Chinese Economics Thread

[proelite]

The problem with Uinted States is the ease with which any idiot can get a firearm (also why suicide via firearm is common). A total ban on firearms is fine too, most people seem to do just fine without them, but there are benefits to fostering a gunowner community.

Plus, they're also really fun.

Also very lucrative.

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[FriedRiceNSpice]

It’s not that this particular policy matters much but it will - less capital deepening, less technology and information spillovers, less competition, it’s that the policies in combination with the chilling effects, combined matter.

Stay in your lane and quarantine your posts to the American Economics Thread. In all your posts, you endlessly repeat the same keywords which are in actuality straight out of an Econ 101 textbook. Which is understandable given that your demonstrated depth in economics, as evidenced by braindead comments such as:

The U.S. is the larger economy that is on the generally on technological frontier

In fact, your propensity to repeat the same keywords, phrases, and even sentence structure gives me the impression you post in such a manner deliberately, either for your own amusement or as a form of trolling. Alternatively, my other theory is that you are not actually a real person at all, but rather an experimental bot hooked up to a prototype of some new LLM under development, as your tendency for repeating certain patterns and the general flow of your posts are strongly reminiscent of content generated by a LLM (though in a distinctly different style from ChatGPT). Whether you are an actual person or a bot/LLM, kindly confine your posting activities to the American Economics Thread, which has been my alternative to the Funny Stuff Thread ever since that thread died.

 

[zbb]

The Bank of England policy rate right now is 5% and the People’s Bank of China’s policy rate is 3.35% so both long term yields point in the same direction - financial market pessimism at the future of macroeconomic environments in both countries such that future central bank policy rates will remain sustainably low for decades into the future

The PBC policy rate is the prime lending rate for 1-year loans to corporations and households, which would obviously be higher than the interest rate the Chinese government pays to borrow money.

An inverted yield curve where short-term rates exceed long-term rates indeed reflects market pessimism on future economic conditions, but we don't see that in Chinese government bond yields. On the other hand, US, UK, and most Western countries do exhibit clearly inverted yield curves.

 

[chgough34]

The PBC policy rate is the prime lending rate for 1-year loans to corporations and households, which would obviously be higher than the interest rate the Chinese government pays to borrow money.

An inverted yield curve where short-term rates exceed long-term rates indeed reflects market pessimism on future economic conditions, but we don't see that in Chinese government bond yields. On the other hand, US, UK, and most Western countries do exhibit clearly inverted yield curves.

A term premium that is less than 100bps is indeed pessimism on future economic conditions

 

[Hitomi]

Can someone confirm my understanding, isnt a higher yielding bond means the borrower is carrying more risks as the government pumps the yield to make the bond attractive relative to the risk.

Unless the government is going on a borrowing spree for some rapid expansionary economic plan or because there is a drop in the amount of debt being taken up, there is no reason to raise the yield.

I don't want sleep.. I mean chgough's answer please don't bother to reply to this.

 

[proelite]

Can someone confirm my understanding, isnt a higher yielding bond means the borrower is carrying more risks as the government pumps the yield to make the bond attractive relative to the risk.

Unless the government is going on a borrowing spree for some rapid expansionary economic plan or because there is a drop in the amount of debt being taken up, there is no reason to raise the yield.

I don't want sleep.. I mean chgough's answer please don't bother to reply to this.

Based on what I am reading yield rates don't mean much in a vacuum.

 

[Feima]

Do you think the government would not have the ability to properly police ammo sales on the black market and prevent gun crimes?

There is a fella 袁某某 a well-known or shall I say infamous "public intellectual", who has no particular scholarly credential but peddles all kinds of faux-intellectual nonsense online. One of his most mocked proposals is 人持不乱, basically a reformulation into Chinese of the saying "an armed society is a polite society".

You're several years too late trying to push this line.

 

[lcloo]

Can someone confirm my understanding, isnt a higher yielding bond means the borrower is carrying more risks as the government pumps the yield to make the bond attractive relative to the risk.

Unless the government is going on a borrowing spree for some rapid expansionary economic plan or because there is a drop in the amount of debt being taken up, there is no reason to raise the yield.

I don't want sleep.. I mean chgough's answer please don't bother to reply to this.

Bond yield and Bond rates are separate things.

Let's say China issued a 10 year 100 RMB face value bond of 5% rate. In the next 10 years, this bond will be traded on the open market at transaction value of more than RMB100 if the demand is high or less than 100 RMB if the demand is low.

As far as the central bank is concern, regardless of whatever value the bonds are traded in the market, they will only liable to pay 5% on the face value of 100 RMB which is equal to RMB5. They are not going to pay more if the bond yeild is high in the open market, nor are they going to pay less if the bond yeild is low.

As for the investors, if they pay more due to high demand, and bought the bonds at RMB110, then to them the bond yeild is low as they will only receive RMB5 or their investment of RMB110. - Low Bond Yield.

ON the other hand if the bonds are traded at lower value of RMB90, then the investor will gain a higher yeild of RMB5 on their investment of only RMB90.

1) Changes in bond yieds does not change the bond rates (eaxample 5%) that the government is paying.

2) Low bond yields on the market means the demand for the bond is high, as investors have high confidence that the government will not default on repayment when the bonds are due/matured.

3) On the other hand if a bond is considered junk bond or the government that issued the bonds has financial difficulties, investors will only buy the bonds if the yeild is high because they are taking high risk in their investment, in fact they are gambling hoping the government will have money to pay them back. Junk Bonds are traded at much lower prices than their face value.

 

[horse]

Can someone confirm my understanding, isnt a higher yielding bond means the borrower is carrying more risks as the government pumps the yield to make the bond attractive relative to the risk.

It is what Icloo wrote, everything is there and right and true.

Maybe the part we are missing, is that once the government or a corporation issues a bond, what happens next, then that bond is traded on the free and open market.

Remember, bond prices and its yield are inversely related.

Those are the two keys point to start with.

Then, we can understand something really important, that the government does not set long term interests rates, the market determines long term interest rates.

Suppose this year, the government issues bonds at 5%. Then next year, with the bond rally in China, the current yield could decline to 4.7%, so when the government issues bonds next year, that would be the rate or coupon.

 

[horse]

Okay, now, we get to the interesting part, because we will apply our knowledge.

Why has the Chinese bonds rallied so much? Driving yields and interests rate lower and lower?

Can think of three reasons on the top of my head.

1) Investors are bullish on China and are willing to buy its bonds. If a country is in trouble, yields go up, meaning bond prices go down.

2) Maybe the bond investor feels there is still the danger of deflation lurking in the Chinese economy. Deflation is great for bond holders. Not so good for the 99%.

3) It could be RMB has reach safe haven status among the rich people. If someone holds RMB because they trust it and are confident about it, then they can hold cash or other assets like government bonds, which are liquid assets.


When US government debt yields are the same as Chinese government debt yields, then that is a real powerful message being sent by the market.

China has the second largest bond market in the world.

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China used to have the most valuable asset class in the entire with their real estate market, not sure if that is still the case.

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