Chinese Economics Thread

[N00813]

Wow I didn't know the Guardian was branching out into satire.

 

[solarz]

I disagree projects have to be financially viable or the country will be burdened by it. And growing smaller towns in response to urbanization is neither economically efficient nor environmentally sound. It doesn't have to be all Beijing, Shanghai or Shenzhen. But to have several large mega cities will be the best solution for China.

I'm curious why you would think that growing smaller cities (not towns) is not efficient nor environmentally sound?

China already has quite a few mega cities. In addition to Beijing and Shanghai, there's also Chongqing. Chengdu and Zhengzhou are also on their way to becoming megacities.

The primary problems with megacities are congestion and housing inaffordability. Both can be alleviated by dispersing economic activity to smaller cities.

As for financial viability, we have to look at the bigger picture. The metro system itself may not be profitable purely based on the tickets it sells, but what about the economic activity it generates? That boost of productivity will not factor into any calculation of a metro system's profitability, but is nevertheless the most crucial purpose for building a metro system in the first place!

 

[AndrewS]

Back in 2009, McKinsey did a very informative 540 page paper called "Preparing for China's urban billion", although they also have an executive summary as well.

See below

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They actually put a figure of up to 170 mass-transit systems required for China - compared to the figure of 103 systems in the recent Chinese plan.

They also looked at the best distribution of city size to 2025, and when I looked at it, the authors concluded that concentrated development under a mega-city or hub-and-spokes model would be economically most efficient. Personally I thought the hub-and-spoke model would be better as it spreads the pressure over a larger land area - yet as the same economic benefits.

The interesting thing is that with the hub-and-spoke model, there are exactly 103 cities projected by 2025. Is this just a coincidence?

 

[Equation]

China Doesn't Need Western Economics
By
MIKE NORMAN
I've long been a defender of the Chinese economy and a critic of those who say China is facing a credit or debt crisis. I have explained many times, correctly, that China is a sovereign currency-issuing nation that spends in its own currency, and the state banks in China are functionally nothing more than fiscal agents of the government.

Therefore, their ability to lend in yuan is without limit and loan losses are the equivalent of deficit spending here in the United States: It's a fiscal transfer to the economy. China is completely capable of doing that to infinity if it wanted to, and while there might be other consequences like inflation, China is not hindered by any need to "obtain funds" to merely credit bank accounts with yuan or keep the loans flowing.

It's the same as saying the U.S. has no risk of insolvency because it spends in its own currency and all our debts are denominated in our own currency -- the dollar -- which we have the monopoly power to issue. The only "promise" or liability that the government makes is that it promises to accept its own currency for the payment of taxes, and that is a liability or promise that it can always keep.

While that fact alone should make it clear that the United States, or China for that matter, can never be forced into an involuntary bankruptcy, both nations can, however, decide to default voluntarily. Indeed, in the United States we come close to this every few years when it comes time to raise the debt ceiling. The debt ceiling is an anachronism that should have been done away with a long time ago; however, we still stupidly have it and it's used, politically, to extract concessions from one side or the other, usually spending cuts or tax cuts for the wealthy or corporations.

The point being, we can default on our own accord and so can China if it is motivated by seemingly expedient politics or something like the belief in some dangerous or misguided ideology.

That's why when I read an

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the other day about a recent speech given by Chinese President Xi Jinping and how he plans to crack down on China's lending-fueled economic growth, it got me a little concerned.

Xi could easily fall prey to many of the false beliefs of the prevailing Western economic mainstream, for example. They've been beating the drum about excessive Chinese debt and credit bubbles for a long time and now Xi might be falling for all their fearmongering. That could lead him to embark on an aggressive campaign of debt reduction that would be the equivalent of hard-core fiscal austerity. If so, it would send China into an economic tailspin, collapse commodity prices worldwide and plunge the global economy into a deep recession.

I am a little concerned. However, I have been reading and rereading the article to try to understand the gist of what he is saying, and while I am no expert in Chinese communication (the Chinese famously are not direct in their messages), it seems to me that the inner meaning of the speech was meant more as a mission to further Xi's battle against internal corruption, which has been one of his main thrusts and is rife in China.

If Xi is looking to target corruption and shut down overproducing and failed industries, then that is a different story. That has bullish implications for commodity prices as well as for the Chinese economy in the long run. However, if it is truly about "reducing debt," then Xi has indeed drunk the Kool-Aid of the out-of-paradigm debt doomsday crowd and the "austerians," and that's not good.

Luckily, we can see the numbers. No, there is no Daily Treasury Statement equivalent that China releases each afternoon like we have here in the U.S., but there are monthly published figures that report China loan data that are put out by the

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. At least we can follow those. That will tell us the story.

I would add that there is another reason why I am not overly worried about China enacting austerity via a dramatic slowdown in lending. That's because the Chinese leadership knows it must keep growth elevated or risk massive popular discontent. It doesn't want that. On the other hand, it's still disappointing to see another regime fall prey to the misguided views of the Western economic mainstream. It's only wrought disaster everywhere it's been applied.

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[SamuraiBlue]

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This Norman fellow is a fool if he really believes what he wrote.

Therefore, their ability to lend in yuan is without limit and loan losses are the equivalent of deficit spending here in the United States: It's a fiscal transfer to the economy. China is completely capable of doing that to infinity if it wanted to, and while there might be other consequences like inflation, China is not hindered by any need to "obtain funds" to merely credit bank accounts with yuan or keep the loans flowing.

The US dollar and other nation's currency is quite different since the US dollar is used around the world as transaction currency.
Transaction of crude oil and other various natural resources is done through US dollar so you need to exchange your own currency into US dollars to purchase these natural resources.
This creates a massive demand and money flow of the US dollar in which the entire global economy is moved on.
Basically the more US dollar is put into market the entire global economy will go into an inflation but the US will not suffer anything because relatively speaking nothing changes.
On the other hand Yaun is only circulated locally within Mainland China and is not pegged to anything that is essential to the global economy so if PRC starts to do the same thing inflation only hits locally devaluating the yuan within the global currency market and will most likely be hit with a double whammy in which trying to sell the Yaun will require a premium beyond the market price due to further risk of devaluation of the Yaun while in stock.
What this results to is energy prices will sky rocket and local economy will see inflation going into overdrive. The debts will be written off but the Yaun so will the PRC economy dragging down the communist government with it.

 

[montyp165]

This Norman fellow is a fool if he really believes what he wrote.



The US dollar and other nation's currency is quite different since the US dollar is used around the world as transaction currency.
Transaction of crude oil and other various natural resources is done through US dollar so you need to exchange your own currency into US dollars to purchase these natural resources.
This creates a massive demand and money flow of the US dollar in which the entire global economy is moved on.
Basically the more US dollar is put into market the entire global economy will go into an inflation but the US will not suffer anything because relatively speaking nothing changes.
On the other hand Yaun is only circulated locally within Mainland China and is not pegged to anything that is essential to the global economy so if PRC starts to do the same thing inflation only hits locally devaluating the yuan within the global currency market and will most likely be hit with a double whammy in which trying to sell the Yaun will require a premium beyond the market price due to further risk of devaluation of the Yaun while in stock.
What this results to is energy prices will sky rocket and local economy will see inflation going into overdrive. The debts will be written off but the Yaun so will the PRC economy dragging down the communist government with it.

The thing is that the Yuan is transitioning to a transactional currency as usage and circulation of it increases globally, and at the same time as the Iranians have shown petro transactions using alternate currencies such as the Euro also affects the dollar sinks and lending capital available to the US from petrostates and trade. That in turn would kick inflation into overdrive, and the US income rate is already stagnant relative to inflation.

 

[SamuraiBlue]

The thing is that the Yuan is transitioning to a transactional currency as usage and circulation of it increases globally

The only people who is using the Yaun is the people who are doing transaction with PRC. There are no third party transaction that is not directly connected to PRC and will stay that way since PRC and/or mainland China does not offer anything that is exclusive and essential to the global economy.

 

[vincent]

The only people who is using the Yaun is the people who are doing transaction with PRC. There are no third party transaction that is not directly connected to PRC and will stay that way since PRC and/or mainland China does not offer anything that is exclusive and essential to the global economy.

care to explain what that means?

 

[SamuraiBlue]

care to explain what that means?

It means exactly what I wrote. Mainland China does not offer anything that they have a monopoly of and is essential to another nation's economy.
The US on the other hand has exclusive rights to the printing of US dollar and is essential in making transaction with OPEC/ NY & London oil bourses since they only accept US dollar.

Japan has a quasi state which has been seen in recent past with the Higashi-Nihon earthquake and Kumamoto earthquake where various manufacturing industries stopped around the globe due to various shortage in components made in Japan.
The reason I state quasi is because the components could be changed to another supplier within a year so it will only last for a short period.

 

[antiterror13]

The only people who is using the Yaun is the people who are doing transaction with PRC. There are no third party transaction that is not directly connected to PRC and will stay that way since PRC and/or mainland China does not offer anything that is exclusive and essential to the global economy.

it is YUAN .. not YAUN ... google it my friend , just in case you don't know