Letters of the Week

China worries overdone? Fair Work reality. Thumbs up for big super.

China worries
Two things Michael (Looking beyond China): first, what on earth is China's "dependence ratio"? Second, China still institutes five-year plans. The place remains a semi-planned economy. Do you really think – highways to nowhere notwithstanding – that the rulers will not use available resources to achieve the required economic growth? Let's not forget that the Soviet Union (hardly a model of economic efficiency) was able to sustain enormous output for decades. Pity about the Soviet consumer, but a vast amount of natural resources were mobilised for an awfully long time for the purpose of building a powerful industrial base. It beggars belief that the Chinese Communist Party rulers will simply roll over and allow free market forces to produce the usual cyclical outcomes. These people give every impression of playing for keeps. I really don't think they give a continental about Western criticisms of highways to nowhere. After all, the construction of these highways employed a lot people and assisted in (very) long-term infrastructure needs.

– B Miller

Michael Feller’s response: Thanks for your comments. I refer to China's demographic dependence ratio, that is, the ratio between those who are not in the workforce and those who are. Due to the one-child policy and a lengthening life span, China's dependence ratio is estimated by the UN to invert by 2015, if not sooner. I discuss this in more detail here.

As for five-year plans, it is true that these have been a key factor in what has kept China's economy growing thus far, but as the Soviet example you give amply demonstrates, five-year plans are by no means infallible. Moreover, it is my belief that it was the very failure of such top-down planning that forced the Soviet Union to unwind itself, rather than a free choice made by Gorbachev.

Additionally, just because China is a command economy doesn't mean it's immune to the laws of supply and demand. Indeed, with credit markets so globalised and interlinked, Beijing's actual command over China's economy is probably weaker than you think. The money to support the local government financing of all this surplus infrastructure has to come from somewhere and unlike the United States, Japan or even Britain, China's central bank isn't in a position to simply monetise the debt without causing a potential inflation crisis (notwithstanding the recent drop in food prices).

Fair Work

What a great courageous article by Robert Gottliebsen. He has come closer than any other scribe I have read in listing the Fair Work Act and industrial relations as a prime cause of our sinking economy. I would put this way ahead of any other factor. The exchange rate is either manageable or beyond any business solution; the nightmare of employing staff is not. I closed our family business at 31/12 specifically because of the industrial relations climate. If any of these Labor/Green pollies think that people start businesses so they can employ people, they are wrong. Every business is started so the owners can make a profit. Staff are just another input to production. If you treat your machinery well, it will function well. If you do the same to staff, there is no guarantee it will respond in a like manner.

– B Rumpf

Big Super

In your Friday edition, Robert Gottliebsen talks about what to expect over the next five years and starts with a thumbs-up for self-managed super funds. Without any judgement on SMSFs, can I pass on my thanks to my super people (not naming names). I've not paid any contribution fees; their Aussie Index fund always trends nicely in front of the ASX (which gives me comfort that their internal fees are not excessive); and at the flick of an online button, I can transfer from shares to cash and it doesn't require a yearly audit. As far as support, they are always easy to access via phone and you won't get better or friendlier help. They just recently did the switch from super to pre-retirement pension (at my request) and if it was made any easier, I'd have sent them a cheque out of guilt. Yes, good on the SMSF industry, but let’s give credit when it’s due to at least one of the big super funds.

– B Meaney

To read this week’s letters, click here.

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