Chinese Economics Thread

[Wrought]

Well I can see that I've evidently tapped into quite the well of vitriol here, so in the interests of civility I will refrain from citing him in the future. That being said, I maintain that he is being judged too harshly relative to his actual mistakes. I would agree that he is slaved to his personal model of systemic debt/Hyman Minsky/etc and forces everything he sees through that rather narrow prism, but that sin is quite common in the economics profession regardless if that model happens to be MMT, Neo-Keynesian, or what have you. Everyone believes that they've found the one true explanation for everything. Paul Krugman, Jeffrey Sachs, Robert Solow, and so on are not much different, nor less dogged by their past mistakes, or refusal to acknowledge that the future will not eventually vindicate them and their precious model. Economics is, as they say, a peculiar science. Nonetheless, they remain respected professors teaching at prominent schools, as it were, much like Michael Pettis.

And I would not compare to him political hacks like Gordon Chang or Peter Zeihan. He regularly criticizes American economic policies as well as Argentine, and German, and Japanese, since those economies also diverge sharply from his vision of what correct economics ought to be. It seems like quite a stretch to think he has some kind of political motivation as opposed to the most common one in his profession.

 

[gelgoog]

China's problem is very rapid debt accumulation. Right now it isn't a major problem but it will be 10-15 years from now unless there is a radical re-orientation. Note that when Xi took power it was only 34% of GDP. Now it will hit 100% of GDP within a few years. This is on him. It was also pretty stable, even after the GFC. So this is clearly his policies.

Since Xi has been in power, China massively increased the size of its subway networks, and the HSR network length more than doubled. Like 20 years ago, only a couple of cities had subways, and the networks were minimal. Compare that with today. Tunneling to make subways isn't cheap. The Qingdao and Xi'an metros are basically as long as the ones in Seoul and Delhi. Yet they were only inaugurated like a decade ago.

Right now of the world's top 10 metros by ridership 5 are in China. By system length the world's largest 9 metros are all in China. The one in Beijing is almost twice as long as the longest outside China.

This might look like a waste to economists like Pettis. But the thing is mass transit is the only viable way to give most people access to quality transport in huge metropolis nations like in China. By increasing people's ability to easily move, you energize the economy, by making people more able to work wherever they want, you increase the growth of the economy. And all of these systems run on electricity, so they displace oil imports.

Japan also used a lot of money investing into infrastructure. And while some people claimed back then it was a waste, the thing is that investment means even with much lower growth rate today, the average Japanese does not have that bad of a living standard.

China is also building this infrastructure at a time when salaries are still low enough. Which will pay dividends in the future.

 

[dingyibvs]

Well I can see that I've evidently tapped into quite the well of vitriol here, so in the interests of civility I will refrain from citing him in the future. That being said, I maintain that he is being judged too harshly relative to his actual mistakes. I would agree that he is slaved to his personal model of systemic debt/Hyman Minsky/etc and forces everything he sees through that rather narrow prism, but that sin is quite common in the economics profession regardless if that model happens to be MMT, Neo-Keynesian, or what have you. Everyone believes that they've found the one true explanation for everything. Paul Krugman, Jeffrey Sachs, Robert Solow, and so on are not much different, nor less dogged by their past mistakes, or refusal to acknowledge that the future will not eventually vindicate them and their precious model. Economics is, as they say, a peculiar science. Nonetheless, they remain respected professors teaching at prominent schools, as it were, much like Michael Pettis.

And I would not compare to him political hacks like Gordon Chang or Peter Zeihan. He regularly criticizes American economic policies as well as Argentine, and German, and Japanese, since those economies also diverge sharply from his vision of what correct economics ought to be. It seems like quite a stretch to think he has some kind of political motivation as opposed to the most common one in his profession.

Economics is not a peculiar science, it is not science at all. Science needs to follow the scientific process, its conclusions verified by experiments according to the scientific method. That is not possible in economics.

It's a field of study like history or philosophy, which sometimes uses scientific tools, but is not actual science.

 

[Serb]

And over 90% of Chinese government debt is held by domestic investors. This includes the holdings by various arms of the Chinese government itself, state-owned enterprises, and Chinese banks, along with other domestic entities and individuals. That's why the Western cope about Chinese debt is an even bigger insanity.

That's not even mentioning how it's smaller than in the most Western countries in relative terms, how it's used for way more productive stuff, and how much the government's ability to pay it off is larger than in the Western countries. But if this kind of bullshit gets supported in the West, you can see their collective intelligence in this way.

If this is their strongest argument against China's economic stability, then they are a pretty brain-rotting society. Even bigger cope is the real estate sector, which is their weird "fetish". The Chinese government could solve that problem in 100 kinds of ways, but instead, it's purposefully letting it go so the money in the economy could temporarily go into other, more productive sectors, and to teach an investing lesson to the markets so as to prevent possible even bigger problems in the future, and than they point to it as some kind of cataclysmic situation always.

Not to mention how home ownership in China is way higher than there, so there is no possibility of a financial crisis of US 2008 happening In China - when people refuse to pay mortgages (banking crisis). Not to mention how as the prices lower, new buyers will come in. And finally, they don't realize that exact model has already worked for hundreds of millions of people already urbanized, and there are hundreds more still to it.

 

[Wrought]

Economics is not a peculiar science, it is not science at all. Science needs to follow the scientific process, its conclusions verified by experiments according to the scientific method. That is not possible in economics.

It's a field of study like history or philosophy, which sometimes uses scientific tools, but is not actual science.

Yes, I know. It was a reference to the way Econ 101 courses will frequently describe it as a "peculiar science" to new students, such that it is a quantitative math-heavy field (like hard sciences; physics, chemistry, etc) which is based on qualitative human axioms (like soft sciences; sociology, psychology, etc).

The joke usually goes that would-be economists chose the worst possible field, because they're getting all the hard science rigor without any of the hard science certainty, plus all the soft science ambiguity without any of the soft science shortcuts. All the work and none of the reward.

 

[Awwkus]

Worth noting that measurements of Chinese consumption are undercounting actual consumption because a lot of it is "in-kind" (e.g. subsidised by the state) and thus doesn't show up in GDP accounting as it isn't private consumption per se. A good example are subsidised lunches but there are many others.

China's problem is very rapid debt accumulation. Right now it isn't a major problem but it will be 10-15 years from now unless there is a radical re-orientation. Note that when Xi took power it was only 34% of GDP. Now it will hit 100% of GDP within a few years. This is on him. It was also pretty stable, even after the GFC. So this is clearly his policies.

View attachment 120983

Given how poor China still is (per capita GDP lower than Mexico and Bulgaria) there is simply no justification for why the state should accumulate this much debt at a comparatively modest level of development.

Debt is good if the RoI is higher than the interest, especially if it’s issued by a strong government with a firm control on currency. This is why China is fine at 100% debt-to-gdp ratio but Mexico is not.

 

[KYli]

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[taxiya]

Worth noting that measurements of Chinese consumption are undercounting actual consumption because a lot of it is "in-kind" (e.g. subsidised by the state) and thus doesn't show up in GDP accounting as it isn't private consumption per se. A good example are subsidised lunches but there are many others.

China's problem is very rapid debt accumulation. Right now it isn't a major problem but it will be 10-15 years from now unless there is a radical re-orientation. Note that when Xi took power it was only 34% of GDP. Now it will hit 100% of GDP within a few years. This is on him. It was also pretty stable, even after the GFC. So this is clearly his policies.

View attachment 120983

Given how poor China still is (per capita GDP lower than Mexico and Bulgaria) there is simply no justification for why the state should accumulate this much debt at a comparatively modest level of development.

High debt GDP ratio is only bad if the debt is owed by foriegners like the US and EU. China's debt is domestic, current generation "borrows" money from younger generation to do things for the younger generation. It is essentially parents "borrowing" money from children's income to build the house and run family business. Children inherite the house, the debt is gone. In other words, only foreign debt is real debt that must be paid back by valuables leaving the household.

Even in the "bad" example like Japan, people still buying government bonds instead of demanding a payback that would collapse the government. Why? Because they already got what they wanted or needed (services and infrastructures) from the government who did the job by "indebting" to their parents. The "debt" in such system is essentially tax with a different name. This kind of "debt" is tax refundable to the debtor or their children, or maybe never.

 

[KYli]

Japanese are willing to buy government bonds as long as those bonds pay good interest rates. However, due to the fact that the Bank of Japan's intervention to keep rates low, Japanese government bonds don't attract as many domestic buyers as it should be and Bank of Japan ends up buying most of new bonds issue by the government.

Japan is in a dilemma for the moment. If it allowed the interest rates to go up, average Japanese are willing to buy those bonds. However, a rise of bond interest rates would cause the skyrocket of Japanese government borrowing cost. Japanese government debt is 260% of GDP and around 9.2 trillion. Average maturity of Japanese debt is 8 years, it means after 8 years an one percentage increases of interest rate would eat up 10% of Japanese total budget. Japanese government already spent 22% of its budget to pay for debts and refinancing. I don't see how Japan government can ditch out this hole except raising taxes which would depress Japanese economy.

 

[escobar]

FDI into China fell below zero in Q3, for the first time on record, but China's outbound direct investment rising