China: Growth and Debt (Geneva Report on Deleveraging) Post author By Philip Lane Post date August 25, 2015 The China section in the 2014 Geneva Report provides some guidance in relation to the current debate – here. See also NYT article here. Categories In Uncategorized 12 Comments on China: Growth and Debt (Geneva Report on Deleveraging) ← Don’t blame German banks for the Irish economic crisis → Insider or Outsider? Bloomberg article on Honohan succession 12 replies on “China: Growth and Debt (Geneva Report on Deleveraging)” Who will be persuaded to forgive a big chunk of China’s $29 trillion debt? How stable is the Chinese financial system, particularly the banks? Will China cash in their very large US Treasury bond holdings? Will the current Chinese regime survive intact? I meant $28 trillion, mis-typed as $29 trillion. A trillion here and there and you are talking real money. The gyrations in the major western stock markets are being put down to China but I suspect the moves are more Schilleresque. It is also amusing to hear analysts claim that the current state of the US economy is not consistent will an equity sell-off as if there is any relationship between a given country’s GDP growth and its equity markets. If the emerging market meltdown is to play out in a way that see a significant appreciation of the euro we could well see the problems posed by a multi-speed EZ. Ireland has been trundling along at a macro level pretty well and I (anecdotal) evidence would suggest there is already a lot of wage inflation pressure being brought to bear. The government will cave on some of this at the next budget. If successful consumer confidence will continue to thrive and our only saving grace from going down the rabbit hole again will be if our banking system remains dysfunctional. If they continue to sort themselves out or heaven forbid true competition enters the banking sector again we could enter a real inflationary spiral while the rest of europe is struggling to post even positive figures. What do we turn to then – Charlie McCreevy and the SSIAs again! The above may or may not happen but what I find very concerning that most people don’t care if our economy is out of kilter with the macro economic policies being pursued by the ECB notwithstanding the threat such an imbalance poses to our general well being as a nation. The euro project was not fixed by the Fiscal Treaty or anything that was been done since 2008….do we expect different outcomes? the timing- just after the rose of tralee- is very interesting. September could be fascinating. Loads of punters have bets out on continuity and the CB put. Asset prices are high considering the state of a lof of economies. CBs don’t have a lot of credible Tools left should the dealers panic. OTOH they have learnt a lot since 08. Credit in the US is worth a watch. Over on Ft.com the zeitgeist seems to say turmoil. Chinese economic turmoil, wall st in turmoil and more turmoil somewhere else. Let us see if any big sharebuyback schemes are curtailed going forward. The reemergence of China as a global economic power with an average of 10% annual growth in the 35 years 1979-2014, is unprecedented for a big economy in economic history. Its slowing is bound to cause problems: it has been for example producing half the world’s steel output. https://hbr.org/2008/06/subsidies-and-the-china-price According to the late eminent economic historian, Angus Maddison, until 1800, about three fifths of the world’s commerce and production took place in and around China and India. So did much of the world’s scientific and technological progress, including the Chinese invention of paper, explosives, and printing, and medieval India’s launch of modern mathematics. In the early 1830s, when President Andrew Jackson sent the first US envoy across the Pacific to Siam (Thailand), Asia still accounted for over half of global GDP. It’s important to understand that the current post-Mao Zedong modernisation of China, is not a simple story of a backward country achieving an economic miracle. A vast unified country over a span of two thousand years, overwhelmingly dominated by one ethnic group, the Han, was a pioneer in bureaucratic modes of governance. Maddison said that in the tenth century, it was already recruiting professionally trained public servants on a meritocratic basis. The economic impact of the bureaucracy was very positive for agriculture They nurtured it with hydraulic works; printing enabled the distribution of illustrated agricultural handbooks; farmers settled in promising new regions; a public granary system to mitigate famines was established. They fostered innovation by introducing early ripening seeds which permitted double or triple cropping. New crops were introduced — tea in the Tan dynasty, cotton in the Sung, sorghum in the Yuan, and new world crops such as maize, potatoes, sweet potatoes, peanuts and tobacco in the Ming. From the nineteenth century, internal rebellions and colonial intrusions resulted in China’s share of world output falling from one third in 1820 to one twentieth by 1952. China could be termed a known unknown; the social protection budget (welfare + public health) is about 6% of GDP compared with 30%+ in Western Europe. This is one factor in the high savings rate. It accounts for 15% of global GDP but for commodity producing countries it is a big factor. The related issue is close to zero interest rates — Japan has had them as long as Rip Van Winkle slept and it’s till in a funk. Larry Summers and Ray Dalio, the hedge fund manager, this week suggested that the Fed should forget about an interest rate rise and relaunch QE – bond buying can spur confidence during a slump but it should not be surprising if it loses its punch over time. Living in unique economic/ financial times The fall in oil and other commodity prices will have a much bigger impact on the US economy than any wealth impact from equities. @ MH The only thing likely to outlast Chinese inventions is the joint stock company (invented, it seems, in Italy in medieval times). http://www.davy.ie/private-clients/insights/investing-insights/2015/chinas-stock-market.html Wall Street syndrome strikes again! @ DOCM There is usually some truth in national stereotypes: Chinese like to gamble, the Irish drink a lot – the half of the Chinese population that drink do a lot of it. Chinese depositors have been subject to financial repression for years while state companies have been given favourable rates. So the search for yield triggers the retail interest. A report that Chinese investors tend to only hold shares for about a month is consistent with the gambling culture. The official plan to keep share prices from falling was motivated by the leadership’s paranoid fear of public protests. An important caution as with the many “experts” on Greece, is that it’s a safe bet that most of the economists and journalists who comment on China have never been there. @ MH Like most Europeans, I have never been to China. On the other hand, I am not claiming to be an expert on what is going on there. What I do know is that the casinos, aka stock exchanges, established there bear a striking resemblance to those established globally. And those in charge of them are making exactly the same mistakes as have occurred globally and historically. Larry Elliot of the Guardian on the wisdom of Margaret Thatcher. “You can’t buck the markets”. http://www.theguardian.com/business/economics-blog/2015/aug/27/financial-markets-are-not-free-theyre-one-of-the-last-bastions-of-socialism Comments are closed.