Chinese Economics Thread

[broadsword]

China's total debt of 250% or more of its GDP is huge. I asked a Chinese analyst about it and here is his reply.

If we look at the structure of debt, we can find that the household debt and central government debt are comparatively healthy.

The risk exists for corporate debt and local government debt, and most of the corporate debt is actually owed by SOEs and guaranteed by the local or central government. The risks exist for these two parts. I think the government will gradually let some of the corporate debt default so as to deleverage the economy. Another debt restructuring similar to the late 1990s might happen to bail out commercial banks.

The most risky part is the local government debt, including those LGFV debt guaranteed by local governments. The money raised via these debt are general invested in public projects with low return. Currently the local governments are allowed to issue municipal bonds with low yield and long maturity to replace their existing debt. This helps the local governments to delay the repayment of current debt, and also let the local government raise more fund to stabilize the economy. This is also a strategy by the government to play with time, in the hope to generate enough fiscal revenue in the future to repay the debt. However, since Chinese economic growth is slowing down, I don't think the future is so optimistic. Since the central government is deemed to provide the ultimate guarantee for all the government debt, the ultimate solution is to monetize those debt by the PBOC, similar to the approach by the US Fed. The PBOC now allows commercial banks to collateralize the local government bonds for relending, which might be an important channel for money supply in the future.

 

[Equation]

China's total debt of 250% or more of its GDP is huge. I asked a Chinese analyst about it and here is his reply.

True, but how many bail out required by the tax payers in the Trillions of dollars like in the US with it's big bankers fall out? Remember the term "too big to fail" end up being too big to NOT BAIL?

 

[Blackstone]

View attachment 17808
The comment was about China and so let's keep the discussions in context. The projected growth target of 7 % being achievable is being questioned given what has been happening. The word "stalled' is frankly being charitable.

The problem is you're allowing your bias to get in the way of reason. In the real world, as nations develop from low to mid-income economies, they often experience high rates of growth (8-12%) through investment-driven policies. However, once they reach the so-called middle-income trap, they must shift from investment to consumption-based economies. The successful ones (US and rest of "Western nations," Singapore, Nippon) make the transition, and the unsuccessful ones don't (most of the world). GDP growth typically fall, as nations transform into consumption-based economies. China is attempting to reform itself to a consumption-based economy, so its GDP naturally will fall from near 10% to about 5-6%. Far from "stalling," the change makes China's economic growth sustainable for the long-term.

 

[Blackstone]

OK, this shows that growth rate is declining, but it does not show the the economy itself has stalled. It's the graph of the acceleration rate, not the graph of the value. Basically, it's like saying that a car is accelerating slower, but it's still accelerating, not stalled at the same speed nor slowing down. Also, take into account that 7% of 10 trillion is still larger than 10% of 5 trillion.

People that say China is stalling/sputtering/crashing (take your choice) haven't done their homework. Reality is China is trying to join an exclusive club of nations that successfully transformed themselves from investment to consumption-based economy.

 

[Brumby]

OK, this shows that growth rate is declining, but it does not show the the economy itself has stalled. It's the graph of the acceleration rate, not the graph of the value. Basically, it's like saying that a car is accelerating slower, but it's still accelerating, not stalled at the same speed nor slowing down. Also, take into account that 7% of 10 trillion is still larger than 10% of 5 trillion.

I have to give you credit for trying. The simple meaning of the word "stalled" is associated with movement and movement to have meaning needs context and context needs an anchor point. The graph clearly shows that GDP growth is slowing but that in itself doesn't mean the economy is not growing - just that it is not growing as quickly in relative historic terms. The main argument that the economy has stalled is in relation to the target the central government has set for itself and that is 7 % growth. We do not know whether that target will be met but recent events suggest that target is increasingly questionable. If the target is not met (which I believe it will not be), the economy has stalled relative to its set target. In other words, the planned economic growth has stalled.

The issue of economic value is not relevant to the conversation.

 

[Brumby]

The problem is you're allowing your bias to get in the way of reason. In the real world, as nations develop from low to mid-income economies, they often experience high rates of growth (8-12%) through investment-driven policies. However, once they reach the so-called middle-income trap, they must shift from investment to consumption-based economies. The successful ones (US and rest of "Western nations," Singapore, Nippon) make the transition, and the unsuccessful ones don't (most of the world). GDP growth typically fall, as nations transform into consumption-based economies. China is attempting to reform itself to a consumption-based economy, so its GDP naturally will fall from near 10% to about 5-6%. Far from "stalling," the change makes China's economic growth sustainable for the long-term.

Do not disagree with what you have said but that wasn't the context of my comments. Please refer to my post # 4535.

 

[Brumby]

As to when it bottoms out, wait for year end or the start of the new year for me to have a better idea. My chart reading is time-focused, not price. I look for chart patterns and the waves that make the patterns. If the waves do not make, especially the final wave that makes that particular pattern, then my timing will be out of whack. But I still think the rebound to the 4200 level can happen before the end of 2016.

I have been engaging in technical analysis for 15 years and I am not aware of any pattern and or wave count that is purely time based. What are you referring to?

 

[Blackstone]

Do not disagree with what you have said but that wasn't the context of my comments. Please refer to my post # 4535.

You said China's economy "stalled," what context do you wish to present that? Economists say nations that transform from investment to consumption-based economies will experience lower GDP growth, and China's is somewhere around 5 to 7% (depending on who you believe). Kindly explain, in your context, how that relatively good growth number is "stalled?"

 

[broadsword]

From The Guardian, a less critical look of the Chinese management of the economy and the market crash.

Please, Log in or Register to view URLs content!

 

[Brumby]

As long as the authorities are prohibiting the ones that hold 5% or more of a single ticket of selling their stocks, speculation is meaningless.

I disagree with your comments but from the standpoint of certainty and in more broad terms. In a free market structure, the mechanism and rules are known and speculators operate within the known boundaries of that structure. Accordingly, financial risk are managed based on the rules of the game. The problem with intervention is that it introduces totally new risk into the market place. Speculators exit from a position when their risk parameters are breached. When authorities takes arbitrary steps that limits your freedom to operate then the risk becomes unmanageable. It becomes a disincentive to operate in that market. Unfortunately that price to the market place may not be apparent for years to come.