last September 15, as Lehman Brothers bankruptcy, it begun the prelude to the financial crisis sweeping the globe, the world economy into the worst recession since World War II. In the background of global economic recession, in 2008, China's economic growth reached to 9% , with the contribution rate of the world economy over 20%. In the first half of this year, China's GDP rose by 7.1%, which most countries in the world is still sluggish. It is particularly noticeable.we all know that there are a lot of chinese stuffs around us,especial cheap and faked chinese electronic products and awful bad-looking clothes(according to a small wholesale web :cheap wholesale items (http://www.etemall.com)) ,they can export cheap products to us ,although there is only a very little small profit ,they can live down through economic downturn by that.Why can not our industry ? How can we deal with our sluggish economic ?

you can begin by not using banks and instead pay for everything with your own hard-earned cash. that way nobody owns you like they do now and you don't depend on anyone to tell you whether you're in a crisis or not.

Hey

Don't forget us Aussies we are still growing as well and not in recession



Skinning a fat few cats though

china economy is growing for many reasons

1) government approved building boom. More factories and high rise buildings are being built than ever before. This is creating many jobs.

2) Chinese manufactured products quality range from cheap to excellent. If an American importer buys the cheapest and Americans buy the cheapest who is at fault. Well known in China 1/10 American price quality is what you would expect. At 1/2 American price quality is as good as anything made elsewhere in the world. Chinese are smart enough to recognize and not buy junk. The companies that produce quality products are growing usually faster the the companies making counterfeit products.

3) planned economics. this means from cities to factories to product designs, food production just about everything is planned using technology and products for all over the world. They regularly bring in "experts" from all over the world to help train students, professors, factory workers, etc. They form partnerships with world wide corporations which brings in world best class methods and technology in. They plan from the beginning economies from scale, that is goods are cheaper if producing in larger numbers. They have more standard government GB standards on standard products from nuts and bolts to tools, hardware, etc. This is so any company from small to large can build stuff to national standards if they want too. Also old factories are torn down and new modern ones built. They have learned the hard way that not every small village can have a steel mill or foundry that makes money. But if you have fewer ones that use world best class technology and are large enough to take advantage of economies of scale you will make money.

4) A Chinese library or book store may have translations of German, Japanese, American, French, Russian technical books. Students are taught if you learn the best most modern world class technology you will have a better job and make more money. 4 Grandparents and 2 parents supporting 1 child can afford to send their 1 child to a better school.

The reasons are numerous, but not that hard to understand actually.

a) The sluggish economy is not "just because of Lehman Brothers - that was just a symptom.
- The real problem is not "banking", but long term, under employment
- The long term under employment problem, is a direct result of the massive, continuing, merchandise trade deficit.
- There is no, sustainable way, that the US can continue to have a $ 1 billion per DAY, ongoing merchandise trade deficit with China. (and this is just the China number, not the total number)

China is still going along with a strong economy, not because of some great thing happening in China, but because the merchandise trade deficit is still substantial. This is the root of the problem.

b) China is highly protectionist
- So is Taiwan, so is Japan - get real, it is true.
- Regardless of what they say about being "open", it is darn hard to sell anything in China, even if you are willing to loose money doing it.
- They have managed to exceed even the Japane with their psuedo regulations, mostly to protect internal industries.

c) China is a communist country
- The government owns at least 50% of every factory, especially the ones that foreign firms put in place.
- This means - you put up the money - they get 1/2 - pretty good deal for them isn't it?
- Further, there is largely no ability to "bring home the profit" from the factory, other than to export products from the factory, forcing production to be exported in order to get a return on investment.

In return, the Chinese govt. more or less provides the electricity, water, building, and labor - very inexpensively - we would call it highly subsidized.

There are also virtually no applicable safety laws, pollution control laws, etc. There is no contribution of any kind from the taxable base of China toward the social system (roads, schools, etc.) of North America or the EU.

Given this situation, even if labor in North America and Europe were free and no benefits were paid at all, our factories would always be at a disadvantage, as the imported products includes such a significant effective subsidy with no social contribution. In effect, we pay for the ports and road to import goods from China.

It certainly will take being very business savy to stay ahead of our competors in China (and Taiwan for that matter - also heavily subsidized to export), but at a basic level, it is going to take a major change in the tax structure to make any difference.

More or less, we need to shift from a system focused on income tax to one based on retail sales tax (not like the EU style Value Added Tax - which is actually exactly wrong). Something in the area of 10 - 15 %, applied not only to retail sales, but also financial transactions (stocks / bonds / derivatives)

We also need to not allow the import of products that have not been inspected - at the original factory - by a US Citizen - to ensure that they meet North America and EU safety standards. This should be paid for by China, as they are the ones getting the service.

Lastly, we should broaden our thinking on how we approach our climate. There is an over - focus on carbon emissions, and not the more dramatical environmental poisoning that is going on in China. Instead of this crazy Cap and Trade approach, we should simply tax products which are not proven to be produced in an environmentally reasonable way. I am not talking about "super green" here, I am talking about complying with codes similar to US / Canada. So, in summary:
- 10% sales tax just for everything
- 10% sales tax for (each) organic pollution of the air, water, land (total 30%) unless it is PROVEN that the factory and its suppliers comply.
- 10% sales tax for (each) metallic pollution of the air, water, land (total 30%) unless it is PROVEN that the factory and its suppliers comply.
- 10% sales tax for using coal fired electricity
- 50% sales tax for using coke fired electricity

These taxes could be applied to the local social programs and general budget, relieving the need to tax ourselves.

China would actually benefit, as this would force them to make the investment needed to avoid killing their own people, and North America and the EU would rise from the slump with competitively priced output.

The EU would actually achieve its goal of reducing CO2 output world wide instead of the cap and trade scam which seems more for investors / speculators than real pollution reduction.

More or less, we need to shift from a system focused on income tax to one based on retail sales tax (not like the EU style Value Added Tax - which is actually exactly wrong). Something in the area of 10 - 15 %, applied not only to retail sales, but also financial transactions (stocks / bonds / derivatives)


this is the sentence I'm most interested in. can you elaborate how VAT is "bad for you" (tm) and how is this different from what you have in the states right now? sales tax is sales tax, right?

this is the sentence I'm most interested in. can you elaborate how VAT is "bad for you" (tm) and how is this different from what you have in the states right now? sales tax is sales tax, right?

Hi - Thanks for the reply. My perception at least is that in fact sales tax and VAT tax are really quite different.

A beginning explanation of how VAT and Sales taxes work can be better explained in this wikipedia.org article, which illustrates some aspects correctly, and not others:

http://en.wikipedia.org/wiki/Value_added_tax

Perhaps useful to note, is that the US does not have a National Sales Tax, all current Sales Taxes are collected at the state and local level. This can vary widely in rate from zero to nearly 12%, and is not applied evenly to all products (often not to unprepared food for example) and services / labor are hardly ever subject to sales tax, whereas VAT is more or less an additional income tax, as it also taxes the services.

In the case of VAT, it is more or less a sales tax applied every time "value is added". Since the next "sale" price point step" is based on the "purchase price" plus a % markup, each level adds a compounding amount of cost, margin, and "taxes on taxes".

Officially, VAT attempts to "refund" the tax paid along the way to each sales point, but this is based on the assumption of "perfect paperwork for tax returns", zero cost to implement / manage the paperwork, near instant refunds of the tax at each stage", markups in the manufacturing stage being "fixed vs % based, and effectively 0% cost of money.

In essence, the governments that have VAT are hoping / planning that few people really have the time to do everything right, so they can avoid the rebate portion as much as possible. The US govt does this as well for income tax returns - as few people REALLY know how to understand the tax code. (less than 1 in 25,000 is my guess)

For "sales tax", it is only applied and paid once - at the final point of sale to a retail customer. There is no paperwork, tax collection + refund game in between.

Imagine for a moment a system where the income tax and VAT are, as much as possible, replaced by a sales tax, and apply this concept to car production in the UK compared to competing with foreign imports.

With income tax and VAT
- Each time a part is fabricated = VAT
- Each person employed = income tax (company) + income tax (personal)
- Final assy = more VAT + income tax
- Electricity to run plant = more VAT + associated income taxes
- Lots of paperwork to send to govt in attempt to get a refund on all of the VAT paid.
- Final sales price = more VAT or sales tax

Foreign import (example Taiwan / China)
- Susididized (0 interest) loan for working capital for any work in progress (for exports)
- Factory - provided by govt
- Electricity - largely provided by govt
- labor = pretty cheap in China - actually about the same price as the US in Taiwan
- No income tax on corporations
- No VAT taxes and paperwork to deal with
- No income tax and paperwork to deal with

Ship first to Singapore or similar country to "wash out" any value / profit so the subsidiaries in the UK / US don't show any, or very little profit and ery little "Value Added" to tax.

Effect - Foreign imports end up paying almost no taxes along the way, local firms and workers carry nearly all of the burden.

With system mostly based on Sales tax

Domestic Production
- Corporation pays no income tax on profit, making it interesting to make $ in the countries they operate in.
- Workers pay no income tax, making it easier for them to make similar or even lower wages to what they make now.
- Reduced paperwork = lower costs for their production and the items they buy at wholesale to produce

At the point of sale
- Sales tax is applied to every retail transaction equally, foreign and domestic
- Sales tax is applied to every stock and similar financial transaction as well. This encourages longer term holding rather than speculation and churn.

Tax burden then becomes equally shared, regardless of if a product is produced domestically or foreign.

China is a one party state which doesn't have to bother with democratic niceties. When your government artificially depresses the value of your currency it's not hard to have a competitive advantage.

If your economy is built on back door subsidy and slash and burn environmental policies it's not rocket science to make a profit.

All far eastern exporting economies rely on reckless and ever larger consumption by American and European consumers. At the moment the lack of free spending western consumers is being masked by huge chunks of Chinese state cash which have been slapped into their economy to cover the holes.

The problem for China is pre crash consumption levels aren't coming back any time soon. Americans and Europeans have had their fingers burned and just aren't interested in spending ever larger amounts of money on Chinese tat they don't really need.

The Chinese economic miracle needs customers... Chinese people don't like spending money and aren't into consumerism. If the west says no thanks then what?

then they reduce exports of rare earth metals which you need for pretty much all electronics. and develop their own. and then they end up still having an upper hand. hm. have we learned our lesson yet?
harryn thanks for your elaborate and in-depth explanation of how the whole shebang works. I just wonder why the whole europe is (was) pushing so hard for VAT. simple to work with (but ends up costing everyone money)? or is there something else behind it.

then they reduce exports of rare earth metals which you need for pretty much all electronics. and develop their own. and then they end up still having an upper hand. hm. have we learned our lesson yet?
harryn thanks for your elaborate and in-depth explanation of how the whole shebang works. I just wonder why the whole europe is (was) pushing so hard for VAT. simple to work with (but ends up costing everyone money)? or is there something else behind it.

Europeans tend to use cash transactions much more than Americans, some times for historical reasons, and other times because the Credit Card / Banking institutions charged such high fees. (2 - 3X what is charged in the US, which is already pretty high).

The government was worried that the people that don't make much money (middle / lower classes) would avoid paying tax by not reporting some of the transactions. VAT makes this harder, as it creates more of a paper trail from source to consumer. Sort of the old "king worryied about the peasants paying their taxes" rather than worrying about the "big fish" who actually have all of the money.

In the US, perhaps 80% of all new retail transactions are performed by less than 1,000 large entities, and more than 50% of used retail transactions are conducted on ebay. This is pretty easy to capture.
not payuse a lot of cash for transactions, which makes it easier to hide them. If the VAT tax rate is high, then the fear is that those people who are not making tons of money will

The reasons are numerous, but not that hard to understand actually.

a) The sluggish economy is not "just because of Lehman Brothers - that was just a symptom.

- 10% sales tax just for everything
- 10% sales tax for (each) organic pollution of the air, water, land (total 30%) unless it is PROVEN that the factory and its suppliers comply.
- 10% sales tax for (each) metallic pollution of the air, water, land (total 30%) unless it is PROVEN that the factory and its suppliers comply.
- 10% sales tax for using coal fired electricity
- 50% sales tax for using coke fired electricity

These taxes could be applied to the local social programs and general budget, relieving the need to tax ourselves.


I'm so glad you posted this summery, I could not agree more. I have been saying the same thing for years.

How high does unemployment have to get before anyone in our government will talk about the 300 LB gorilla in the room? China.

China is why Japan has had had a 15 year depression and we will now have the same problem. With both political parties vary much pro China I think we will need to get rid of most of them before any real change will happen to our trade and tax system.

Perhaps when unemployment reaches 20%?