale overheidsfunctionarissen en de kinderen van de ambtenaren. In elk geval, de overheid kan niet rechtmatig rechtvaardigen deze roofzuchtige gedrag. Open openbaarmaking zou leiden tot publieke verontwaardiging. daarom, de overheid staat niet toe dat de binnenlandse media de privatisering te bespreken, en Chinese geleerden is niet toegestaan ​​om het privatiseringsproces te onderzoeken.

Sociale Voordelen Workers 'Dropped

Van 1998 naar 2003, wanneer de rode elite verduisterd MKB op grote schaal door privatisering, de autoriteiten opzettelijk sloot de Administratieve Bureau van staatseigendommen gedurende zes jaar tijdens de cruciale climax van de privatisering, om gemak de rode elite. Hoewel 2003 het bureau werd hersteld, het zelden onderzocht staatsbedrijf activa verduistering.

Tussen 1997 en 2005, grootschalige arbeidsconflicten vond plaats in heel China aangewakkerd door verduistering van publieke activa in verband met de privatisering. De regering in principe stond met het management omdat ambtenaren ook geprofiteerd van de privatisering. Tijdens China's privatisering, de oorspronkelijke sociale stelsel op basis van SOE ingestort. Veel bedrijven gaven werknemers zeer weinig geld en reed ze weg. Destijds, gebruikte de CCP propaganda dat het ontslaan van SOE werknemers was een noodzakelijk offer van de hervorming. De overheid wilde niet om een ​​uniform systeem van werkloosheidsuitkeringen voor werknemers op te bouwen en gooide het probleem aan het management teams. Als het hoofd van het bedrijf niet wilt betalen, de regering niet ingrijpen. Dus de CCP schaamteloos shirked haar verantwoordelijkheid aan de maatschappelijke welvaart aan de werknemers te verstrekken.

Demolition werknemers nemen een rust na het opruimen van een verlaten gebouw aan de Shougang hoofdstad Iron and Steel Plant in Beijing op mei 28, 2015. (Greg Baker / AFP / Getty Images)

Daarentegen, tijdens de Russische privatiseringsproces, het stelsel van sociale voorzieningen nog steeds functioneerde, en sommige werklozen in staat waren om een ​​minimale hoeveelheid van de sociale zekerheid te ontvangen. De Russische regering heeft nooit geïmplementeerd het gedwongen ontslag beleid en gebruikte fiscale stimulansen om bedrijven aan te moedigen om de werknemers te behouden. Medewerkers eigendom over 40 procent van de geprivatiseerde ondernemingen.

In vergelijking met de privatisering van de Centraal-Europese landen en Rusland, de privatisering in China was de meest onrechtvaardige en de meest meedogenloze. Duidelijk, de economische herstructurering onder een autocratie kan sociale rechtvaardigheid negeren zonder angst voor electorale druk. Om de elite, Dit model is van nature meer wenselijk, maar het sentiment onder het grote publiek is waarschijnlijk het tegenovergestelde.

Sommige westerse geleerden zijn van mening dat de autoritaire communistische regimes waren goed voor de economische herstructurering en de economische ontwikkeling, omdat ze konden weerstand te overwinnen van de mensen, en China werd vaak aangehaald als hun beste voorbeeld. Echter, het privatiseringsproces in China toont aan dat een totalitaire overheid heeft de neiging om sociale rechtvaardigheid te negeren, berooft mensen van hun rechten en belangen, en maak regelingen ten gunste van de heersende elite.

Dr. Cheng Xiaonong is een geleerde van de Chinese politiek en economie die gebaseerd is in New Jersey. Hij is afgestudeerd aan de Renmin University, waar hij behaalde zijn master in de economie, en Princeton University, waar hij promoveerde in de sociologie. In China, Cheng was een beleid onderzoeker en assistent van de voormalige partijleider Zhao Ziyang, toen Zhao was premier. Cheng is een visiting scholar aan de universiteit van Göttingen en Princeton geweest, en hij diende als hoofdredacteur van het tijdschrift Modern China Studies. Zijn commentaar en columns verschijnen regelmatig in de overzeese Chinese media.

Om onderdelen te lezen 1 en 2 in deze reeks.

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A general view of Qian'an steelworks of Shougang Corporation in Tangshan on Jan. 20, 2016. (Xiaolu Chu/Getty Images)A general view of Qian'an steelworks of Shougang Corporation in Tangshan on Jan. 20, 2016. (Xiaolu Chu/Getty Images)

The annual Fortune 500 list was published on July 20. The number of Chinese companies has increased from 106 in 2015 naar 110 dit jaar, meer dan 20 percent of the total list and close to the number of U.S. bedrijven. Thirteen Chinese enterprises, including Vanke, made it on the list for the first time.

Fortune 500 is regarded as a mirror of the global economy. Over the years, despite the global economic landscape having undergone tremendous changes, emphasis on Fortune 500 has not changed much. Fortune 500 companies account for approximately 40 percent of global production, 50 percent of international trade, 60 percent of international technology trade, en 90 percent of international direct investment. It indeed represents the economic strength of a country and is a country’s most important “business card.”

Echter, when we examine industry distribution, profitability, international influence, and brand competitiveness, these 110 Chinese companies perfectly mirror the distorted state of China’s overall economy.

Industry Distribution

Most of the Chinese Fortune 500 companies operate in the petroleum, financiën, electric power, iron and steel, automobile, coal, and non-ferrous metals sectors. Over many years, this industry distribution has not changed substantially, and these industries either have a monopoly status, or suffer excess capacity or huge losses.

Momenteel, China is making great efforts to reduce production and eliminate zombie companies — unproductive state-owned enterprises that are kept alive through loans. Met andere woorden, these Fortune 500 companies undoubtedly represent the Chinese economy’s shortcomings rather than its competitiveness.

A pedestrian walks past the People’s Bank of China in Beijing on Aug. 22, 2007. (Teh Eng Koon/AFP/Getty Images)

Banks Top List

Dit jaar, Apple reported a profit of $53.4 miljard, surpassing the Commercial Bank of China as the world’s most profitable company. The 2nd to the 5th most profitable Fortune 500 companies are China’s big four banks. Er zijn 10 Chinese banks on the list this year. Met meer dan $180 billion in profits, they account for 55 percent of all Chinese companies on the list in terms of profit.

Whether we are looking at China’s more than 3,000 companies listed on the stock exchange or the ones on the Fortune 500 lijst, banks are earning much more than the real economy. From the Fortune 500 list we can see that the real economy works for the banking industry.

A worker rides bicycle at an oil refinery of China’s Sinopec in Wuhan, a city in China’s Hubei Province on May 10, 2011. (STR / AFP / Getty Images)

Few Service and Technology Companies

Over the years, the number of U.S., Japanese, and even Korean companies on the Fortune 500 list have been declining. In 2016, alleen 54 Japanese companies are on the list, less than half the number of Chinese companies.

Echter, in terms of industry distribution, companies from these countries spread across retail, electronics, internet, state-of-the-art manufacturing, medical, and other fields that represent the world’s future economic development. Chinese companies, aan de andere kant, are mostly involved in oil, power, telecommunicatie, steel, and other monopoly or quasi-monopoly enterprises, although e-Commerce giant Jingdong, home appliance giant Midea, and food giant Wanzhou International are also on the list.

Visitors view architects’ models of apartment blocks during the 2007 Xian Autumn Real Estate Trade Fair in Xian of Shaanxi Province on Oct. 26, 2007. (China Foto's / Getty Images)

Many Real Estate Companies

Lastly, China has the most real estate companies on the Fortune 500 lijst, including the three real estate giants, Vanke, Wanda, and Hengda. In het verleden, Greenland Holding Group was also on the list.

According to incomplete statistics, meer dan 13 companies associated with real estate are also on the list, including China Resources, China CITIC Bank, COFCO Group, PowerChina, China Minmetals, China State Construction Engineering, Aviation Industry Corp of China, Hainan Airlines, CK Hutchison, and Tianjin Goods & Materials Group. This means that among the 110 Chinese companies, minstens 17 are related to the real estate sector. It reflects the Chinese economy’s dependence on real estate.

Challenges Ahead

Presumably, the more Fortune 500 companies a country boasts, the higher its overall economic power. But when taking industry distribution and profitability into consideration, the gap between the U.S. and China is not as small as it appears from the Fortune 500 lijst. It’s a huge embarrassment for Chinese to have companies on the list that are monopoly industries, industries plagued by overcapacity or financial losses, and real estate businesses. Ondertussen, there are few Chinese science and technology companies. It indicates that China still has a long and challenging road ahead before realizing economic transformation based on innovation and competitiveness.

The significance of any list will change with China included. To get on the Fortune 500 list has become a goal for Chinese enterprises, and local governments also pursue it for the sake of their performance records. It goes right along with China’s pursuit of gross domestic product size and the speed and scale of overall development in the past 30 jaar.

But clearly, making it onto the Fortune 500 list is not everything. For one thing, it does not represent advanced productivity. De 500 enterprises are in fact the 500 largest enterprises. As China relies on the state, it is not a big deal to have large enterprises. Some people think that through corporate mergers and acquisitions, China can take the top 200 places on the Fortune 500 list if it wants to.

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A man rides a bicycle at an abandoned industrial area of Houjie town in Dongguan on Jan. 27, 2016. (Lam Yik Fei / Getty Images)A man rides a bicycle at an abandoned industrial area of Houjie town in Dongguan on Jan. 27, 2016. (Lam Yik Fei / Getty Images)

Na 35 years of rapid economic growth, China’s economy has significantly decelerated in the past couple of years. What used to be double-digit growth has dropped to between 6 naar 7 procent, a nearly 50 percent reduction. Many people point to China’s weak internal consumption. Echter, the real problem is the rigid wealth distribution system.

Ailing Consumption

Investering, consumption, and exports have long been the troika of China’s economic growth. Echter, despite the fact that consumption has somewhat increased in the past couple of years, investment and exports have accounted for larger shares during the past twenty plus years before 2011, while consumption was relatively weak. Especially in the 10 years after 2000, consumption as a share of GDP, continued to decline from 46 procent 2000 naar 34 procent 2010.

Chinese construction workers at work in Central Beijing on Jan. 20, 2015. (Kevin Frayer / Getty Images)

China is the world’s second largest economy after the United States. Echter, it has over a billion more people than the United States, and all Chinese are thought of as newly rich. Maar eigenlijk, that’s not the case. According to a World Bank survey, in 2012 the per capita consumption in the United States was $30,903, while in China it was only $1,221. The world’s per capita consumption, excluding China, is about $5,400. That makes China’s per capita consumption less than a quarter of the world’s consumption and only 4 percent that of the United States.

The massive building boom that has transformed China’s major cities gives one the false impression that everyone in China is wealthy and that Chinese are rich enough to buy up the United States several times over. But if you go to the countryside, you will see farmers who are not even able to buy a can of soda.

With a population of 1.4 miljard, China’s consumption still depends on government investment. This shows that there are serious, inherent problems in the economic structure. Bijvoorbeeld, the average square meter home price in Beijing costs 50,000 yuan ($7,500 ). Who can afford this kind of real estate? Minder dan 1 percent of China’s total population can. Met andere woorden, Beijing’s real estate prices are of no consequence or benefit to 99 percent of the Chinese people, even if the price were to rise to a million yuan per square meter.

China’s mainstream population is not rich, although there are quite a lot of new-rich who have made a fortune over the past two decades. Eigenlijk, China has the most wealthy people in Asia. But compared with China’s total population, they are a very tiny percentage, and they cannot be expected to raise China’s internal consumption by very much.

Wealth Distribution

For more than 90 percent of Chinese people, low consumption is a problem related to lack of income, lack of wealth, land, and capital. In order for the Chinese economy to improve, we must resolve the polarization of wealth and design a system that supports prosperity for the majority of citizens.

For a long time now, a detrimental policy has persisted in China’s economic planning. Namely, the focus has been to benefit the interests of a small number of people. daarom, the real issue facing the Chinese economy is its outdated and rigid wealth distribution system that is incapable of fairly adjusting the distribution of the county’s resources. Since only a few people can benefit, it accelerates social inequality, with the rich becoming richer and the poor becoming poorer.

A scavenger picks up useful construction waste from a garbage dump in Hefei, Anhui Province on Dec. 9, 2012. (STR / AFP / Getty Images)

China’s social distribution system is defunct not just in regard to income, but also regarding bank credit and opportunities. To obtain some degree of financial wealth, it is not enough to tell people to work hard. One also needs knowledge, capital, political and business relationships, and other opportunities. Bijvoorbeeld, a small trader needs liquidity to open a shop or expand his business. Whether he can get capital is crucial to him. Lacking capital, he may not achieve his lifetime dream of opening up a shop merely through working hard.

Availability of bank loans are part of the system of social capital distribution. Access to knowledge is about equal education for all. Opportunities to accumulate wealth is about equality and justice. How a society distributes these resources to all its members is not just a question of income distribution, but an issue of fair competition.

If China’s wealth distribution system does not change, the majority of the Chinese people will remain shut off from opportunities and resources and be unable to accumulate any meaningful wealth. daarom, the prospects for China’s economic development lie in the reform of wealth distribution.

Fan Di is an independent economist and part-time professor of Peking University and Sun Yat-sen University. He obtained a Ph.D. at the University of California, Berkeley, supervised by Li Yining of Peking University and Nobel Prize winner George Arthur Akerlof. Fan has been a senior executive and consultant at major banks, financial firms, and large companies. This is an abridged translation of an article posted on July 12, 2016 to his public WeChat account.

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A man reads a newspaper report that China's central bank announced it will devalue China's tightly controlled currency on Aug. 11, 2015 following a slump in trade, triggering the yuan's biggest one-day decline in a decade. (AP Photo / Andy Wong)A man reads a newspaper report that China's central bank announced it will devalue China's tightly controlled currency on Aug. 11, 2015 following a slump in trade, triggering the yuan's biggest one-day decline in a decade. (AP Photo / Andy Wong)

The more debt the merrier, the saying goes, at least until the party stops and the hangover starts. This is true for the debt situation inside China, as well as for international lending to China.

Volgens de Bank for International Settlements (BIS), total cross-border bank lending to China decreased $63 miljard $698 billion at the end of the first quarter of 2016. Over the year, this measure is down 27 procent.

“Since hitting its all-time high at the end of September 2014, cross-border bank credit to China has contracted by a cumulative $367 miljard (–33 percent), with interbank and inter-office activity leading the decline,” the BIS writes in a recent report.

The total stock of outstanding cross-border bank credit was $27.5 trillion at the end of March 2016.

This is important because that money is not coming back. Once the loan or debt is paid off, it vanishes and can’t be used to fuel other financial or economic transactions. It is part of the reason why many economies in the world are teetering on the edge of a recession with only bank lending to Western governments balancing out the emerging market credit decline.

The reduction in bank lending is part of the capital that is flowing out of China by the hundreds of billions, $676 miljard in 2015 alleen.

International Institute of Finance (IIF)

International Institute of Finance (IIF)

Banks in Hong Kong decreased their China exposure by 4.5 percentage points from 32.8 percent of assets at the end of 2014 naar 27.3 percent at the end of 2015, according to rating agency Fitch, the first decrease in a decade.

International banks are wary of a slowing Chinese economy and a rise in corporate defaults.

According to rating agency Standard and Poor’s (S&P), China’s credit quality is “deteriorating more quickly than at any time since 2009,” it states in a recent report. S&P downgraded three companies for every company upgraded in the first half of 2016.

Chinese corporates will “come under increasing strain as economic growth slows, industrial overcapacity crimps profitability and cash flow, and an elevated appetite for expansion weakens leverage.”

Claims of international banks of different countries in U.S. dollar trillion (links) en het Amerikaanse. dollar billion (rechts) (Bank for International Settlements (BIS))

Claims of international banks of different countries in U.S. dollar trillion (links) en het Amerikaanse. dollar billion (rechts) (Bank for International Settlements (BIS))

And international banks don’t want to wait for that to happen. Neither do they want to wait for a sharp devaluation of the Chinese currency.

“A sharp depreciation of the yuan, which would be the consequence if the [foreign currency] reserves would have to be used to safeguard systematically important entities that do have foreign currency debt. Dit zou het gevolg zijn van een nalaten te zijn, een recessie en, in het slechtste geval, een financiële crisis. Weer, iets dat survivable; niet het einde van de wereld, maar zeer kostbaar en politiek destabiliserend," said Citigroup chief economist Willem Buiter.

Hugh Hendry, principal at the hedge fund Eclectica is more pessimistic:

“Tomorrow we wake up and China has devalued 20 procent, the world is over. The world is over. De euro verdeelt. Everything hits a wall. There’s no euro in that scenario. de U.S.. economie, I mean everything hits a wall,” he told RealVisionTV earlier this year.

Volg Valentin op Twitter: @vxschmid

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