Why not? A proportionally much worse bad debt crisis happened in 1998 and it was resolved without a big fiscal package.
Chinese Economics Thread
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Incorrect:
In an effort to recapitalize the SCBs, the government injected capital equivalent to 3½ percent of GDP into these banks in 1998. During 1999–2000 the four SCBs and one policy bank transferred nonperforming loans equivalent to 17 percent of GDP to four newly established AMCs.
17% of GDP today is 21.25 trln RMB. The central government Debt/GDP is ~25% today.
By the way, if you read the thread Glenn wrote - 17% of GDP isn't far off from the serious estimates being thrown around (ignore Balding he's clearly a tool) today.
Also, banking asset to GDP back then was a lot smaller than it is today; the government didn't have much debt back then either - and China was growing much faster in the 2000s (when GDP doubles in 7 years, Debt/GDP at the beginning means a lot less).
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RE speculators have some bad feels.
That's the wrong way to look at it. The right way to look at it is how much growth is there in booming sectors like RE (the good RE, renewable energy, not the bad RE, real estate), EVs, etc. to pay for the stomping the real estate market is taking while still meeting the national growth target.
There's a lot of juice in renewables alone; China will pave the Gobi with solar panels. Hydrogen is going to be an absolutely booming sector over the next decade. The potential for hydrogen in the chemical sector is tremendous - you can create several BASFs from using hydrogen as input in fertilizers, synthetic fuels, plastics, etc.
Speculators with bad feels can move anywhere they like, but China's capital controls will ensure their money stays in China.
Top 1/3 = 50% of consumption in China (this is by income). Rural = only ~13% of total retail sales. So its a lot more '80/20' than one imagines.
Yea...about that - go talk to some real estate agents/financial advisors in Vancouver/Sydney/New York - capital controls aren't as tight as you give the government credit.
They don't have to be 100% airtight, they have to be good enough. What's good enough? I don't know, but I think the government has an idea and it seems satisfied enough with the present level or else there'd be more of an effort to tackle it. We've probably reached the point where the marginal utility of fleeing RMB is lower than the marginal cost of going after it.
Don't disagree about the cash outflow being a big fat meh, but what matters more is their outsized "话语权" in defining the narrative.
That is 400 million people. I simply don't believe that 400 million Chinese have enough wealth in stocks for market swings to seriously influence their consumer behavior. I wouldn't believe that even 100 million do. You are vastly overestimating the extent to which the state of the stock market influences Chinese consumption. See the data I linked in my last post. If you want to talk housing prices then that is fair but also completely unavoidable if the Chinese economy is to fully modernize.
That is textbook selection bias. Almost their entire job is helping uber rich Chinese invest what cash they are able to smuggle past SAFE. of course they are going to view capital controls as weak because they only see the failures. The fact of the matter is China has not seen any serious flight of domestic capital despite daily threats of financial suicide by rich Chinese, which should tell you that the controls are quite robust overall
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This could just be a terminology thing but I don't consider that to be a fiscal stimulus since it didn't involve the government spending any of that money directly; it was transferred to the reserves of banks which they then used to back new credit. It wasn't fundamentally that different from open market operations in that sense. If they then ordered soes to use that new credit for investment to stimulate the economy then I would consider it fiscal stimulus but I'm not aware of this asset disposal and recapitalization being done specifically to enable that, nor of it being used to finance soe investment in any abnormally large way.
I'm also not aware of the cg using the resulting lower rates to finance an increase in borrowing like the US government did in 2008 and after covid. Admittedly the fiscal/monetary distinction can get blurry sometimes, especially in China.
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China is still not that urbanized compared with other Asian countries. The current stagnation in the construction sector will be a temporary phenomenon as the construction companies adjust to the new market conditions as established by the central government. Then urbanization will continue.
If people put 100% of the money up front for a lot of these houses why do the construction companies need bank loans anyway? This was just a gigantic cash machine which these companies were using to infiltrate the whole economy.
If people put 100% of the money up front for a lot of these houses why do the construction companies need bank loans anyway? This was just a gigantic cash machine which these companies were using to infiltrate the whole economy.
There are ~200mln investors with single name stocks in China and some 700mln people with exposure via mutual funds. That is majority of the people with consumption power.
As a representation of the consumption value vs. volume skew: Moutai Fetian is about 30k tons of volume per year (0.5% of the ~6mln tons of baijiu produced), yet its revenues represent 17% of the value of the baijiu industry.
An extremely small number of people who makes up an disproportionate amount of $$ in the economy.
Is this fair, no.
But the government took home 36 bln RMB/year from taxes and another 32bln in dividends. As reference, Guizhou's 2022 Provincial government revenues was 188bln (excluding land sales) - so Moutai alone was responsible for 40% of Guizhou's provincial budget. So the few million people in China who can afford to drink Moutai is paying for ~40% of Guizhou's government budget.
For the folks who shit on the US for inequality, this might be the time to take a look in the mirror.
As we concluded, pumping housing is not an option. The only other way to offset that decline is to 1) drive income growth (which is happening); 2) ensure stock market doesn't collapse.
Your beliefs (or mine), are irrelevant, facts matter.
As I said below, I am not talking about whether there is a lot of capital flight, my point is very simple - that if one had 5mln RMB or 10mln RMB in China - they can, without much trouble, take it out of China illegally through various means. It is not terribly complicated. If your contention is that "well you can't take out billions", then sure. But the billionaires already have their money out already (Jack Ma's wealth is in USD). By definition its a small group of people in China who are rich, but that's majority of the wealth. (3mln people have over 100 trln, or 1/3 of total investable assets.
So where did the money coming from? Magic? Lol. Whether the money comes from MoF or PBoC is irrelevant, the fact of the matter is there is a massive stimulus package. What you (or I) decide to label it is irrelevant.
Open Market Operation concerns liquidity, what I'm talking about is a solvency issue. Two very different things. If you are suggesting that the PBoC buys back LGFV debt at par - that is monetization of debt and the mother of all QEs.
The banks started lending money again after they were removed of the troubled assets. So yes, this indeed did help investments.
Lol, central government did not borrow, but are LGFVs not government debt? Come on man.
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