A few days away have passed since the beginning of the new year, and I was simply following some thoughts.
In a previous article (here the Italian version), we explained the reasons behind increasing inequality in the Western Countries and the causes for raising economies like Japan in the 80's and China in the 00's.
The nuts and bolts are that, when there is no stop to how much money a Central Bank can print, then a Country, say US, starts printing dollars, which are accepted worldwide due to the fact that, for example:
1. Crude Oil has to be paid in dollars
2. US is a Superpower, won the Second World War, imposed the Bretton Woods agreement, then unilaterally abandoned it, and, whether you like it or not, it decides the doom of the Western Countries.
Bear in mind that until 1989, formally US were in a condition of cold war with the Soviet Union, this implying that the huge amount of money that US printed was one of the main causes (not to say the Main cause) of the fall of the Communism, thanks to a huge investing in technology, warfare, education and so on, that would not have been possible otherwise, under a Gold Standard.
So, when the US realized they could print dollars to buy stuff from the rest of the world, where the cost of labour was extremely low and huge amounts of people were still working in the agricolture, so there was room for moving millions people from the countyside to the city, then countries like China started producing like hell.
Then the Central Bank of China printed Yuans out of thin air, and with these newly created Yuans China bought dollars.
This loop has two main effects:
1. It keeps devaluating the Yuan,
2. China can continue to buy US assets
The combined effects of the aforementioned points are complex, and we will cover this in another post.
Today I would like to draw a few lines about one aspect which is not considered by economists when they discuss about China, and they claim that China cannot grow at that pace (7% yoy, if it was to be true), basing on God-knows-what models (they are always wrong...)
You see, China has used more cement in three years (between 2011 and 2013) than US in the entire 20th Century.
This means that if China has simply continued to build cities and bridges and airports at the same rate, between 2014 and 2016, then, all other things being equal, the GDP would have grown by 0%!
Just imagine: you build another US in China and there is no growth of the Gross Domestic Product. You need to do better than that.
What do you need to build up such an enormous quantity of buildings? Well, material, labour force and energy.
Where does the energy in China come from? Coal by 70%, Oil by 20%.
These are the consequences.
When I used to attend the lessons at the driving school, they mentioned the risk of incurring into car accidents because of the fog, not because of the pollution.
It is clear that the situation cannot go on like that. Bejing authorities also control the use of the fireworks during the New Year's Eve to contribute to air quality.
So, China needs to renew completely their model of development. And they need to do that quickly, since they have planned to build megacities to accomodate millions of people coming from the internal rural areas.
So, I don't know how they can manage such a shift from coal and oil factories to a green economy in a few years: they cannot shut down factories, they need to keep costs low to go on exporting, they need to pay low wages, so I am a bit wary that they are going to implement state-of-the-art pollution filters, advanced waste disposal systems, reconfigure the energy sources and the distribution network etc on such a vast scale.
Good luck, China.