PRC Economy - New Reflections : Dec 15 2011

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svinayak
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Re: PRC Economy - New Reflections : Dec 15 2011

Postby svinayak » 25 Dec 2013 23:00

Sri wrote:China and US are not the only players in the market. Oil underpins the demand for USD. As long as that happens there will always be demand for USD.

THis demand for USD has distorted the global prices. It has masked the fiat currency and real valuation of USD. This has distorted the inflation and prices of certain commodities which are historically connected to the fiat currency

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Christopher Sidor » 26 Dec 2013 16:06

PrasadZ wrote:
TSJones wrote:
I think you are somewhat confused as to what constitutes US money.


There may also be a confusion about trade volumes. Monthly volume in only USTs touches 10 billion most months. Absorbing 1 trillion will take time even for that humonguous market. In effect, China will end up with a private sale to Fed and the Fed will end up sterilising that volume as they see fit. China oversells this case too much, David.

I agree with you. This so called nuclear option which PRC holds will only cause temporary damage, say 1-2 years to America. In case of PRC it will cause grievous damage the damage may include the overthrow of the CPC and birth of a new China. I am not convinced that PRC holds any cards as far as its trillion-dollar reserves are concerned.

Recall the old adage. If one owes the bank 100 dollars one is on the hook. If one owes the bank 1 trillion dollars the bank is on the hook. PRC is the bank.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby VikramS » 27 Dec 2013 03:38

Visiting after a long time. Surprised that the Chinese nuclear option being discussed.

Guys: The Fed is printing a Trillion dollars an year. It has been doing so for four years. It can easily print another Trillion to absorb anything the Chinese want to do.

The nuclear option is a dud, nada, dead on arrival, dodo etc.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Austin » 27 Dec 2013 10:23

VikramS wrote:Guys: The Fed is printing a Trillion dollars an year. It has been doing so for four years. It can easily print another Trillion to absorb anything the Chinese want to do.


Isnt the printing itself is causing serious concerns irrespective of what China owns or not .......... arnt be staring at Debt Bubble Imploding sooner or later and any serious effort to reduce QE would cause inflation.

So in a way US Economy is facing a double edge sword.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Neshant » 27 Dec 2013 11:22

Now what if India threw a monkey's wrench into the situation and started buying up a lot of the physical gold out there.

Much of it is leveraged with paper gold promisory notes not worth the paper its printed on.

Effectively that would put an end to any country trying to exert its hegemony via the monetary system.

India does not hold very many Treasury bills and it would not matter which way that trade went in the event of the above.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby TSJones » 27 Dec 2013 12:06

Neshant wrote:Now what if India threw a monkey's wrench into the situation and started buying up a lot of the physical gold out there.

Much of it is leveraged with paper gold promisory notes not worth the paper its printed on.

Effectively that would put an end to any country trying to exert its hegemony via the monetary system.

India does not hold very many Treasury bills and it would not matter which way that trade went in the event of the above.


,,,then the world would be awash in Rupees which lack full convertibility (I think) and a GDP with restricted foreign partcipation. So if you're going to buy up all the gold you'll have to do it gradually which gives the rest of the world time to adjust to the market.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Sri » 27 Dec 2013 12:22

Neshant wrote:Now what if India threw a monkey's wrench into the situation and started buying up a lot of the physical gold out there.

Much of it is leveraged with paper gold promisory notes not worth the paper its printed on.

Effectively that would put an end to any country trying to exert its hegemony via the monetary system.

India does not hold very many Treasury bills and it would not matter which way that trade went in the event of the above.


Where will the dollars come to do that? We cry even if domestic demand for gold increases.

The trade imbalance is staggering. China will find a lot of eager buyers for US bills. Brazil, India and SA to start with. Of course everyone for drastically different reasons.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby DavidD » 27 Dec 2013 13:21

TSJones wrote:
DavidD wrote:I think I'm gonna need you to explain to me more clearly just how you can "sterilize" $2 trillion of excess money supply. None of the moves you proposed is without consequences, certainly they can hurt the economy just as much as inflation as a result of a gigantic treasury dump would. In any case, I think they fall well within range of my aforementioned "ripple effects" and "reactions" from the U.S. that makes the exact results of such a move unpredictable.


I think you are somewhat confused as to what constitutes US money.

Money is created and destroyed by fiat from the Federal Reserve. As you already know the Federal Reserve is constituted from member US banks. Right now, the way the Fed controls the money supply is by requiring a. increase or decrease of intersted charged for loans at the Fed discount window for member banks. US banks love the fed dicount window. If I was a bank I would love it too. The other way is by changing reserve requirements for bank members. That means holding more bonds or less bonds to back up bank loans.
The fact that they are buying and holding US treasuries is because A. they are fairly reliable and B. There are huge amounts of them to buy. Now pay very close attention.......it doen't have to be US treasuries, it can be corporate bonds, it can be fannie mae or freddie mac bonds. In point of fact under the Fed QE3, the Fed has been buying fannie mae, freddie mac and ginnie mae bonds by the gobs. We know them by another name, mortgage backed securities.

So what would the effect of dumping $2 trillion US treasuries on the open market be? It wouldn't do anything to our money supply because only so much money is authorized by the Fed itself. What it would do would raise havoc on the US govrnment's ability to raise more debt. They sell treasuries on the open market too. It would n't last long though. Right now, the rest of the world can't enough US treasuries. The ECB is having huge troubles, etc. Please consider that the US budget deficit is 3% of US GDP and with the new budget deal and sequestration it is going down, not up as a % of US GDP. Should less than 2% by 2015

And Neshant is going to love this, the US banks could be required to hold or sell gold as reserve requirements for their loans. They don't need bonds necessarily.

So what happens if China dumps 2 trillion in treasuries.

1. The US government would goto the Fed and say, hey, "I'm having trouble selling my bonds. China is committing suicide." Fed says "My condolences. Was it a long illness?" "Treausry says "Yes the fires of nationalism caused a great psychosis of delusions of grandeur". Fed says "Pity, how much do you need ?" US Treasury says "about a trillion until the market stablizes and the excess is soaked up". Fed says ok issue me a trillion in treasuries and I will hold onto them until I can slowly release them on the market and get my money back. I will credit you with a trillion until the market improves." See how that works?


OK, I'm gonna take back what I said and defer to you on this matter. All this finance talk is making my head wanna explode!


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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Austin » 31 Dec 2013 16:08

China local government debt surges by 70%

China has local government debts of 17.7 trillion yuan ($2.9tn), up 70% from three years ago, according to an official report.

China's government asked the National Audit Office (NAO) in July to do a round-up of the debts outstanding at a local level.

The report showed some local governments were using new loans to repay more than a fifth of their debt.

China has a total government debt of about 58% of its economic output.

Persistent fears over the level of non-performing bad debt have affected perceptions of the world's second-largest economy, as some worry whether the loans can be paid back.

The figure is still less than half the debt burdens in Japan - the world's third-largest economy - and Greece, but some analysts warn that China's debt cannot continue to grow at this pace forever.

"While China's total government debt remains low by the OECD standards, the pace of the rise is still alarming," said ANZ Bank economists Liu Li-Gang and Zhou Hao.

"This national debt audit result could indicate that China's local government debt almost doubled in about two-and-a-half years."

According to the China Banking Regulatory Commission, local governments took up 80% of total bank lending in China at the end of 2010. Local governments in China borrowed heavily after the global financial crisis, to try to sustain growth rates.

The Chinese central government has repeatedly stressed the urgent need to guard against financial risks, including the local government debt problem.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby svinayak » 04 Jan 2014 12:14

"This national debt audit result could indicate that China's local government debt almost doubled in about two-and-a-half years."



THis indicates credit squeeze deterioration in the last few years. Imminent collapse

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Christopher Sidor » 04 Jan 2014 12:56

Austin wrote:China local government debt surges by 70%

According to the China Banking Regulatory Commission, local governments took up 80% of total bank lending in China at the end of 2010. Local governments in China borrowed heavily after the global financial crisis, to try to sustain growth

:eek: :eek: :eek:
80% of total bank lending ??????? Was there a typo???

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Singha » 04 Jan 2014 16:52

I think what local govts are doing is monetizing their control land around the fast growing cities.
step1 - in collusion with developers seize some village on the outskirts
step2 - compensate the villagers with flats say 40km away
step3 - build roads, malls, flats , industry parks - sell to genuine buyers and speculators.
step4 - share the profits between developers and party officials, use some to repay ongoing interest on loans
step5 - send off the GDP growth report to the next set of big bosses up the food chain
go back to step1

this cycle can go on so long as its internal borrowings, whose terms and rates can always be adjusted by central govt to prevent high loan burden from sinking anything.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Rishirishi » 05 Jan 2014 05:57

I have seen it with my own eyes. Shopping malls with 1000+ shops lying vacant. Massive building complexes of perhaps a few thousand flats, lying vacant. And next to this comes up a new massive development, which they are building. I did not quite understand how they sustain this activity. For a starter the flats are way to expensive for many of the people. Secondly the prices rise, despite massive stock of empty flats.

It could also be that people with money choose to invest in empty flats, as there are not so many investment opportunities. I do not know.
What is certain is that the local governments are financing a lot of their activities by selling off land. If the demand for land dries up, it will be a disaster for the economy. Firstly the construction industry will get a bad hit. Second will come the impact of local government spending. It may even lead to capital flight (I strongly suspect this is happening, as chinese are some of the largest property purchasers abroad). The construction industry in China is of an epic scale, the world has never seen before.

It will probably cause social unrest, worse could lead even lead to war, as the communist gov. tries to take the attention away from the problems at home.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby JE Menon » 05 Jan 2014 07:46

Rishirishi,

How many such malls have you seen?

How many development complexes (and how do you know they are vacant)?

estimates will be fine thanx... Want to get an idea of scale

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby svinayak » 05 Jan 2014 08:20

Rishirishi wrote:I have seen it with my own eyes. Shopping malls with 1000+ shops lying vacant. Massive building complexes of perhaps a few thousand flats, lying vacant. And next to this comes up a new massive development, which they are building.

It could also be that people with money choose to invest in empty flats, as there are not so many investment opportunities. I do not know.
What is certain is that the local governments are financing a lot of their activities by selling off land. .

In a ponzi economy the excess money is converted into hard assets. Other than precious metals the other important asset is the real asset. THey have to build new ones to create new assets even if there is no demand. The assumption is that in the future the demand will raise and bring the asset value back

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby chola » 05 Jan 2014 20:56

Acharya wrote:
Rishirishi wrote:I have seen it with my own eyes. Shopping malls with 1000+ shops lying vacant. Massive building complexes of perhaps a few thousand flats, lying vacant. And next to this comes up a new massive development, which they are building.

It could also be that people with money choose to invest in empty flats, as there are not so many investment opportunities. I do not know.
What is certain is that the local governments are financing a lot of their activities by selling off land. .

In a ponzi economy the excess money is converted into hard assets. Other than precious metals the other important asset is the real asset. THey have to build new ones to create new assets even if there is no demand. The assumption is that in the future the demand will raise and bring the asset value back


No, in a ponzi scheme of any sort, there is no excess money. Money is skimmed from an ever widening pot of investment from the outside. Basically you need real money to steal and also to pay out as interest to previous investors to keep investment coming in. There is nothing created, especially not hard assets like real estate.

The PRC is a strange and fascinating case but a ponzi scheme is probably the most inaccurate example to describe it. It builds hard-assets not financial ether like a true ponzi. Most 3rd world nation have a problem building any infrastructure. Lack of infrastructure is what separates the developing world from the developed. The core problem is 3rd world nations cannot create confidence in investment that allows things to be built. Zimbabwe can print trillions of dollars but those can't be translated into infrastructure because the builders won't have any confidence that their work will be repaid in a currency that can buy them goods.

For what is still a piss-poor nation, the PRC can inexplicably generate this confidence and, even more fascinating, can have their currency rise even as they build more infrastructure. This is a complete paradox. It gives the PRC a free hand in building things that are impossible in the rest of the 3rd world. Outside of China, excess infrastructure is a decidedly first world thing that we see in the US and Japan. Excess infrastructure goes hand in hand with excess wealth. We do not see Africa with miles of empty homes, malls and highways.

And the chinis build infrastructure to an excess not only in their own country. They are building infrastructure across Africa and South America with low or no interest at all. No one know how they make money off of those or whether they do at all. But the MNC community actually have a corporate strategy to piggy back off all this infrastructure that the PRC is building to reach previously isolated markets.

It's a probably a house of cards but when it does implode, it will still leave the chinis with more homes, malls, rail and highways than they could possibly use. In a global marketplace, there is no infrastructure that will be left unused over time. That means if the chinis can't use it then the MNCs will.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby member_20292 » 05 Jan 2014 21:27

^^^ I want them roads in India

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Rishirishi » 06 Jan 2014 03:56

JE Menon wrote:Rishirishi,

How many such malls have you seen?

How many development complexes (and how do you know they are vacant)?

estimates will be fine thanx... Want to get an idea of scale



Imagine 2-3 sectors (we are talking of hundreds of 20 story+ buildings). A mall with 1000+ shop units. It is an epic scale. Do a search on Youtube. for example [url]http://www.youtube.com/watch?v=wm7rOKT151Y/url

There are dozens of so called ghost cities. Even in larger cities like Gunagzhou, Shanghai etc Have I seen massive building complexes vacant.

According to some official estimates i have heard, 64 million empty flats. That is sufficient to house at least 200 million people. I never figured out, how it all is financed.

China has sufficient fx and a huge surplus on the account balance. Most countries that overspend, also suffer from large defecits.
What i wonder is; would it be possible for the Chinese Government to simply write off the loans. What implications would this have?

However if the building boom stops, it will certainly lead to a massive drop in overall demand.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby KrishnaK » 06 Jan 2014 05:07

Looks like we'll have to get the CPC to finance our infrastructure now.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Theo_Fidel » 06 Jan 2014 05:54

Little OT, but there have been many many ponzi schemes in India the created flats, car ownership, bike ownership, chit funds, teak, emu farmers, coconut farms, etc but all of it proved to be uneconomic and waste of capital.
---------------------------

I don't think India & Indians as a whole can afford this sort of waste. Doubt even PRC can afford it. There is no private ownership of land, property, flat, business, etc in China. That is how they can afford this.

If Indians are willing to give up their ownership of their flat, house, land, etc we too could pull it off. Any volunteers. :P

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby chola » 06 Jan 2014 07:16

Theo_Fidel wrote:Little OT, but there have been many many ponzi schemes in India the created flats, car ownership, bike ownership, chit funds, teak, emu farmers, coconut farms, etc but all of it proved to be uneconomic and waste of capital.


What you described is plain old fraudulent or just bad investment, not a ponzi scheme.

A ponzi or pyramid scheme is this: you tell 5 people to give you money to invest but instead of investing you pocket a share and then ask another 10 contributors to hand you money so you hand out "interest" to the first 5 (pocketing more for yourself.) You would then ask another group of "investors" to hand you money so you can pay interest to the second group of 10 (of course, pocketing yet more for yourself.) This will continue as long as you can convince more investors or someone finds out. There is no real investment and no return except for more unsuspecting contributors.

Now a waste of capital is exactly that. It is actual investment (unlike a ponzi scheme) in real things, i.e. coconut farms that simply provided no return.

I don't think India & Indians as a whole can afford this sort of waste. Doubt even PRC can afford it.


No nation outside the West and Japan should be able to even build this sort of infrastructure at all never mind just the wasteful part. For every developing country sans the PRC, there is no way to raise the initial capital to get started even on the perfectly feasible parts.

For example, take the National Highway network, the GOI had been talking about expanding and upgrading it for ages. Same with Indian Railways. These are upgrades and expansions will bring us return the same way the US highway systems had for the US. Everyone knows this but there simply isn't the money to actually do the work on the same scale. Obviously, the RBI can print more money but it doesn't because the rupee will end up the same way as Zimbabwe's dollar which is why neither us nor the Zimbabweans have even adequate infrastructure never mind an excess.

That is the real question. How is China able to build all this crap while still maintaining an ever-appreciating currency (which means it can still build even more infrastructure.) Part of the reason, we suspect is the $3T forex and their account surplus but even that can't account for the amount of infrastructure.

There is no private ownership of land, property, flat, business, etc in China. That is how they can afford this.

If Indians are willing to give up their ownership of their flat, house, land, etc we too could pull it off. Any volunteers. :P



That brings up even more questions. There is no private ownership or business in China. But that kind of governance usually means a decrepit underdeveloped economic hellhole like N. Korea or Albania.

Imagine if the GOI had gone socialist. Wait, we already saw that under Congress and the Nehru clan. It mean poverty and underdevelopment until the BJP flipped us around.

I, and any reasonable economist out there, would never think that the ability of the PRC to finance infrastructure comes from government ownership. The chinis had that under Mao and they were dirt poor then with even less infrastructure than India at the time. So giving up ownership will actually weaken your economy and make it even less possible to build infrastructure.

The real key is figuring, very simply, how they are able to keep printing Yuans to pay for the highways, powerplants, etc. and not have their national currency go the way of Zimbabwe's. If we figure that out, then we can do the same.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby DavidD » 06 Jan 2014 08:54

I don't claim to be an economist, not that they're worth much, but I do have a few suggestions that could answer why all this waste may not be all wasted:

1) Has anybody ever followed up those "ghost cities"? There are certainly failed investments, the South China Mall being the biggest example, but just how many of these ghost cities remain ghostly? Keep in mind that China's plan is to build entire cities from the ground up, which has debatable advantages and disadvantages, but one thing is very clear: while a city of millions may be built in a couple of years, you can't expect a few millions to move into that city as soon as it's built. For example, I read one guy's report as he travels throughout China to check out the ghost cities/malls. He noted that while some are poor investments (e.g. South China Mall), some are caught up in political turmoil (e.g. the Shanghai international towns), most are simply massive, new developments that take time to flourish.

http://thechinachronicle.com/zhengzhou- ... host-city/
http://www.newgeography.com/content/002 ... city-alive

2) Economists use a term, I forgot what it's called exactly but it's like time-something, and it basically means that, for example, it's better to spend 50 million dollars to develop an iPhone (1st generation) that comes out in 1995 than to spend $5 developing an iPhone (also 1st generation) that comes out in 2015. That is, time matters. The Chinese government identifies areas whose development would strengthen the country in the future, e.g. infrastructure, clean energy, etc. and instead of waiting for the market to slowly invest in those areas, they direct the market toward those areas with subsidies and whatnot. Such a move is most certainly less efficient and there would be plenty of waste, but it does save time. So the question is, is the time saved enough to offset the waste?

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Anand K » 06 Jan 2014 09:14

^^
Building the place first and then waiting for the people to flock in eh? IIRC the founding myth of Pataliputra was something like this. :mrgreen:

Do they factor in the asset depreciation in all this? In the US it is 40 years right? But then construction quality in the US and China would differ quite a bit I guess. And I don't want to be the guy who's shelving out money for upkeep of all this.... if there is any at all.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby chola » 06 Jan 2014 09:49

DavidD wrote:I don't claim to be an economist, not that they're worth much, but I do have a few suggestions that could answer why all this waste may not be all wasted:


I could care less whether they are waste or not in the PRC. The more fundamental question is how China was able to finance building this infrastructure to the point where there is actually an excess.

To get to that point where you overbuild, you have to have an overabundance of credit. As I said previously, even if the house of cards falls, you people will still have more plants, roads and buildings than you can use which is a hell of a lot better than not having enough.

Seriously, if India can create this infrastructure and then write off the costs, it would leave the country better off than never having built enough. But it needs to finance it in the first place.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Anand K » 06 Jan 2014 10:52

Indonesia did something like this..... the Suharto era saw a massive buildup of infrastructure even though Indonesia was never an Asian Tiger. Well he pocketed a lot of money too in this, but it's undeniable the there was a degree of farsightedness in this. The urban infra is good, roads in metropolitan and urban areas are good - given the fact that in urban areas even dogs and cats here have their own cars and scooters (and traffic is a nightmare throughout the country) and the soil stability problems, the civil infra is coping pretty well. Even in the rural areas there are arterial highways, though not 4-lane Autobahns, and provincial roads and huge ferry/barge fleets do provide the vital connectivity to all corners.

However, I have heard of the upkeep costs (which doesn't break the back of the Govt due to availability of cheap labor) are a *****. Still, they slog on (but not at Dubai/China feverish pace) faithfully citing future requirements. Just whining 200%, but our mass transit and freight corridors thingies should have started at least a decade before they actually did.... just wishing.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby wig » 06 Jan 2014 11:22

an interesting attempt by china to control capital flows that can disrupt its capital markets. I imagine that they are working on a roadmap for convertibility over a yet to be decided time period.
for UK capital markets that principally grow fat on a legal system and as a global clearing house for transactions this is news that is not good.
http://www.telegraph.co.uk/finance/comm ... -boom.html

Britain’s bid to become a global hub for trading in Chinese assets has run into a major snag after a top Chinese official suggested a ‘Tobin Tax’, a levy on financial transactions to curb capital flows.


Yi Gang, director of the State Administration of Foreign Exchange, called for an “in-depth study” of a Tobin tax, particularly on foreign exchange trades and flows of speculative hot money. SAFE is the world’s biggest fund, commanding the central bank’s $3.7 trillion in foreign reserves.


Any such move could greatly complicate the City of London’s plans to become the top market for global trading of the yuan or renminbi, since the clear intention would be to reduce turnover and limit disruptive flows of capital.


Mr Li, who is also deputy chief of China’s central bank, wrote in the Communist Party journal Qiushi that curbs may be needed to ensure an “orderly” transition as the country opens up its internal capital markets and moves towards a free float for the yuan.


“Persistently guarding against cross-border liquidity flow shocks is the key to good foreign exchange management,” he wrote. While the article is not a formal proposal, his opinions are closely-monitored as a guide to future policy.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Theo_Fidel » 06 Jan 2014 11:42

chola saar,

It has been posted many time here before. It is not that complicated.

First Chinese infrastructure is not world class, it is cheap. There is a difference. India learned this the hard way on the power equipment it imported from china. Almost unusable in some cases with the chinese themselves clueless on how to fix some of it. They have copied very sophisticated systems developed by others on the cheap. Occasionally they pay the price for this as they did at 2008 Wenchuan earthquake that killed 70,000 when this same cheap infrastructure caved in on the folks. More recently they had the HSR death toll as well. They will continue to pay the price long term for this shoddy design/construction. No one has learned a thing from Chinese construction that is applicable else where on earth. Why the Chinese themselves have not learned a thing from 2008 Wenchuan. Heard a story recently at Chennai that some chinese technicians were imported to run the metro equipment and were found to be substandard. Metro folks then had to scramble to import a team from Russian who finally managed to get everything going. Chinese are hard working and driven but they are not the most skilled or even the most productive workers. The buildings I have seen are shoddily built, slapped together and would not pass QC anywhere even in hick town USA. I had posted a write up on the 1/100th cost 'Paris' replica recently on this very thread. But even to build this data shows they are devoting greater that 50% of GDP. I always come back to Soviet Russia. Back in the 60's & 70's the Soviets too were building flats, cities, roads, metro, etc. They went bankrupt when most it failed to increase the productivity of the economy, meaning maintenance quickly bankrupted them. So today much of it is around crumbling into the earth.

When a government can make yet another accident that killed 5 workers on its HSR disappear it can make onions smell like roses. All smoke & mirrors.
The Japanese are on record saying the chinese HSR is unsafe as built and further accidents are inevitable.

http://www.scmp.com/news/china/article/ ... ent-report
This is the second railway accident with multiple fatalities in a month, after a high-speed train hit five railroad workers in the northeastern city of Shenyang on November 22, killing four.
The Shenyang accident last month happened when the high-speed passenger train came about 20 minutes behind schedule and hit the workers on the tracks carrying out repair work. The Shenyang Railway Bureau issued an internal notice of the accident on the day, which was widely reported by media outlets, giving rise to national outcry over railway safety standards.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Christopher Sidor » 06 Jan 2014 13:19

Building flats, shops, shopping arcades/malls is not infrastructure. Especially flats, shops, or arcades which simply lie vacant cannot be classified as Infrastructure. Infrastructure is road, railways, airports, water lines, sewage lines, ports, electricity lines, oil+gas lines and so on.

Dubai has world class infrastructure. Next to zero personal income tax and yet it went belly up after Lehman+AIG fiasco. Or consider the case of Japan they built world class bullet trains. They built them so well that the Japanese Railways could never pay back the debt. Building awesome infrastructure is one thing. Building a sustainable or economical infrastructure is quite another thing.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Anand K » 06 Jan 2014 13:30

The CPC which actively "encouraged" migration to Tibet, Russian Far East and Sinkiang to upset local demographics couldn't do that to fill the empty apartments and boost urbanization or whatever? Maybe throw in some other freebies as well? The old coercion doesn't work anymore or they simply ran out of warm bodies kya?

So what was this building spree? A Polk Ballel Gravy Train? Artificially inflate economic activity? H&D? Or was there some method behind this madness?

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby abhischekcc » 06 Jan 2014 14:28

Christopher Sidor wrote:Building flats, shops, shopping arcades/malls is not infrastructure. Especially flats, shops, or arcades which simply lie vacant cannot be classified as Infrastructure. Infrastructure is road, railways, airports, water lines, sewage lines, ports, electricity lines, oil+gas lines and so on.

Dubai has world class infrastructure. Next to zero personal income tax and yet it went belly up after Lehman+AIG fiasco. Or consider the case of Japan they built world class bullet trains. They built them so well that the Japanese Railways could never pay back the debt. Building awesome infrastructure is one thing. Building a sustainable or economical infrastructure is quite another thing.


Dubai went belly up because they built all that stuff, including Burj DubaiKhalifa, on debt. Its debt was USD 80 billion went it showed its empty pockets to the world. :mrgreen:

Abu Dhabi stepped in only because:
1. It had save the image of entire UAE as a business destination (stated reason)
2. It gave them a chance to rub Dubai's nose in the sand (real reason) and show who is the real boss.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Anand K » 06 Jan 2014 14:41

I still remember the day Burj Dubai became Buj Khalifa (as in Khalifa Al Nahyan)...... Sheikh Makhtoum grimly watching his Victory Tower turn into the AD Emir's d1ck by proxy.

Maybe one day we can all witness Tienanmen Square be renamed Parsi Opium Trader Square while Premier Wo Bankrupxi claps on with a rictus smile.
OK that was over the top..... :mrgreen:

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby cdbatra » 06 Jan 2014 15:49

http://www.scmp.com/business/commodities/article/1387098/chinas-oil-sands-bet-goes-sour-canada

"The talk around the table is that the Chinese were not informed investors," said Sam La Bell, a Toronto-based analyst at Veritas Investment Research. "They had a long-term view that oil was going up and they had :twisted: a mandate to go buy oil assets. They weren't necessarily being selective." :rotfl:


Further :mrgreen:
Chinese investors have been "buying all this stuff and not making returns," said Wenran Jiang, a University of Alberta professor and adviser to the Alberta government and industry. "We should be very grateful to the Chinese who virtually put all their money into subsidising our losing energy market."

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby member_20292 » 06 Jan 2014 16:30

chola wrote:
DavidD wrote:I don't claim to be an economist, not that they're worth much, but I do have a few suggestions that could answer why all this waste may not be all wasted:


I could care less whether they are waste or not in the PRC. The more fundamental question is how China was able to finance building this infrastructure to the point where there is actually an excess.

To get to that point where you overbuild, you have to have an overabundance of credit. As I said previously, even if the house of cards falls, you people will still have more plants, roads and buildings than you can use which is a hell of a lot better than not having enough.

Seriously, if India can create this infrastructure and then write off the costs, it would leave the country better off than never having built enough. But it needs to finance it in the first place.


Who makes roads?
1. Govt.

How will govt. finance roads?
1. By taxing people enough to earn the money first and then build the roads.
2. By deficit financing roads, and hope that the increased productivity will increase tax receipts enough to pay for the cost of making the road.

We are not going through any shortcuts, Chola ji. We are attacking corruption first, sorting out the system slowly, and building infrastructure in parallel. At least, the govt.s that can do that, do do that, like the Gujarat govt.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby chola » 06 Jan 2014 17:58

Theo_Fidel wrote:chola saar,

It has been posted many time here before. It is not that complicated.

First Chinese infrastructure is not world class, it is cheap. There is a difference. India learned this the hard way on the power equipment it imported from china.


Theoji, India is still learning this "hard way" because Reliance is in the midst of import 36 power plants from Shanghai Electrical. Being world class is relative. Compared to Japan and the West? Probably not. Compared to the rest of the world including India? Most definitely so. It is their competitive advantage.

Again, the real question is not whether Chinese infrastructure is "world class" but how they are able to finance this immense build up. That is most pertinent question. For us, cheaper is better because we cannot afford infrastructure on par with the US and Japan. But starting up even "cheap" infrastructure is immensely expensive never mind the HSR, 8-lane highways and airports being put up across the length and breadth of chini-land. That is what we should learn. If we can generate credit the way they could, we build infrastructure to a better quality.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby chola » 06 Jan 2014 18:11

Christopher Sidor wrote:Building flats, shops, shopping arcades/malls is not infrastructure. Especially flats, shops, or arcades which simply lie vacant cannot be classified as Infrastructure. Infrastructure is road, railways, airports, water lines, sewage lines, ports, electricity lines, oil+gas lines and so on.


Any man-made structure that is usable is infrastructure but "road, railways, airports, water lines, sewage lines, ports, electricity lines, oil+gas lines and so on" is what the Chinese have an overabundance of as well as the mall and flats. So how are they able to finance this?

Dubai has world class infrastructure. Next to zero personal income tax and yet it went belly up after Lehman+AIG fiasco. Or consider the case of Japan they built world class bullet trains. They built them so well that the Japanese Railways could never pay back the debt. Building awesome infrastructure is one thing. Building a sustainable or economical infrastructure is quite another thing.


And Dubai still has world class infrastructure. India gets over $6b yearly in remittances from Dubai and the UAE. It certainly hadn't hurt their economy overly. Japan's bullet train and other world class infrastructure is sustainable for Japan just as China's cheaper infrastructure is mostly sustainable for China. If they were not, then they would have stopped building a long time ago (not out of choice but because of lack of market confidence and credit.)

That is the key -- they are able to generate investor confidence and credit to get stuff built. The question how China does it is more pertinent than Japan because the PRC is third world and should never have been able to build on this scale.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby chola » 06 Jan 2014 18:18

mahadevbhu wrote:
We are not going through any shortcuts, Chola ji. We are attacking corruption first, sorting out the system slowly, and building infrastructure in parallel. At least, the govt.s that can do that, do do that, like the Gujarat govt.


There is no shortcut to setting up a system where you can print money like crazy to build things and not have it devalue to nothing. The US can do this but that is readily explained by the fact that the dollar is the global currency. No matter how they print, the world wants it.

How the PRC does it is more of a mystery.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Anand K » 06 Jan 2014 18:39

Major Chinese companies offer Equity Partnerships in projects provided they get the whole EPC Turnkey - and every nut and bolt China sourced. Chinese banks also will lend millions of dollars flat out in financing, again if it's a complete PRC show. That's how they get most of their projects in Africa and SE Asia. IIRC it was like 50 Billion USD total last year. So that's another way to push Chinese products I guess. BTW, doesn't this also make the renminbi more attractive?

Then again, they have reached maturity in a few segments - people are actually okay with the products in those segments. In another 20-30 years they might be in a good position across the board.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Theo_Fidel » 06 Jan 2014 21:59

chola wrote:Again, the real question is not whether Chinese infrastructure is "world class" but how they are able to finance this immense build up. That is most pertinent question. For us, cheaper is better because we cannot afford infrastructure on par with the US and Japan. But starting up even "cheap" infrastructure is immensely expensive never mind the HSR, 8-lane highways and airports being put up across the length and breadth of chini-land. That is what we should learn. If we can generate credit the way they could, we build infrastructure to a better quality.


Like I said it is simple. Give up your private property rights and allow government to own all land/resource/companies/etc and using land sales to build cheap shoddy stuff. Right now in India, someone owning a couple of acres near a major city is set for life and a millionaire many times over. Not in China. The land value belongs to the government.

Again, any volunteers. :((
----------------

AnandK,

That is not entirely correct. Their EPC only works when they can import all the chinese labor. Like in India & Africa. The EU told them to take a hike and they fell on their faces when using local labor.

There is not a miracle. China under pays its workers massively compared to productivity and the diverts to profits to things like apartments and Paris (2) projects.
-----------------------------

Chola think about it this way.

Imagine there is a 1000 acre chunk of land near a major city. Ownership is fragmented amongst 500 people, each holding about 2 acres. Now as the city has grown, each acre is now worth Rs 10 crore. The GOI comes in and decides to buy it all. Kicks out the owners, pays them a paltry 1 Crore per acre. So GOI ends up with Rs9,000 crore, the land owners a paltry 1000 crore. GOI can now sell the land and spend the 9,000 crore as it likes.

Think about this too, recently the city of Chennai expanded from ~200, sqkm to ~500 sqkm. That 300 sqkm added is roughly 60,000 acres. Imagine the government of Chennai could have terminated all private property ownership. An acre of land near Chennai is easily worth Rs 5-10 crore. Imagine the Government could pocket Rs 9 crore of that. This would Rs 540,000 crore. ~ $20 Billion. You could build a lot of roads rail airport or 200,000 apartments at $100,0000 a pop.
Last edited by Theo_Fidel on 06 Jan 2014 22:29, edited 1 time in total.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby nachiket » 06 Jan 2014 22:21

chola wrote:That is the key -- they are able to generate investor confidence and credit to get stuff built. The question how China does it is more pertinent than Japan because the PRC is third world and should never have been able to build on this scale.

Could lack of risk be one of the major factors? For example, if the central or even a regional govt. in the PRC decrees that a road or airport be built on a piece of land, there is no mechanism by which someone can stall or halt it. Anyone investing in such a project can be 100% sure that nothing (apart from their own shortcomings if any) can slow the project down, let alone stop it completely.

Now compare that to India, where everything from PIL's, street protests and local politicos sheltering illegal slumdwellers, to the Environment ministry itself are potential roadblocks. Refer to the POSCO steel plant saga in Orissa or even the Mumbai Airport expansion where they still haven't been able to get rid of the slums built on airport land. How do you generate any kind of investor confidence in such a scenario? But these problems are completely non-existent in China.


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