Chinese Economics Thread

[Qi_1528]

Hi all, this is my first post on these boards.

A post doubting the merits of changing to a consumption driven economy.

You make some good points, but I think you misunderstand what the Chinese are trying to do here. This isn't about shifting out industry on the large scale the U.S. or my country has done. It's about moving up the value chain. It's more like what Japan and Germany have done, or tried to do. China will be exporting high value, high technology products, like high speed train sets, and electronics instead of a whole heap of cheap stuff. The lower scale manufacturing isn't all going overseas either. Some of it is going to the less developed regions of China where wages are still quite low.

As for higher consumption, it's not just about Chinese people buying heaps of crap. The services they demand (or will demand) are more labor intensive than most modern industries.

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It's pretty clear the Western media is playing up the problems the Chinese economy is going through. It's August as someone said. The stock market doesn't worry me too much since it's not connected very much to real economy, but there is a debt problem over there. It's not public debt that's the problem in my opinion, it's private debt. I've been reading a lot from unconventional economists like Steve Keen who argues this. I'll just link to some of his stuff, rather than try to summarise it myself:

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As Steve argues, China's debt problem can be solved by writing off non performing loans. The Chinese have apparently done this before in the 90's and early 2000's. Hopefully they have the good sense to do it again. I can't see it being too difficult because, as the graphs above show, most of the private debt is corporate debt, and the line between the state and private enterprise is quite blurred there.

 

[manqiangrexue]

Actually it does especially with nation like PRC which still initiate a

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The plan is not simply a target but is a must achieve goal since spending is also completely linked to it.
Basically any and all short coming of the plan becomes debt since spending is already set to play and at the moment watching PRC's spending they are not willing to slow down but to increase spending so the economy does not tank creating a bigger hole in the fiscal budget.
That was the article was talking about and it hypothesizes that it requires 1.6 to maintain a 1 in GNP growth.
That is the problem, to achieve goal in GNP growth the government requires to inject 1.6 times it gain so it can make 1 to spend.
Basically it's the same as a ponzi scheme.

Don't quote that cherry-picked Gordon Chang style article which, as already pointed out to you, contains obvious faults destabilizing its credibility. Scouring the internet for the most scathing articles on China, then posting them here as though they're the one truth is not going to convince people that China is tanking even if it makes you feel better.

Was that rate of 7% set at the lowest sustainable? Was there a buffer added? Did they set that cus that's what they thought could be achieved regardless to what was absolutely needed? Do you know how the target was set?

"The plan is not simply a target but is a must achieve goal since spending is also completely linked to it."

Remember you wrote this sentence, and remember you used, "must." The only thing keeping you from being proven wrong is China's ability to maintain even aggressive targets. If, one year, China goes below its target, and doesn't collapse, you can issue a formal apology.

 

[Qi_1528]

This is distinct from large Government debts in Western countries, where Government borrows money to pay expenditure, usually military or social welfare, where the money is simply spent and never able to generate is own return.

I was agreeing with you most of the way until I got here. Military and social spending does generate a return. It's just not direct. Think of a disabled person who can't work anymore. The money he or she receives from the government doesn't just go into a black hole. It all gets spent on keeping that person alive. It benefits businesses and the economy overall. Not as much as building a bridge, or laying fibre cables for faster internet, but it still generates a return. Cutting welfare payments aggressively has helped the economies of countries like Greece to contract.

Military spending is perhaps more debatable, but it still benefits the overall economy. What we need to worry about is unnecessary middle class welfare and ridiculous tax breaks for the higher end of town. This is the kind of spending which does more harm than good in the long run.

 

[SamuraiBlue]

Was that rate of 7% set at the lowest sustainable? Was there a buffer added? Did they set that cus that's what they thought could be achieved regardless to what was absolutely needed? Do you know how the target was set?

"The plan is not simply a target but is a must achieve goal since spending is also completely linked to it."

Remember you wrote this sentence, and remember you used, "must." The only thing keeping you from being proven wrong is China's ability to maintain even aggressive targets. If, one year, China goes below its target, and doesn't collapse, you can issue a formal apology.

You tell me since you are the one accusing me of "CHERRY PICKING".
Look I only focused on a point that had been made within the article which I have not heard of a single argument that constructively refutes it.

The overarching news is that cost of servicing the debt and the country's dependence on credit to drive the economy has become so acute that it now takes non-financial businesses around 1.6 units of leverage to deliver a one unit increase in GDP growth.

You could argue it's a time limited situation but then you'll have to provide the time span and how long it will take to recover to make a CONSTRUCTIVE argument.
Anything without figures to re-ensure what the recovery plan is is either evading the problem at hand or making comments without understanding the situation.

 

[manqiangrexue]

You tell me since you are the one accusing me of "CHERRY PICKING".
Look I only focused on a point that had been made within the article which I have not heard of a single argument that constructively refutes it.



You could argue it's a time limited situation but then you'll have to provide the time span and how long it will take to recover to make a CONSTRUCTIVE argument.
Anything without figures to re-ensure what the recovery plan is is either evading the problem at hand or making comments without understanding the situation.

You've gotta be kidding me. Do you cherry pick what you read on this forum just like you cherry pick which articles on China to read? Right after you posted the article, posts 4450-4553 picked it apart. There may be more; I didn't check that much in detail. I need to provide a time span and how long it will take? What am I, a psychic? The difference between me and the guy who wrote your article is that if I don't know, I say it. He will actually write something he thinks/hopes might come true and give it to you as fact, and you'll believe it if that's the conclusion you wanted. However, the biggest reason that I don't believe the article is that for the past 3 decades, every time someone said China's economy is in trouble or about to crash, they've been wrong. I have no reason to think this time is different. My knowledge of the economy is highly cursory; but I can see that clear, simple, large trend and will not let small articles sway it.

 

[Blackstone]

Nicolas Lardy is an evenhanded China economic pundit with a history of highlighting both positives and negatives of China's economic and financial subjects. He wrote an Op-Ed in the NY Slime that called out China-crash pundits and said there's little evidence China's economy is in trouble. On balance, it's a well-written article and easy to understand.

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Washington —

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, many believe, is in a financial and economic meltdown causing anxiety and panic everywhere. China’s

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first dragged down other emerging markets and has now spread to the United States, slicing trillions of dollars off the value of stocks traded here and in other global markets. Since China is the world’s second largest economy and has growing financial ties around the world, developments there clearly have enormous potential implications for both developed and emerging markets.

But the popular narrative is not well supported by the facts. There is little evidence that China’s economy is slowing significantly from the

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reported by the government for the first part of the year. Wage growth is running at about 10 percent annually; the pace of creation of nonagricultural jobs is stronger than in any recent year; both real disposable income and consumption expenditures of Chinese households are growing strongly. It is not the picture of an economy heading for a hard landing.

Services, not industry, are driving China’s growth, as has been the case for three full years. This is likely to continue since per capita incomes in China are reaching a level where a growing share of spending is on entertainment, travel and other services rather than on goods.

Naysayers question government economic data, continuing to focus on weakness in China’s industrial sector and the extremely slow growth of electric power output. But steel production, for example, is significantly more energy intensive than entertainment, so the demand for electricity has fallen sharply as the structure of the economy has evolved.

Assuming that electric power growth is a good proxy for China’s overall economic expansion is like trying to drive a car by looking in the rearview mirror.

Some economists watching from abroad believe that the country is in the midst of a financial crisis because of the excessive debt burden it incurred in recent years. But that view is even less well supported. After a very modest two-day depreciation earlier this month, the exchange rate of the renminbi has changed little against the dollar for eight consecutive trading days; capital outflows continue at a moderate, very sustainable pace; bank liquidity remains strong. This does not yet look remotely like a financial crisis.

Rather than a financial and economic meltdown, China is experiencing an overdue correction in its equity market. And the connection between China’s equity market and China’s real economy has always been tenuous.

By my tallies, from June 2014 to June 2015, prices increased more than 150 percent on the Shanghai exchange, and even more on the Shenzhen Stock Exchange and the Shenzhen ChiNext board, a Nasdaq-style marketplace. An unusually large part of this run-up was fueled by retail investors who borrowed to buy equities. The market was priced way beyond perfection. Once prices fell even slightly, many of these investors found themselves needing to sell, leading to a sharp market correction.

At first, the government unwisely intervened to stem the rout for a time, but the sharp sell-off continued earlier this week. There is likely to be more of the same to come. Even at Tuesday’s much lower prices, the Shenzhen market was trading at a still-lofty 39 times earnings.

While not as overpriced, American equities before last week had experienced a six-year bull market without a correction. The catalyst for this month’s correction was the view that China’s growth was weaker than advertised and likely to soften further and that the currency depreciation that began

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was China’s last gasp at propping up economic growth. The perception that China’s growth was slowing drove commodity prices to new lows, further weakening emerging markets such as Brazil and Chile that are big commodity exporters, and eventually driving down American equities sharply. But if China hadn’t been the catalyst for the correction in American markets, it most likely would have been something else.

Despite what many think, not all debt is the same, nor are all equity market slides. There have been many more corrections in both the United States and China than there have been financial crises. Allowing those corrections to take place is part of letting markets determine outcomes, which is a good thing.

And that is what the government of China is now doing, both with respect to the exchange rate and belatedly in more recent days, to a surprising extent, with the equity markets. There remain concerns over Chinese real estate and state-owned enterprises. But recent events should be seen as part of the conscious liberalization and rebalancing of the Chinese economy. Even if that means a sell-off in stocks, it is not a sell-off in the fundamentals of the Chinese economy. In fact, this may strengthen those fundamentals by going further down the path to reform.

 

[Zool]

Guys, are you really arguing over the 7% GDP Growth Target for China? It's a goal set for the year based on a multitude of indicators. It can come in + or - a couple points of a percent and be within target. Sometimes economic events occur domestically or globally and a country may revise it's target. This is all 101 stuff.

At the current size of the Chinese economy, any realized growth rate of 4% or more GDP is doing well. Obviously if China comes in under 6% GDP growth for 2015 it has an impact -- on the domestic budget and on foreign trade -- but it is not anywhere in the same galaxy as some sort of economic stall or collapse. And by the way, a stalled economy is a term based on the engine of a vehicle sputtering out and stopping. A stalled economy would be near 0% annual GDP growth. So lets have some perspective with the descriptors being tossed around.

 

[broadsword]

The BBC seems unable to help itself when reporting on the PRC

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Headline reads


Inside However



Hands up all those that think a 5% surge on the FTSE or Dow Jones would be reported in this way?

But just brace for another downswing, based on the monthly chart, in two to three months time that may take the Shanghai Composite Index to 2,500 or lower.

 

[Blackstone]

Guys, are you really arguing over the 7% GDP Growth Target for China? It's a goal set for the year based on a multitude of indicators. It can come in + or - a couple points of a percent and be within target. Sometimes economic events occur domestically or globally and a country may revise it's target. This is all 101 stuff.

At the current size of the Chinese economy, any realized growth rate of 4% or more GDP is doing well. Obviously if China comes in under 6% GDP growth for 2015 it has an impact -- on the domestic budget and on foreign trade -- but it is not anywhere in the same galaxy as some sort of economic stall or collapse. And by the way, a stalled economy is a term based on the engine of a vehicle sputtering out and stopping. A stalled economy would be near 0% annual GDP growth. So lets have some perspective with the descriptors being tossed around.

What the "stall" point of China's economy is fair discussion and debate. Normal people might say 3, 4, 5, or even 6% growth constitute stalling from 7% goal. All those cases might be right, as reasonable people could make rational arguments on the data. Things get silly when individuals insist on their own definitions for words and phrases (instead of common understanding or dictionary descriptions), and the possibility for reasonable debates go out the window.

 

[Brumby]

OK, so your usage of "stalled" isn't how must people use the term nor is it the dictionary definition of the word, but something out of our private universe. How cute.

You don't have to like the definition. The issue is whether there is a flaw in its application.