Sunday, January 31, 2016

Short Course on Overproduction, Lektion Acht

The Wall Street Journal, Friday, January 29, 2016

  Slowdown in China Chills Germany 
German exports to the important Chinese market are suffering their sharpest drop in a quarter of a century, casting a shadow over Europe's biggest economy and showing the global impact of China's slowdown.
With new order from China and other emerging economies sagging, German businesses fear the bad news is only beginning, data and surveys released in recent days suggest.
Two charts complement 1000 words, more or less.  In this case less.

Russia, we know about.  Sanctions.  Price declines for natural gas and oil, which account for 1/3 of Russia's GDP.
China, the big chill.
Brazil, last century's China, in deep recession.
Eurozone, a domestic market, more or less, for Germany.
The UK, the benefits to Germany of an uncommon currency.
The US, see above. Vielen Dank, Herr Draghi...und Frau Yellen

And the difference  in China's imports:

Metals, autos and auto parts, machinery all down.  Some decline due to China's own development? Due to production from foreign direct investment?  Perhaps some, but certainly not to at these volumes, at these rates.

Clothing, pharmaceuticals, food up.  Pharmaceuticals a bit higher on the value chain.  Food and clothing?  Despite the rhetoric repeated periodically since 2008, about China developing its domestic market, that consumption will replace exports as the driver of the economy, the reality is that the domestic market is severely circumscribed by low productivity in agriculture made manifest in the small size of the average agricultural production unit.  
 German exports to the US and many other markets are still growing.... But with much of Europe still licking its would from the eurozone debt crisis, business confidence in Germany is vulnerable to continued cooling in Asia.
"The overall situation in China is depressed," said Ulrich Reifenhäuser, a management board member at machinery Reifenhäuser Group..."I see very few orders in the near future."
...Barring an improbable spike in December, German exporters took a bigger hit than during the 1997 financial crisis when exports to China fell 2.4%.
Above all, capital-goods sales to Chinese factories are down, as overcapacity there takes its toll on investment spending.  And German and other European companies say they expect exports to weaken further...
"China is suffering from massive overcapacities," said Olaf Stalfort, head of sales and marketing at SMS group which builds steel plants and rolling mills.  "The consolidation of the Chinese steel industry is still ahead of us," he said....
At DELO, a company near Munich that makes adhesives for electronic devices, exports to China have risen about 10% since April.  "The Chinese would rather cut back on food than make do without their smartphones," said DELO managing partner Sabine Herold.
You wanna bet?  See latest sales figures for the IPhone 6.
Ms. Herold said complacency about China's economy would be a mistake and her company is trying to expand elsewhere.  "We are targeting Vietnam, Indonesia, the Philippines and Thailand."
Clever. Going after the same territory that Japan went after for its the Greater East Asia Co-prosperity Sphere.

China's Workers Fall Back on the Countryside They Left
As jobs dry up in Chinese cities, migrant laborers are bearing the brunt of the country's economic downturn
In years past, China's rural economy has soaked up unemployed returnees as they bided their time for another urban stint.  This time, however, Beijing is struggling to prop up growth that has sputtered to its slowest pace in a quarter century.  Worse, as China has pushed to urbanize, rural areas are no longer able to absorb so many returnees.  Roughly 55% of China's 1.37 billion people now live in cities, compared with just under 18% in 1978.
Older workers say that they can't live off the unproductive farmland they still own and have neither the skills to switch jobs nor the capital to start businesses...
The disparity between rural realities and urban dreams has "created a peculiar dilemma for migrant workers," said Wu Guijun, a migrant worker turned labor activist in the industrial Shenzen.  "They find themselves caught between cities that are too costly to live in and villages that are impossible to return to."
One consequence is rising worker unrest.  Job losses and unpaid wages, particularly in China's construction and manufacturing sectors, have fueled thousands of protests over the past year.  The turmoil has worsened in the weeks before the New Year as migrant workers press their deadbeat employers for unpaid wages before heading home....
"In this day and age, it's impossible to just live off the land," said Yu Dengliang, a 43 year old construction worker from a small village in central Henan province, whose earnings have fallen by more than two-thirds in the past year.  His small cornfield typically yields a few thousand yuan in revenue a year, grossly insufficient for his family of four.
"We have no pension, no savings.  What business can we start?  Who would lend us the money?" said Mr. Yu as he waited outside a railway station in Beijing for a 10 hour train ride home."
Not long ago, journals, electronic and print, were reporting on the looming shortage of labor in China; on the downside of the one-child policy; on depleting the supply of labor from the countryside which in turn was creating upward pressure on wages.

There is no shortage of labor.  No pension, no savings have been the social basis for China's economic "miracle,"  and this "broken rice bowl," replacing the iron rice bowl, has given all it can to the accumulation of capital.  China's emerging, and emergent bourgeoisie, now face the problem the bourgeoisie have been incapable of resolving for one hundred years; the problem which, whenever capital makes even a feeble gesture towards, explodes in class war; the problem of revolutionizing the relations of agricultural production, of emancipating labor from subsistence, starvation, scarcity-- emancipating labor from capital itself.

S. Artesian
January 31, 2016

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