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PRC Economy - New Reflections : April 20 2015

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Re: PRC Economy - New Reflections : April 20 2015

Postby Austin » 13 Dec 2016 16:51

US debt is threat to the world, says Chinese state-run paper
Excessive US government debt is a “threat to world economic safety”, and the policies of president-elect Donald Trump might worsen the situation, a Chinese state-run newspaper has warned.

People’s Daily on Sunday ran a whole page of commentary criticising Washington’s debt policy, claiming that US debt is hindering the growth of the American economy and destabilising the global currency and financial system. It also blamed the stagnation of the Japanese economy partially on “the US debt factor”.

The federal debt of the United States has increased under the George W. Bush and Barack Obama administrations from less than US$6 trillion to more than US$20 trillion. It now equals about 106 per cent of US gross ­domestic product.

China’s reduction of US debt stake fails to dent US bond prices

One People’s Daily editorial said Trump’s pledged tax cut would likely add another US$10 trillion to the deficit. “It would put the US government under huge financial pressure,” it said.

Shi Yinhong, an international relations analyst at Renmin University, said Trump was hoping fast growth could strengthen the government’s ability to repay.

“Trump wants to cut taxes while stimulating the economy, which is likely to create a surge of government debt,” Shi said.

There are three ways to solve the debt problem, according to one of the People’s Daily commentaries: to grow the economy at high speed; to increase inflation and depreciate the currency: or to default. The second option was “extremely possible” in the US, the paper said.


“It would be a shift of the burden of crisis and [an] export of risk to other countries … overseas creditors must pay [close] attention to the Trump administration’s policies and their impact on the American debt.”

Su Hao, a professor at China Foreign Affairs University, said the Chinese government held some US$1.2 trillion of American debt and had reasons for concern.

Su said the newspaper commentary was likely a message to Trump before he announced his economic policies towards China, warning the incoming president not to go too far unilaterally.

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Re: PRC Economy - New Reflections : April 20 2015

Postby Austin » 16 Dec 2016 18:34

China is no longer the biggest foreign holder of U.S. debt

http://money.cnn.com/2016/12/16/investi ... plead-intl

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Re: PRC Economy - New Reflections : April 20 2015

Postby ragupta » 16 Dec 2016 19:12

I have seen china investing heavily in RE near Macau, Zhuhai, many place by reclaiming land. They are becoming land reclaiming experts.
I think even in Singapore, lot of RE investment is Chinese. In US many Chinese are buying home and properties, by selling homes in HK and then buying cash in US CA.

People there are happy as locals see their assets increase. The strange part is that most of these RE is already sold status. The prices of each condo, apt or flat is beyound the means of local populace. Hard to understand unless it is all illgotten wealth from politician and wealthy individuals world over.

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Re: PRC Economy - New Reflections : April 20 2015

Postby A_Gupta » 01 Jan 2017 10:19

Bloomberg reports:
https://www.bloomberg.com/news/articles ... -2012-high
China Manufacturing Stabilizes Near a Post-2012 High
China’s official factory gauge stabilized near a post-2012 high in December, capping a year of steady improvement and signaling policy makers have leeway to curb financial risks while keeping growth humming. The services gauge remained elevated. Input prices jumped.

Key Points
  • Manufacturing purchasing managers index stood at 51.4 last month, compared with a median estimate of 51.5 in a Bloomberg survey of economists and 51.7 the prior month
  • Non-manufacturing PMI was at 54.5 versus 54.7 in November; numbers higher than 50 indicate improving conditions
  • Factory input prices rose to a five-year high of 69.6 and services input prices rose to a three-year high of 56.2

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Re: PRC Economy - New Reflections : April 20 2015

Postby A_Gupta » 01 Jan 2017 10:25

Bloomberg reports that,
China Takes New Step to Downgrade the Dollar’s Prominence
https://www.bloomberg.com/news/articles ... luing-yuan

However, most analysts think this step mostly won't have any effect.

China took another step to degrade the dollar in defining the value of its currency, in an effort that cuts against its rival’s stubbornly strong hold on the global financial system.

An arm of the People’s Bank of China, which last year started setting the yuan against a basket of currencies, on Thursday said it’s adding 11 units to that reference group. The move lowers the dollar’s weighting by 4 percentage points, to 22.4 percent -- little more than twice the share for South Korea’s won, a new entrant.

While the logic of determining the yuan’s value against the currencies of its trading partners is clear, the problem is that the dollar is still the dominant reference in the perception of the public and the market. The U.S. currency is on one side of 88 percent of all foreign-exchange trading.

"The dollar-yuan rate will still be the benchmark that determines sentiment," said Hao Hong, chief strategist in Hong Kong at Bank of Communications International Holdings Co., a subsidiary of China’s No. 5 lender by market value. "The basket is just a reference, so the change in the index’s composition and the efforts of keeping it stable will do little to boost confidence."

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Re: PRC Economy - New Reflections : April 20 2015

Postby chola » 01 Jan 2017 10:43

A_Gupta wrote:Bloomberg reports that,
China Takes New Step to Downgrade the Dollar’s Prominence
https://www.bloomberg.com/news/articles ... luing-yuan

However, most analysts think this step mostly won't have any effect.


The affect is that it will allow the chinis to decouple from the dollar when they set the yuan.

Basically it'll allow them to devalue.

The PRC sets their exchange rate against this basket instead of just pegging it to the dollar (which it used to do.)

If the dollar is prominent in the basket and it is strong then the Yuan will move up with the dollar. By lowering the percentage of the dollar in the basket and upping those of the Won and the Yen (both being managed floats that are all but pegs in name) the Yuan gets to stay put while the dollar rises.

It is intended as a competitive edge.

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Re: PRC Economy - New Reflections : April 20 2015

Postby A_Gupta » 02 Jan 2017 11:07

https://www.bloomberg.com/news/articles ... rget-range

China should set a more flexible 2017 economic growth target to give policy makers more room to enact reform, according to Huang Yiping, an adviser to the People’s Bank of China.


Preventing and controlling financial risk to avoid asset bubbles will be a priority for 2017, along with deepening supply-side structural reform, top party officials said recently after their annual gathering of the Central Economic Work Conference to decide on policy goals.

Xi is open to growth below the 6.5 percent target due to rising debt and concern about an uncertain global environment after Donald Trump’s U.S. election win, a person familiar with the situation told Bloomberg News last month. Hitting the target isn’t needed if doing so is too risky, said the person, who asked not to be named because the discussions were private.

China is poised to abandon its longer-term growth target in the next two years as leaders push to contain asset bubbles and financial leverage, Yao Wei, chief China economist at Societe Generale SA in Paris, wrote in a report last week. She said the 6.5 percent goal will likely be lowered to a range of 6 percent to 6.5 percent, or even 5.5 percent to 6.5 percent.

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Re: PRC Economy - New Reflections : April 20 2015

Postby panduranghari » 02 Jan 2017 21:30

Image

Yuan-bitcoin trade in volume is higher than dollar-bitcoin volume.

Isn't this a proof for the exponential rise of bitcoin price in fiat as Chinese flee capital controls. Carrington effect and poof all the BTC gone.

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Re: PRC Economy - New Reflections : April 20 2015

Postby panduranghari » 02 Jan 2017 21:37

Link

Bitcoin had a great 2016. The cryptocurrency rallied 120% to $952, threatening to break the $1,000 mark for the first time since 2013. While bitcoin has seen a consistent bid throughout the year, its 57% gain (in US dollar terms) over the past three months has been particularly impressive.

So what's behind the move?

China.

In his latest edition of "Greed & Fear," CLSA's Christopher Wood notes, "Daily turnover in Shanghai-based BTC China, the world's largest bitcoin exchange by volume, has risen from around Rmb1bn in late September to a peak of Rmb27.8bn on 22 December and Rmb16.4bn on Wednesday (see Figure 11) while the Bitcoin price has risen by 70% over the past three months to Rmb6,927."



Image

The increased volume in the cryptocurrency comes as money continues to rush out of China. The country saw its foreign-exchange reserves shrink by about 8% in 2016 to $3.05 trillion as of November. The drop in reserves has occurred as China's currency, the yuan, weakened by 6% against the dollar in 2016. The currency is threatening to weaken below 7.00 per dollar for the first time since Q1 2008.

Things aren't expected to get better anytime soon, either.

Deutsche Bank strategist Gautam Kalani recently called the yuan "the most expensive" currency in the world on a trade-weighted basis. While he didn't go into specifics, his call most likely has to do with the fact that as the dollar strengthens on expectations for Federal Reserve interest-rate hikes, the yuan gets weaker and money pours out of China.

Additionally, Bloomberg economist Tom Orlik wrote, "China's corporates continue to hold on to almost half of their forex earnings — a sign that yuan depreciation expectations remain high."

In fact, it's possible that the yuan's depreciation kicks into a higher gear, causing money to flee China at an ever faster rate. That's because at its most recent policy meeting, the US Federal Reserve appeared to be a bit more hawkish than previously expected. The Fed said it had begun to expect three rate hikes in 2017, up from its previous forecast of two. If that happens, the dollar will get even stronger, and the yuan will get weaker.

Of course, that will be even more positive for bitcoin.

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Re: PRC Economy - New Reflections : April 20 2015

Postby A_Gupta » 04 Jan 2017 20:00

Bloomberg reports:
https://www.bloomberg.com/news/articles ... s-foreseen
"China Goes on $26 Trillion Commodity Binge as Shortages Seen"
Chinese investors traded a record volume of commodity futures last year as speculators poured in and out of the market on bets that shortages are looming.

Combined aggregate trading volume on the Shanghai Futures Exchange, Dalian Commodity Exchange and Zhengzhou Commodity Exchange jumped 27 percent from 2015 levels to 4.1 billion contracts, according to data e-mailed by the China Futures Association. Turnover across the bourses rose 30 percent to a record 177.4 trillion yuan ($25.5 trillion), the data show.

Chinese investors, flush with credit and hunting for returns, piled into commodities futures last year, spurred by bets that the government’s efforts to cut industrial capacity would lead to shortages of raw materials. They charged into markets several times in 2016 and bought everything from iron ore to cotton, driving up prices and stoking fears of a bubble. Authorities introduced curbs on excessive speculation to quell the mania.

“With the hope that supply-side reform will successfully reduce overcapacity in China, especially in the country’s coal and steel sectors, some commodities futures surged amid a trading frenzy last year,” says Jia Zheng, trader at Shanghai Minhong Investment Management. “Price volatility increased too because of low inventories following low prices in the past.”

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Re: PRC Economy - New Reflections : April 20 2015

Postby A_Gupta » 05 Jan 2017 08:19

On Bloomberg, this appeared:
https://www.bloomberg.com/view/articles ... dependency
China's leaders are hardly disguising their fears about money leaving the country. They've just imposed new disclosure rules limiting how Chinese -- who are allowed to convert up to $50,000 worth of yuan into foreign currency each year -- can spend that money overseas. Simultaneously, they're striving to tamp down worries about the tumbling yuan, which has fallen to an eight-year low against the U.S. dollar. At the end of December, the government added 11 currencies to the basket against which it now values the yuan. While the Chinese currency fell 6.5 percent against the dollar in 2016, its value measured against the broader basket has remained largely stable since July.

The idea, at least in part, is to persuade ordinary Chinese that their nest eggs are safe in renminbi. Unfortunately, this latest effort isn't likely to work any better than earlier ones. The yuan remains inextricably bound to the U.S. dollar -- and everyone knows it.


Even the Bank for International Settlements estimates that 80 percent of China's local loans in foreign currency are denominated in dollars. That's the number that really matters: If the yuan continues to fall against the dollar, companies are going to have a harder time paying back those loans regardless of what the renminbi is or isn't worth against the government's official basket.

All this is clear to ordinary investors. During my nearly eight years in China, I've never heard any Chinese citizen worry about the value of the yuan against the Emirati dirham. So as long as the yuan continues to depreciate in dollar terms, Chinese are going to look for ways to get their money out of the country, despite any barriers the government might throw in their way.

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Re: PRC Economy - New Reflections : April 20 2015

Postby Austin » 05 Jan 2017 19:33

A falling yuan would also make Chinese economy competitive and lead to many nations calling China of manipulating yuan and leading a policy of begger thy neighbour.

Seriously yuan has to fall if they want to make it full free-floating capital account convertible currency which they said would do by 2020

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Re: PRC Economy - New Reflections : April 20 2015

Postby A_Gupta » 05 Jan 2017 22:33

The problem is dollar-denominated debt. That is why the yuan can't be allowed to fall.

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Re: PRC Economy - New Reflections : April 20 2015

Postby Austin » 06 Jan 2017 00:12

A_Gupta wrote:The problem is dollar-denominated debt. That is why the yuan can't be allowed to fall.


Yes it works both ways , for some it might be easy to pay debt but for other it might be difficult for dollar denominations debt.

But if they move to full capital account convertibility and full free floating of yuan which they said they would , they will eventually have to devaluate the yuan and that won't be decided by Chinese government but by market forces.

That is something even Chinese don't know how much yuan will fall in this journey.

All in All this might lead to competitive devaluation by others

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Re: PRC Economy - New Reflections : April 20 2015

Postby kiranA » 06 Jan 2017 09:23

A_Gupta wrote:The problem is dollar-denominated debt. That is why the yuan can't be allowed to fall.


I dont understand. Most of chinese debt is local debt - not external debt.

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Re: PRC Economy - New Reflections : April 20 2015

Postby A_Gupta » 06 Jan 2017 10:30

"Chinese companies sold a total of $60.3 billion worth of dollar-denominated bonds in 2015, more than six times the 2010 figure, Thomson Reuters data show."

http://www.reuters.com/article/us-china ... V820160108

With the yuan weakening, companies are scrambling to repay these debts, leading them to purchase dollars and reinforcing the weakening of the yuan; setting up a bit of a positive feedback loop.

e.g., "China Eastern Airlines (600115.SS)(0670.HK) said on Monday it had recently repaid $1 billion worth of dollar debt to reduce its exposure to currency volatility. It would adopt various measures in the short run to further optimize debt structure.

The company's dollar debt ratio is now just over 70 percent, down from 80 percent at the end of September last year, and the ratio would continue to fall, according to the board secretary Wang Jian."

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Re: PRC Economy - New Reflections : April 20 2015

Postby panduranghari » 06 Jan 2017 14:49

CNH- offshore yuan
CNY - onshore Yuan

Image

Image

Image

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Re: PRC Economy - New Reflections : April 20 2015

Postby kiranA » 08 Jan 2017 00:00

A_Gupta wrote:"Chinese companies sold a total of $60.3 billion worth of dollar-denominated bonds in 2015, more than six times the 2010 figure, Thomson Reuters data show."

http://www.reuters.com/article/us-china ... V820160108

With the yuan weakening, companies are scrambling to repay these debts, leading them to purchase dollars and reinforcing the weakening of the yuan; setting up a bit of a positive feedback loop.

e.g., "China Eastern Airlines (600115.SS)(0670.HK) said on Monday it had recently repaid $1 billion worth of dollar debt to reduce its exposure to currency volatility. It would adopt various measures in the short run to further optimize debt structure.

The company's dollar debt ratio is now just over 70 percent, down from 80 percent at the end of September last year, and the ratio would continue to fall, according to the board secretary Wang Jian."


China total debt is $28 trillion. External debt is a piddly $2 trillion including offshore debt. And note chinese corporates invest abroad too...so its not as id the entire debt is used by china economy. There is NO cause for concern here.

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Re: PRC Economy - New Reflections : April 20 2015

Postby A_Gupta » 08 Jan 2017 12:45

No cause of concern for us; in reality not even for China, economically speaking.

But the masters of China cannot afford it to be seen that the market can thwart their will. Once the market does it, the people will follow.

The reality is that the masters of China are worried about dollar outflows that weaken the yuan.

I'm not concerned either, just posting news-items here.

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Re: PRC Economy - New Reflections : April 20 2015

Postby A_Gupta » 08 Jan 2017 12:49

Bloomberg reports:
https://www.bloomberg.com/news/articles ... nt-support
China’s foreign currency holdings remained above $3 trillion in December even as the yuan capped its steepest annual decline in more than two decades.

Reserves fell $41.08 billion to $3.01 trillion {in December}, the People’s Bank of China said in a statement Saturday. That matched a $3.01 trillion estimate in a Bloomberg survey of economists.

China may take measures to keep its foreign-currency stockpile from slipping too far below the key $3 trillion mark to avoid hurting investor confidence and spurring further declines in the yuan, according to economists at major banks. Policy makers have recently rolled out extra requirements for citizens converting yuan into other currencies after the annual $50,000 quota for individuals reset Jan. 1.

“China’s government is well positioned to control outflows more effectively if it wants to, though it may not want to be seen as reversing China’s ‘opening’ strategy,” Wang Tao, head of China economic research at UBS Group AG in Hong Kong, wrote in a recent note. “In the long run, it may not have much choice if FX reserves fall more sharply on the back of intensifying capital outflow pressures.”


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Re: PRC Economy - New Reflections : April 20 2015

Postby panduranghari » 09 Jan 2017 19:21

kiranA wrote:There is NO cause for concern here.


2nd biggest global economy tanking is of concern to everyone. Including India.

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Re: PRC Economy - New Reflections : April 20 2015

Postby A_Gupta » 09 Jan 2017 19:45

China won't tank, just it may become more difficult for its economy to obey the dictates of its Central Committee.

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Re: PRC Economy - New Reflections : April 20 2015

Postby panduranghari » 09 Jan 2017 22:01

Either Chinese Yuan devalues from here on by atleast 50% or they allow the unproductive parts of their economy go bust. IMO the politbureau wont allow bust, so they will devalue. This means the nominal GDP will rise but at the expense of inflation which will kick start a new bull market in commodities. Rising USD will exacerbate this problem. All this IMO

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Re: PRC Economy - New Reflections : April 20 2015

Postby Austin » 09 Jan 2017 23:51

If Chinese devaluates yuan then it would lead to competitive devaluation by other exporting countries including India and Trump will shout murder for making Renminbi weaker versus dollah

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Re: PRC Economy - New Reflections : April 20 2015

Postby Austin » 11 Jan 2017 12:22

How debt differs in China, the US and Japan

http://www.shanghaidaily.com/opinion/fo ... aily.shtml
Unlike advanced economies, China remains better positioned to overcome its debt challenges. In recent months, China has managed to stabilize growth. Nevertheless, stabilization has required capital controls, continued lending and repeated interventions. Some observers have concluded that China has opted for a path that proved so costly to Japan in the 1990s and the US in 2007. Yet, realities are a bit more complex.

Certainly, Chinese credit surge has been extraordinarily rapid in historical terms. In 1994, Japan’s plunge was preceded by decades of lending. In 2007, the US recession was fueled by a massive debt pile that had accrued in three decades. In China, debt involves local government debt, which accumulated after the 2009 stimulus package.

During the Great Recession, China’s huge stimulus boosted confidence, supported the infrastructure drive, and prevented a global depression. But excessive liquidity led to speculation in equity and property markets.

As lending continues to boost state-owned enterprises (SOEs), China’s private debt to gross domestic product (GDP) ratio surged to 205 percent in 2015, which exceeded the ratio in the US (166 percent) and came close to Japan (214 percent). These figures should be understood in the context, however. Since China’s government debt is low (16 percent), its total debt was less than that in Japan (281 percent) and the US (247 percent).

The most far-reaching differences, however, involve different levels of economic development.

Japan and the US are advanced economies, which enjoy relatively high living standards, but suffer from low growth and secular stagnation. China is an emerging economy and its growth rate remains over 3 times faster than that of the US and its growth potential remains substantial in the next 5-15 years, given peaceful regional conditions.

Domestic savings rate is vital cushion in times of deleveraging. In the past four decades, Japan’s savings rate has plunged dramatically (from 40 percent in 1970s to 18 percent today).

Recently, it has enjoyed trade surplus, but only after substantial depreciation of the yen. In the US, domestic savings rate is low (17 percent) and the country has run trade deficits for 40 years. In China, the reverse prevails. Until recently, savings rate has been relatively high (close to 50 percent), and trade balance remains on the surplus.

Total internal debt must also be seen in the light of external debt (foreign debt), which is the total debt a country owes to foreign creditors. In emerging markets, high external debt has typically triggered major crises. Yet, China has little external debt (8 percent to GDP), unlike the US (100 percent) or Japan (171 percent). Unlike major advanced economies and other large emerging economies, China is also seeking to reduce its debt pile, by converting short-term bank debt into long-term bonds and redirecting credit to the private sector and households.

Nevertheless, China can no longer rely on credit-fueled growth. China’s current credit target (13 percent) remains twice the growth rate (about 6.7 percent). As long as the gap between credit-taking and growth rate is substantial, it will continue to penalize the quality of growth.

Dr Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see

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Re: PRC Economy - New Reflections : April 20 2015

Postby pankajs » 11 Jan 2017 12:52

^
There is one amazing mind fu(k employed in the article that makes it totally suspect. Perhaps it is aimed at pleasing a section of the Chinese population.

The chappie compares todays China to todays Japan! If the guy wanted to do a real comparison he would have compared todays China to Japan at its peak.

A couple of example should suffice.
1. Should have compared current Chinese debt to the pre-crisis Japanese debt i.e Total, Gov and private and then drawn conclusion.
2. Should have compared current Chinese saving rate to the pre-crisis Japanese savings rate.
3. Should have compared current Chinese demographics profile with Japan's pre-crisis demographics profile and then informed us of the current projected trajectory of the Chinese demographics compared to the Japanese demographics trajectory post-crisis. Afterall, contrary to what mao stated, growth does not flow from the barrel of gun hanji. Bhell ... It can but that pharmula has already hit a wall.

Added later: This is not to say that the Japanese are not in a bad place BUT the Chinese, with the emphasis on social stability, are in an equally bad place. The Americans are relatively better because of its demographics and social stability in spite of all the churn happening in the US at the present.

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Re: PRC Economy - New Reflections : April 20 2015

Postby chola » 11 Jan 2017 13:25

pankajs wrote:^
There is one amazing mind fu(k employed in the article that makes it totally suspect. Perhaps it is aimed at pleasing a section of the Chinese population.

The chappie compares todays China to todays Japan! If the guy wanted to do a real comparison he would have compared todays China to Japan at its peak.

A couple of example should suffice.
1. Should have compared current Chinese debt to the pre-crisis Japanese debt i.e Total, Gov and private and then drawn conclusion.
2. Should have compared current Chinese saving rate to the pre-crisis Japanese savings rate.
3. Should have compared current Chinese demographics profile with Japan's pre-crisis demographics profile and then informed us of the current projected trajectory of the Chinese demographics compared to the Japanese demographics trajectory post-crisis. Afterall, contrary to what mao stated, growth does not flow from the barrel of gun hanji.



Comparing China against Japan at any point in the past 120 years is the same. Japan had been first world since the 1890's and included a nice beating of the White Russians (in both sense of the word) in 1905 when the rest of the non-gora world remained in imperial chains. China was and still is a third world shithole to this day, albeit with a bigger forex pile than the rest of the other shitholes.

Steinbock is right, the PRC is an emerging economy owing debt to itself with very little entitlements. It can, and I suspect it will, grow out of whenever debt that it owes to itself anyways. The PRC was in much worse shape financially in 1990s when all of its major banks were insolvent and the SOEs began massive layoffs. These would have sank a developed country like Japan. China is not a normal economy but a hybrid with enough capitalism to vault past other third world shitholes but not enough to close the gap with Japan or the West and state controlled enough that it doesn't follow the boom and bust cycles of an advanced capitalist economy either.

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Re: PRC Economy - New Reflections : April 20 2015

Postby pankajs » 11 Jan 2017 13:33

^
That is why the demographics pt #3, not *directly* referenced by the chappie, is the key to *growing out*. Without the demographics tailwind no one can grow out of debt. In 1990 PRC had that tailwind and going into 2020 demographics are the headwinds now.

Perhaps you did not see this.
pankajs wrote:Added later: This is not to say that the Japanese are not in a bad place BUT the Chinese, with the emphasis on social stability, are in an equally bad place. The Americans are relatively better because of its demographics and social stability in spite of all the churn happening in the US at the present.
Last edited by pankajs on 11 Jan 2017 13:38, edited 1 time in total.

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Re: PRC Economy - New Reflections : April 20 2015

Postby amit » 11 Jan 2017 13:38

Maybe a bit OT for this thread. But one needs to keep in mind that yuan devaluation especially vis a vis the dollar makes it that much harder for the Chinese to fund political projects such as One Belt, One Road and CPEC. It jacks up costs since all of this will necessarily be dollar denominated. Interesting times ahead.

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Re: PRC Economy - New Reflections : April 20 2015

Postby amit » 11 Jan 2017 13:49

pankajs wrote:^
That is why the demographics pt #3, not *directly* referenced by the chappie, is the key to *growing out*. Without the demographics tailwind no one can grow out of debt. In 1990 PRC had that tailwind and going into 2020 demographics are the headwinds now.

Perhaps you did not see this.
pankajs wrote:Added later: This is not to say that the Japanese are not in a bad place BUT the Chinese, with the emphasis on social stability, are in an equally bad place. The Americans are relatively better because of its demographics and social stability in spite of all the churn happening in the US at the present.


With regards to China, the thing that most analysts don't take into account is the people factor. One, as you mentioned the demographic time bomb is ticking. The other is that the ordinary Chinese want to get out of the country! And what happens in such cases is that those who are successful, both academically as well as in business - the people that China needs - are the ones with the best chance of getting out. A look at places like Vancouver would give you a good context of the kind of money as well as talent drain that's happening in China. It's little wonder that the government is so worried with the Forex outflow, the people usually follow the money in moving out.

The country has gotten to the end of line of growth via splurging on infrastructure. It now needs $4 of debt to produce $1 of growth. So it has to have a new model of private sector consumption led growth - small businesses and shops selling to locals. But the question is are the Chinese producing new rich as fast as it is losing the existing rich? Discount the party princelings, I'm talking about the move from the bottom strata to middle class to the wealthy. Can it pull up the poor to middle class level for consumption led growth with a less than 7 per cent growth? According to the Chinese themselves the 7 per cent is a magic number because that's the level when enough jobs are produced in a year to absorb all the young people who pass out of university.

That IMO will be the key to whether China can overcome this crisis.

Point to ponder: Japan can survive with 1-2 per cent growth, can the Chinese survive with below 7 per cent growth?

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Re: PRC Economy - New Reflections : April 20 2015

Postby chola » 11 Jan 2017 14:06

pankajs wrote:^
That is why the demographics, not *directly* referenced by the chappie, is the key to *growing out*. Without the demographics tailwind no one can grow out of debt. In 1990 PRC had that tailwind and going into 2020 demographics are the headwinds now.

Perhaps you did not see this.
pankajs wrote:Added later: This is not to say that the Japanese are not in a bad place BUT the Chinese, with the emphasis on social stability, are in an equally bad place. The Americans are relatively better because of its demographics and social stability in spite of all the churn happening in the US at the present.


To begin with, using Japan as an example of a nation in a "bad place" is rather silly since it is a developed nation with a massively wealthy population. Zimbabwe is in a bad place. Japan is not.

And Japan's greatest threat to the preponderance of western power was in the 1980s when its population was already in decline.

At any rate the benefits of demographics doesn't just mean age and birthrate though that helps (if you have adequate land and jobs.) The low development of China's population, per capita income of $8k vs Japan's $45k, means there are lots of room for growth even if the population decrease.

A declining population is only an issue for first world nations where per capita income is maxed at the current state of the world's economy and can grow mainly through population growth. But new innovations can create new for the first world regardless of population growth. Impactful, groundbreaking technology is rare in the first since everyone already has shitloads of stuff.

For third world shitholes like China and Bharat, just catching up to a fraction of the West/Japan's technical level creates wealth since people do not have a lot of stuff. Emerging nations can grow regardless of population growth or innovations. They just need to move toward to the current state in the first world.

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Re: PRC Economy - New Reflections : April 20 2015

Postby amit » 11 Jan 2017 15:10

chola wrote:They just need to move toward to the current state in the first world.


It would be interesting if you could explain how exactly they are going to make the move?

chola wrote:At any rate the benefits of demographics doesn't just mean age and birthrate though that helps (if you have adequate land and jobs.) The low development of China's population, per capita income of $8k vs Japan's $45k, means there are lots of room for growth even if the population decrease.


It's interesting that you seemed to have discounted the 800 pound gorilla in the room. Lower population growth means an aging population, which in turn means that the burden of supporting an increasingly aging society, filled with people who no longer contribute productively to the economy - either through pension funds or in the case of Asian countries like China and Bharat through the family network (think aging fathers, mothers, aunts and uncles) - falls on a smaller working population.

So this smaller working population needs to not only create enough value to support the entire population but at the same time innovate itself to glory to create wealth in order to catch up with the West and Japan. Good luck with that!

There's a saying in developmental economics. It's bad news for growth when a country's population ages (good example Japan) but it's worst news when a population becomes old before it becomes rich (in per capita terms) - that is rich enough to support the entire population and keep a stable standard of living with social security and healthcare for all even in an environment of flat growth. The populations of the West and Japan became rich before became old.

All projections indicate that, thanks to the one-child policy (repealed too late IMO), China will become old before it becomes rich ($45K plus per capita). It's close race for India despite a better demographic situation because of so many wasted decades.

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Re: PRC Economy - New Reflections : April 20 2015

Postby pankajs » 11 Jan 2017 15:13

chola wrote:To begin with, using Japan as an example of a nation in a "bad place" is rather silly since it is a developed nation with a massively wealthy population. Zimbabwe is in a bad place. Japan is not.

And Japan's greatest threat to the preponderance of western power was in the 1980s when its population was already in decline.

At any rate the benefits of demographics doesn't just mean age and birthrate though that helps (if you have adequate land and jobs.) The low development of China's population, per capita income of $8k vs Japan's $45k, means there are lots of room for growth even if the population decrease.

A declining population is only an issue for first world nations where per capita income is maxed at the current state of the world's economy and can grow mainly through population growth. But new innovations can create new for the first world regardless of population growth. Impactful, groundbreaking technology is rare in the first since everyone already has shitloads of stuff.

For third world shitholes like China and Bharat, just catching up to a fraction of the West/Japan's technical level creates wealth since people do not have a lot of stuff. Emerging nations can grow regardless of population growth or innovations. They just need to move toward to the current state in the first world.

Demographic tailwind / headwind mean just that. It is rather silly to attribute productivity gains to demographics.

It remains to be seen what further productivity gains could accrue to China to blunt the demographics headwind. Meanwhile there is the so called "Middle income trap" that has to be reckoned with too. At 8k they are already hitting the bottom of the range of 10K to 12K. (Ref: https://en.wikipedia.org/wiki/Middle_income_trap)

While debt has piled up, debt fueled growth being highly uneconomical and an approaching demographic storm only thing that can save China is a massive productivity gain.

Time will tell but my bet is that China will be hitting an economic wall soon i.e within 5-10 years.

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Re: PRC Economy - New Reflections : April 20 2015

Postby amit » 11 Jan 2017 16:02

With respect to China's aging population and rising dependency ratio, two charts that say a lot:

Exhibit 1:
Image

Note that a higher depency of children is actually a good thing as this group will enter the workforce and costs on medical care is less. The elder group, on the other hand has left the workforce for good and have spiralling medical care bills which someone will have to pay.

Exhibit 2:
Image

I'm not too sure if productivity gains can make up for the demographic shortfall. If anything things are getting worse. Exhibit 2 gives a more sacrier picture in the 2030 time frame - 13 years from now: 240 million 65+ and just 75 million in the 20-24 age group.

Image

Bloomberg has this to say:

Labor productivity growth is the slowest since 1999, when factory orders evaporated in the aftermath of the Asian financial crisis and state-owned enterprises cut millions of jobs.


China kicked off a big surge in efficiency in the early 2000s after entering the World Trade Organization, implementing aggressive reforms to streamline state corporations and allowing more of a private real estate market. But even after those gains it still lags far behind more productive economies in Europe, Japan and the U.S.


The productivity data should be read with the demographic data to get a better picture.

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Re: PRC Economy - New Reflections : April 20 2015

Postby chola » 11 Jan 2017 16:35

pankajs wrote:
chola wrote:To begin with, using Japan as an example of a nation in a "bad place" is rather silly since it is a developed nation with a massively wealthy population. Zimbabwe is in a bad place. Japan is not.

And Japan's greatest threat to the preponderance of western power was in the 1980s when its population was already in decline.

At any rate the benefits of demographics doesn't just mean age and birthrate though that helps (if you have adequate land and jobs.) The low development of China's population, per capita income of $8k vs Japan's $45k, means there are lots of room for growth even if the population decrease.

A declining population is only an issue for first world nations where per capita income is maxed at the current state of the world's economy and can grow mainly through population growth. But new innovations can create new for the first world regardless of population growth. Impactful, groundbreaking technology is rare in the first since everyone already has shitloads of stuff.

For third world shitholes like China and Bharat, just catching up to a fraction of the West/Japan's technical level creates wealth since people do not have a lot of stuff. Emerging nations can grow regardless of population growth or innovations. They just need to move toward to the current state in the first world.

Demographic tailwind / headwind mean just that. It is rather silly to attribute productivity gains to demographics.

It remains to be seen what further productivity gains could accrue to China to blunt the demographics headwind. Meanwhile there is the so called "Middle income trap" that has to be reckoned with too. At 8k they are already hitting the bottom of the range of 10K to 12K. (Ref: https://en.wikipedia.org/wiki/Middle_income_trap)

While debt has piled up, debt fueled growth being highly uneconomical and an approaching demographic storm only thing that can save China is a massive productivity gain.

Time will tell but my bet is that China will be hitting an economic wall soon i.e within 5-10 years.


No, what I am saying is the demographics head/tailwind matters less to emerging 3rd world shitholes like China than developed nations like Japan which is what Steinbock was arguing.

Demographics include everything about a population, btw, including wealth, income level, employment, religion, etc. A population at lower development level can grow an economy without innovation, it just needs implement what was developed elsewhere. Unless China has up yo Japan, its growth potential is greater regardless of demographics.

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Re: PRC Economy - New Reflections : April 20 2015

Postby TKiran » 11 Jan 2017 18:03

My experiences with China has been mostly anecdotal and when I search for data, mostly not available and I don't know Mandarin.

All I want to say is that in China, most of the people are very healthy, even in places like Shanghai, you can see elderly above 65year people traveling in metro without any assistance and their food is really very fresh, hot and affordable and healthy. I didn't find any private hospital in and around 10 to 15 km radius where I was staying. When I enquired my friends, almost all of them tell about the government hospitals only, they say that private practitioners are there, but they never visit those hospitals, what I basically want to say is that, as far as medical care is concerned, it is free for them. (Just like in '80s India, where almost everyone used to go to government hospital). When compared to India and any other Western countries for that matter, Chinese population is very healthy, and health care is least expensive.

Even when their population grows older, health care costs could be negligible. Emotional costs may be there, but they have preserved their marriage culture and respect for elderly etc., I would say better than us.

So my inference based on my limited experience is that, elderly would not be a burden for Chinese society in the years to come, even if the growth rates come down of their economy.

Even in case of Japan also, elderly may not be burden some, only that not sufficient number of youngsters are not there for such a gigantic economy.

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Re: PRC Economy - New Reflections : April 20 2015

Postby panduranghari » 11 Jan 2017 18:55

TKiran wrote:My experiences with China has been mostly anecdotal and when I search for data, mostly not available and I don't know Mandarin.

Even when their population grows older, health care costs could be negligible. Emotional costs may be there, but they have preserved their marriage culture and respect for elderly etc., I would say better than us.

So my inference based on my limited experience is that, elderly would not be a burden for Chinese society in the years to come, even if the growth rates come down of their economy.


viewtopic.php?f=1&t=6551&start=560#p2098494

The rural elderly have higher rates of physical disabilities than urbanites. Many have difficulty performing basic tasks such as dressing, eating, and bathing. They’re also increasingly afflicted by chronic ailments such as hypertension, heart disease, respiratory problems, and diabetes, in part because of high rates of smoking and drinking, along with, crucially, inadequate health care. Unlike people in much of the rest of the world, China’s citizens spend less on their health as they grow older, not more, says Albert Park, an economist at the Hong Kong University of Science and Technology. “So even though older people are getting less healthy in rural China, they are getting less health care,” Park says.

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Re: PRC Economy - New Reflections : April 20 2015

Postby tandav » 11 Jan 2017 22:35

I concur with TKiran. In my opinion Chinese/East Asian people as a whole also have better dietary habits (more veggies and less carbs, eat last meal by 7pm) than Indian people at all ages (who eat a lot more white rice, heavy creamy fried foods and eat very late and become fat as they age). Chinese people also maintain physical fitness by sports activities and this is something they do well into old age by participation in community activities like Tai Chi, Kung Fu and traditional dances where people come together in parks and dance together or practice martial styles.

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Re: PRC Economy - New Reflections : April 20 2015

Postby Austin » 14 Jan 2017 18:36

https://twitter.com/JamesGRickards/stat ... 0958430208

Sir how will they be broke when they have 3 trillion $ in reserves?


Jim Rickards
‏@JamesGRickards

.@hanigarg @siasees @Goldbroker_com $1 trillion needed for bank bail-out, another $1 T is illiquid. That leaves $1 T for FX. Losing $80b/mo.


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