the botleneck for the chapter 11,or for a sustainable ecceonomy comming from the low level mainly.
In this enviroment the private and the state ovned is not clearly separated,because the point is not the ovnership,but the supporter of the business.
(a party official…)

They are quick,you can make projects in china which are extremly quick,because the party member support you.
The target of an avarage party member is simple:
A.,power
B.,money
And they are the law.

Oh,and I don’t know the Chinese communist party.
But I know the polish/hungaryan/slovakian/DDR way.

Agree totally which is why it is usually the worst thing in the world economically speaking to dismantle a working factory, and why chapter 11 bankruptcy exists. Most of the value in a factory consists of know-how and human relationships, and when a factory can’t pay its debts, you do not want to immediately shut down the factory. Instead you want to arrange immediate funding that keeps the factory running while you can think of a way of maximizing value.

In almost all cases, this means wiping out capital debt, and keeping the factory intact.

Francois: Whatever valuation techniques you may employ and resale you may use. It is very often getting in the negative side.

The problem that you get into in situations without good bankruptcy production is massive asset stripping in which the manager of the factory gets control of the assets of the factory, sells them, puts the funds in his personal account, and then leaves the debt in the hands of the state or the factory.

A lot of free market theory is based on interactions between a buyer and a seller each which is trying to maximize profit, and the theory is that they will act in ways to maximize utility. However, in situations where you have complex relationships, it doesn’t always act in this way. In particular if you have a factory manager with control over assets but no liability for debts, then they may act in ways that don’t maximize social utility.

The Chinese export industry didn’t arise as a result of centrally planned investment. If you look at the companies that are in the export industry, they are mostly private or local government owned companies that get their funding from informal sources or from overseas.

It’s a mistake to think that China is like the Soviet economy or the American economy or to try to put it into simple categories like “socialist” and “capitalist.” The Chinese government copies whatever works, which means that you have a strange mismash of different systems. One problem is that there is no good introduction to the structure of the Chinese economy because as soon as someone writes a book, it changes.

bomlat: This is a miss allocation of the resources: the party want a simple economy,not a long term sustainable.

It’s a mistake to say that the “Party wants.” There are lots of different people in the Communist Party with different goals and ideas for what China should do. Within the Communist Party, you see all sorts of economic beliefs from supporters of Soviet style Marxist central planning to people that want to push China in the direction of laissez-faire capitalism.

This diversity of beliefs within the Communist Party I think is a good thing. The reason that the Communist Party tolerates and to some extent encourages internal debate is that they want to stay in power, and one thing that the Party has learned is that if you don’t tolerate some internal debate, then you just stagnant.

bomlat: The bankruptcy and the chapter 11 could work in the US, but it can not work in a Communist country.

One good thing about China is that there is no ideological barrier to borrowing an idea from the United States if you can convince people that it will help the Party stay in power. There has been a lot of work done on a bankruptcy law, and it will be interesting to see how well it works in practice.

Always very active. I appreciate that your view have evolved with time. Certainly getting very pragmatic. I should say that I tend to agree with most of your current set of views as well most of Michael’s ones by the way. Even if they tend to contradict sometimes

However you said:
“When a factory goes bust, it doesn’t mean that things are worthless. There is usually a huge amount of worth in factory plant. You just need to make sure that these valuable assets are disposed of properly”

Concerning factories going bust and its subsiding value, we have some background and experience.

What you say is alas wrong.

A fully functional industrial plant is certainly a miracle of human Genius. As long as it can sell its output in acceptable conditions.

However the financial value of a factory in overcapacity times is extremely low. A decent resale of equipment is “wishful thinking”.

Equipment is incredibly costly and, most important, its value is only related to very smart completely “ad hoc” engineering that is completed destroyed during a very rough bust.

Whatever valuation techniques you may employ and resale you may use. It is very often getting in the negative side.

Quite a number of family relatives – I should now say ancestors since this is both a story starting around 1850 closing during the end of the XXth century – has been in industry for long enough to have been personally instrumental in both opening and closing factories of various natures and size over a very long period of time. Including relatively recently steps that implies resale of equipment to, say, oversea countries…

I certainly hope that you do not have to deal personally with the financial and social consequences of such an event.

I just hope that Chinese authorities will do what is needed. That is support their own people in relatively difficult times. And not try to reverse the flow of history. That would have terribly damaging consequences.

Somewhat correct but completely irrelevant…..

What he doesn’t mention is that in order to drive this economic growth, these TVE’s had to borrow extremely heavily to the point where you had rural credit instititutions that were (and still are) insolvent. The TVE’s growth phase ended around 1990 when the countryside basically ran out of cash.

DB: Then at the beginning of the 1990s, the central government decided to shift the economic development scheme towards urbanization driven and controlled by the public and governmental sector

Because they had no choice in the matter. The boom in the countryside was not because private enterprise was particularly good but because Maoist communal agriculture was a total disaster. By 1990, the rural countryside had recovered from the Maoist disaster. At that point, there were no productivity gains to be made anymore, and the rural credit institutions that were designed to take advantage of these gains started going bust.

Also “privatization” is not a good way of describing rural land ownership. The “contract responsibility” system is something that is not quite private and not quite socialist. You can see it when people like Huang are saying good things about it that it becomes private, but when they say bad things about it, it becomes non-private.

DB: Now the point is: Huang argues in his studies that economic activity driven by the private sector in townships and villages in the 1980s have led to greater benefits for the Chinese people then the subsequent government- and public sector-led urbanization. What do you think of his view?

Maybe it is true, but it is completely irrelevant. The basic problem is that what worked in the 1980’s wouldn’t necessarily work in the 1990’s and the 2000’s and the 2010’s. The reforms of the 1980’s were designed to fix the problem of the 1970’s, and once those problems are fixed, you have to do something different. Times change, and policies that create a miracle in one place and time can be totally disastrous in another. Much of the “China miracle” wasn’t that privatization was very good, but because Maoist communal agricultural was particularly bad, and switch to another system (any other system) would have improved things.

This is the problem that I have with ideological people whether they are socialist or capitalist. They fail to adapt when the situation changes. People loved the Soviet model in the 1960’s not because they were total idiots but because the Soviet Union generated extremely large amounts of economic growth in the 1950’s. When talking about the failures of state planning in the 1990’s, we also have to consider the successes in the 1950’s. We can certainly learn things from the 1980’s, but we can’t repeat them because the world is different.

This applies to current issues. I personally think that Chinese industrial and banking reform in the 2000’s was a huge success. Does that mean that I think that we can relax and just follow exactly the same policies? Hardly. *Because* it has been a success, a lot of the problems that the policies had to fix have been fixed, which means that there is nothing more to do. China’s economic model in the 2000’s is highly capital intensive and highly export intensive. It worked well in the 2000’s because China is where the Soviet Union was in the 1950’s or where East Asia was in the 1980’s.

It’s going to stop working in the 2010’s Much of the export intensive part will never come back. Building one expressway is going to be very useful, but building two isn’t. Right now building stuff works because there are a lot of things that need to be built. As time passes there are going to be fewer and fewer things that can be usefully built.

So right now the big thing in China is trying to move the economy from an capital driven, export driven economy to an technology based, innovation based economy. This means basically tearing lots of things up and starting over again, and looking at how other countries (particularly the United States) promote innovation. It’s going to be wrenching and painful, change always is, and people will do a lot of stupid things and make lots of mistakes, just like they did in the 1990’s and in the 2000’s. Expect to make mistakes and set things up so they aren’t fatal ones.

I’m optimistic because managing an economy requires constant change and constant renewal, and my feeling is that the people in the Chinese government aren’t trapped replaying the glories of the past like the Soviet leaders of the 1970’s or frankly like Ya-Sheng Huang is.

This is the story about the compressor plant:
http://www.lvrj.com/business/36871499.html

The Delphi had to move the plant to chine from the US , in good case they could move it to a warehouse,and use the capacity of an other plant to make compressors(in Mexico or in Brazil).

But the point is not this:the current development of china was not connected to the consumption,but to the central planed investment (example export industry).
You could do an investment into assets for service or consumption.
If your salary,and purchasing power growing,you still can save money,but your investment will go to amusement park instead of a brand new export factory.

This is a miss allocation of the resources: the party want a simple economy,not a long term sustainable.(they know that in the future they will lose the power,so let say 5-10 year is the maximum event horizon for them)

The bankruptcy and the chapter 11 could work in the US,but it can not work in a Communist country.

In the Us,it could put back the economy onto the track,but in china the party will command the re-allocation of the resources.
And they will try to conserve the existing environment.(it is so hard to avoid,even in the US they try this)