Chinese Economics Thread

J-XX

Banned Idiot
I have been doing some research on the debt in China. Now if we take the 122% of GDP corporate debt of Dragonomics and you add to that 30% of GDP household debt and 43% of GDP government debt that's both central as well as local then you come up with a figure close to a debt load of 200% of GDP. With other debts that are not included in this calculation China's debt to GDP ratio is well over 200%. This is the result of over investment in the infrastructure and keeping zombie companies alive that have been borrowing money that they are unable to pay back because the reason that they need to borrow is because they where loosing money in the first place. China's government and household debts are well managed but the problems are with the corporations and they are also the ones responsible for the large increase of foreign debt that China has accumulated in recent years. They are under pressure politically not to lay off staff during lean times and they are forced into taking on loans to keep operating.

China like Japan and the West is going to kick the can down the road for as long as they can. The majority of the debt in China is related to investment in infrastructure and housing. Some of these projects will generate profits immediately and other down the road but some of that investments will simply not perform no matter how long you wait. Those will be lost and the question is how much of China's current investments falls into that last category. And how much does the banks in the end have to write off. The majority of the debt is been owned by companies that can go bankrupt unlike governments and i think in the long run that's the solution.

122% corporate debt?
30% household debt?
43% government debt?

Are these official numbers or western made up numbers to prove china is collapsing?

Unless you can give me links that PROVE these are official numbers, I'm skeptical about these numbers.
 

hkbc

Junior Member
I have been doing some research on the debt in China. Now if we take the 122% of GDP corporate debt of Dragonomics and you add to that 30% of GDP household debt and 43% of GDP government debt that's both central as well as local then you come up with a figure close to a debt load of 200% of GDP. With other debts that are not included in this calculation China's debt to GDP ratio is well over 200%. This is the result of over investment in the infrastructure and keeping zombie companies alive that have been borrowing money that they are unable to pay back because the reason that they need to borrow is because they where loosing money in the first place. China's government and household debts are well managed but the problems are with the corporations and they are also the ones responsible for the large increase of foreign debt that China has accumulated in recent years. They are under pressure politically not to lay off staff during lean times and they are forced into taking on loans to keep operating.

China like Japan and the West is going to kick the can down the road for as long as they can. The majority of the debt in China is related to investment in infrastructure and housing. Some of these projects will generate profits immediately and other down the road but some of that investments will simply not perform no matter how long you wait. Those will be lost and the question is how much of China's current investments falls into that last category. And how much does the banks in the end have to write off. The majority of the debt is been owned by companies that can go bankrupt unlike governments and i think in the long run that's the solution.

XYZ% of what?

Pocket Money?
Wages?
GDP?

I have a 4200% debt ratio against my gross monthly income.

But the cost of servicing my debt is less than 30% of net monthly income.

Ratios are meaningless without a baseline

Your numbers are meaningless
 

jackliu

Banned Idiot
I have been doing some research on the debt in China. Now if we take the 122% of GDP corporate debt of Dragonomics and you add to that 30% of GDP household debt and 43% of GDP government debt that's both central as well as local then you come up with a figure close to a debt load of 200% of GDP. With other debts that are not included in this calculation China's debt to GDP ratio is well over 200%. This is the result of over investment in the infrastructure and keeping zombie companies alive that have been borrowing money that they are unable to pay back because the reason that they need to borrow is because they where loosing money in the first place. China's government and household debts are well managed but the problems are with the corporations and they are also the ones responsible for the large increase of foreign debt that China has accumulated in recent years. They are under pressure politically not to lay off staff during lean times and they are forced into taking on loans to keep operating.

China like Japan and the West is going to kick the can down the road for as long as they can. The majority of the debt in China is related to investment in infrastructure and housing. Some of these projects will generate profits immediately and other down the road but some of that investments will simply not perform no matter how long you wait. Those will be lost and the question is how much of China's current investments falls into that last category. And how much does the banks in the end have to write off. The majority of the debt is been owned by companies that can go bankrupt unlike governments and i think in the long run that's the solution.

Well, if you want to calculate it this way, then we should use the same standard to ALL nations on earth not just China. So if you calculate the debt for US, beside the government debt, but also include private debt and future obligations it come out to $211 trillion, not $14 trillion, not 100% of GDP, but 1400% GDP.

I'm pretty sure if you use the same calculation on Europe, India, Japan it will be FAR worse. I think since the value of currency is not backed by gold or commodity anymore that means all nations on earth are cheating with their currency and debt, they are constantly inflating and printing their currency in order to stimulate the economy and increase job growth for today, maybe they are ignore the future on purpose and short sighted, or they are all making a deliberate calculation to do so in anticipation of the weak of their currency.

But one thing for sure, if all currency are fiat valued, then it does not matter how weak your currency is, as long as other people's economy have more problem than yours, then you come out on top. The problem is that this is NOT a license to recklessly spend money, and if you go too far like Greece and maybe even US at this point putting your economy into massive debt in a very short period of time you are still going to suffer.

As for China's massive debt that was lend out for infrastructural construction, I think eventually those money will be forgiven by the bank, because bank in Western world are privately owned with private shareholders. Bank in China are government entities, their primary goal is NOT to make a profit, they are being used rather as a institution for government to administer social stability, reduce employment, reduce poverty and promote growth. If you look at this this way, you can almost say they are cheating, and yes they are, because they are not "bank" anymore. This is what happens when state capitalism is being done on a massive scale for the interest of the nation, rather than for the interest of the private party.

In the end, when trillions of RMB of loans are forgiven to the construction companies... guess what? millions of apartments and stores will be standing there for people to fill it up.

Here is the source to back up my $211 trillion claim, please list your 200% claim for China, I believe you but I'm interested to see sources to back this up.

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Franklin

Captain
Well, if you want to calculate it this way, then we should use the same standard to ALL nations on earth not just China. So if you calculate the debt for US, beside the government debt, but also include private debt and future obligations it come out to $211 trillion, not $14 trillion, not 100% of GDP, but 1400% GDP.

I'm pretty sure if you use the same calculation on Europe, India, Japan it will be FAR worse. I think since the value of currency is not backed by gold or commodity anymore that means all nations on earth are cheating with their currency and debt, they are constantly inflating and printing their currency in order to stimulate the economy and increase job growth for today, maybe they are ignore the future on purpose and short sighted, or they are all making a deliberate calculation to do so in anticipation of the weak of their currency.

But one thing for sure, if all currency are fiat valued, then it does not matter how weak your currency is, as long as other people's economy have more problem than yours, then you come out on top. The problem is that this is NOT a license to recklessly spend money, and if you go too far like Greece and maybe even US at this point putting your economy into massive debt in a very short period of time you are still going to suffer.

As for China's massive debt that was lend out for infrastructural construction, I think eventually those money will be forgiven by the bank, because bank in Western world are privately owned with private shareholders. Bank in China are government entities, their primary goal is NOT to make a profit, they are being used rather as a institution for government to administer social stability, reduce employment, reduce poverty and promote growth. If you look at this this way, you can almost say they are cheating, and yes they are, because they are not "bank" anymore. This is what happens when state capitalism is being done on a massive scale for the interest of the nation, rather than for the interest of the private party.

In the end, when trillions of RMB of loans are forgiven to the construction companies... guess what? millions of apartments and stores will be standing there for people to fill it up.

You're right the situation in America, Europe, UK and Japan is much worst than in China. China doesn't even make it in to the top 10 of the worlds most indebted nations. However we cannot ignore the problems there are in China just like America, Japan, Europe and the UK ignored their problems for too long and then it was too late.

here are the sources

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and this from post #2901

To be sure, the era of double-digit growth in China seems to be ending just as significant new challenges appear. China is facing a rapidly aging population, in part because of its one-child policy of the past 30 years. Its labor force will peak next year at 1 billion, then it will shrink, adding huge new pressures to China’s already stressed pension system. Wage inflation, running at 20 percent a year, is proving particularly painful for lower-cost exporting industries, including textiles and toys. Corporate debt has soared after several years of investment-driven growth and looks set to reach 122 percent of GDP this year, estimates GK Dragonomics.
 

jackliu

Banned Idiot
You're right the situation in America, Europe, UK and Japan is much worst than in China. China doesn't even make it in to the top 10 of the worlds most indebted nations. However we cannot ignore the problems there are in China just like America, Japan, Europe and the UK ignored their problems for too long and then it was too late.

Like I said, if China does not even makes top 10 worst, then they are in the good position. Because today it is a race to the bottom, no matter how bad you are as long as someone else is worth then you then you are good... this is sad but unfortunately it is the truth.

and this from post #2901

To be sure, the era of double-digit growth in China seems to be ending just as significant new challenges appear. China is facing a rapidly aging population, in part because of its one-child policy of the past 30 years. Its labor force will peak next year at 1 billion, then it will shrink, adding huge new pressures to China’s already stressed pension system. Wage inflation, running at 20 percent a year, is proving particularly painful for lower-cost exporting industries, including textiles and toys. Corporate debt has soared after several years of investment-driven growth and looks set to reach 122 percent of GDP this year, estimates GK Dragonomics.

Those are certainly real problems, and they are pretty much copy and paste for all China basher out there like Gordon to support this theory since 2001 that "China is going to collapse on Monday"

1. There is been talks in the official media debating ending the one child policy, and the one Child policy was never fully enforced as there was no restriction on minorities in China, and very little enforcement in rural areas. And even now, the one child policy has been modified for many years already. Because right now, if you yourself is single child, you can now have two children but they must be 5 years apart, this is official rule, google it if you don't believe me. Then with the recent debate about one child policy in the CCP official media, there is always the chance they are going to abolish the rule once and for all.

2. Cheap labor force have already peaked in the middle of 2000s. Now most of the garment workshop have already left China and moved into Vietnam, Bangladesh (remember the fire few days ago) and with any luck Burma and North Korea in the near future if they can stabilize their nation and make peace with the West. I remember waves and waves of doom and gloom report about end of China because their labor got expensive, but funny thing is if you take a look at China's trade date, they are still increasing by double digit every year. This is because China have transform itself from the absolute low cheap wage producer into a manufacturing powerhouse with technology. During the past decade China invested most of their money earned from trade into their infrastructure like roads, factories, schools etc... Now this is the real value that China offers to the West, do you know how much is the assembly cost of an Iphone? It is less than 20 dollars, an Iphone's total life cycle will be more than 1000 dollars from the parts manufacturing, shipping, retail, extend warranty, cell phone contract, date plans, overage charges etc... China's share in all of this is about 2%. So why does Apple, Samsung, Dell, HP almost all exclusively produce in China?

Answer is TIME, in today's world where produce life cycle is getting shorter and shorter, it is NOT about cost anymore it is about how fast you can produce it and get it out to market, The Chinese factories can respond more quickly, and not simply because of 12-hour workdays. Anyplace else, you’d have to import different raw materials and components, in China you’ve got nine different suppliers within a mile of the industry zone, and they can bring a sample over that afternoon. People think China is cheap, but really, it’s fast. And if you need an emergency batch of extra 100k more unit produced in a short time... China will do it for you by this weekend.

And this speed is solely depended on their massive investment into infrastructure of past years. I mean sure, you can produce in Bangladesh, Congo or Mexico even and instead of 20 dollars cost you can do it for 10 dollars, but by the time your item is ready and hit the market, your competitor's product will be one generation ahead of you. So yes, congrats, you save $10 but you lost $990 dollars.

3. China's aging population, this is directly tied into #1 point where they may relax one child policy, but I admit even this is not enough to change the balance. So again, we have to use the concept of applying the same rule to everyone not just China, trust me, by the year 2020-2030, Japan, Germany, France, US (Baby boomer) will be facing the same problem. The only places where this not a problem will be Middle East and Africa and India, but the challenge that we speaks of and the China basher like Gordon Chang wants to speak of is that China will get old and get weak and everyone else will stay strong, but what happens is when China and all of the nation it is competing right now will get be facing the identical problem as well. Then that would make this a moot point to support the thesis of "China's downfall" moot.

As for Middle East, they are not investing in education, infrastructure or science and they are too hang up on Allah, so I have no hope for them. For Africa, they will not achieve political stability for the next 100 years or more, and unfortunately warfare, aids and instability will eat away their populations growth as fast as their birth rate. As for India, they have a massive problem of inequality and they are servery lacking on basic infrastructure and education, so if they wants to challenge China, they better get their act together fast TODAY, because if they keep going at the way they are going now, they are not going to be a challenge to anyone.

So next time... when you think US/Europe will do this and do that and will win... ask yourself what is preventing other people from doing the same.

So next time... when you think this and that will happen to China and they will face doom... ask yourself is other nations facing the same problem as well?
 
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Hendrik_2000

Lieutenant General
You're right the situation in America, Europe, UK and Japan is much worst than in China. China doesn't even make it in to the top 10 of the worlds most indebted nations. However we cannot ignore the problems there are in China just like America, Japan, Europe and the UK ignored their problems for too long and then it was too late.

here are the sources

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and this from post #2901

To be sure, the era of double-digit growth in China seems to be ending just as significant new challenges appear. China is facing a rapidly aging population, in part because of its one-child policy of the past 30 years. Its labor force will peak next year at 1 billion, then it will shrink, adding huge new pressures to China’s already stressed pension system. Wage inflation, running at 20 percent a year, is proving particularly painful for lower-cost exporting industries, including textiles and toys. Corporate debt has soared after several years of investment-driven growth and looks set to reach 122 percent of GDP this year, estimates GK Dragonomics.

As Jack Liu said there is more to it than just wages comparison. Wages only make small percentage of the finish cost. Beside speed as Jack clearly explained there is also the ecosystem of supplier. China can make the product so cheap because most of the processed components are also made in China most likely within 20 miles of the main assembly plant.

The other thing is worker productivity and skill Aside from Japanese and Korean worker China have the most productive worker in Asia.

You think China corruption is bad wait until you try to invest in South East Asia country Trying to set up a company you probably need 12 department stamps and delay in each of the department. Just trying to clear the custom office you will probably get delay for weeks .

In China most of the procedure has been streamline combine with excellent infrastructure speed up the delivery and custom clearance of products

Again to compare one country to other you have to use the same metric

Instead of leaving China together most company now moved inland. Intel built factory in Chonging and Samsung built plant in Xian. In fact now most inland province grew faster than coastal province
 
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jackliu

Banned Idiot
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Indeed this is the case, the next step of moving the economy inland is already paying fruit and it is only in the beginning stages.

By the end of this year a fifth of all computers in the world will be manufactured in Chengdu, the ancient Sichuan capital of western China.

The great leap forward has come with lightning speed, and spans the gamut of hi-tech industry. The three state-telecom giants -- China Mobile, China Unicom, China Telecom -- are together spending $4.7bn to create the world's largest cloud-computing base at the city's Tianfu software park.

Country cousins they are not in Chengdu. There is no reason why they should be. The city competes with Rome for primacy as the world's oldest metropolis (Baghdad is not quite the same as Babylon), and competes with Tuscany for food.
Foreign critics have clung too long to the 1990s narrative of a booming Eastern seaboard -- the quintarchy of Beijing, Tianjin, Shanghai, Shenzhen, and Guangzhou, some 300m people deep -- backed by a vast hinterland of ignorance, poverty, and filth.

It was never so, and is utterly wrong today as the great boom rotates West. Chengdu has been an aerospace centre since the 1950s, strategically located in the Sichuan Basin behind a ring of escarpments -- including the 25,000ft peaks of the Great Snowy Mountains, many of them still unclimbed to this day.

The 14m-strong city is now pole-vaulting up the technology ladder. Chengdu Aircraft Corporation (CAC) manufactures China's stealth fighter, the J-20 Black Eagle. Washington and Moscow were stunned when it took to the skies in 2010.
More prosaically, its aerospace industry builds nose cones for Airbus and the rudder for the 787 Dreamliner, Boeing's composite passenger jet.

Chengdu's hard-driving mayor Ge Honglin has a built a 3-D model of his city -- the size of a tennis court -- with an elaborate system of lights showing where the allocated clusters are being built. Precision machinery here, optical electronics there, automobiles off to one side, and on and on.

A kilometre-wide green belt of lakes and parks will separate the "Garden City" from the smoke stacks, to be linked to the first car-free town of 30,000 families -- designed by Chicago architects Adrian Smith and Gordon Gill as a pilot project for the nation.

The top-down planning breaches basic market principles. It should not work, yet the clusters are filling up. Chengdu is actually realizing its seemingly quixotic mantra of becoming

China's Silicon Valley, fed by 51 universities, graduating 200,000 scientists and engineers each year. These include the University of Electronic Science and Technology, said to host the cyber-espionage cell GhostNet known for cracking India's state secrets and the Dalai Lama's email archives.

The US semi-conductor group Intel built its first plant here on empty fields nine years ago, lured inland by the Chinese government's `Go West' incentives -- intended to keep mutinous migrant workers safely anchored to their regions. The sweeteners include 15pc corporation tax for a decade (instead of 25pc), with no tax on first two years of profits, and half tax on the next three years.

Intel has since shifted the bulk of its operations from Shanghai, which already has Californian wage costs in pivotal sectors. It now produces half the global supply of laptop chips from its Chengdu operations.

The big names of the computer industry have followed in a sudden migration. Dell and the China's Lenovo came in 2011. Foxconn has cranked up operations from nothing to 80,000 workers in barely two years. Last month it built 80pc of Apple's worldwide output of iPads at eight cavernous galleys outside the city.

It is why Chengdu has shrugged off this year's hard-landing in coastal China. Growth has slipped slightly to 13pc over the last nine months but is already picking up again.

Much the same story is unfolding in Chongqing on the Upper Yangtze -- two hours away by high-speed train -- where party boss Bo Xilai ruled an urban sprawl of 32m with an odd mix of Maoist patrols and market panache before he ruffled too many feathers. Chongqing grew 16.5pc last year.

It is the same too in Xi'an, the old imperial capital to the North, and in a string of cities and regions across the interior. Inner Mongolia grew 15pc, as did once sleepy Ghuizou -- home to the lakes and gorges of Guilin.

So while it is undoubtedly true that coastal China has exhausted the low-hanging fruit of catch-up growth -- and now faces the classic "deceleration trap" on the technology frontier -- the strategic depth of the hinterland changes the equation for China as a whole.

Of course, you never really know in China where the economic miracle ceases to be real and mutates into blow-off extravaganzas. Has the Communist Party rolled the dice once again on rampant over-investment and an obsolete model? Hard to tell.

Chengdu will open the world's largest building within a few weeks, the New Century Global Centre. It a huge glass pagoda, the latest Chinese adventure of British-Iraqi architect Zaha Hadid, flush from success d'estime with her intergalactic Opera House in Guangzhou -- where there is no opera.

A few hundred miles away in Mao's old haunt, this will soon be topped for sheer exuberance. The city of Changsha is about to erect the world highest building -- Sky City -- in 90 days flat. It will be finished in March. That is stimulus for you.
Yet Chengdu is currently building more space than any city in China, and probably in the world, with 30 skyscrapers above 60 floors under way, and 90 big commercial complexes.

"It is Manhattan, not Chengdu," said Zhau Yun as she looked out of her apartment window across a forest of high-construction cranes.

Mrs Zhau, who heads the British Chamber of Commerce, said the plans are significantly larger than the Pudong financial district in Shanghai. She hopes they know what they are doing.

So does Wang Yongping from China Commercial Real Estate Association, who told Caixin Magazine that Chengdu has become "a bubble".

Much the same was said about Pudong itself in the early days, of course. In 1998 Milton Friedman called it "a statist monument for a dead pharaoh on the level of the pyramids". The optimists laughed longest.

Chengdu's Ge Honglin believes that if you `build it, they will come', predicting a boom this decade that will match Shanghai's glory in the 1990s.

We all know the bearish case on China. The work-force peaks in 2015. The dependency ratio is rocketing. The supply of cheap labour from the country is drying up. There is overcapacity across swathes of industry, from steel to ship-building and solar energy. Bad debts in the banking system have yet to be revealed. Water and energy are scarce, and not yet priced to reality.

Yet we also tend to underestimate the fancy footwork of China's commissars in skipping over apparently insurmountable hurdles. If mayor Honglin is right -- and others like him across West and central China are right -- bears may have to wait another cycle or two for China-dämmerung. A hinterland boom in regions containing 700m people or more is not to be sniffed at.


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I admit it: My prediction that the Communist Party would fall by 2011 was wrong. Still, I'm only off by a year.

COME ON Gordon... you have less than 30 days to implode the Chinese economy... better hurry up dude.
 

broadsword

Brigadier
China taking huge steps in agricultural research
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China taking huge steps in agricultural research

By Sarina Locke

Thursday, 23/08/2012


Accounting firm KPMG says China is the world's second biggest investor in agricultural research and development, and is producing vast numbers of skilled graduates from universities.

In a report highlighting the potential for joint ventures in food production, KPMG says there are 116,000 graduates in agriculture in China a year, compared to 700 in Australia.

Doug Ferguson, the partner in charge of the China practice for KPMG, says China is very focused on improving food safety, particularly in large dairies.

"These cattle were genetically delivered through New Zealand gene technology," he said.

"They ate very high protein New Zealand designed food.

"The facilities were state of the art.

"We sometimes underestimate just how focused China is on its R and D and technology angle."
 
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