PRC Economy - New Reflections : Dec 15 2011

[Liu]

do you know Engel's Coefficient?

it proves that the less one family earn, the more amount of its total income the food component take up .


it was just in the past decade that the Engel's Coefficient of CHinese families has gone down considerable,due to the increasing income.

to me, the food and other daily life expenditure (electricity,water,gas,Property management fee,car maintaince,mobilephone) take up about 20-25% of my total income.

the biggest burden is to pay off mortgage loan. it takes up of 40% of the total income.

In India (do not know about china), the definitian of "daily essentials" has been even expanding. Now it includes cars, fuel, branded clothing, holidays and banded food, AC etc. I feel Indians today are saving less and less. Even people with business and over 100K dollar income feel the pinch as the presure to purchase luxury goods is ever increasing.

well,according to engel's conefficient, "daily essentials" usually means food expenditure.

to most Chinese,"daily essentials" usually means 4 kinds of expenditure( food,clothes,accomodation and communication).

Gas,furniture,electricity and household appliances such as TVsets,AC,washing machine ,PC and so on are usually included in "accomodation",as well as houses.

oil,cars, telephone and other expenditure on road,railways,subways and expressways are usually included "communication".


BTW, in CHina, "sweatshops" usually have to provide workers free food and accommodation.
SO,most Chinese peasant workers working in "sweatshop" co called can save most of their salary (usually 2000_5000RMB/month,I think)

So, If the husband and wife of a typical Chinese rural family work in "sweatshops" so called,they can easily save 50-100KRMB(8-18KUSD) every year now. they usually spend those money building new houses(usually 2-4 floored) in their homevillages ,because almost all rural Chinese families has their own piece of land in their homevillage.

[chola]

In India (do not know about china), the definitian of "daily essentials" has been even expanding. Now it includes cars, fuel, branded clothing, holidays and banded food, AC etc. I feel Indians today are saving less and less. Even people with business and over 100K dollar income feel the pinch as the presure to purchase luxury goods is ever increasing.

Indian saving rates have been plunging since 2010 in lockstep with the rupee sh1tting the bed. Everything comes down to energy and food both of which required imports (oil for the former and fertilizer for the latter.) You can't save when you lose 1/3 the value of your currency.

Luxury sales in India is pathetically small compared to the rest of world, even compared to the rest of Asia. And car sales not only didn't grow but had actually contracted 10% so the pressure to buy luxury item is not creating any kind of demand.

The problem is the drop in the worth of the rupee and, even more important, the inability to use that drop in the rupee to create jobs (such as carving out a larger segment of the global supply chain with our wage advantage.)

[Prem]

China’s debt-fuelled boom is in danger of turning to bust
By Ruchir Sharma
http://www.ft.com/cms/s/0/cfcb0568-8749 ... z2sqz44xJL

Forget Argentina. The big story of 2014 in the emerging world is the black cloud of debt hanging over China.Debate rages over how this tale will end. Most analysts believe that the Chinese economy will once again expand by more than 7 per cent this year, despite ballooning private sector debts. But the pessimistic minority has history on its side. Only five developing countries have had a credit boom nearly as big as China’s. All of them went on to suffer a credit crisis and a major economic slowdown.
High quality global journalism requires investment.hese are powerful precedents. Recent studies have isolated the most reliable signal of a looming financial crisis and it is the “credit gap”, or the increase in private sector credit as a proportion of economic output over the most recent five-year period. In China, that gap has risen since 2008 by a stunning 71 percentage points, taking total debt to about 230 per cent of gross domestic product.
A credit boom of this scale is not likely to end well. Looking back over the past 50 years and focusing on the most extreme credit booms – the top 0.5 per cent – turns up 33 cases, with a minimum credit gap of 42 percentage points.
Of these nations, 22 suffered a credit crisis in the subsequent five years and all suffered an economic slowdown. On average, the annual economic growth rate fell from 5.2 per cent to 1.8 per cent. Not one country got away without facing either a crisis or a major economic slowdown. Thailand, Malaysia, Chile, Zimbabwe and Latvia have had a gap higher than 60 points. All those binges ended in a severe credit crisis.Although there have been no exceptions to this rule, most economists still believe China will prove exceptional. For 30 years it has defied sceptics, maintaining a growth rate that has averaged 10 per cent, and has not fallen below 7 per cent since 1990.China has hit its ambitious growth targets so consistently that many analysts can no longer imagine a miss. The consensus forecast is for growth of 7.5 per cent this year, right on target. Growth is widely expected to continue at an average rate of 6-7 per cent for the next five years. It is hard to find a prominent economist who forecasts a significant slowdown, much less a credit crisis.
The unravelling of the 33 most extreme credit binges before China’s suggests that it faces a serious risk of at least a major slowdown
History foretells a different story. In the 33 cases in which countries built up extreme credit gaps, the pace of GDP growth more than halved subsequently. If China follows that path, its growth rate over the next five years would average between 4 per cent and 5 per cent.The key to foretelling credit trouble is not the size but the pace of growth in debt, because during rapid credit booms more and more loans go to wasteful endeavours. That is China today. Five years ago it took just over $1 of debt to generate $1 of economic growth in China. In 2013 it took nearly $4 – and one-third of the new debt now goes to pay off old debt.Those who trust in China’s exceptionalism say it has special defences. It has a war chest of foreign exchange reserves and a current account surplus, reducing its dependence on foreign capital flows. Its banks are supported by large domestic savings, and enjoy low loan-to-deposit ratios. History, however, shows that although these factors can help ward off some kinds of trouble – a currency or balance-of-payments crisis – they offer no guarantee against a domestic credit crisis.
These defences have failed before. Taiwan suffered a banking crisis in 1995, despite having foreign exchange reserves that totalled 45 per cent of GDP, a slightly higher level than China has today. Taiwan’s banks also enjoyed low loan-to-deposit ratios, but that did not avert a credit crunch. Banking crises also hit Japan in the 1970s and Malaysia in the 1990s, even though these countries had savings rates of about 40 per cent of GDP. Furthermore, there is no strong link between the state of the current account and the outbreak of credit crises.The unravelling of the 33 most extreme credit binges before China’s suggests that it faces a serious risk of at least a major slowdown. Such an outcome may yet be avoided. But it is a long shot, even for an exceptional country such as China.

[Liu]

In India (do not know about china), the definitian of "daily essentials" has been even expanding. Now it includes cars, fuel, branded clothing, holidays and banded food, AC etc. I feel Indians today are saving less and less. Even people with business and over 100K dollar income feel the pinch as the presure to purchase luxury goods is ever increasing.

Indian saving rates have been plunging since 2010 in lockstep with the rupee sh1tting the bed. Everything comes down to energy and food both of which required imports (oil for the former and fertilizer for the latter.) You can't save when you lose 1/3 the value of your currency.

Luxury sales in India is pathetically small compared to the rest of world, even compared to the rest of Asia. And car sales not only didn't grow but had actually contracted 10% so the pressure to buy luxury item is not creating any kind of demand.

The problem is the drop in the worth of the rupee and, even more important, the inability to use that drop in the rupee to create jobs (such as carving out a larger segment of the global supply chain with our wage advantage.)

the inflation in India now is imported one,driven by more and more expensive oil ,energy and imported industry products.

In CHina, case is quite different. China now is exporting inflation.As a whole, the real purchase power of RMB is being devalued much in China,while RMB is being appreciated outside China

in the past decade, measured by exchange rate, Chinese RMB has been appreicated 30%+ ,but the price of most sections except a few industry products(auto,mobile phones.etc) in CHina has been growing much.

It means that foreigners(including indians) has to spend much more hard cash(USD) buying the same amount of "made in CHina".

[chola]

In CHina, case is quite different. China now is exporting inflation.As a whole, the real purchase power of RMB is being devalued much in China,while RMB is being appreciated outside China

in the past decade, measured by exchange rate, Chinese RMB has been appreicated 30%+ ,but the price of most sections except a few industry products(auto,mobile phones.etc) in CHina has been growing much.

It means that foreigners(including indians) has to spend much more hard cash(USD) buying the same amount of "made in CHina".

That is mostly bull, my chini friend. China has not exported much inflation because it is nothing more than a cog in the global supply chain. The moment it starts exporting higher prices, the jobs move to other nations which is how this works.

China had always exported deflation just as every other nation who went through the supply chain.

I do agree that the PRC is becoming inflationary which is why I said one of the biggest story of the past fives years is the movement of jobs out of China. Unless the chinis change, like the Japanese, Taiwanese, and Koreans before them, they'll find themselves without a working economic model because the current one is heading offshore.

[chola]

This is already happening.

http://businesstoday.intoday.in/story/i ... 03040.html

Made In China
As China begins to lose its competitive advantage, manufacturing starts moving to India.

"Chinese costs are going up. This is a great time to move production from China to India," says Adi Godrej, Chairman of the Godrej Group, which has shifted air conditioner and washing machine production to India. He thinks the trend will continue for 20 years. "The earlier India leverages this trend, the better off we will be. If we don't leverage it soon, other countries will do it better."

Other countries, in fact, are already benefiting as China begins to lose the competitive advantage that lured companies from across the world. An estimated 100 million jobs will move out of China over the next few years in labour-intensive sectors, says Ajay Shankar, Member Secretary of India's National Manufacturing Competitiveness Council.

[Suraj]

The idea of China exporting inflation sounds strange. The fundamental basis of Chinese competitiveness is their ability to export deflation by producing things cheaper and in bulk, and simultaneously keep inflationary pressures from the current account surplus at home in check, by holding down wage growth through official actions and putting those surpluses into US tbills.

Chinese exports gave gone up the value scale progressively, but that's not the same as exporting inflation. It's hard to do that for any length of time without destroying your own competitiveness because business will move elsewhere. Most of the gains in the RMB have gone into squeezing the margins of Chinese exporters further, and pushing them into higher value exports, while squeezing them out of the lower end progressively.

[panduranghari]

^^^ Liquidity by in itself does not create physical or financial assets, loans do. You are free to drink that cool aid. We will see how this loan growth stands up in 5 years. IMO, GDP growth will slow down considerably because it is unsustainable medium to long term. Otherwise every country will be able to create infinite physical assets just by issuing loans. Nazi german economy did that in 30's and then japan tried that in 80s.

guy,
I repeat again:

1. "loans is one of main ways to increase liquidity(money-printing)"

2. Pyshical asset can not be created not by money-printing,but by industry activity

3. it is important to make liquidity(money-printing) match the sale of industry activity.

Zimbabwe had its liquidty much more than the scale of its industry activity, so inflation happened and its currency becomes useless toilet papers .

China now print global most money,but it match its global largest industry activity, so no inflation happens in China,but RMB is still under appreciation..

that is all.

The point 3 highlighted is applicable only if you have consumers in number. Chinese economy depends on west to buy its goods.

In point 2 you should have removed one not- I think.

[panduranghari]

CHina can provide almost all Nigirian daily demand,from food,clothes,houses,autos and other items at lower price than USA does..

that means,ecnomially, Nigerica needs CHina more than USA

China does not maintain full convertibility of its money. if it did it would react to the market much the way the yen or the dollar does.

What China is trying do, with some success is by pass market valuations and subsequent violatility by reaching nation to nation currency agreements. I dunno but my suspicion is that Nigeria may be one of them.

China is very careful how it lets its currency exchange to the dollar.

Middle East is out of bounds for Chinese and so is Russia. You are left with Nigeria and Venezuela. I believe that's the reason Nigeria is choosing yuan for short term. What percentage Euros are Nigerians holding? Surely more than 7%?

Poster Liu is making too many assumptions.

[Liu]

In CHina, case is quite different. China now is exporting inflation.As a whole, the real purchase power of RMB is being devalued much in China,while RMB is being appreciated outside China

in the past decade, measured by exchange rate, Chinese RMB has been appreicated 30%+ ,but the price of most sections except a few industry products(auto,mobile phones.etc) in CHina has been growing much.

It means that foreigners(including indians) has to spend much more hard cash(USD) buying the same amount of "made in CHina".

That is mostly bull, my chini friend. China has not exported much inflation because it is nothing more than a cog in the global supply chain. The moment it starts exporting higher prices, the jobs move to other nations which is how this works.

China had always exported deflation just as every other nation who went through the supply chain.

I do agree that the PRC is becoming inflationary which is why I said one of the biggest story of the past fives years is the movement of jobs out of China. Unless the chinis change, like the Japanese, Taiwanese, and Koreans before them, they'll find themselves without a working economic model because the current one is heading offshore.

1.jobs in China can hardly moved out of CHina and world have to accept that industry products made in CHina are getting more and more expensive,even when labour cost in CHina is growing so rapidly....
reason is quite simple:
no other countries can provide cheap lands,cheap electricity ,high standard infrastructrures ,full industry chains and illterate and discipline labour at the same time as CHina does.

BTW, CHina's labour cost is 3-4 times of india's and Africa's already.

[Liu]

The idea of China exporting inflation sounds strange. The fundamental basis of Chinese competitiveness is their ability to export deflation by producing things cheaper and in bulk, and simultaneously keep inflationary pressures from the current account surplus at home in check, by holding down wage growth through official actions and putting those surpluses into US tbills.

Chinese exports gave gone up the value scale progressively, but that's not the same as exporting inflation. It's hard to do that for any length of time without destroying your own competitiveness because business will move elsewhere. Most of the gains in the RMB have gone into squeezing the margins of Chinese exporters further, and pushing them into higher value exports, while squeezing them out of the lower end progressively.

China model is different from Japan,Skroea and Taiwan.

China has low land cost,decent infrastructure,full industry chains and illterate discipline labour and huge domestic market at the same time.CHina's model can not be copies as Japan's one and S.kroea's one were.

[Liu]

guy,
I repeat again:

1. "loans is one of main ways to increase liquidity(money-printing)"

2. Pyshical asset can not be created not by money-printing,but by industry activity

3. it is important to make liquidity(money-printing) match the sale of industry activity.

Zimbabwe had its liquidty much more than the scale of its industry activity, so inflation happened and its currency becomes useless toilet papers .

China now print global most money,but it match its global largest industry activity, so no inflation happens in China,but RMB is still under appreciation..

that is all.

The point 3 highlighted is applicable only if you have consumers in number. Chinese economy depends on west to buy its goods.

In point 2 you should have removed one not- I think.

well, CHina consumes more auto and almost every kinds of industry products from ships to chips than USA .

Chinese economy depends seriously on raw resources from Africa,austrualia and South America,instead of west .

Case is that: global trade is a triangle trade.

China exports industry products to west and earned hard cash(mainly USD),

then China imports raw resources from developing countries and australia with those hard cash.

With hard cash earned with exported raw resource( mainly to CHina),Developing countries imported oil and some industry products( which are replaced by "made in China" day by day) from MD and west countries.

[Suraj]

China model is different from Japan,Skroea and Taiwan.

China has low land cost,decent infrastructure,full industry chains and illterate discipline labour and huge domestic market at the same time.CHina's model can not be copies as Japan's one and S.kroea's one were.

"This time it is different" is what they all say. It's a fundamental human fallacy, that focusses upon the advantages over someone you're emulating, but discount the unique costs you have. Ultimately China may have more land and more people to throw at the export engine, but they also correspondingly have more mouths to feed and far more to do to develop, i.e. while Korea and Japan could only be competitive for a few years, they only needed that much time to get sufficiently wealthy. China will take longer, and in the process face more trouble dealing with the get-rich-before-you-get-too-old conundrum.

[sivab]

BBC video on Chinese growth miracle and credit bubble

How China fooled the world
http://www.youtube.com/watch?v=YW3h4wv8_ko#t=2073

[sha]

BBC video on Chinese growth miracle and credit bubble

How China fooled the world
http://www.youtube.com/watch?v=YW3h4wv8_ko#t=2073

Great video.

[Liu]

as for Chinese real life quality...

here are some interesting data,which shows how exchange rate distort the truth.

1. according to GDP report from UN or IMF,China's per capital GDP is about 7000 USD ,about only 1/2 of global average one.

2. according to sales from enterprises(including MNC),China has 20% of global population,but bought 30% of autos,food,fruits,vegetables electricity ,clothes,TV sets and other household appliances,,50%+ of steel,concrete,houses last year.

3.so according to GDP , ordinay Chinese (20% of global population) earn only 1/2 of ordinary non-CHinese outside China ( 80% of gobal population) and live a poorer life .

but according to sales from enterprises(including MNC), last year ordinay Chinese bought more houses,food,electricity,fruits,vegetables,autos,houses,clothes,TVsets and other household appliances than ordinary non-CHinese outside China ( 80% of gobal population) and live a richer life.

4. Thus, a paradox between GDP and sales is there.....which is truth and more reliable, GDP or sale?

[subhamoy.das]

This is where the GDP PPP model or the Big Mac Index comes in handy. In PPP terms Chinese Per capita could be USD 15,000 or more. As long as the consumed items have very less import content , the PPP figure would be the better measure of consumption power. On top of that the Chinese have over supply of these items and over supply of credit to give a force multiplier effect to consumption.

[Liu]

BBC video on Chinese growth miracle and credit bubble

How China fooled the world
http://www.youtube.com/watch?v=YW3h4wv8_ko#t=2073

Great video.

while BBC is amazed that Wuhan city invests more on infrastructures than UK,It does not realize that UK' population is not more than one mid~sized chinese province.

[chola]

This is where the GDP PPP model or the Big Mac Index comes in handy. In PPP terms Chinese Per capita could be USD 15,000 or more. As long as the consumed items have very less import content , the PPP figure would be the better measure of consumption power. On top of that the Chinese have over supply of these items and over supply of credit to give a force multiplier effect to consumption.

GDP in general is pointless except for lun-size comparison exercises. PPP will not make it any more useful.

What is really important to know about any other economy is:

1) its ability to create credit so we can borrow from or emulate it to create wealth on our own

2) its ability to buy goods so your firms can sell into its economy.


GDP doesn't help in either case. In the end, the only things that are important is sales. Sales that you can measure and those are from the MNCs.

[chola]

I despise posting this article here following the posts of liu and chinis. But it is important. Without understanding what should be our interest in the chini economy then this thread is essentially pointless and does nothing except serve as a bait for the 3 or 4 PRC 50-centers who visit.

Ventkatesan represents the view of many of us (desis) on Wall Street. We see the goris and slanties benefit from the chini economy and become part of every boardroom discussion. India on the other hand is outside that discussion and by extension outside of the greater Asia-Pacific economy because we have no hook into China.

Japan, South Korea, Australia, Vietnam, the US, Germany and even the UK are considered places where resources could be pulled into planning for an assault on the chini market. Places in East Asia are obvious because of proximity and culture but we are behind Australia and other white nations in this regards despite our geography. India has almost no resources to put into this game.


http://economictimes.indiatimes.com/art ... 886548.cms

Winning the real race with China
By Ravi Venkatesan, TNN | 23 Feb, 2014, 08.26AM IST

China is one of the two defining relationships for India today. It is high time we managed it that way.

Our confusion about China is rooted first and foremost in geopolitics . An unresolved border issue has led to one war and periodic games of chicken. This conflict has defined how many, if not most, Indians think about China. In China however, few seem to be aware and fewer yet care.

That confusion has been compounded by China's spectacular economic rise. Many Indians think our two countries are in a race for mindshare, respect, investment, regional influence and resources. Yet once again that perception is not mirrored inside China, nor is it the perception in other parts of the world.

I would submit that we are running the wrong race. We are not just in a race against China; we are in a race with other countries to leverage China's extraordinary rise. Most other countries including the US, UK, Germany and even Russia have understood this.

Unfortunately over the last decade, by imagining that we're in a "race" with China . . . we Indians have dismissed the need to engage with the country as the economic superpower that it is. No major economy has benefited as little from the rise of China as India.

. . .

The point is simple. There are clearly areas where India and China will forever compete — for instance for regional influence, over sharing of river waters, or for access to energy and resources. However this should not result in us myopically overlooking the many areas where India must leverage China's economic success to achieve its own goals. With China co-opetition (a word derived from a combination of cooperation and competition), and not merely competition, is the name of the game as many other countries have shown. Perhaps closer trade and investment links will result in an interdependency that eases tensions in other matters. As one commentator put it, "Buy buy might become bhai bhai" (brother brother).

The other point is that whether Indians think of China as friend or foe, we need to get to know the country better. As the old adage goes, "Hold your friends close and your enemies closer"

[Liu]

This is where the GDP PPP model or the Big Mac Index comes in handy. In PPP terms Chinese Per capita could be USD 15,000 or more. As long as the consumed items have very less import content , the PPP figure would be the better measure of consumption power. On top of that the Chinese have over supply of these items and over supply of credit to give a force multiplier effect to consumption.

according to IMF and WB, China's per capita PPP is also only 8K+ USD,much less than global average one.

the only rational explaination is that either PPP or GDP underrates china' real economy scale seriously.

the following paradox also can help people understand this:

1. paradox1:why can poorer CHina afford more industry products than richer USA?
China's GDP is just 60%+ of USA's ,but Chinese bought by far more autos,houses,electricity,food,hosuehold appliances ,ores,concretes and steel than USA

2. paradox 2:is CHina more undeveloped than most Africa countries?
economics tell us that "the more developed one country is , the more shares of its GDP is service section.
however,China's offical data indicates that service section is just 40% of CHina's GDP ,which is even less than that of most African countries.

3.paradox 3: why Taiwanese real life quality is not higher than that in coastal CHina?
Taiwanese per capita GDP is 21K USD and most coastal China's per capita GDP is 10K USD .
however,after visiting Taiwan,most mainland CHinese are amazed to find Taiwanese average life quality is no higher than that in coastal China's area.

4. paradox 4: why do CHinese tourists usually feel the real life quality of turkey ,Lybia(before the revolution),Brazil ,Mexicon and Argitina is no more better than that in inland CHina's?

however, those countries all have a per capita GDP of 10K+ USD,which usually is about 2 times of CHina's.

[Theo_Fidel]

^^^

Talk about twisting oneself into twisty noodle knots.

Why not make the obvious conclusion. Life for the 200 million+/- on the coasts is quite sweet. Esp. with this inflated bubble economy. For the rest in China life is not so sweet.

BTW there is nothing to be ashamed here, this is how countries develop and grow rich. The only problem is it puts a dent in the 'we have arrived, we have arrived' narrative force fed by the party mouth pieces.

[Liu]

^^^

Talk about twisting oneself into twisty noodle knots.

Why not make the obvious conclusion. Life for the 200 million+/- on the coasts is quite sweet. Esp. with this inflated bubble economy. For the rest in China life is not so sweet.

BTW there is nothing to be ashamed here, this is how countries develop and grow rich. The only problem is it puts a dent in the 'we have arrived, we have arrived' narrative force fed by the party mouth pieces.

Instead, the party mouth pieces usually tell Chinese that Hongkongese and Taiwanese live a quite high life quality,however mainland CHinese find they are fooled by the party mouth pieces after they visiting Taiwan and Hongkong themselves...

40% of chinese live in coast China.....that is about 6oo miliion people.
in 4 tier 1 cities(beijing,shanghai,Guangzhou and Shenzhen),there are almost 60-80 million Population,as same as UK or France.
Besides,hundreds of unkonwn Chinese cities ,from coastal Yangsitiver delta to inland inner mogolia,have higher per capita GDP than the 4 tier1 cities.

as a whole, CHinese is richer than per capita GDP or PPP indicates. the sales of all kinds of autos and other industry products can prove it.

And at the same time, CHina is a unbalanced economy,while maybe 200 million CHinese live a life as rich as USA and EU,many people in lonely mountainous areas in inland CHina might live a life as poor as Nepal.
Of course, most CHinese real life quality might be between Iran and Malysia.

[Liu]

BTW, about 2 million of 21 million Taiwanese now live in mainland CHina.
why? because taiwanese now find they can find better-paid jobs in mainland CHina more easily than they do in Taiwan.

of course ,it does not mean that Mainland CHinese average salary is higher than Taiwan.

In fact, the average salary is still lower in Mainland China(usually 350-700 USD/month) in Taiwan(usually 1000-1500USD/per month).
But considerting the higher life cost and price index in Taiwan, such gap is acceptable and the the real life quality in many mainland areas is higer than Taiwan.(hundreds of unknown mainland CHinese cities had higher income than Beijing and Shanghai)


Besides, .because the salary in taiwan has been stagnant for decades and good jobs is very hard to find in Taiwan now, the starting salary for freshmen in Taiwan is only 700 USD/month(22K Taiwan dollar),which is quite close to that in Mainland CHina.however,Young freshmen in Mainland CHina usually can get rise and promotion much faster than that in Taiwan.in fact, after working for 5 years, mainland CHinese college graduates often earn more than that in Taiwan..

that is why sooo many Taiwanese young guys are eager to move into mainland for jobs.

[member_20292]

For Chola ji;

Counting ghosts
China opens the books of its big-spending local governments
http://www.economist.com/news/china/215 ... ing-ghosts

The audit showed that China’s local governments (and the investment vehicles they sponsor) owed 10.9 trillion yuan ($1.8 trillion) at the end of June. They had also guaranteed several trillion yuan of debt explicitly and another 4.3 trillion implicitly. Adding these three figures together yields a total of 17.9 trillion yuan, or about a third of China’s GDP.

Making a municipal default more manageable, and therefore thinkable, is one of the many tasks facing China’s leaders. The overhaul of China’s fiscal system will be overseen by a “leading group” on economic reform. This week President Xi Jin

But an explicit default would represent a rare gamble for China’s economic overseers. The country lacks clear legal procedures for resolving municipal insolvency, such as America’s “chapter nine” bankruptcy code. Things could get messy.

http://www.economist.com/news/china/215 ... epest-debt

Relative to the size of their economies, the poor western provinces of Yunnan, Qinghai and Gansu bear some of the heaviest burdens, along with the western municipality of Chongqing, which is renowned for its heavy public investment (see chart). The province with the biggest fiscal chasm to cross, however, is Guizhou (whose impressive Balinghe bridge is pictured above). It had liabilities in mid-2013 equivalent to over 80% of its GDP over the previous four quarters.

And, from your last few posts on the topic here:

1. Debt , especially for the US, with a large economy and a currency that is in demand in the rest of the world, does not matter too much. It will simply print more money and the show will go on. The other countries that can do this, are possibly the EU, China and Japan.
Zimbabwe cant do this

2. India has to increase its trade with the world, such that it can also print as many Rupees as it likes.

But, then, why does debt cause people in the US, EU so much worry? Why was the debt ceiling / fiscal limit, raised recently ?

[chola]

For Chola ji;

Counting ghosts
China opens the books of its big-spending local governments
http://www.economist.com/news/china/215 ... ing-ghosts

The audit showed that China’s local governments (and the investment vehicles they sponsor) owed 10.9 trillion yuan ($1.8 trillion) at the end of June. They had also guaranteed several trillion yuan of debt explicitly and another 4.3 trillion implicitly. Adding these three figures together yields a total of 17.9 trillion yuan, or about a third of China’s GDP.

Making a municipal default more manageable, and therefore thinkable, is one of the many tasks facing China’s leaders. The overhaul of China’s fiscal system will be overseen by a “leading group” on economic reform. This week President Xi Jin

But an explicit default would represent a rare gamble for China’s economic overseers. The country lacks clear legal procedures for resolving municipal insolvency, such as America’s “chapter nine” bankruptcy code. Things could get messy.

http://www.economist.com/news/china/215 ... epest-debt

Relative to the size of their economies, the poor western provinces of Yunnan, Qinghai and Gansu bear some of the heaviest burdens, along with the western municipality of Chongqing, which is renowned for its heavy public investment (see chart). The province with the biggest fiscal chasm to cross, however, is Guizhou (whose impressive Balinghe bridge is pictured above). It had liabilities in mid-2013 equivalent to over 80% of its GDP over the previous four quarters.

And, from your last few posts on the topic here:

1. Debt , especially for the US, with a large economy and a currency that is in demand in the rest of the world, does not matter too much. It will simply print more money and the show will go on. The other countries that can do this, are possibly the EU, China and Japan.
Zimbabwe cant do this

2. India has to increase its trade with the world, such that it can also print as many Rupees as it likes.

But, then, why does debt cause people in the US, EU so much worry? Why was the debt ceiling / fiscal limit, raised recently ?

Debt is always a worry because at some point it's unsupportable. The debt ceiling is a way for the US Congress to force people to worry about that point where it is unsupportable.

The EU is a different animal from the US. Its a mishmash of advanced and not so advanced states that create risks but in the end the European Bank still pretty much printed enough money to bail out Greece, Spain, Italy, Ireland and Portugal.

The US has even more leverage since it is the premier trade currency and safe harbor. It doesn't have to worry about a Germany (who is against printing money that would dilute its savings) or Greece (who needs more money printed to bail it out.) It can print as much and as prudently as it wants.

The QEs (quantitative easings) pumped trillions into the US economy -- and India's too, our FII comes from a world awashed in USDs. (We saw how just the fear of a tapering off of the QE had crushed emerging markets around the world.)

QE is money created out of thin air by the US Treasury. The kicker is this money not only did not create inflation in the US, it also GAINED in value against practically every nation outside a select few.

So do they worry? Of course, no nation worth its economic salt doesn't worry. But what is that worry? The EU, Japan and US worry about future impact on the lifestyle that they already have. They worry about the values of their homes. They worry about not being able afford health care on the scale that people elsewhere could not imagine. They worry not being able to afford militaries whose budgets are greater than the rest of the other 160 nations combined. These are first world's, fat rich man's worries.

The rest of the world worries about creating enough capital to build basic infrastructure so our people can begin the journey upwards. We cannot generate enough start up money to put our people on a reliable power grid or indoor plumbing.

In the end, what really separates the first and third worlds is the infrastructure. People are the same all over but if you have more roads, power, buildings and running water, you have a distinct advantage over people who don't. And your children will have that distinct advantage going forward.

It all comes down to the ability to create credit. While the US was printing money during QEs, the rupee dropped a third against the US dollar. That meant our energy prices went up a third. Our ability to afford material to build that all important infrastructure was cut by a third. Because oil, ore and everything else is priced in dollars.

Now think about it. Do we want to be in the position of the US who can print money or do we want to be as we are today where we (like Indonesia, Angola and Argentina) must deal with a depreciating currency?

You can say no and say the US worries about the debt and the debt ceiling. So yes, you can worry about their first world problems. But it would be like me worrying about Warren Buffet's portfolio. "No thank you, I don't want your billions in stocks. The market can crash."

I personally would want India to be able to print money like the US and build the things we need.

[member_20292]

^^^
and formula is the same as east asia's I presume?


State subsidized-manufacturing led growth?

[chola]

^^^
and formula is the same as east asia's I presume?


State subsidized-manufacturing led growth?

Yes, manufacturing-led growth from being part of the global supply chain. Unless you have plenty of raw energy or minerals like Saudi Arabia, Kuwait and South Africa (wealthy but hardly modern economies), there is no other process which had raised third world nations into the first world.

It is not East Asian, globalization is ultimately a Western process. All the MNCs involved in the process ultimately sell to Western markets or markets closely associated with them (including the Chinese market.)

Subsidies mean spending money by the government to support industries that don't give an immediate return. What good is that to a poor nation when doesn't have money to spend in the first place?

No, it is FDI led. FDI is the all important seed money you need when you are a developing nation who doesn't have money and who cannot print money without inflation.

Subsidies come only AFTER FDI had developed enough of your industries that they can bring in enough hard currency from trade. You use subsidies to support other developing industries as a bet for the future.

So the formula is FDI-led, global supply chain growth. Not subsidies, but FDI. And not East Asian but the Western global supply structure.

Though the ability of the East Asian nations to attract FDI is something to look at. Unlike the GOI, they don't put roadblocks against investment. It is insanity that a free nation like India should have a harder time attracting FDI than a commie state like China.

An old Wall Street hand (a fellow desi, a trailblazer and a mentor) once said that if the Soviet Union had accepted FDI, it would probably be around today. He basically said the West has the confidence of credit that was developed over several hundred years of trade. All these non-western nations with their new currencies -- rouble, rupee, baht, etc. -- can't attain that confidence in the few decades they need to modernize. So it was far better to use the credit from West as your seed money. And instead of borrowing and paying interest, you encourage them to give it to you in the form of investment.

Many of us can look back and say if India had accepted FDI as the East Asians we would be in their shoes today. South Korea's per capita income was lower than ours in the 1950s. Now they lap us 20 times over.

[member_20292]

^^^

In your answer you have not highlighted;

1. Western countries' opening up their markets preferentially for Japan, SoKo, Tw.
Probably once in a lifetime, post ww2 bonus.

2. The role of state help; Japanese MITI, the keiretsus. South Korean Chaebols, and family-chaebols.
The govt. of India is too busy lining its own pockets to bother to help Tata/Birla.

3. The role of the govts. of E. Asia, in creating loss making infrastructure out of thin air [ nothing to do with FDI, Cholaji] , like the Bullet trains and practically everything in China.

What can India do?- This question can be answered on many levels?

1. What can govt. of India do?
2. What can the Chaebols and professionally managed firms can do?
3. What can individual Indians do, in a personal capacity ?

1. - NaMo is coming. I hope he brings a far more proactive govt.

2. Invest abroad / export more

3. Learn the Chinese language [that's what I am doing] and create a China-India trading import-export company..?

[Liu]

^^^

In your answer you have not highlighted;

1. Western countries' opening up their markets preferentially for Japan, SoKo, Tw.
Probably once in a lifetime, post ww2 bonus.

2. The role of state help; Japanese MITI, the keiretsus. South Korean Chaebols, and family-chaebols.
The govt. of India is too busy lining its own pockets to bother to help Tata/Birla.

3. The role of the govts. of E. Asia, in creating loss making infrastructure out of thin air [ nothing to do with FDI, Cholaji] , like the Bullet trains and practically everything in China.

What can India do?- This question can be answered on many levels?

1. What can govt. of India do?
2. What can the Chaebols and professionally managed firms can do?
3. What can individual Indians do, in a personal capacity ?

1. - NaMo is coming. I hope he brings a far more proactive govt.

2. Invest abroad / export more

3. Learn the Chinese language [that's what I am doing] and create a China-India trading import-export company..?

agree.talk is always easy while work is usually hard

[subhamoy.das]

Sales or consumption must have a direct correlation with GDP per capita. Simple rule. You need to produce ( GDP ) , sell the produce and use the sell to pay for your buys (consumption). U cannot have a small GDP but a high sales or consumption figure. So either the sales figure is correct or the GDP figure is correct. If we assume the sales figure correct then there is a sizeable black GDP which is not reported. Or another explanation could be that they have a very non-inclusive distribution of GDP, where a much smaller portion hold a much higher part GDP. I mean a 300m population having 80% of the GDP will make it the size of US and close to its purchasing power.

China has simply used the beaten down east asian model of export riven GDP. But where it divulges from that of Japan or Soko is in innovation. Not a single CHinese product company - except few like Huewei - in fortune 1000. So they have simply thrived on being efficient. But u can only go so far with only efficiency. I am still waiting for CHINESE product companies who have a sizeable world market share.

[chola]

^^^

In your answer you have not highlighted;

1. Western countries' opening up their markets preferentially for Japan, SoKo, Tw.
Probably once in a lifetime, post ww2 bonus.

Japan, SoKo and Taiwan have the same American MFN status as India and nearly all of South America (Cuba being the great exception) and Africa. There was nothing especially preferential for the Far East. But unlike the Non-Alignment movement nations, they were far more likely to encourage and accept foreign investment from the West.

2. The role of state help; Japanese MITI, the keiretsus. South Korean Chaebols, and family-chaebols.
The govt. of India is too busy lining its own pockets to bother to help Tata/Birla.

Again all this came after initial infrastructure was built up and the government had funds to support homegrown "champions." No one could name one Korean company in the 1960s or even 1970s.

The seed money came from FDI.

3. The role of the govts. of E. Asia, in creating loss making infrastructure out of thin air [ nothing to do with FDI, Cholaji] , like the Bullet trains and practically everything in China.

Again, they could not build infrastructure until FDI built out their foundation. China is a prime example, it's infrastructure in 1978 was complete crap. No better than India's. Then Western, Japanese, Taiwanese and Hong Kong money came in to build their exporting infrastructure and from there the hard currency surplus took over for future infrastructure building.

Without the initial FDI, they would have nothing today.

What can India do?- This question can be answered on many levels?

1. What can govt. of India do?
2. What can the Chaebols and professionally managed firms can do?
3. What can individual Indians do, in a personal capacity ?

1. - NaMo is coming. I hope he brings a far more proactive govt.

2. Invest abroad / export more

3. Learn the Chinese language [that's what I am doing] and create a China-India trading import-export company..?

I posted these answers before:

1. open and streamline investments from manufacturers
2. open and streamline investments for infrastructure
3. open and streamline entry and exit for goods and people
4. plug into the regional economy

Learning the Chinese language would not be a bad idea. It would help with all four of the above. And read the Ravi Venkatesan's article I posted.

Economically important nations serve as resources for other economically important nations. That is the geography, culture and economic ties that allow one nation to do business with another fluidly.

The UK is a resource for the US and Europe, Germany is a resource for all other Euro nations. In East Asia, Japan, SoKorea and Taiwan are resources for China and China is a resource for Japan and ASEAN.

India? Right now, India is a resource for no one except for Bangladesh and the other pigmies in SAARC. The PRC is one major economy adjacent to India. It is the one economy we should know about. If not, then we will always be confined to South Asia.

[chola]

Sales or consumption must have a direct correlation with GDP per capita. Simple rule. You need to produce ( GDP ) , sell the produce and use the sell to pay for your buys (consumption).

U cannot have a small GDP but a high sales or consumption figure. So either the sales figure is correct or the GDP figure is correct. If we assume the sales figure correct then there is a sizeable black GDP which is not reported. Or another explanation could be that they have a very non-inclusive distribution of GDP, where a much smaller portion hold a much higher part GDP. I mean a 300m population having 80% of the GDP will make it the size of US and close to its purchasing power.

Again, GDP is irrelevant except for lun-size comparisons. Sales pay real salaries. GDP is nothing more than numbers tabulated by netas and babus who need a reason to keep being paid (from taxes levied on sales and salaries paid by GDP is completely useless and imaginary. Sales is real and comes in the form of a money changing hands and a real paycheck.

And why should we care if the chini economy is "inclusive" or not? All we should care about is its ability to buy and its ability to create credit. If they can't generate either then we should not bother with this thread.

GDP is completely useless and imaginary. Sales is real and comes in the form of money changing hands and a real paycheck.

[chola]

China has simply used the beaten down east asian model of export riven GDP. But where it divulges from that of Japan or Soko is in innovation. Not a single CHinese product company - except few like Huewei - in fortune 1000. So they have simply thrived on being efficient. But u can only go so far with only efficiency. I am still waiting for CHINESE product companies who have a sizeable world market share.

Where it diverges from Japan or SoKo (or India for that matter) is those nations are free states and China is communist. It will never be innovative as a communist nation. In fact, as a communist nation, it shouldn't even be efficient and should have collapsed the same way as the USSR.

But where it diverges from the USSR is that is hooked itself into the Western global supply chain. That is the only reason why it is even around today.

And why should we care if it is innovative or not? The PRC should only be important to us as a possible source of sales and as possible model for credit creation.

Again, the only reason for us to even have a chini economic thread is the fact that China generates sales greater than the US and is creating credit at nearly the same volume.

[subhamoy.das]

Am not sure what u are trying to get at with your single minded focus on sales. GDP is real as it measures the economic output of a market. Sales measures the economic input of the market. So sales and GDP measures two different but connected aspect of a market. If the market has fake output numbers then how is it going to pay for the real input numbers. In your model a market can print money and do no economic output and continue to consume input. If that is the case then there was no need of plants or offices to exist. All can stay at home, make monthly visit to the bank to pick up the credit and go to shop and buy the stuff? So in essence all will be in perpetual retirement mode!

[subhamoy.das]

How can a vendor ( china ) be more rich ( consume more ) than the customer ( the west )?

[member_20292]

good posts highlighting FDI, chola ji.

Now, can we actually blaze a 21st century path in which the importance of fdi is diminished.

We can see that a lot of higher margin industries exist in the software sector. Suppose India attracts a lot of FII capital to software companies [It's already present; look at the market cap of TCS, Infy etc.] , and those companies use this capital to hire engineers and export software for all over the world. We become a mass software exporter to the world, just like China is a widget exporter today.

The internet of things, where the "things" are small computer enhanced everyday objects/widgets, which have a "brain" , running, for example; android O/S, will open up a huge pool of programming demand.

And we will be able to build out our country with fickle FII (electronic money) and software exports.



{watch this space Cholaji- perhaps a consultancy would do a white paper on this }

[Christopher Sidor]

BBC video on Chinese growth miracle and credit bubble

How China fooled the world
http://www.youtube.com/watch?v=YW3h4wv8_ko#t=2073

Some points about the video.

The video insinuates that PBOC/PRC officials first ordered the banks to lend, a directive which was followed to its full compliance. When they sought to rein in the lending their orders were not complied in full.

It is alleged that PBOC engineered the first squeeze of credit in 2013. As a consequence of that inter bank lending went to double digits. It then pumped in liquidity into the inter bank lending. If that is the true course of events then what was the point that PBOC was trying to make, that in case of crunch, there is PBOC standing there? If it was trying to send a message to rein in lending, then obviously that message was not delivered.

At the end, one East Asian individual talks about improving the quality of PRC's growth. We see that already there are some opinion formers in PRC who want the population of PRC to focus on that. Quality of air, water, food and so on. The same person talked about growth of 4%. Funny that is the same growth as that of India right now.

The video leaves a lot to be desired. There are many figures that should have been bought out which were not. For example how much percentage of PRC's population owns a house and how many of the, are getting build. No charts. Metro construction is not a wasteful expenditure, though building Olympic/sports stadiums surely is.

[Liu]

China has simply used the beaten down east asian model of export riven GDP. But where it divulges from that of Japan or Soko is in innovation. Not a single CHinese product company - except few like Huewei - in fortune 1000. So they have simply thrived on being efficient. But u can only go so far with only efficiency. I am still waiting for CHINESE product companies who have a sizeable world market share.

Where it diverges from Japan or SoKo (or India for that matter) is those nations are free states and China is communist. It will never be innovative as a communist nation. In fact, as a communist nation, it shouldn't even be efficient and should have collapsed the same way as the USSR.

But where it diverges from the USSR is that is hooked itself into the Western global supply chain. That is the only reason why it is even around today.

And why should we care if it is innovative or not? The PRC should only be important to us as a possible source of sales and as possible model for credit creation.

Again, the only reason for us to even have a chini economic thread is the fact that China generates sales greater than the US and is creating credit at nearly the same volume.

don't forget that USSR sent the first astranauots ,man-made satellite and spaceship into the space.......at that time,USSR once was the most innovative state on the earth and ass-kicking USA.

[Liu]

How can a vendor ( china ) be more rich ( consume more ) than the customer ( the west )?

why should odrdinay west guys be richer than ordlinary Chinese one?
do west guys work harder? no.when most Chinese are working in office or factories, most west guys are drinking coffee in cafes.
are west guys more clever? no. most high school students in west countries is even poorer in mathmatics than junior school students in CHina.

sale shows that CHinese consumes more household appliances,autos,houses ,steel,food,clothes,and almost all kinds of industry products than USA.

GDP shows that CHinese GDP is only 60% of USA's.

either GDP or sale is true,which is more reliable?