The graphic and the following commentary are from Zero Hedge.
…the Chinese steel industry grew by 11X during the last 20 years, expanding from 125 million tons, which was already larger than the US and Japanese steel industries in the mid-1990s, to 1.1 billion tons today. But neither China nor the world can use that much steel, even as China’s aggressive “dumping” on the world market gathers force.
In fact, China’s steel production is already swooning—–with output in the most recent month down nearly 5% Y/Y and prices off 26% since January and 40% since the three-year ago peak. During the first half of 2015, China’s large and medium steel mills spewed $3.5 billion of red ink, and that just a warm up for the carnage yet to come.
In a word, China has upwards of 400- 500 million tons of steel capacity that will be idle once its construction boom stops and the rest of the world throws barriers up against its exports. That amounts to economically destructive malinvestment on an unprecedented scale. The idling of China’s giant steel mills, in turn, will create an economic void which will cause a massive collapse of business, employment and incomes up and down the iron and steel food chain.
An unwind of this magnitude is unusual in world history. The last time something even close happened was in farming when everyone was going to get rich from farm machinery, fertilizer, and food production. That would be the 1920s in America.
Countries in that era set up trade barriers in the hopes of limiting the spread of the contagion. It made things worse.
What can be done? Not much.
And China? They have a long history of Revolution when the Central Government loses The Mandate of Heaven.
And one other thing. Steel production uses a LOT of coal. Demand for coal will be declining. Not just because of Obama, but because of China too. And fracked natural gas.
Comments
8 responses to “What Is Wrong With China? In One Graphic”
I don’t think they believe in the Mandate of Heaven anymore…
Still, it’s been time for changes there for a while. The Chinese PEOPLE, I believe, can make things work – I’ve seen enough outside (and even inside) China. The people are innovative, competitive and mostly pretty smart – evolutionary pressure, perhaps. (See the ones that moved here.)
Let’s wait and see.
their is an evolutionary revolution going on now and you don’t have to look very hard to see it.
Kathy,
What it looks like to me is that roughly 50% of China’s economy is vaporware.
Probably 75% vapor in some segments, like real estate. The Chinese have entire empty cities built for no rational reason. And people think capitalism has boom/bust cycles. The Chinese economic collapse is going to make the great depression look like a picnic.
Has anybody looked into the quality of all that concrete? Not only do they have massively overbuilt structure, it’s all crumbling crap, already falling apart.
What I’m saying is that when/if it does fall apart, it will recover faster than you think it will…if they government goes with it.
http://blogs.telegraph.co.uk/news/peterfoster/100063812/chinas-crumbling-buildings-not-built-to-last/
“Crumbling Infrastructure”
Be a good name for a punk band.
Granted, I haven’t been there in ten years, but my impressions of the PRC and the Chinese probably still holds: They’re some of the smartest people in the world and they like to be led around by their noses, as many smart people tend to prefer. They love grand, centrally planned ideas and institutions, distrusting organic, bottom-up solutions. Common sense is in short supply at least at the higher levels.
Who can blame them? After the nightmares of the Great Leap Forward and the Cultural Revolution, all independent thinking was squashed. Just good, reliable party people advanced. And even Deng’s “it’s glorious to be rich” admonition was too good to be true, much like Mao’s “let a hundred flowers bloom” campaign trap.
So now the sh*t is hitting the fan. I’m sorry, especially for the good and decent people I met in the PRC. But 1980-2015 was just a temporary spate of good fortune. A one-party state could never last for long. They become so full of themselves that they are now exploding. OTOH, once the sh*t dissipates the Chinese could emulate the ROC which, in the bigger scheme of things, is a pretty decent place.
I wish them the best of luck.