Chinese Economics Thread

[Brumby]

I don't see how that part of my post was deviating from what you were saying. You had said we do not know how China derives its numbers,

A bit of clarification is probably required. I did not say "I do no know how China derives its numbers". This is what I actually said :

As you said you don't know how China derives its numbers and so when there is lack of transparency there will always be a question mark over their veracity.

In fact I read it as a transparency issue based on your statement.

I'm not entirely sure how these various financial institutions end up at their own GDP calculations nor do I know how China reaches its own either

In retrospect, there is another possible interpretation of your statement and that is that not knowing is simply not possessing the knowledge rather than the information is not accessible. If it is the former than the issue is not transparency but the discrepancy could be one of credibility.

and suggesting thus that may be a cause for concern and a reason why there is discrepancy.

I did not say the issue is one of concern but rather it invites potentially second guessing. The discrepancy could be due to the different institutions (as listed in your post #50580) applying their own assumptions and substituting their own numbers in deriving the GDP estimate.

I am saying that knowing how other nations derive their numbers (i.e. the relative degree of transparency) would also be useful in judging just how much actual concern should be warranted to China based on its degree of relative transparency or lack thereof.

Economics is not my area of interest or knowledge and so how an economic GDP model is put together; the variation in methodologies; and the elasticity of assumptions that goes into it is beyond my grade. Nevertheless, this is an independent process given that we don't know the baseline model that the institutions are using in their modelling on China's GDP. In other words, the modelling itself is self sufficient regardless.

I think we are kind of talking past each other here, because I'm not entirely sure what you mean and I don't think you entirely understand what I mean.

I think we are. So let's back track to your post #5080. This is the relevant comments made by you :

I suppose one good thing about the "China is lying about its GDP growth" crowd is that this challenge cannot be left unmet for too long, because there will bound to be other financial players who believe China's growth rate actually is about what China says it is, and that it may cause the various financial players to more publicly compare notes about how they calculate GDP.
Furthermore, we will also know in a few years just who is making the mistake and/or lying -- the big difference in GDP growth rates that China is publishing and forecasting versus what some financial institutions are suggesting, means that we'll be able to see more firm economic indicators emerge in a few years, which will tell us just who may have been right.

In your post #5080, the World Bank projected a GDP growth of 7 % vs. the Conference Board of 3.7 %. Let's just say hypothetically China's growth comes in officially in 2015 at 6 % and in 5 years time (2020) the growth rate is 8 %. All we can conclude is the World Bank's estimate was closer to the actual than the Conference Board. I don't see how you possibly can draw any conclusion along the lines that you suggested in your post. GDP is a dynamic representation of the ongoing economic activities of a nation. It is always in a state of flux because of global events, government policies and consumer sentiments. GDP forecast is not a static piece of data with a static baseline frozen in time.

 

[Blitzo]

A bit of clarification is probably required. I did not say "I do no know how China derives its numbers". This is what I actually said :

In fact I read it as a transparency issue based on your statement.

In retrospect, there is another possible interpretation of your statement and that is that not knowing is simply not possessing the knowledge rather than the information is not accessible. If it is the former than the issue is not transparency but the discrepancy could be one of credibility.

Okay, I think we are nearing a point of understanding. First of all, I should say that in my post 5084 I probably shouldn't have quoted the entire initial part of your post in my reply, because it seems to have introduced some confusion over what I was trying to address. To clarify, the main part of your post 5083 I meant to address was this part:
"As you said you don't know how China derives its numbers and so when there is lack of transparency there will always be a question mark over their veracity. For example, we don't know whether China has been consistent in measurement and in the components used. "
In other words, from what I understand in that part of your post 5083, you're saying there is substantial second guessing about how China calculates its economic numbers, because they're "not transparent".



Based on that, I thought it would be interesting to know how transparent or non transparent other various nations of the world were, in disclosing how they reached their numbers (which I describe in post 5084)
-i.e.: if other countries were more transparent, equally transparent, or less transparent than China and if those country's economic numbers were scrutinized less closely, equally closely, or more closely than that of China's, then that would have consequences for whether it is reasonable to use China's transparency or lack of transparency as a reason for scrutinizing its numbers.
-e.g.: country X is less transparent than China in revealing its methodology for calculating its economic numbers, but it is receiving less scrutiny and less second guessing, then it may raise questions as to why there is extra second guessing towards the veracity of China's numbers. Or vice versa, or whatever other combination.

I did not say the issue is one of concern but rather it invites potentially second guessing. The discrepancy could be due to the different institutions (as listed in your post #50580) applying their own assumptions and substituting their own numbers in deriving the GDP estimate.

Okay, well rephrasing my original statement:
"I am saying that knowing how other nations derive their numbers (i.e. the relative degree of transparency) would also be useful in judging just how much second guessing should be applied to China based on its degree of relative transparency or lack thereof."

Economics is not my area of interest or knowledge and so how an economic GDP model is put together; the variation in methodologies; and the elasticity of assumptions that goes into it is beyond my grade. Nevertheless, this is an independent process given that we don't know the baseline model that the institutions are using in their modelling on China's GDP. In other words, the modelling itself is self sufficient regardless.

Each differing nation will also have differing industries which contribute more to their GDP, so I suppose directly comparing the methodologies for different nations would not be the most accurate anyway. That said I think it would still be interesting to know.

I think we are. So let's back track to your post #5080. This is the relevant comments made by you :

In your post #5080, the World Bank projected a GDP growth of 7 % vs. the Conference Board of 3.7 %. Let's just say hypothetically China's growth comes in officially in 2015 at 6 % and in 5 years time (2020) the growth rate is 8 %. All we can conclude is the World Bank's estimate was closer to the actual than the Conference Board. I don't see how you possibly can draw any conclusion along the lines that you suggested in your post. GDP is a dynamic representation of the ongoing economic activities of a nation. It is always in a state of flux because of global events, government policies and consumer sentiments. GDP forecast is not a static piece of data with a static baseline frozen in time.

I see what you mean here now.

In that part of my post #5080, I was thinking along the lines that very large disparities in growth rates by different institutions (such as 6.5% vs 3%) would be followed by somewhat stable medium term (let's say five years) predictions. That is to say, my statement was making the unspoken (but I think somewhat reasonable) assumption that current financial institutions which predict either strong or weak growth rates would in turn make similar predictions for the foreseeable future, and that those predictions (and also growth rate in turn) would be more or less stable.

That said, we obviously cannot assume that the predictions will be "more or less stable," and who knows, maybe the Conference Board will make a prediction that China will grow 7% or that the world bank will expect China to grow 3%... nor can we assume that a nation's growth rate will inevitably be consistent in the medium term or that it will lean more strongly to one prediction than the other.
So my original statement would definitely be contingent on the most varying predictions by various institutions maintaining a similar degree of separation in the foreseeable future, and also contingent on the idea that a nation's actual growth rate (China's in this case) would remain relatively stable over the medium term.

Whether those assumptions would actually come to pass is another matter, and I probably should have specified it in my original post.

 

[plawolf]

Basically a nation's GDP is the sum of a nation's consumption, private investment, government spending, and net export/import balance, generally given by the equation: Y= C + I + G + (X-M)
Y = GDP
C = consumption
I = investment
G = govt spending
X = export
M = import

So when we say China is transitioning from an investment led economy to a consumer led economy, it means that consumption will make up a greater proportion of gross domestic product compared to previous years when investment and govt spending may have made up a greater proportion of gross domestic product.

That's the perfect textbook definition, however, I think a few points needs to be expanded and clarified.

Firstly, I get the impression most media correspondents, and even many economic and financial experts seems more than a little muddled about what they mean by transitioning into a consumption driven economy, never mind how to go about achieving that. Probably because there are so few modern examples of this being successfully done.

In my view, there are broadly two key pre-requisites to transition from an export to consumption led economy. The first and most important is that domestic wealth and incomes need to be high enough to sustain it without having to resort to debt.

Every single day since the beginning of money, Chinese people have been spending money to consume. Obviously, the more wealthy the country and people, the more valuable that consumption is.

In effect, transitioning from an export to consumption based economy is a competition of spending power between your citizens and export destination countries' consumers.

So to sum up, in order to even consider transitioning to a consumption driven economy, all sorts of factors and indicators need to be considered. Things like wages, inflation, exchange rates, PPP indexes, debt levels.

Everything doesn't need to be at the same level, but taking the economy cumulatively, you need to be in the same ballpark.

The second condition is that the economy needs to be better geared towards persuading citizens to part with their hard earned money. That means more enticing and sophisticated products and services being made available.

In many ways, the second part of the equation is automatic. As citizens become more wealthy, more and more are able to afford previous luxuries only exported to richer foreign countries, and can even start to fund consumption imports of goodies from abroad in ever greater volume and value.

Transitioning to a consumption driven economy should be an automatic and gradual process. This is where even professional economists start to trip over themselves as they are, in effect, arguing for something that isn't 'natural' by market rules by effectively arguing for Chinese government intervention to speed up the transition.

Another reason even good economists make terrible suggestions is because their suggestions are not about what's best for the Chinese economy and people, but their own economies and peoples.

Most western calls for Chinese transition are either political or economically motivated.

Cheap Chinese exports are a popular political and popularist punching bag in the west to explain every ill under the sun afflicting western economies. Often with a heavy dose of unfair Chinese practices thrown in for good measure. It's far easier to blame those 'cheating' Chinese than to examine and own up to ones own mistakes.

The other side of the unseemly rush advocated by western commentators is that they are eyeing up the Chinese services market and desperately wants a piece of the massive pie the see.

This is actually pretty much the same thing as with western retailers and manufacturers when China was opening up and developing its manufacturing sector.

They want China to throw open the floodgates so they can rush in and grab market share Nd profits and get established before local competition can compete with them, and therefore preventing credible indiginous services industry from ever fully developing.

So when they are shouting for transition, what they are actually shouting for is access.

Personally, I don't think China is at the stage of transition yet.

While all the indices look promising, I think most analysist are not considering one aspect - debt. More specifically, consumption debt.

A massive port of western spending power is fuelled by household and government consumption debt, where money is borrowed to consume.

In effect, that brought future spending forwards, so western consumers were spending two or more years' income in one year. Of course the frugul and saving consicous Chinese consumer cannot compete with that, even if cumulatively, their disposible income is more.

In the short term, there is simply no way Chinese domestic consumption can be more valuable then western debt fuel consumption without China also getting on the same unsustanable train.

The 'new normal' in my view is less to do with Chinese transition (as that would involve the Chinese government trying to push the people into the terrible habit of consumption driven household and government debt) and more to do with adjusting expectations to what growth can be as western consumers and governments start to cut down on their own consumption debt habit.

Rather than look inward to try and get the people to borrow to spend, I think China's best strategy is what it is doing now - creating and opening up new markets in Africa, the Middle East and Central Asia.

That involves a lot of investment in those regions, which is exactly what China has been and is doing, to develop their economies to generate additional markets and export revenue.

But that takes time, hence the new normal.

 

[Blitzo]

The 'new normal' in my view is less to do with Chinese transition (as that would involve the Chinese government trying to push the people into the terrible habit of consumption driven household and government debt) and more to do with adjusting expectations to what growth can be as western consumers and governments start to cut down on their own consumption debt habit.

Rather than look inward to try and get the people to borrow to spend, I think China's best strategy is what it is doing now - creating and opening up new markets in Africa, the Middle East and Central Asia.

That involves a lot of investment in those regions, which is exactly what China has been and is doing, to develop their economies to generate additional markets and export revenue.

But that takes time, hence the new normal.

I think what you've said is true, but I also think consumption will start to make up a greater proportion of Chinese GDP compared to previous years -- not to a similar degree to western economies, and not to such a lavish degree that Chinese households will abandon their saving ways, but I do believe it will open up their purse strings just a little.

Other things such as services and higher end manufacturing will also replace older components of GDP such as lower end manufacturing and excess investment.

 

[plawolf]

I think what you've said is true, but I also think consumption will start to make up a greater proportion of Chinese GDP compared to previous years -- not to a similar degree to western economies, and not to such a lavish degree that Chinese households will abandon their saving ways, but I do believe it will open up their purse strings just a little.

Other things such as services and higher end manufacturing will also replace older components of GDP such as lower end manufacturing and excess investment.

That's inevitable, just as it will be gradual. Which is my main point.

Even from its current position, it will probably take decades for China to become a consumption driven economy unless there is significant government intervention, which I am
against.

In the coming years, watch out for growing western pressure on the Chinese government to spend more on healthcare and social welfare, especially as it's population starts to age.

Those look like nice unobjectionable suggestions, but they are widely believed in the west as the key to
'unlocking' (for themselves of course) Chinese household and government savings, and will work as a fulcrum for the west to leverage the
Chinese govenment into forceably pushing the Chinese economy to over-rapid transition and consumption debt leveraging.

Expect greater western focus on fringe, extreme cases where sick and/or older people end up in desperately unfortunate situations and use that to create and built pressure on China from within.

Im not say healthcare and social welfare should not be improved in China, just not to the lavish standards the west would push for and which the extreme cases they will cherry pick will push good hearted people towards.

The Chinese government's resources and efforts would be much better served investing in phamasuqitocal research and development so China can provide its people with world class drugs at a fraction of the cost western big phama is charging.

That kind of state subsidisation and intervention is infinitely better than throwing bigger and bigger piles of public money at big phama who charge extortionate prices for life saving drugs to make sickening profits.

In my view, one of the main reasons developed economies are consumption driven is largely down to over indulgence of shoppers and unsustainably generous health and social welfare spending.

Those are pitfalls China would do well to avoid rather than emulate, which is the primary reason I'm firmly against a rash rush towards pushing the Chinese economy towards consumption driven too quickly.

In a few decades, when Chinese GDP is two or three times the size of America's, Chinese spending on groceries and normal consumables will account for a significant part of world GDP, so naturally China will be driven by sustainable consumption without damaging its long term growth prospects and economic health.

 

[Qi_1528]

There's nothing inherently wrong with government intervention in the economy. That's a thoroughly discredited neoliberal myth. I'd argue government intervention has done much more good for China's economy than harm. While the West's preference since the early 80's not to intervene or regulate has done serious harm. For example, banks and other lenders should never have been allowed to raise private debt to the levels they have. And now government needs to intervene to write bad debts off. The alternative is long term stagnation, as we're seeing in Japan.

The issue is to make sure that government intervention and regulation is effective, and doesn't unnecessarily stifle legitimate economic activity. Easier said than done, I know.

As for welfare and healthcare (and others). This is something the government has to take a leading role in, because the private sector can't solve these issues and make a profit. Consider how expensive the US healthcare system is per head compared to the quality of service it provides to the general population. There are quite a few primarily state funded and run healthcare systems in the world which perform as well or better, at less expense per head.

In welfare, I advocate for a universal basic income. And by basic, I mean enough to live on reasonably comfortably if you don't have a job. Everyone will get this amount regardless of if they have a job or not. It would replace most forms of welfare which presently exist, greatly reducing bureaucracy. Some argue this would discourage people from looking for work, but that hasn't been the case in places it's been trialed so far. Finland is considering a national level trial. I'm convinced it will pay dividends for national economies in the long term, as automation drives unemployment progressively higher. Imagine an economy with 50% or more of the working age population unable to get work (or enough work). Crime would shoot up, and consumption would be hit massively. A decent UBI is the only way I can see of avoiding this problem over the coming decades.

This of course needs a strong tax income to prevent unsustainable deficits (government should run a consistent small deficit to create new money, but that's a different discussion), and I agree with those advocating for large scale tax reform. Personal income and most consumption taxes need to be phased out, while corporations should to be highly taxed. Not directly on their income, but on the use of things such as land and resources. Taxes on things such as pollution are a good idea too. Those which which benefit from automation particularly need to be taxed, not to discourage automation, but to compensate the public for lost job opportunities.

 

[B.I.B.]

In welfare, I advocate for a universal basic income. And by basic, I mean enough to live on reasonably comfortably if you don't have a job. Everyone will get this amount regardless of if they have a job or not. I

A couple of questions.

Why would the Warren Buffet types require a universal basic income
Would it apply to women who voluntarily give their jobs or never had a job to keep home and raise a family.

 

[vincent]

A couple of questions.

Why would the Warren Buffet types require a universal basic income
Would it apply to women who voluntarily give their jobs or never had a job to keep home and raise a family.

My opinion is that instead of giving people money, give them food and basic housing, enough to keep them alive but not enough to entice them not work

 

[Blackstone]

My opinion is that instead of giving people money, give them food and basic housing, enough to keep them alive but not enough to entice them not work

I agree on principle, but I also believe women having babies plus their proper education and upbringing are fundamental requirements of strong nations, so I'm for large tax credits for employed women to exit the workforce and have babies. I also believe homemakers are grossly undervalued these days, and they should receive large tax incentives to stay home and raise children.

 

[PanAsian]

I agree on principle, but I also believe women having babies plus their proper education and upbringing are fundamental requirements of strong nations, so I'm for large tax credits for employed women to exit the workforce and have babies. I also believe homemakers are grossly undervalued these days, and they should receive large tax incentives to stay home and raise children.

Homemakers both female and male should be better accepted and better appreciated.