China estimate of the day

by  Tyler Cowen in

Another study, by Andrew Batson and Janet Zhang at GK Dragonomics, a Beijing-based research firm, finds that China still has less than one-quarter as much capital per person as America had achieved in 1930, when it was at roughly the same level of development as China today.

Here is more, and I thank David Levey for the pointer.  The post as a whole considers whether China is overinvesting and concludes maybe not.  Here are further debates on how China is doing.

Comments

Matt

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Sun Yat-sen had this crazy idea of taxing land value and distributing the income as a citizen's dividend. He picked up this poisonous idea while in the US from a crazy economist named Henry George.

Thank G-d China didn't pick up on this or the parasites in the West would be in REAL trouble.

Doc Merlin

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"taxing land value and distributing the income as a citizen’s dividend."

A new class how-to-make-a-pubic-good-problem-appear-where-there-was-none 101.

B

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Overinvesting? Maybe not.
Misallocating investments? More likely.

Olga

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+1

JWatts

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+1 to misallocating investments.

I spend some spare time studying the Wind Turbine energy production market. China is currently the world leader in 'capacity'. However their turbine siting is so poor that their actual electrical production per capacity is only half what the US averages. Since, Wind Turbines are very capital intensive, it's quite likely that the Wind Turbines China has been feverishly building are actually a negative factor to their economic production.

Note: Some notable number of Wind Turbines have never actually been connected to the power grid in China. Apparently the mandate is for building Wind turbines, not producing electricity.

elam bend

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Hear, hear.
For an exporting country they have seriously under-invested in their freight rail infrastructure. What little they have gets tied up by existing slow people rail and all the good trying to get to port gets stuck in 100 mile long traffic jams because most goods in China are shipped by truck.
The money spent on the high speed lines would have been well spend new freight rail capacity.

Rahul

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That's an interesting situation. In most other countries it is the slow freight rail that slows down fast Passenger traffic.

Rahul

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@JWatts

Maybe China is at a natural wind-speed disadvantage? It does look like North America might have a better wind potential than China.

JWatts

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Perhaps poor wind resources are the primary cause of low capacity factor, but that doesn't change the fact it's a fundamental misallocation of resources.

Rahul

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My bad. I thought you were using the low-capacity factors as evidence for the bad siting and resultant mis- allocation.

JWatts

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To be fair, I do think that poor siting is a bigger factor in China than poor overall capacity. In a country of that size there will always be some areas that have pretty decent wind.

China has the lowest capacity factor of any country with significant wind power production and yet conversely has built the most capacity. Whatever the reason, whether poor siting, poor resources or more likely a combination, it's clearly a case of misallocation. They are spending the most money of any country in the world on wind power and are receiving the lowest benefit.

Rahul

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The more capacity you have the lower should be your capacity factors (I'd think!). Diminishing marginal returns. There are only so many excellent sites.

JWatts

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The available pool of sites is so much greater than the sites used that I can't imagine that's a great effect past the very first site. And anyway China has, as far as I can tell, always had a much lower capacity factor than almost every other country.

It's a little more than half the US's average.

JWatts

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I said past the very first site, but I should have said past the first few years of building.

iya

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There is no such thing as overinvestment, only malinvestment, so this is the important bit:
"Although many firms, particularly state-owned ones, benefit from cheap loans, the average real cost of borrowing across the whole economy is much higher, so this distortion is more likely to lead to a misallocation of investment than to excess overall investment."

The US had many recessions to arrive at today's capital structure, usually purging malinvestments in specific sectors. How likely is it that China's state companies get it right the first time around? Will the investments be profitable enough to pay back the loans when credit expansion and inflation slows?

DL

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Michael Pettis has written at length on this. http://www.economonitor.com/blog/author/mpettis3/

how do i join?

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Wow a consultancy whose sole existence depends on tricking more gullible whites to let them guide them through their investment process in China thinks there needs to be more investment in Chins.

Anon.

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That ignores what that capital can buy though, doesn't it? A raspberry pi is $25 but by 1930 standards it is magical.

TallDave

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Ditto the malinvestment points above.

Also, isn't the share of U.S. capital that is sociocultural larger than the physical anyway? I don't think they're making nearly as much progress there -- endemic corruption, low trust, etc.

BRIAN H.

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If you go to a website like "Chinasmack", which prints (translated) comments left on Chinese websites, it is astounding the amount of hatred Chinese people seem to have for their governing class. Recently there was an article about two Chinese nationals who were murdered in California.

The commenters had speculated that they were the children of government officials, and a lot of them were crowing about how great it would be if the children of government officials died. It really stunned me that the hatred was that intense.

sc

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"it is astounding the amount of hatred Chinese people seem to have for their governing class"... Yeah, because their government has treated them so well throughout recent history [sarcasm].

What about his legitimate years?

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or ever!

Ryan

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If you consider the lifes of ordinary Chinese people and how they see some princlings and government officials behave it is not that hard to understand their hatred. Imagine being in your 20's toiling away in a highly competitive job market, earning less than you think you deserve but under pressure to do well materially because everyone expects you to get married soon. At the same time some princling whose father has access to exctractive institutions gets everything handed to him on a silver platter and has girls swarming all over him. How would that make you feel?

how do i join?

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like those angry arabs but without islams calming effect?

JWatts

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That's a good point and a scary one.

Eurobubba

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I'd be interested to know exactly what they mean by "level of development". I'd have guessed any reasonable measure carrying that label would correlate more strongly with "capital per person". If China has achieved that much "development" despite such a relative shortage of capital per capita (plus all the malinvestment that other commenters have mentioned), maybe they're doing something right?

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