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Thread: China Bubble About to Burst ?

  1. #361
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    Default Re: China Bubble About to Burst ?

    Quote Originally Posted by DCon View Post
    David McWilliams in today's Sunday Business Post has a low key but pretty devastating summary of China's situation.

    He sees this bust as just the latest in a long series of five-yearly capitalist implosions.

    In 2008 the CP, to stay popular, and because it could, used its cash reserves as leverage to put 586 billion US dollar equivalent into its economy - this, and its growth rate, drew in massive amounts of global investment shifting away from the crisis ridden west.

    What followed from too much money was too much investment and too much borrowing.

    China went from a producer economy to a consumer, with 28 trillion of internal debt that has, somehow or other, to be repaid.

    Under these levels of debt, a 4 % growth rate feels like a recession.
    “ We cannot withdraw our cards from the game. Were we as silent and mute as stones, our very passivity would be an act. ”
    — Jean-Paul Sartre

  2. #362
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    Default Re: China Bubble About to Burst ?

    By John Ross, who is based in a University in China - from March 2012
    Drop Deng's policy? WB's wrong therapy



    The World Bank's report China 2030 has, unsurprisingly, provoked major criticism and protest. I have read World Bank reports on China for more than 20 years and this is undoubtedly the worst. So glaring are its factual errors, and economic non-sequiturs, that it is difficult to believe it was intended as an objective analysis of China's economy. It appears to be driven by the political objective of supporting current US policies, embodied in proposals such as the Trans-Pacific Partnership.

    Listing merely the factual errors in the report, of both commission and omission, as well as the elementary economic howlers, would take up more column inches than are available to me. So what follows is just a small selection, leaving space to consider the possible purpose of such a strange report.
    The report has no serious factual analysis of the present stage of China's economic development. On the one hand it is behind the times and "pessimistic", saying China may become "the world's largest economy before 2030". This is extremely peculiar as, by the most elementary economic calculations, (the Economist magazine now even provides a ready reckoner!) China will become the world's largest economy before 2020.
    On the other hand, the report greatly exaggerates the rate at which China will enter the highest form of value added production. As such, the report calls for various changes in China, and bases its calls on the rationale of "when a developing country reaches the technology frontier'. But China's economy, unfortunately, is not yet approaching the international technology frontier, except in specialized defense-related areas. Even when China's GDP equals that of the US, China's per capita GDP, a good measure of technology's spread across its economy, will be less than one quarter of the US's. Even making optimistic assumptions, China's per capita GDP will not equal the US's until around 2040, by which time China's economy would be more than four times the size of the US's! Put another way, China will not reach the technology frontier, in a generalized way, for around three decades, so this rationale can't be used to justify changes now.
    The report appears to envisage China's development path differing from that of every other country on the planet. It claims that in China "the continued accumulation of capital… will inevitably contribute less to growth". But one of the most established trends of economic development, first outlined by Adam Smith and econometrically confirmed to the present day, is that capital's contribution to growth increases with development. Deng Xiaoping certainly argued that economic policy must have "Chinese characteristics", i.e. be adapted to China's specific conditions. However, he never argued that China was exempt from economic laws, which is what this report appears to envisage!
    The report makes elementary economic mistakes, such as confusing the consequences of high export shares with trade surpluses. It argues: "If China's current export growth persists, its projected global market share could rise to 20 percent by 2030, which is almost double the peak of Japan's global market share in the mid-1980s when it faced fierce protectionist sentiments… China's current trajectory… could cause unmanageable trade frictions." But if China increases its import share at the same rate as exports, this would not create major trade frictions. Japan's problem was trade surpluses, not export share.
    It is almost impossible to believe, given such elementary mistakes, that this report was intended as a serious objective analysis of China's economy. What, then, is its goal? , The report spells out its goal clearly enough in calling for China to abandon the policies launched by Deng Xiaoping which brought such success. It says: "Reforms that launched China on its current growth trajectory were inspired by Deng Xiaoping… China has reached another turning point in its development path when a second strategic, and no less fundamental, shift is called for."
    What is this new "non-Dengite" economic policy? Deng Xiaoping's most famous economic statement was "it doesn't matter whether a cat is black or white provided it catches mice". Effectively, this means, in economic terms, that a company should not be judged by whether it is private or state owned but by how it performs. The proposed new economic policy overturns Deng's dictum by saying: "Reintroduce judging cats by color, promote the private sector cat."
    The consequences of this are clearly seen in the report's financial proposals. During the international financial crisis, China was protected by its state-owned banking system. The US and European privately-owned banks simultaneously created the financial crisis and were flattened by it, throwing their economies into crisis. China, however, suffered no significant setback.
    The reasons for the US and European banking crisis are well understood. Modern banks are necessarily very large, both in order to undertake international operations and because of the inherent risk of large investment projects. They are literally "too large to fail", as the failure of any large bank creates an unacceptable economic crisis. This theoretical point was rammed home by the devastating consequences of Lehman's collapse, following which no government will allow a large bank to fail.
    But a situation in which the state is blocking the bankruptcy of a large bank, whose profits are being privately retained, creates disastrous risk. If large private banks are state guaranteed against crippling losses, but retain profits, they are incentivized to undertake potentially profitable but highly risky operations. The disastrous results of this scenario were seen during the financial crisis.
    Extraordinarily, this report proposes that China abandon the financial system which brought it successfully through the financial crisis and instead adopt the one which led the US and Europe to disaster. This is the real significance of "privatization would be the best way to make SFIs [State Financial Institutions] more commercially oriented".
    This ties in with US TransPacific Partnership pressure for the elimination of China's state-owned companies, which are seen as giving China a completive advantage over the US. The US, of course, does not possess such companies. If the US is worried about the competitive disadvantage created by not having state-owned companies, it should create some, not call for China to abandon its own.
    The last World Bank report of this type was published in February 1991 and its Study of the Soviet Economy provided the basis for Russia's economic policies of the 1990s.
    The result was that Russia suffered the greatest peacetime economic disaster to befall any country. GDP declined by more than half. Russian male life expectancy fell by four years and we saw the beginning of a population decline, which continues to this day. The USSR subsequently disintegrated, in what Vladimir Putin called the greatest geopolitical catastrophe of the 20th century. Russia has not recovered.
    This type of economic program is therefore not simply a "theoretical" model. It has been thoroughly and demonstrably discredited on account of the catastrophes it has produced. Russia was ill advised enough to adopt this type of economic program. It is to be hoped, then, that China does not follow the same course.

    http://www.china.org.cn/opinion/2012-03/02/content_24786018.htm


    Of course, the logical conclusion is not that the World Bank is totally incompetent, but that the US, which dominates it, wishes to break China as a competitor, as it did Russia.


    Last edited by C. Flower; 21-01-2016 at 01:25 PM.
    “ We cannot withdraw our cards from the game. Were we as silent and mute as stones, our very passivity would be an act. ”
    — Jean-Paul Sartre

  3. #363
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    Default Re: China Bubble About to Burst ?

    $5T is a lot, even for China, about 50% of the economy.

    China's embattled top securities regulator, Xiao Gang, has offered to resign, after perceived mismanagement wiped more than $5T off the capitalization of the Shanghai and Shenzhen stock markets since last June, Reuters reports. Xiao was the brainchild behind China's "circuit breaker," a mechanism blamed for exacerbating the sharp selloff. The system was deactivated on Jan. 7, just three days after its introduction.

    http://www.bloomberg.com/news/articl...rket-gyrations

    It is believed China's debt to GDP ratio moved from 280% in mid 2014 to around 350% at the end of 2015. Figures for other countries at the link.

    http://www.tradingeconomics.com/country-list/government-debt-to-gdp

    2. That was roughly a tenth of the size of the U.S. economy in 1980 ($2.9 trillion). 3. By 2014, the gap between the size of the Chinese and the U.S. one has shrunk considerably, with China's economy now reaching $10.4 trillion and the U.S. one $17.4 trillion in GDP.Sep 27, 2015

    China's Economy Will Be Larger Than U.S. by 2028 - The ...

    www.theglobalist.com/china-economy-larger-united-states/The Globalist
    As a general rule the most successful man in life is the man who has the best information.

  4. #364
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    Default Re: China Bubble About to Burst ?

    China spent another US 100 Billion supporting their currency in January


    China’s foreign-exchange reserves fell to $3.23 trillion in January from $3.33 trillion a month earlier as the central bank continued its defense of the yuan.
    http://www.bloomberg.com/news/articl...-3-23-trillion
    Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other. ~Oscar Ameringer

  5. #365
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    Default Re: China Bubble About to Burst ?

    The Chinese state is now engaged with a massive programme of (what we used to do here...) subsidised loans to develop high tech / complex Chinese-owned industry.

    This will inevitably have a big global impact.

    https://www.nytimes.com/2017/03/07/b...pgtype=article

    Earlier this year there was an announcement that China was ready to produce its own biros. Same goes for pretty well everything else, within a short number of years.
    “ We cannot withdraw our cards from the game. Were we as silent and mute as stones, our very passivity would be an act. ”
    — Jean-Paul Sartre

  6. #366
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    Default Re: China Bubble About to Burst ?

    Their way of two fingering Trump? You think you can make stuff cheaper than us??

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