Chinese Economics Thread

[Yvrch]

All the fancy economic jargon and theory is above me, so what do folks make of the Swiss observation on the Chinese economy.

"China's credit binge increases risk of banking crisis says watchdog
The Bank for International Settlements says the signs point to a problem in the next three years as debt hits 255% of GDP"

"
An early warning of financial overheating – the gap between credit and GDP – hit 30.1 in China in the first quarter of this year, a report from the Bank for International Settlements (BIS) said on Sunday.

Any level above 10 suggests that a crisis will occur “in any of the three years ahead”, the BIS said. China’s indicator is way above the second highest level of 12.1 for Canada and the highest of the countries assessed by the BIS.
Debt has played a key role in shoring up China’s economic growth following the global financial crisis.

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of GDP in 2015, fuelled in large part by a surge in company borrowing, up from 220% just two years earlier.

China’s bank lending in August more than doubled from the previous month, with much of the gain down to strong mortgage demand.

China’s top banks are lending more to homebuyers and developers than at any time since at least the global financial crisis.

Despite the concerns surrounding China’s debt, UBS analysts said in a report earlier this year that they do not expect an imminent banking crisis.

A high domestic savings rate, underdeveloped capital markets, a relatively closed capital account and government ownership of banks and many large borrowers mean no one can easily “pull the plug” on its credit cycle, they said.

The BIS quarterly review also said that financial markets had coped well with the Brexit vote and other potentially disruptive political developments but asset prices may be running too high and the risks to market stability were growing.

Asset valuations were high, especially given that the foundations they are built on may not be so solid. It did not explicitly say that stock and bond markets were waiting to burst.

BIS reports are not known for their stark language and blunt warnings, but they offer an insight into what is occupying the thoughts of the world’s most powerful and important central bankers............"

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Funny, Swiss are not that far behind at 246%. Why don't they complain about Belgium, Canada, Denmark , Finland, France, Greece , Hong Kong SAR, Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden and UK which are at higher ratio than that of China?
US and Singapore are more or less at China's level, only a few % points below.
We have touched that debt to GDP ration before. Fact is China is not alone. Considering the global landscape of low growth, cheap money, negative rates, declining productivity and participation rates, China actually is in a position those G7 countries have to envy.
The bigger question is: Can Capitalism survive negative rates, which turn the very foundation on its head?

 

[Yvrch]

Bloomberg article about trump and china. This could hit china very hard. What do you think of it?

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Stupid.

This could hit china very hard.

Really? If you are man enough, why don't you come out and lay it out, instead of shoot and scoot and hide? Let's see what you got.

 

[B.I.B.]

Funny, Swiss are not that far behind at 246%. Why don't they complain about Belgium, Canada, Denmark , Finland, France, Greece , Hong Kong SAR, Ireland, Italy, Japan, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden and UK which are at higher ratio than that of China?
US and Singapore are more or less at China's level, only a few % points below.

Where did you get this info from?

I think the Swiss must be talking about a different aspect of measurement as their expanded comments are in reference to this... I Think

"An early warning of financial overheating – the gap between credit and GDP – hit 30.1 in China in the first quarter of this year, a report from the Bank for International Settlements (BIS) said on Sunday.

Any level above 10 suggests that a crisis will occur “in any of the three years ahead”, the BIS said. China’s indicator is way above the second highest level of 12.1 for Canada and the highest of the countries assessed by the BIS."

 

[tidalwave]

Trump slapping 45% tariff across the board on all China goods.
Is that legal under WTO?? I think it's illegal.

Once started. China can retaliate by slapping same or more tariffs on all US goods going to China.

China will also slap tariffs on Japan, Korea, an Australia goods, basically on all US allies products too.

That would trigger a global meltdown and recession.

Is Trump ready for that??

 

[AssassinsMace]

Trump comes from the school of thought that the US just has to print more money to pay off any debt. Yeah and China can do that too. The US's problem is it has a lot of debt owed to foreign countries while a lot of China debt is not.

 

[mr.bean]

i'm surprised you guys even comment on Trump's 45% tariff solution. it's the dumbest thing i've ever heard. if i was a chinese official i would simply say ''yeah go ahead Mr.Trump knock yourself out''.

 

[antiterror13]

Trump slapping 45% tariff across the board on all China goods.
Is that legal under WTO?? I think it's illegal.

Once started. China can retaliate by slapping same or more tariffs on all US goods going to China.

China will also slap tariffs on Japan, Korea, an Australia goods, basically on all US allies products too.

That would trigger a global meltdown and recession.

Is Trump ready for that??

I dont think he would care!

 

[tidalwave]

I dont think he would care!

Trump is a champion for the blue collar workers. If trade war launched between US and China, it would be quite devastating. China would lose alot of trade and US would lose alot of hightech trade. Very likely US tech would get kicked out China for good. It would be permanent. And even if next president come aboard few years later but that cannot be undone.

China probably unload most of US treasuries too and on top that, China would careless about NK having nuke full blown. I guess Trump wouldn't care that. He going full isolationist mode.

 

[antiterror13]

Trump is a champion for the blue collar workers........

what he keep saying and what he would do are 2 totally different things ... I don't believe in a second he would be a champion for blue collar

 

[plawolf]

Where did you get this info from?

I think the Swiss must be talking about a different aspect of measurement as their expanded comments are in reference to this... I Think

"An early warning of financial overheating – the gap between credit and GDP – hit 30.1 in China in the first quarter of this year, a report from the Bank for International Settlements (BIS) said on Sunday.

Any level above 10 suggests that a crisis will occur “in any of the three years ahead”, the BIS said. China’s indicator is way above the second highest level of 12.1 for Canada and the highest of the countries assessed by the BIS."

I wouldn't take this too seriously.

From what I have seen so far, it's mostly lazy and/or arrogant assumptions.

These ratios were designed for western economies, and they are applying them to China with zero consideration for the fundamentally vast differences.

Conceptually speaking, they were wrong before they even got started.

I haven't got time to get into all the details, but two primary factors that make this ratio effectively meaningless for China is firstly, it takes no consideration of the reason for the debt, and second, makes no allowances for the fundamental difference between how the Chinese and western financial sectors work.

Firstly, western governments generally borrow to consume, whereas Chinese companies and local governments borrow to invest.

By not taking that into account and making adjustments for it, it's like equating someone maxing out their credit cards to by luxury clothes and consumer electronics etc with some else taking out a mortgage to finance and business expansion.

Secondly, and somewhat linked to the first point above, because overwhelmingly China is borrowing to invest, and because the Chinese state have significant control of the banks, cash flow, one of the biggest kills of businesses, is actually effectively a non-issue for Chinese investments.

In the western free market system, perfectly profitable and viable business often go out of business as a result of temporary cash flow hiccups.

In China, so long as a project is profitable and viable, banks generally won't call in the loan early, and may even extend credit lines when times are tough.

Many of the debts which western analysis judge are 'bad' based on western free market rules are in fact still viable under the Chinese system.

They are under performing certainly, but if you are patient, you will get your initial investment back eventually, as the lendee pays off a little bit of the principle debt with each payment.