Where does all the US money go in China?

Americans and others send a lot of money to China by buying goods made there. Where does that profit go? Since they are communist they don’t have stockholders do they?

There are private firms in China (they aren’t all that “communist” these days), but there are others owned by the government. If it’s a government-owned business, profit goes to the government.

And the government uses the money to do what? Build schools, roads, bridges, etc? Or do the high government officials just take the money and spend it on their own?

They use it (some of it) to buy U.S. Government debt, which pays more U.S. dollars in interest over time.

What percent of the companies are privately owned?

This Wiki article says, “government accounts for a third of the GDP”.

This is such a caricature. The Chinese government is remarkably efficient, given the size of the population. Yes there’s a lot of corruption, but there’s a huge amount of government works at the local level, and projects of staggering size too. The Qingzang railway, Three Gorges Dam, and thousands more.

Sure, the standards they achieve in terms of government services are often far lower than what we would deem decent in the west, but China is pretty bloody developed these days.

(The above post disregards moral issues of any kind.)

  • appartment blocks no one can afford to live in

  • uber shopping malls that look like ghost towns

  • the ‘cold’ space race

  • weapons (general)

  • that ‘kill weapon’ for US carriers

When I was in Beijing recently, the hotel sat atop the Rolls and Bentley dealerships. Maserati and Ferrari were just around the corner. Communist or not, they are developing an upper class that will rival Manhattan. Meanwhile, there is no shortage of development for the lesser people too - Volkswagen and others were contemplating building plants there. I saw no ghost apartments, just mile on mile of* full* apartments, from 50 years old to brand new. The shopping malls, even the ritzy ones with North American prices, were busy.

All the material and goods they buy from anywhere else - raw materials, specialty equipment etc. - the sellers are willing to take USA dollars, whether it’s Sudan oil or cotton from the rest of Asia. So it’s normal business, pay to workers, taxes to government, profits to fat cats - just like the real world.

Plus, a lot is used to buy bonds from the American government - meaning the money comes back to fund medicare and interstates, in return for interest payments (more money for China!) and a promise that your children will pay off the bonds years down the road.

China is accumulating a massive amount of American IOU’s. This is the real danger of the imbalance. The nightmare scenario is that they get ticked at the USA, don’t care what it costs them, and dump the bonds on the reseller market at firesale prices. As a result, when the US goes to sell more bonds to cover that year’s deficit, they have to compete with Chinese selling US bonds (with today’s what - 5% interest?) for 50 cents on the dollar, meaning they would have to offer a huge interest rate to make the bonds attractive. When the government has to pay 20% interest to borrow for its deficit, either the deficit has to disappear or taxes go up like crazy, or inflation makes that money worth a lot less - or more likely, all of the above.

Spent two years in inland China.

The profit from private companies goes to the same things it does in the US- expanding the business, buying luxury goods and entrainment for the owners, and obtaining an reasonably middle-class lifestyle for the workers. China has a stock market, as well. The economic system is not that different in the private and semi-private sector.

The money that is going into the government is being spent on infrastructure projects and loans. This is where it can get kind of messy. Right now most of the infrastructure is sensible, but you do have to question building prestige projects like mag-lev trains in a country that is still very, very poor. Lending to land developers is even more problematic, because many of these projects realistically have no chance of being profitable. The theory is that if you build it, they will come from the villages and slums and populate it as the economy continues to rise, but that’s not something you can count on forever.

md2000, China is a very divided country, and Beijing is just one small part of it. Shanghai, for example, has a standard of living on par with the US. Rural Guizhou, however, has a standard of living that is equal to Ghana. The ghost apartments are there, just not so much in Beijing (Shanghai has plenty, go inland to Chongqing and you will see a post-apocalyptic forest of them…). While there are people buying Ferraris (but don’t think those dealerships are not zoned where they are to make a specific impression on foreign guests,) there are other people going hungry. It’s a big complicated country.

Is that necessarily true, or does the particular government/army owned corporation keep its own profit (for expansion or whatever)?

Obviously, at some point some revenue will have to be passed along to the government, but I would have assumed that an army owned company (say) would keep enough to be self-sufficient with some left over for expansion.

From a New York Times article:

“China now spends about 50 percent of its gross domestic product on a broad category economists call investment — roads, bridges, trains, ports, technology, factories and office buildings. That is the highest share in recorded history. During their great booms in the 1960s and ’70s, Japan and South Korea never topped 40 percent. China itself was spending 35 percent only a decade ago.”

Also, my understanding is that there is no equivalent of Medicare or Social Security in China so people need to save for their own retirement and that of their parents.

There are 345,000 millionaires in China, more than any other Asian country except Japan. Of those, 4,935 are extremely rich people, defined as those with financial assets of more than 30 million dollars. Of those, 106 are billionaires.

The notion that China is still a communist country in the classical, Marxist sense is simply wrong.

If you talk to my business development people, most of the money goes to corruption of the highest order, i.e. government. Beijing is like 10 Manhattans big, but at best you’re looking at like 10-12% of the population. As I am in Asia now, Google is telling me that as high as 23% of China is middle class (Asian-centric sites), but middle class in the US is not the same as middle class in China. The rest are dirt poor, aspiring to be third world citizens. Also, my PhD friends at large consulting firms tell me that a lot of statistics from the Chinese government should automatically be considered unreliable unless corroborated from an independent source. China today is more like crony capitalism of yesteryear.

This rings true to me. A lot of this infrastructure investment is being done semi-privately though state-controlled banks giving loans to private investors for basically any project that seems like infrastructure. They are lending like crazy to basically anyone who has ever wanted to build an office block or luxury hotel. In my opinion there isn’t a lot of thought about how these enterprises will ever turn enough profit to pay it back.

A lot of this lending spree is being financed by the privatization of formally public lands. The city will take a chunk of land that used to be a farming cooperative or factory, kick the farmers off, sell it to a developer and then loan that profit to the developer to finance the project. There are cities getting 40% of their revenue from selling off of public property. This has obvious sustainability issues, since there are only so many public resources to privatize. But you do not get respect and advancement as a local politician by setting up sustainable programs, you get it by building up your city as quickly and dramatically as possible.

Hey, don’t knock the mag-lev. 7 minutes and $8 for a ride that would take an hour on the subway, 431km/hr. Yes the country has third-world poor areas, and even in the big cities is still behind North America. But for a city the size of Shanghai or Beijing, they need the associated infrastructure. Heck, even North America needs infrastructure development they have neglected for various reasons economic, ideological, and disinterest. The Chinese at least can afford it, so far. Like Japan and Korea (S) before them, they are essentially transitioning form third world to first world over the space of a generation.

Regardless, even with all this expenditure, they are accumulating a surplus of US government bonds at the central bank and becoming the USA’s largest creditor. This gives them a leverage that some might fnd uncomfortable.

(Just out of curiosity - why are huge tracts of apartments empty? usually if a company fails that spectacularly, someone else buys them out at bankruptcy prices and then puts that on the market at an affordable price. In this case, I would expect the government to do so. Or is it a really bad location?)

Basically anything newly built is considered “development” and reflects well upon the municipalities involved. Lending has been loosened up as part of this drive for development, and so anyone who fancies himself a “developer” can get the resources to build something. The next step- actually using what is built- hasn’t been entirely thought out. The developers don’t want to sell them at cut-rate prices. They figure prices will rise and rise forever, and eventually someone will be able to afford it.

And actually a lot of the houses are being bought by speculators (who often buy before a building is even built.)

Add to that is the cost of capital is all fucked up in China. Some government groups have zero cost of capital or don’t pay fair market rent or fair market wages, etc. Iit makes for a lot of ahem inefficient economic decisions. For example, you absolutely do not see ghost housing projects or malls in Shanghai and the top tier cities. They just don’t exist in any obvious way. Yet, some government related work unit in Guizhou province might have “free money” to build a housing estate. Or a “speculator” gets a free loan from his work unit to “invest” in apartments and repays only if he makes money.

Yet the majority of China is unbridled survival of the fittest capitalism.

64 million empty apartments that average citizens can’t afford.

The biggest fallacy is “knowing” exactly what’s going on in China.

If this were in fact the case, and average schmos like myself and SDMB frequenters knew inner workings of the Sino Politburo, then there would be no Communist China.