The IMF recently released on the Chinese economy. I took several weeks to read through it. I thought that, unlike most Western commentary - which utterly lacks useful information - this report taught me some new things.
I wrote this post about the report, if anybody is interested. Hopefully we can learn something from it haha.
Overall Thoughts
I generally thought that this report was a good-faith back-and-forth discussion between the IMF and the Chinese government. There were recommendations made with an attitude of cooperation and respect, with the IMF genuinely wanting to improve China’s economy.
Growth
The IMF believes that Chinese future growth will be low.
Some of the report is outdated, as it was written during Zero COVID and assumes restrictions until mid-2023. The original report assumes 3.8% GDP growth in 2023 (Page 15, Paragraph 19). Its updated forecast is 4.1% GDP growth, which is already outdated.
Most interesting was the assertion that removing local, provincial protectionism would increase growth by 10% (Pages 27-28, Paragraph 50).
Rural growth also seems to be faster than urban growth, as “per capita disposable income of rural residents continues to grow faster than that of urban residents” (Page 132, China Statement).
Housing
From reading the IMF’s analysis, it seems that fixing the housing “crisis” requires just ~2% GDP. Or ~$360 billion dollars.
Yep, all that racist Anglo “China Housing Crisis!!?!?!!!” is just pure bullsh*t. It doesn’t require trillions. It’s not going to bankrupt China. It requires about ~11% of China’s foreign reserves. And the IMF also believes this is affordable – they state that “the combined cost of these mechanisms [to fix the housing crisis] is estimated to be manageable” (Page 23, Paragraph 40).
The IMF’s analysis is very revealing (Pages 34-36, Box 1). Here’s basically several scenarios. Note that I don’t understand what “restructuring inventories” means. Does this mean developers defaulting on debts?
The IMF recommends a federal bail-out, although it seems China’s going to rely on local governments.
I also thought that the IMF’s explanation of the housing problem was extremely enlightening. Page 8, Paragraph 4 was actually the first time I ever had a clear explanation of what exactly the problem was. This was a big difference from the endless racist Anglo media worker/YouTube FUD propaganda that doesn’t explain anything at all – but merely leaves confusion and a sense of crisis. I suspect many racist Anglo media workers have no idea what was actually going on either.
Banking
I learned some interesting things about Chinese banking – which I’ve always found mysterious – from the report.
Dangerous shadow banking has steadily decreased since 2017 (Page 43, Figure 4 and Page 50, Table 4). The Western media used to always talk about how shadow banking would cause the Collapse of China, Version 2016. But I guess the problem is being fixed.
Banks are also loaning less to households and more to corporations (Page 43, Figure 4).
Trust companies are being more heavily regulated. The CBIRC is doing “a quarterly risk briefing on recent compliance and risk issues in the trust industry” (Page 92, Appendix V).
On the other hand, China didn’t implement the recommendation to “prohibit the stating of anticipated rate of return in the prospectuses of wealth management products” (Pages 91-92, Appendix V). In my time in China, I saw many of these types of products – and they always seemed kind of suspicious, or too good to be true. The recommendation sounds like a good idea; I don’t know why China doesn’t do it.
Finally, China’s capital adequacy ratio is increasing – whatever that means (Page 50, Table 4).
Spending
Generally, the IMF wants more left-wing style spending.
They also want more taxation of the rich (Page 37, Box 2 and Page 60, Appendix III, Figure 1).
I generally disagree with these recommendations. I think current spending levels are fine – especially with the world facing inflation.
One thing I did find concerning was the uncomfortable M2 increase (Page 50, Table 4). It seems to always be 9%. That seems a lot like the excessive quantitative easing that’s caused so many problems in the West.
Debt
Debt generally seems okay, especially as reported by China’s statistical agencies. Debt and household debt rose because of COVID, although not to crisis levels (Page 4 table).
However, the IMF created this strange category called “augmented debt.” I think they made this figure up based on their secretive calculations – especially involving local government financing vehicles (LGFV’s). This figure makes the Chinese debt situation look scary, as if China Is About To Collapse.
To me, “augmented debt” is very vague and Uyghur genocidy. I think that a lot of LGFV’s are actually investment. To just add all LGFV’s to debt assumes that all the investments go bankrupt and have a -100% return, which is unrealistic? I may not be understanding this fully, however.
China believes that the “augmented debt” concept is also bullsh*t (Pages 128-129, China Statement). They say that LGFV’s do not have to be repaid. I also find this claim not very believable.
Communication
The IMF emphasises better communication, which they think China can improve on in order to avoid disruption. They give examples involving structural reforms (Page 28, Paragraph 50) and housing (Page 36, Box 1).
I also agree that the Chinese government can better communicate their reforms and changes.
(Continued below.)
I wrote this post about the report, if anybody is interested. Hopefully we can learn something from it haha.
Overall Thoughts
I generally thought that this report was a good-faith back-and-forth discussion between the IMF and the Chinese government. There were recommendations made with an attitude of cooperation and respect, with the IMF genuinely wanting to improve China’s economy.
Growth
The IMF believes that Chinese future growth will be low.
I’m generally skeptical of this, especially the “declining business dynamism.”Structural policy trends are clouding medium-term growth prospects amid weak productivity growth, in large part because of the role of low-productivity state-owned enterprises (SOEs) and declining business dynamism. – Page 2
Some of the report is outdated, as it was written during Zero COVID and assumes restrictions until mid-2023. The original report assumes 3.8% GDP growth in 2023 (Page 15, Paragraph 19). Its updated forecast is 4.1% GDP growth, which is already outdated.
Most interesting was the assertion that removing local, provincial protectionism would increase growth by 10% (Pages 27-28, Paragraph 50).
Rural growth also seems to be faster than urban growth, as “per capita disposable income of rural residents continues to grow faster than that of urban residents” (Page 132, China Statement).
Housing
From reading the IMF’s analysis, it seems that fixing the housing “crisis” requires just ~2% GDP. Or ~$360 billion dollars.
Yep, all that racist Anglo “China Housing Crisis!!?!?!!!” is just pure bullsh*t. It doesn’t require trillions. It’s not going to bankrupt China. It requires about ~11% of China’s foreign reserves. And the IMF also believes this is affordable – they state that “the combined cost of these mechanisms [to fix the housing crisis] is estimated to be manageable” (Page 23, Paragraph 40).
The IMF’s analysis is very revealing (Pages 34-36, Box 1). Here’s basically several scenarios. Note that I don’t understand what “restructuring inventories” means. Does this mean developers defaulting on debts?
Situation | What Happens… | Value |
Bad Case | Worst developers don’t sell a single new house. No “restructuring recoveries.” | 5% GDP |
Low Amount of Sales | No recovery from 2022 sales decline. Worst developers sell as many houses as others did in 2022. | (1-2% GDP less => average 1.5%) |
Restructuring and Investments | Restructuring inventories. Investments increase in value. | (1-2% GDP less => average 1.5%) |
Medium Case | Bad Case (- Low Amount of Sales) (- Restructuring and Investments) | 5% GDP (-1.5% GDP) (-1.5% GDP) 2% GDP |
Good Case | Sales recover somewhat. Worst developers sell more houses than normal developers did at the bottom of the market. | ??? Not analyzed. |
The IMF recommends a federal bail-out, although it seems China’s going to rely on local governments.
I also thought that the IMF’s explanation of the housing problem was extremely enlightening. Page 8, Paragraph 4 was actually the first time I ever had a clear explanation of what exactly the problem was. This was a big difference from the endless racist Anglo media worker/YouTube FUD propaganda that doesn’t explain anything at all – but merely leaves confusion and a sense of crisis. I suspect many racist Anglo media workers have no idea what was actually going on either.
Banking
I learned some interesting things about Chinese banking – which I’ve always found mysterious – from the report.
Dangerous shadow banking has steadily decreased since 2017 (Page 43, Figure 4 and Page 50, Table 4). The Western media used to always talk about how shadow banking would cause the Collapse of China, Version 2016. But I guess the problem is being fixed.
Banks are also loaning less to households and more to corporations (Page 43, Figure 4).
Trust companies are being more heavily regulated. The CBIRC is doing “a quarterly risk briefing on recent compliance and risk issues in the trust industry” (Page 92, Appendix V).
On the other hand, China didn’t implement the recommendation to “prohibit the stating of anticipated rate of return in the prospectuses of wealth management products” (Pages 91-92, Appendix V). In my time in China, I saw many of these types of products – and they always seemed kind of suspicious, or too good to be true. The recommendation sounds like a good idea; I don’t know why China doesn’t do it.
Finally, China’s capital adequacy ratio is increasing – whatever that means (Page 50, Table 4).
Spending
Generally, the IMF wants more left-wing style spending.
They want more income and welfare transfers, with fewer tax cuts for businesses (Page 21, Paragraphs 31-32; Pages 31-32, Paragraph 61; Page 56, Appendix II).…a more accommodative fiscal policy stance than under the baseline and a shift to greater support for households, combined with some additional interest rate-based monetary policy easing, would promote a balanced recovery. – Page 5
They also want more taxation of the rich (Page 37, Box 2 and Page 60, Appendix III, Figure 1).
I generally disagree with these recommendations. I think current spending levels are fine – especially with the world facing inflation.
One thing I did find concerning was the uncomfortable M2 increase (Page 50, Table 4). It seems to always be 9%. That seems a lot like the excessive quantitative easing that’s caused so many problems in the West.
Debt
Debt generally seems okay, especially as reported by China’s statistical agencies. Debt and household debt rose because of COVID, although not to crisis levels (Page 4 table).
However, the IMF created this strange category called “augmented debt.” I think they made this figure up based on their secretive calculations – especially involving local government financing vehicles (LGFV’s). This figure makes the Chinese debt situation look scary, as if China Is About To Collapse.
To me, “augmented debt” is very vague and Uyghur genocidy. I think that a lot of LGFV’s are actually investment. To just add all LGFV’s to debt assumes that all the investments go bankrupt and have a -100% return, which is unrealistic? I may not be understanding this fully, however.
China believes that the “augmented debt” concept is also bullsh*t (Pages 128-129, China Statement). They say that LGFV’s do not have to be repaid. I also find this claim not very believable.
Communication
The IMF emphasises better communication, which they think China can improve on in order to avoid disruption. They give examples involving structural reforms (Page 28, Paragraph 50) and housing (Page 36, Box 1).
I also agree that the Chinese government can better communicate their reforms and changes.
(Continued below.)