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China's Strategic Economic Structure Flaw in The Past 30 Years [Copy link] 中文

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Post time 2009-3-24 11:45:40 |Display all floors
China is bigger than Europe, it has long past the time that it has to depend on foreign investment to develop economy, yet the central government has been misguided by the western penetrated think-tanks and policy making bodies and western brainwashed scholars. To understand why, read this series of articles by Henry C K Liu:

h ttp :// henryckliu(dot)com/page176(dot) h t m l

Please remove the spaces in the address above.

"The structural problem of the Chinese economy can be described in one sentence: China produces from plants financed by foreign investment that operate with low domestic wages for foreign markets that pay with dollars that cannot be used in the domestic economy.
  
The solution to this structural problem can also be summed up in one sentence: China must finance plants with sovereign credit to produce for the domestic market where consumer purchasing power will come from high wages, with sovereign credit repaid from increased tax revenue from a vibrant domestic economy. "

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Post time 2009-3-24 11:51:23 |Display all floors
I agree with you.

The Chinese think they are smart. They are really dumb, being played by the West like fools. They don’t even know, as long as they don’t feel losing face. Shame!

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Post time 2009-3-24 11:58:19 |Display all floors

It's a long reading but you must read!

Only after that you would understand why China got stuck in US T-bond, why Chinese consumption is so low and why China with its huge market yet doesn't have a say in world economic power balancing and this is also why China has become an economic colony in the past 30 years!

China achieved its financial and economic independence after the revolutionary victory led by Chairman M ao and his heroic generation, he not only safe guarded China's territory but also safe guarded Chinese economy without being exploited by the western financial imperialists, he in fact understood economy in great depth if only one can read his original works. Yet all these have been brushed away by the so called "reformers" - a cult that put Chinese nation's interest and Chinese people's well being in the trash can. History once again proved how great Chairman M ao was and is.

In the past China was colonized by western imperial military power but today China was concurred by western financial imperial power. China must change its economic structure fundamentally such that put the entire nation's interest and entire Chinese people's interest above special interest and above the so called GDP.

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Post time 2009-4-23 08:51:20 |Display all floors

Saving the Chinese Economy from the Global Financial Crisis

By Henry C K Liu
December 23, 2008

Key points:

The structural problem of the Chinese economy can be described in one sentence: China produces from plants financed by foreign investment that operate with low domestic wages for foreign markets that pay with dollars that cannot be used in the domestic economy.

The solution to this structural problem can also be summed up in one sentence: China must finance plants with sovereign credit to produce for the domestic market where consumer purchasing power will come from high wages, with sovereign credit repaid from increased tax revenue from a vibrant domestic economy.

The adverse impact from the current global financial crisis on the Chinese economy originates from the export sector financed by foreign capital. Foreign markets have abruptly contracted since mid 2007 to cause massive closure of ten of thousands of foreign joint-ventures or wholly-owned enterprises, big, medium and small, in the Chinese export sector located along the coastal regions. Many of these enterprises normally repatriate their profit continually, leaving little or no reserve funds to keep operating in slow periods. At the first sign of financial distress, the absentee owners of these enterprises find it expedient to simply shut down operations and vanish from the local scene, leaving millions of Chinese migrant workers suddenly unemployed with no severance pay or unemployment insurance payments, not even train fare to return home. The foreign investors just abandon their money-losing factories, in which they hold little equity, for foreclosure by lending institutions.  These bankrupt export enterprises are not likely to reopen as few expect the global financial crisis to recover soon.

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Post time 2009-4-23 08:54:07 |Display all floors
Since China adopted the reforms and opening-up policy in 1978, the number of migrant workers to the coastal export regions has grown to over 200 million. China has been improving rules and laws to cope with the new changes and ensure migrant workers’ rights. The unjust condition of migrant workers has become a microcosm of worker conditions in the socialist market economy in general. We need to remember that to eliminate such unjust conditions for workers was the driving force of the Socialist Revolution that began in China in 1921.

The Dongguan City Association of Enterprises with Foreign Investment estimates that 9,000 of the 45,000 factories in the cities of Guangzhou, Dongguan, and Shenzhen — the heart of China's industrial south — are expected to close before the Chinese New Year in late January 2009. That could mean up to 2.7 million workers facing unemployment immediately, the association said. If the trend continues, unemployment can be expected to double every quarter.

The current global financial crisis has accelerated a process already underway to upgrade China’s economy from low-tech, labor intensive factory jobs to high tech manufacture of higher value-added products and high skill jobs in the service industry sector. The plan to correct the imbalance of development between the coastal regions and the interior regions is tied to China’s effort to shift its economy from excessive export dependency toward domestic consumption and development. Yet the pace of restructure must be further accelerated with the aim of a full employment economy based on balanced domestic development and consumption within a period of five years.

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Post time 2009-4-23 08:54:34 |Display all floors
For China, the only viable strategy is to shift these bankrupt export factories in the coastal regions toward the domestic market. But the domestic market at present is too weak in consumer demand due to low wage income to absorb the overcapacity in export. Thus no funds are available in the private credit and capital markets to finance urgently needed restructuring of the export sector on a national scale.  Market forces are simply not up to the task.

To kick start a new economic strategy of shifting the Chinese economy from export dependency to domestic construction, the Chinese government needs to establish a Commission to Restructure the Chinese Economy (CRCE), as a special agency in the State Council under the direct control of the office of the Premier, with emergence powers to deal with the unemployment fallout from the sudden collapse of the export sector that will soon threaten social stability.

The proposed CRCE should have full authority to formulate and implement a national economic recovery program with appropriate and adequate credit creation power to finance an urgently needed recovery to provide full employment at high wages. Equally importantly, CRCE must have full government authority to commit unconditionally to the timely repayment and retirement of this temporary debt created by sovereign credit.

Economic recovery through the shifting from export dependency to domestic development requires coordinated actions by both the state and the private sectors. The government’s role is to guide private sector incentives toward a national full employment plan through tax incentives and regulatory regimes. Government fiscal spending should be limited to funding infrastructure, both physical and social, that cannot be efficiently financed by private or even collective capital.  Consumer demand should be enhanced as a priority in a national income policy to quickly raise wage levels in parallel with a well-funded social security program to eliminate the need for over-saving out of concern for emergency health expenses and provision for old-age security.

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Post time 2009-4-23 08:55:09 |Display all floors
CRCE will be responsible for launching immediately a massive work creation program to achieve in-place national full employment with minimal relocation of population. This program can be financed outside of the government’s fiscal budget by a “pre-financing” regime through the use of “work-creation certificates”, a form of special purpose money specially designed to facilitate job-creation in the socialist market economy.

Under the “pre-financing” regime, the State Council will authorize the CRCE, with full support of the Finance Ministry, to issue “work-creation certificates” that mature every three months and renewable up to five years. These certificates are distributed by the CRCE to local public works agencies and participating financial institutions that lend to private enterprises engaged in the job-creation in the program to shift export enterprises toward the domestic market. Firms that need cash in order to participate in job creation projects ordered by local public works agencies and private enterprises approved by CRCE, can draw on “work-creation certificates” against the accounts of local public works agency or industrial customers of the participating financial institutions.

The financial institutions accepting the work-creation certificates can treat such certificates as commercial paper which can be discounted at commercial banks which in turn can discount them at the People’s Bank of China, the central bank. The process will provide the needed liquidity to facilitate the payment of wages outside the range of the government’s fiscal budget.

The CRCE will undertake to redeem every year one fifth of all work-creation certificates issued through the central bank as the economy and tax revenue recover and expand. As collateral for the work-creation certificates, the Finance Ministry will deposit in the central bank a corresponding amount of tax vouchers good for paying taxes. As the Ministry of Finance redeems work-creation certificates, the tax vouchers would be returned to the Finance Ministry. It is important that the government must stand firmly behind the commitment to redeem the work-creation certificates in order to protect their financial integrity.  New series of five-year work creation certificates can be issued as needed.

Credit creation outside of the government’s fiscal budget for the purpose of job creation poses no threat of inflation. It is a more responsible alternative to tax increases to support a balanced budget. The fiscal cost of redeeming work-creation certificates will be offset by the corresponding decrease in welfare subsidy cost due to unemployment. As fiscal surplus accumulates from full employment at rising wages, the surplus can be used to reduce taxes and increase fiscal spending on upgrading physical and social infrastructure. This approach is the shortest route to full employment at rising wages while shifting the economy from export dependency toward domestic development.

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