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China's Zombie Economy

newleftreview.org

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Re: China's Zombie Economy

#11

Post by jacquesm »

jimbursch1 wrote: post #5

“ In its closed financial system, exporters must surrender their foreign earnings to the central bank, which creates equivalent RMB to mop up the foreign currencies. This led to the rapid expansion of RMB liquidity in the economy, mostly in the form of bank loans. ” Can anyone explain this to me? My interpretation is the central bank exchanges exporter’s foreign currency for RMB. How does it become bank loans?

Yes, that didn't make a whole lot of sense. Possibly because that money then gets deposited. But the central bank can lend money even if there is no foreign currency exchange.

Re: China's Zombie Economy

#12

Post by throwaway2990 »

freitzkriesler2 wrote: post #3

>The Economist projected that China would become the world’s biggest economy by 2018, surpassing the United States. What annoys me about economists is how often they redefine how they calculate things like "GDP" and "unemployment" and then try to compare their new oranges to their old data apples. In many respects, if you use the older metrics China has long surpassed America on its GDP output but with the constant r…

We don’t have real numbers from China to know what their GDP is. There’s theories it could be negative right now which coincides with their housing crisis, huge local debts due to covid, huge cost of living and due to covid less spending which results in less jobs, the world pulling out of China. Etc. any positive numbers would surely be made up, one CCP official already admitted to the numbers being fudged.

Re: China's Zombie Economy

#13

Post by throwaway290 »

jimbursch1 wrote: post #5

“ In its closed financial system, exporters must surrender their foreign earnings to the central bank, which creates equivalent RMB to mop up the foreign currencies. This led to the rapid expansion of RMB liquidity in the economy, mostly in the form of bank loans. ” Can anyone explain this to me? My interpretation is the central bank exchanges exporter’s foreign currency for RMB. How does it become bank loans?

If it's like Russia, maybe you get paid in bucks but you pretty much must convert them all to RMB immediately. So the bank needs to create all that RMB for all the exporters. Part of it circles back in taxes and stuff. Assuming exporters can't or don't want to spend all that RMB immediately there's now a bunch of RMB in country in some shape or form. A lot probably in banks.

Re: China's Zombie Economy

#14

Post by Vt71fcAqt7 »

Clickbaity title. The article is not bad, but he doesn't explain why the declining growth rate is "the logical outcome of China’s uneven development and capital accumulation over the last four decades."

I'm still not sold on the "China is dying" theory. China's GDP per capita is the same as Japan's when it entered single digit growth in 1970.[0][1] Those numbers surprised me, though, and may be too low wrt Japan. I think the aging demographic is a greater issue than the ones listed in the OP; economic activity can always be restarted given the underlying conditions are there, which is the case for China in general in my opinion. Demography is destiny, however, and cannot be escaped. The One Child Policy was a mistake for the economy.

[0]https://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG?locat...

[1]https://data.worldbank.org/indicator/NY.GDP.PCAP.KD?location...

Re: China's Zombie Economy

#15

Post by SkyMarshal »

FrustratedMonky wrote: post #9

Question. For 20 years I've been hearing China will takeover, and also that it is about to collapse. It seems like daily there is some story about how China will collapse, and then also stories of how it will still takeover. I did read it, but not seeing what this article brings new. What is the point being made here? Except, things are bad, and nobody realizes it. The term Zombie Economy has been used for a lot of y…

You can safely ignore any story that includes “collapse” in its title when referring to a G-20 country. They’re all just clickbait.

Re: China's Zombie Economy

#16

Post by adventured »

FrustratedMonky wrote: post #9

Question. For 20 years I've been hearing China will takeover, and also that it is about to collapse. It seems like daily there is some story about how China will collapse, and then also stories of how it will still takeover. I did read it, but not seeing what this article brings new. What is the point being made here? Except, things are bad, and nobody realizes it. The term Zombie Economy has been used for a lot of y…

Both ends (takeover / collapse) are exaggerations for the benefit (attention) of the person making the claim.

The US and EU/Eurozone/Western Europe are not going away. Their significant allies are not going away (eg Japan, South Korea, Australia, New Zealand, India, etc.). China isn't taking over, they're becoming (have become) a peer global power.

China has accumulated vast wealth, infrastructure, manufacturing, know-how, and so on. It's not going to reverse backwards in the sense of collapse. Things aren't going back to the way they were 30-40 years ago. China is - at least for our relevant time - permanently established as a free-standing power (ie even if the West wanted to, that genie can't be put back). They will likely continue to progress, even if at a slower pace.

Stagnation brought on by hyper rigid authoritarianism is most likely. At least during the Xi era. Perhaps there will be a Deng Xiaoping like loosening again afterward, who knows (maybe someone far worse will use Xi's levers of power to implement even stricter authoritarianism).

Re: China's Zombie Economy

#17

Post by have_faith »

givemeethekeys wrote: post #10
jimbursch1 wrote: post #5

“ In its closed financial system, exporters must surrender their foreign earnings to the central bank, which creates equivalent RMB to mop up the foreign currencies. This led to the rapid expansion of RMB liquidity in the economy, mostly in the form of bank loans. ” Can anyone explain this to me? My interpretation is the central bank exchanges exporter’s foreign currency for RMB. How does it become bank loans?

Your deposits are lent out by the bank.

Banks don't generally lend out deposits.

Re: China's Zombie Economy

#18

Post by yafbum »

jimbursch1 wrote: post #5

“ In its closed financial system, exporters must surrender their foreign earnings to the central bank, which creates equivalent RMB to mop up the foreign currencies. This led to the rapid expansion of RMB liquidity in the economy, mostly in the form of bank loans. ” Can anyone explain this to me? My interpretation is the central bank exchanges exporter’s foreign currency for RMB. How does it become bank loans?

My understanding: business A sells USD 1,000 worth of goods abroad.

Customer wires USD 1,000 to bank B to the account of business A as payment for the goods.

This money does not go directly to the account of business A.

Bank B sends USD 1,000 to Central bank and gets RMB 7,000 (or whatever the exchange rate is) which go to the account of business A.

Bank B ends up with deposits almost entirely in RMB to loan out. Few customers outside China really want those.

Compare with a situation in which bank B kept its USD on the books as customer deposits. Then it would have USD to loan out, and the market for such loans is much bigger.

Re: China's Zombie Economy

#20

Post by aaron695 »

Predictions for Chinas GDP growth in 2023 is 5.2% - https://www.reuters.com/markets/major-banks-cut-china-2023-g...

That's considered to be low.

Predictions for the US's 2023 GDP growth is 1.6%

They seem to think a pandemic where Chinas response was total lockdown is indictive of the future.

> The Economist now claims that China might never catch up with the US

That's not how The Economist works

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