One thing about Alibaba.com is that you can always use it to determine overcapacity in China’s industries. Mind you, I’m in the sporting goods industry and over the years I’ve seen an astronomical rise of composite hockey sticks. These composite sticks are constructed professionally and extremely lightweight. Many of these composite sticks are rebranded, but to the unsuspecting eye it’s very difficult to distinguish between the fakes and the real branded sticks.
A year ago I noticed most of these stick manufacturers and sporting good manufacturers in China were only willing to take orders of over 15,000 units. However something strange has occurred: most of these sporting good manufacturers in China are now willing to take orders of 500 units. There’s no doubt that this has created a lot of opportunities for entrepreneurs well-channeled in hockey communities who compete with brand-name companies by undercutting their prices. Of course there’s nothing wrong with that; it’s what you call competition.
The sporting goods industry may call this tactic thievery. The problem is that the industry has to come to terms with it and devise possible solutions to rectify the problem. Maybe Wall Street can answer a few of our questions? Recently China announced that they want to boost public investment to offset underperforming private capital leaving the country. China is well aware that there’s been a significant slowdown in their economy and now believes that the government should invest more through infrastructure projects that benefit the quality of life of the nation’s people.
China indicated that private investment only increased 2.8% in the first half of 2016, a substantial decrease from 5.7% in the first quarter. The country has been channeling their energy to infrastructure programs for the past 15 years yet still has the audacity to state that they want less capital expenditure towards traditional industries. China’s central command can claim that they’re building infrastructure for the benefit of their people, but their claims may have to do with foreign investment coming back into China without actually building this proposed infrastructure. The real issue with infrastructure programs is that the expenditures don’t really matter, what matters are the hidden costs in misappropriating the funds on a global scale.
At the G20 meeting of finance ministers, Chinese Finance Minister Lou Jiwei indicated that the country would take caution using public funds for market intervention unless there’s a “systemic crisis”. His stance to be more prudent with fiscal policy is aimed at dealing with rising global risks and the sharp increase in China’s debt. He stated that intervention is “not an issue to be taken lightly”. The real problem with China is that it’s not too big to fail as a country; they have failed to address their overcapacity and limited domestic demand.
If China continues to come out with new policies and initiatives, then Wall Street has to ask itself what these initiatives really stand for. Are they simply words or concrete measures? Or are they just advocating like they normally do that innovation and entrepreneurship is the driver of China’s economic engine, not overcapacity.
Christine Lagarde of the IMF stated, “Well-designed structural reforms can lift both short and long-term growth and make it more inclusive.” Is Lagarde talking about infrastructure that the Chinese population will not use? Is she talking about apartment buildings that the common Chinese individual can’t afford? Is she talking about the rich Chinese with their BMW’s who parade the streets of Beijing? Is she talking about the multitude of low-paid workers in factories that fall short in meeting life’s daily requirements to sustain themselves?
The polarity between the rich and poor in China may be based on government infrastructure that solicits payoffs of government officials to allow projects to come into fruition. “We can safely conclude that pressure on China’s cross-border capital outflow has been relieved,” stated Zhao Xijun of Renmin University. That’s the beauty of China’s macroeconomic indicators, they somehow relieve themselves out of thin air.
By the same token, Wall Street believes in this no different than their belief system that the Chinese peasant has no debt and does not play the stock market. Wall Street can only come to terms with their own rigged system that is plagued by their own virtues and are followed by capitalists from different countries who play the same tune. Poor Bernie, roll call?