Chinese Economics Thread

[abenomics12345]

I'm not sure if the PBOC targeting 2% is scientific, or if they just thought if the Feds and other central banks does it, might as well. As I recall the origin of this mythical 2% rate in central banks around the world was kind of arbitrary.

Macroeconomics, especially dealing with large economies like China and US is often very counter intuitive and puzzling. I'm sure people here and in China have different views on consumption and what is the optimal level. PBOC is also just one branch of the Chinese government, it doesn't see eye to eye with the Ministry of Finance all the time either.

It's not science but it comes down to 0-1% is too low and 4-5% is too high, therefore 2-3 is ideal.

Personally I think what Pan Gongsheng and Yi Gang said in their position as the leader of the PBOC is correct, they are giving suggestions which from their perspective as central bankers would boost China's overall economy.

No they actually would not be allowed to talk 'deflation' unless there was significant buy-in from the Vice Premier/Politburo. Remember, PBoC is not independent like the Fed.

But this might not be the most optimal path for China though, in an extreme example, suppose China follows the path of the US and fully liberalizes the economy, the GDP would skyrocket but the end result might not be what CPC truly desires. If China one day has the highest nominal GDP, and the Yuan becomes the de facto sole reserve currency, then ironically people would be asking but at what cost?

You're not going to find me disagreeing with the risks of overfinancialization. The most important thing is the degree to which things are financialized. You should have some faith in the policymakers that the balance will be approximately right in the end, and that the direction at this moment (boost long term stable growth of stock markets and stability in real estate market) is optimal.

Remember what Xi said: 先富促共富. I wouldn't worry about US style problems unless common prosperity is taken out of the Party's goals and we have a Chinese Gorbachev sell off all SOE assets. You will also see me raise alarms if I see risks of overfinancialization (as I've posted very frequently in the AMERICAN economics thread) in China when I see that happening.

When the facts change, my opinions change.

Anyways like I said, most ppl agree with most of what you said. Is it really necessary to dunk on members here for disagreeing with 10% of what you said? Especially in a manner which can easily irritate people?

If it was true I wouldn't have a problem, but that is certainly not my perception and feel a few months back.

 

[W20]

2-3

yes

But the discussion is or was (in the West) between 2 and 3

3 is +50% away from 2

In that discussion I was a defender of 3 because it was the only empirical number confirmed when crossed up or down: the reverse of the correlation between debt markets and equity markets: above 3 the atmosphere is one of fear or concern about inflation and below 3 the worry is/was deflation

 

[W20]

On the other hand

I don't know what it's like now, I'm retired and quite disconnected, for example I remember when the yield of the US Tresaury 10 year obeyed a simple model that could be built with a moving average of nominal GDP, the velocity of money and the fed funds rate... until the model stopped working, perhaps due to the entry of China into that market, I mean that these econometric questions are not chiseled in marble or granite but are historical, even in large stretches of 50-100 years. Furthermore, nowadays we have to suspect that the quality of some numbers leaves much to be desired.

 

[Serb]

The government is targeting 2% in 2025 - they targeted 3% historically - I think that should tell you all you need to know for what is a 'good CPI target'.

Well if your last comment is true I think @doggydogdo has some explaining to do. I also do recall lots of people here who seem to hate on anything that points to an 'under consumption' issue in China. Which begs the question:

Now that the PBOC Governor and the Politburo has called out under consumption as an issue/problem - are the people who say "China needs to consume more" wrong? Or is the Politburo wrong?

I do realize I am dunking - but I dunk on people who cannot observe problems as I do on Brad Setser/Michael Pettis when they are being retarded. I.E I'm an equal opportunity hater when it comes down to bad takes.

I would not call that "issues or problems"; it is more like shifts that have to be done in the short term cyclically.

So, they frame it as such so it actually gets done more urgently. And everything gets done successfully that way.

As seen as how the growth targets are regularly met, job targets are too, 5-year plans are always completed, etc.

You can't separate macroeconomics from industrial policy in economics and economic planning regarding China.

Industrial policy is 70-80% of the focus, and fiscal and monetary policies are just some peripheries (or tools for it).

You can understand this from every single major political public meeting, including the two sessions right now.

Also, their "consumption", is probably not what Western "consumption" is, as it's also based on industrial activity.

Buying more products that would create jobs, through targeted purchase incentives for consumer goods programs,

And not for uncontrolled credit card debt, to chase a limited amount of products, which defies basic common sense.

Economic focus in China is not like what West's macro guys think, but real-world first principles, logic, and mechanics,

For example, how to create more urban jobs, how to do more innovation (with new quality productive forces), etc.

How that will lead to even more high-quality productive economic growth that will improve standards over time.

It's also obvious that no economy can function without consumption (confidence), no one sane ever challenged that.

It just depends on what is the right balance between investment and consumption for the long term, and cycles.

They are issuing more debt now and making other various loose fiscal and monetary adjustments for sentiment.

It's a counter-cyclical adjustment, for consumer confidence, because it's necessary and makes sense for a while.