Chinese Economics Thread

Equation

Lieutenant General
That has also been covered within the article;

Basically saying it is not enough.

Not enough? Those are basically EXTRA money saved by China over the years. The so called " that cost of servicing the debt" actually decreases as the value of the Yuan increases over the years (Long term now not next year). ALL this done without a single tax dollars use.

That article lost all credibility when it started to insinuate that China is in deflation.

It is amazing how western analysts seem to have this uncanny ability to "forget" their own earlier criticisms of China when it suits their current agenda.

When the Chinese economy was growing at 10%, or when the west wants to beat the "fair trade" drum, western analysts often try to downplay and dismiss that as inaccurate by arguing that the Chinese government makes Chinese banks extend loans to favoured Chinese companies at extremely low interest rates.

Now, when they want to hype up China's supposed debt problem, these same companies are suddenly paying near 10% annually to finance their loans? Talk about wanting to have their cake and eat it.

On the whole, that article looks like someone cherry picking every negative line and assumption they could find and pasting them all into one place rather than a serious balanced attempt at real analysis.

Its just the same old "China collapse" crowd peddling the same old BS, just with some updated examples.

Exactly. Cherry pick, dramatize the negative news and make up some BS, than send and print. Rinse and repeat.
 

SampanViking

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Thanks you SB for the link, which confirms it is a none story and one presented by the BBC is a particularly misleading light.
This is indeed the estimate of the dollar value of the total debt of the PRC, but presented in a way as to insinuate that it was simply the public and external debt.

However the copied graphic from the article shows that the ratio is hardly exceptional or the composition particularly worrisome.

fw5e9u.jpg


China is below many of its peer competitors with Japan way ahead in percentage terms and a far more troublesome composition with over half its 400% ratio being government debt.

On this basis, we see the Japan has a total debt of over $16 Trillion, the US stands at $42.5 Trillion and the UK at $8 Trillion

We can all play silly games so lets scale these figures up to levels based on population, with China providing the Benchmark
Now we see Japan with $176in debt, the US at $190 Trillion and the UK at $160 Trillion.

The debt profile of China is however similar in terms of ration and composition to South Korea and Australia, but somehow this is not equally a harbinger of doom for them.

We can see however that the Dept of China's Central Government, Local Government and Households is rather modest, and that the Lions share is Corporate. This means that a very large proportion is Investment and will be backed by assets and are quite likely to be repayable from normal business activities.
This is distinct from large Government debts in Western countries, where Government borrows money to pay expenditure, usually military or social welfare, where the money is simply spent and never able to generate is own return.

It is August and this is a none story!
 

plawolf

Lieutenant General
Precisely, ironically, that article even touched upon the all important difference between Chinese debt and developed economy debt by stressing the fact that China is in the process of transitioning from an investment driven economy to a consumption driven one.

Since all of that debt was accumulated when China's growth was very much investment drive, the lion share of that debt would have been taken out to finance investment.

In contrast to developed, consumption driven economies who overwhelmingly borrows to consume.

In many respects, I fundamentally disagree with the established consensus that investment driven economies need to transition into a consumption driven one, or that such a transition is necessarily a good thing.

In may view, this focus on the need to formally shift from investment to consumption is wrong because it is mistaking effect for cause.

In my view, the fundamental shift isn't so much in terms of the main activities an economy engage in, but rather reflects on the changing distribution and spending power on different segments of the economy.

When a country is poor, its people are poor, so have very little spending/purchasing power.

As such, it is up to governments to spend big (relative to what the rest of the economy could spend) to develop the economy, create jobs, and generally generate demand and create wealth, and the best way to do that is to invest.

As all that government spending and investment pays off, and both private companies and middle class get richer and increase in number, their spending power relative to government spending increases and thus plays an ever increasing part in the overall national economic picture.

At some point, an economy becomes so developed that continued investment becomes less and less efficient, at which point the government needs to look to re-direct its spending to get the best value for its money.

This is where the much hyped transitional period starts.

However, I believe the key test of whether an economy can break through the so-called middle income trap is not how well it can transition from an investment led economy to a consumption driven one, but rather how well it invested up to that point to make its citizens rich enough that their normal economic activity becomes sufficient to sustain and drive the economy.

Another key requirement to breaking through the middle income gap is what the government does with its money rather than invest them at home.

The classic mistake is for governments to buy wholesale into this transition to consumption nonsense and start spending on non-income-yielding activities like social welfare.

Good social welfare programmes is a perk rich economies could afford because they are rich, it is not a pre-requisite or advisable route to becoming rich in the first place in the same sense that nice designer label clothes and sports cars are luxuries the rich can afford to treat themselves with, but which one does not become rich by spending on before you can afford them.

In my view, when domestic investment becomes less and less efficient, a good government should instead look for better investment opportunities abroad - FDI. Its still investment, only abroad. It still yields a good return, so your pile of money continues to grow.

In addition, I believe there is an additional stagnation trap that much of the rich world is trapped in, but which they are too proud to ever admit, and instead insist what they manage is the best that could possible to achieved.

The key reason for rich economy stagnation trap is the hollowing out of its domestic manufacturing.

Sure, outsourcing manufacturing to development countries yielded massive immediate profits for western firms and economies, but in the medium to long terms, that is turning into a disaster for rich economies.

You do not in effect jettison an entire tier of the economic activity chain without suffering for it later.

What many western economies have effectively done is sell the goose that lays the golden egg.

Sure, they got a massive pile of cash upfront for it, but that pile is ever diminishing, whereas the gold pile of the developing economies they sold the goose to is always growing.

I know modern finances can perform all sorts of fancy tricks, but the one thing it cannot do is create wealth out of thin air.

I think we much vaunted western financial sector is deeply flawed. It doesn't really create wealth, just the illusion of it, which is dependant on unsubstantiated optimism and hype.

The values of shares rise now not because a company does particularly well or because the real value of the company is really worth anywhere close to its market capitalisation, but because everyone expect its share price to keep rising, and so thrown money at it in order to ride the boom. That in effect creates its own little feedback loop, where the more a share rises, the more people wants to buy it, which in turn drives the price up further.

The problem is that that rise is not based on anything real or substantive, so when for whatever reason market confidence dips, the whole thing slams into reverse.

It is a deep tragedy that China blindly has allowed its stock market to follow this flawed and toxic western example.
 

Blackstone

Brigadier
Did you actually read my post #4535? If you still disagree, please offer your rebuttal based on that post.
No Brumby, I didn't read your conversation with another reader (post 4535), and now that I have, it's clear you mistook China's lowered GDP growth for "stalling" when it's the opposite case. China isn't stalling, quite to the contrary, it is trying to transform from a "developing" to "developed" economy, and its economy is, on balance, doing well.

As for not hitting 7% target= stalled, would you say that if China hits 6.8% as IMF predicts? How about 6.7%? 6.6...?
 
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Brumby

Major
Economic targets are just a guide, a plan for this year. They have no meaning as it pertains to the actual GDP, especially once done.
If you insist that economic targets have no meaning and failure to achieve has no consequences, then we are so far apart in basic understanding of market behaviour, economics, fiscal and close loop management that I would not waste further time on it.

Basically, a B student is still a B student no matter whether he aimed for straight A's or just wanted to pass.
Really? What about all those people who aspires to do better not just in word but in deed. Your statement is an insult to all those past, present and future aspirants who aim to do better.

Literally all that someone needs to do to succeed, according to your definition, is to set low goals.
Please demonstrate one shred of evidence that I said that. If not, please retract your statement.
 
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Brumby

Major
No Brumby, I didn't read your conversation with another reader (post 4535), and now that I have, it's clear you mistook China's lowered GDP growth for "stalling" when it's the opposite case. .?

If you did, then either my communication ability is poor or your comprehension is suspect. I have already explained in that post the context and application of the meaning of "stalled". For your sake I will repeat. Stalled was in relation to my view that the 7% growth is unlikely to be met i.e.stalled relative to plan. It is not about China's slowing growth relative to recent history - a point I specifically took pain to emphasize.
 

SampanViking

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The BBC seems unable to help itself when reporting on the PRC

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Headline reads
Shanghai shares end week almost 8% lower as markets recover

Inside However

On Friday, the mainland's benchmark Shanghai Composite closed up 4.8% at 3,232 points.

China's second bourse, the Shenzhen Composite, closed up 5.4% to 1,846 points, but ended the week 9.4% lower.

Hands up all those that think a 5% surge on the FTSE or Dow Jones would be reported in this way?
 

manqiangrexue

Brigadier
If you insist that economic targets have no meaning and failure to achieve has no consequences, then we are so far apart in basic understanding of market behaviour, economics, fiscal and close loop management that I would not waste further time on it.


Really? What about all those people who aspires to do better not just in word but in deed. Your statement is an insult to all those past, present and future aspirants who aim to do better.


Please demonstrate one shred of evidence that I said that. If not, please retract your statement.

Failure to achieve the economic target has no consequences; failure to achieve a certain growth rate has consequences. Was the economic target set at this do-or-die growth rate? Set at the growth rate plus a buffer? Set at what the planners thought that their overachieving economy could do? Set at an optimistic number that would be really really nice? Or set at an impossibly aggressive number compared to peers? In any situation other than the first, failure to meet the target would not carry consequences.

Those who aspire to do better must actually do better or that aspiration means nothing. Aspiration without realization is empty talk. My statement that a B student is a B student regardless of his goals were coming into the year, stands; if they think that's insulting, they can become A students next year. If they can't, their aspirations are worthless.

Retract statement? LOL That's funny. You said that (your version of) stalling means to stall against one's own targets. Then obviously, if that target was lowered, you would no longer be stalling. And if the target was increased enough, then even an amazingly high growth rate could be considered stalling. Therefore, to prevent stalling, by your definition, you would simply lower the target to well below actual expected performance. That logic is obvious. So I say it is more reasonable to take stalling to mean failure to make comparable progress as assessed against generally accepted guidelines or the performance of peers.
 

Blackstone

Brigadier
If you did, then either my communication ability is poor or your comprehension is suspect. I have already explained in that post the context and application of the meaning of "stalled". For your sake I will repeat. Stalled was in relation to my view that the 7% growth is unlikely to be met i.e.stalled relative to plan. It is not about China's slowing growth relative to recent history - a point I specifically took pain to emphasize.
OK, so your usage of "stalled" isn't how must people use the term nor is it the dictionary definition of the word, but something out of our private universe. How cute.
 

SamuraiBlue

Captain
Failure to achieve the economic target has no consequences; failure to achieve a certain growth rate has consequences. Was the economic target set at this do-or-die growth rate? Set at the growth rate plus a buffer? Set at what the planners thought that their overachieving economy could do? Set at an optimistic number that would be really really nice? Or set at an impossibly aggressive number compared to peers? In any situation other than the first, failure to meet the target would not carry consequences.

Actually it does especially with nation like PRC which still initiate a
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The plan is not simply a target but is a must achieve goal since spending is also completely linked to it.
Basically any and all short coming of the plan becomes debt since spending is already set to play and at the moment watching PRC's spending they are not willing to slow down but to increase spending so the economy does not tank creating a bigger hole in the fiscal budget.
That was the article was talking about and it hypothesizes that it requires 1.6 to maintain a 1 in GNP growth.
That is the problem, to achieve goal in GNP growth the government requires to inject 1.6 times it gain so it can make 1 to spend.
Basically it's the same as a ponzi scheme.
 
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