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China, a critical cog in the global supply chain, is in an economic jam–and that’s a problem for business owners who rely on the manufacturing superpower. Rewind to 2020: Labor shortages, production delays, increased demand, and other issues led to global supply chain disruptions, and the continued lockdowns in China worsened those woes.
One Inc. 5000 business owner, Matthew Borjes, 47, founder of the Lexington, South Carolina-based telehealth and mobile computing solution company Space Saving Solutions, saw lead times for wire shelving and baskets balloon from weeks to months and prices increase 50 to 80 percent within the first 90 to 120 days.
Today, Borjes says most of those prices have yet to come down. And rather than rebound after lockdown restrictions, China continues to face a slew of economic challenges that put pressure on U.S. business owners, including higher wages for factory workers, an ongoing tariff war with the U.S., and record-high youth unemployment, to name a few. Recently, President Biden called China a “ticking time bomb.”
But as this time bomb ticks, Inc. spoke with experts and business owners about dealing with these emerging supply chain obstacles…Continue reading…
Source: China’s Economic Woes Are Impacting Small Businesses | Inc.com
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Critics:
Several Western academics and institutions have supported the claim that China’s economy is likely to be underestimated. A paper by the US-based National Bureau of Economic Research claimed that China’s economic growth may be higher than what is reported by official statistics. An article by Hunter Clarka, Maxim Pinkovskiya and Xavier Sala-i-Martin published by the Elsevier Science Direct in 2018 employs an innovative method of satellite-recorded nighttime lights, which the authors claim to be a best-unbiased predictor of the economic growth in Chinese cities.
The results suggest that the Chinese economic growth rate is higher than the official reported data. The Li Keqiang index is an alternative measurement of Chinese economic performance that uses three variables Li preferred.Satellite measurements of light pollution are used by some analysts to model Chinese economic growth and suggest growth rate numbers in Chinese official data are more reliable, though are likely to be smoothed.
According to an article by the Federal Reserve Bank of St. Louis, China’s official statistics are of a high quality compared to other developing, middle-income and low-income countries. In 2016, China was at the 83rd percentile of middle and low-income countries, up from the 38th percentile in 2004. A study by the Federal Reserve Bank of San Francisco found that China’s official GDP statistics are “significantly and positively correlated” with externally verifiable measures of economic activity such as import and export data from China’s trade partners, suggesting that China’s economic growth was no slower than the official figures indicated.
The study by Daniel Rosen and Beibei Bao, published by the Center for Strategic and International Studies in 2015, showed that GDP in 2008 was actually 13–16 percent bigger than the official data, while 2013 GDP was accurately at $10.5 trillion rather than the official figure at $9.5 trillion. According to a research conducted by Arvind Subramanian, a former economist at the International Money Fund (IMF) and a senior fellow at the Peterson Institute for International Economics.
The size of the Chinese economy by Purchasing Power Parity in 2010 was about $14.8 trillion rather than an official estimate at $10.1 trillion by IMF, meaning that China’s GDP was underestimated by 47 percent. Chinese investment has always been highly cyclical. Ever since the 1958 Great Leap Forward, growth in fixed capital formation has typically peaked about every five years. Peaks occurred in 1978, 1984, 1988, 1993, 2003 and 2009. The corresponding troughs were in 1981, 1986, 1989, 1997 and 2005.
In China, the majority of investment is carried out by entities that are at least partially state-owned. Most of these are under the control of local governments. Thus, booms are primarily the result of perverse incentives at the local-government level. Unlike entrepreneurs in a free-enterprise economy, Chinese local officials are motivated primarily by political considerations. As their performance evaluations are based, to a large extent, on GDP growth within their jurisdictions, they have a strong incentive to promote large-scale investment projects.
A typical cycle begins with a relaxation of central government credit and industrial policy. This allows local governments to push investment aggressively, both through state-sector entities they control directly and by offering investment-promotion incentives to private investors and enterprises outside their jurisdictions. The resulting boom puts upward pressure on prices and may also result in shortages of key inputs such as coal and electricity (as was the case in 2003).
Once inflation has risen to a level at which it begins to threaten social stability, the central government will intervene by tightening enforcement of industrial and credit policy. Projects that went ahead without required approvals will be halted. Bank lending to particular types of investors will be restricted. Credit then becomes tight and investment growth begins to decline.
China has the world’s largest total banking sector assets of around $45.838 trillion (309.41 trillion CNY) with $42.063 trillion in total deposits and other liabilities. Most of China’s financial institutions are state-owned and governed. The chief instruments of financial and fiscal control are the People’s Bank of China (PBC) and the Ministry of Finance, both under the authority of the State Council. The People’s Bank of China replaced the Central Bank of China in 1950 and gradually took over private banks. It fulfills many of the functions of other central and commercial banks.
It issues the currency, controls circulation, and plays an important role in disbursing budgetary expenditures. Additionally, it administers the accounts, payments, and receipts of government organizations and other bodies, which enables it to exert thorough supervision over their financial and general performances in consideration of the government’s economic plans. The PBC is also responsible for international trade and other overseas transactions. Remittances by overseas Chinese are managed by the Bank of China (BOC), which has a number of branch offices in several countries.
Other financial institutions that are crucial, include the China Development Bank (CDB), which funds economic development and directs foreign investment; the Agricultural Bank of China (ABC), which provides for the agricultural sector; the China Construction Bank (CCB), which is responsible for capitalizing a portion of overall investment and for providing capital funds for certain industrial and construction enterprises; and the Industrial and Commercial Bank of China (ICBC), which conducts ordinary commercial transactions and acts as a savings bank for the public.
China initiated the founding of the Asian Infrastructure Investment Bank in 2015 and the Silk Road Fund in 2014, an investment fund of the Chinese government to foster increased investment and provide financial supports in countries along the One Belt, One Road. China’s economic reforms greatly increased the economic role of the banking system. In theory any enterprises or individuals can go to the banks to obtain loans outside the state plan, in practice, 75% of state bank loans go to State Owned Enterprises.
(SOEs) Even though nearly all investment capital was previously provided on a grant basis according to the state plan, policy has since the start of the reform shifted to a loan basis through the various state-directed financial institutions. It is estimated that, as of 2011, 14 trillion Yuan in loans was outstanding to local governments. Much of that total is believed by outside observers to be nonperforming. Increasing amounts of funds are made available through the banks for economic and commercial purposes. Foreign sources of capital have also increased.
China has received loans from the World Bank and several United Nations programs, as well as from countries (particularly Japan) and, to a lesser extent, commercial banks. Hong Kong has been a major conduit of this investment, as well as a source itself. On 23 February 2012, the PBC evinced its inclination to liberalize its capital markets when it circulated a telling ten-year timetable. Following on the heels of this development, Shenzhen banks were able to launch cross-border yuan remittances for individuals, a significant shift in the PBC’s capital control strictures since Chinese nationals had been previously barred from transferring their yuan to overseas account.
China has four of the world’s top ten most competitive financial centers (Shanghai, Hong Kong, Beijing, and Shenzhen), more than any other country. China has three of the world’s ten largest stock exchanges (Shanghai, Hong Kong and Shenzhen), both by market capitalization and by trade volume. As of 12 October 2020, the total market capitalization of mainland Chinese stock markets, consisting of the Shanghai Stock Exchange and Shenzhen Stock Exchange, topped US$10 trillion, excluding the Hong Kong Stock Exchange, with about US$5.9 trillion.
As of the end of June 2020, foreign investors had bought a total of US$440 billion in Chinese stocks, representing about 2.9% of the total value, and indicating that foreign investors scooped up a total of US$156.6 billion in the stocks just in the first half of 2020.The total value of China’s bond market topped US$15.4 trillion, ranked above that of Japan and the U.K., and second only to that of the U.S. with US$40 trillion, as of the beginning of September 2020. As of the end of September 2020, foreign holdings of Chinese bonds reached US$388 billion, or 2.5%, of the total value, notwithstanding an increase by 44.66% year on year….
