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China's Subprime Crisis Is Here

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Re: China's Subprime Crisis Is Here

#121

Post by altcognito »

lmm wrote: post #92
nebula wrote: post #71

Earlier quoted context omitted.

new constitution, which favored closer ties with China over India. Really? They have it ingrained in the constitution? If Geo-political situation changes, and they need to re-balance their ties? They are going to need constitutional amendments?

The US view of the constitution as a sacred document is quite unusual by international standards. For many people in many countries the constitution is just another law.

Sacred is the right word. It is seen as an almost religious document written by men who were inspired (as seen by some) by "Christian values" (read God) and it enshrines and protect the most basic moral values.

They look back to the men that wrote it hoping to divine their intent much like those who read the bible.

Re: China's Subprime Crisis Is Here

#122

Post by forgetsusername »

tyre wrote: post #13
obblekk wrote: post #7

Earlier quoted context omitted.

One by one: 1. Freer movement of capital. This is a false herring in my opinion. Virtually no countries outside the US/EU offer completely free movement of money. The thing that matters is whether this prevents foreign capital investment (because people are scared of not being able to get their money back). In China, I don't think it does based on the last few decades of foreign investment. 2. External investment. As…

A few counterpoints. From your original comment > In addition, it doesn't seem like this rate is accelerating (since 2009), but linearly increasing. That is the overall percentage of bad debt increasing linearly, meaning accumulation of bad debt is accelerating faster than growth of "good" debt. This was also the case in the US mortgage crisis. From this comment 1) It would be less of a concern if China had less liqu…

>I haven't seen evidence that these ghost cities are the result of central planners building slack for expected growth.

I think this reveals some bias. The evidence is the cities themselves. Or do you think that it's central planners merely trying to improve GDP numbers, but completely oblivious to the fact that Chinese citizens are urbanizing at a scale not seen before in human history?

Re: China's Subprime Crisis Is Here

#123

Post by welanes »

hgh wrote: post #38

Michael Pettis is one my favourite China commentators, with a big focus on the shifts necessary in the balance sheet and composition of growth, and whether that can be done smoothly or necessarily through some catastrophe. Not to mention a broader view of the political economy of the change. Here's a recent post he did that's worth a read (at least through the nine point summary): http://blog.mpettis.com/2016/01/will…

Pettis is the man. Essential reading for understanding China's economy.

Re: China's Subprime Crisis Is Here

#124

Post by altcognito »

ww520 wrote: post #107
narrator wrote: post #106

Earlier quoted context omitted.

Bravo, someone who gets it. The subtle difference with China is when the bailout happens, the government doesn't go into debt to do it and stick the taxpayer with the eventual interest bearing burden of the bailout. Instead, they print the money. This creates moral hazard. I think China's political system is better at dealing with banker moral hazard than ours is unfortunately.

Well, their bankers making the bad loans and the people failed to repay the loans might go the jail or got executed when illegal lending involved. Here bonuses are reduced.

I was just about to say, your OP was a great quick summary, but glossed over the loss of risk/punishment inherent in the system. Consider the loophole closed.

Re: China's Subprime Crisis Is Here

#125

Post by legulere »

lmm wrote: post #115
legulere wrote: post #103

Earlier quoted context omitted.

Also China had a positive current account balance of 347 billion dollars in 2015, while the US ran on deficit each year since 1989 and had one of 460 billion dollars in 2015. https://www.cia.gov/library/publications/the-world-factbook/...

http://www.factcheck.org/2008/02/the-budget-and-deficit-unde...

What you linked is about the federal budget not the current account, which is something totally different: https://en.wikipedia.org/wiki/Current_account

Re: China's Subprime Crisis Is Here

#126

Post by seanmcdirmid »

forgetsusername wrote: post #122
tyre wrote: post #13

Earlier quoted context omitted.

A few counterpoints. From your original comment > In addition, it doesn't seem like this rate is accelerating (since 2009), but linearly increasing. That is the overall percentage of bad debt increasing linearly, meaning accumulation of bad debt is accelerating faster than growth of "good" debt. This was also the case in the US mortgage crisis. From this comment 1) It would be less of a concern if China had less liqu…

> I haven't seen evidence that these ghost cities are the result of central planners building slack for expected growth. I think this reveals some bias. The evidence is the cities themselves. Or do you think that it's central planners merely trying to improve GDP numbers, but completely oblivious to the fact that Chinese citizens are urbanizing at a scale not seen before in human history?

If you are talking about Ordos New Town, it is local governments and tycoons trying to do something with their coal money. This isn't really central planning, more like investment options suck, and we can't just park our money in the bank, so let's build a city in the middle of nowhere! Ordos is filling up slowly, but it's clear at this point that many of the buildings will be torn down before they are ever occupied (Chinese constructed buildings only last around 20-30 year before they are completely derelict).

China is urbanizing, but it is not clear those poor farmers can afford the $200k+ apartments being built...even if they come down by half or more. Not only that, but these farmers can't even get hukou, making them second class citizens in the cities they might move to, ineligible for schooling for their kids or even subsidized healthcare. China needs to do a lot of reforming before this massive urbanization can happen, and they haven't really prepared for it (e.g. By focusing on luxury apartments vs. mass social housing with schools and hospitals enough to give those farmers proper urban hukou).

Finally, farmers can't even sell their land to buy an urban apartment. Instead, they have to wait for it to be appropriated by the local government (if near a growing urban area) or otherwise, they are just SOL. It really is quite a mess.

Re: China's Subprime Crisis Is Here

#127

Post by forgetsusername »

hackuser wrote: post #25
narrator wrote: post #9

Ahhh the old' China crisis again! The dog that didn't bark. The Charlie Brown football that never got kicked. The constant and unending crisis that is on its way any day now. As I have explained over the years in many previous comments, China's banking system is partially privatized central planning, the government prints it's own money. Thus, when there is a credit crisis the government just recapitalizes the banks…

> the government prints it's own money. Thus, when there is a credit crisis the government just recapitalizes the banks with freshly printed Yuan and sells off the bad loans at a discount. This has been tried by many governments and has a well-established track record as a disasterous solution. I believe the following is a well-established consensus in economics (though I may misremember some details): Printing money…

>Printing money on this scale doesn't add wealth to the economy

Ceteris Peribus...

But when vast amounts of wealth vanish in a broad deleveraging you are merely replacing money. Case-in-point, the US pumped over $1TT into the economy since 2008, and yet the value of the dollar has gone through the roof, despite the cries that hyperinflation was around the corner.

Re: China's Subprime Crisis Is Here

#128

Post by adwf »

saiya-jin wrote: post #117
oliwarner wrote: post #82

Earlier quoted context omitted.

That's a neighbour so there's an obvious local power advantage. It's not unimpressive though and I completely agree about there being a scale and general surplus of engineering prowess that the rest of us just can't comprehend. What is perhaps more alarming is their development of Africa. I passed through a few African countries last year and China was everywhere . They're in the up-and-coming metropolises like Addis…

well, and now let's look what their "competitor" (west) have done during those hundreds of years of presence there... Yes Chinese are not saints but pure capitalists, I see no evil in their actions. On the other hand, white man's actions there were evil on quite a few occasions

You see no evil, yet. I don't want to know what happens when the latest wannabe dictator comes along and nationalises all the Chinese infrastructure...

Re: China's Subprime Crisis Is Here

#129

Post by TheLogothete »

forgetsusername wrote: post #120
TheLogothete wrote: post #72

Earlier quoted context omitted.

Believing China's GDP growth rate blows all the credibility out of your argument.

Please provide the estimates for its GDP then. Dismissing the work done by others (which provides an actual figure, right or wrong) is lazy.

Oh god, if you want concrete numbers, buy a report from a market research firm. Believing the official numbers for their growth is like believing in Santa Claus. The consensus among professionals is that they haven't hit their 7% target since the beginning of this century.

Re: China's Subprime Crisis Is Here

#130

Post by mathattack »

jcoffland wrote: post #33

The American media seems to jump at any opportunity to dismiss China as an economic threat. It makes us feel more secure but leads to a public informed only about one side of China's story. Namely the part our ego can handle. China has regularly surpassed the US in number of cars sold since 2009. China also holds more US debt than any other country. Another way to put that is the US government owes China over 1 trill…

Originally I was going to question your math - I thought your trillion was off by three zeroes. Then I did the math myself and realized that you're right. :-) If you count US mortgage debt that they hold, the number may be even higher.

A couple quick comments:

1 - We'll feel the economic threat of China when they have a crisis. The world was less interconnected in the 90s, yet troubles in Mexico, Thailand and Russia caused global damage.

2 - The GDP growth #s are suspect, and off of a smaller base. Hard to make an apples to apples comparison.

3 - Hard to compare absolute #s of cars or people in school - given that it's a country of a billion people, they should have a lot more cars and people in school. (If anything, it should be 3X)

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