Interview with Liu Mingkang, former chairman of the China Banking Regulatory Commission, on China's economic problems:
First, domestic and external demands [in China] have taken a sharp drop, especially in the second half of 2011 and first half of 2012. I think that the pressure to increase domestic demand is picking up. That is because domestic demand is driven by business productivity.
Right now, business costs are rising. The cost of raw materials rose to between 5 and 10 percent of costs in 2011, labor costs to 25 percent, and finance costs to 50 to 60 percent. Leverage rates vary from industry to industry, but are usually above 50 percent. They are at that level due to rising interest rates and exchange rates. The yuan's exchange rate was on the rise during ten months of 2011. Only in recent months has its value begun to drop slightly.
These three factors had three results in 2011: business profits were down, losses were up and per capita income was hurt. The government came up with many measures to protect the lowest income population, but the consumption capacity of low-income citizens is limited. Demand on the part of middle- and upper-classes is dropping, especially in middle-class families. Everybody's attitude is "let's wait and see."
Second, there will be even more pressure to change our development path in 2012. For example, there will be pressure on the steel, auto-manufacturing, ship-building, textiles, machinery and other industries. Industrial structures will be further adjusted in 2012. We urgently need to transform our business development models. It has become a choice between life and death.
Third, it's hard to be optimistic about employment and stability. If some businesses evaluate market conditions and choose to close up shop or cut half of production, especially in the first half of 2012, there will be employment problems for migrant workers after Chinese New Year.
Fourth, after ten years in the WTO, China's reliance on exports is relatively high. China is greatly affected by changes in the global economy. Commodity prices fluctuate rapidly, impacting China's economy directly. It's also worth paying attention to capital flow trends. In the third quarter, net inbound capital flow became capital outflow. It's possible that such an exodus will continue into the first half of 2012.
The plural of anecdote is NOT data.
