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China's Zombie Economy

newleftreview.org

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Re: China's Zombie Economy

#31

Post by zhdc1 »

Vt71fcAqt7 wrote: post #14

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 t…

> I'm still not sold on the "China is dying" theory.

I don't know if it's as much a story of decline as it is one of unmet expectations.

China has a declining (and likely overstated) population. They have a very heterogeneous population. They also have an unsustainable growth model and an unwillingness to 'pull the plug', stop manufacturer subsidies, and tackle local governance issues.

In other words, China looks a lot like many other East Asian countries in the past that have pursued an export-led growth model with a de-facto single party government.

The difference between China and Korea, Japan, and Taiwan is that the country is - much - larger. Modernization is almost always city-first. It's possible to gloss over a significant rural-urban divide when you have a high population density and a relatively homogeneous population.

For comparison, Taiwan's population density is three times larger than China, and that's before you account for the fact that much of the island is essentially inhabitable.

All of the infrastructure China has built exists. From what I've been told, the east and south coast cities are the most modern in the world. It's hard to imagine - decline.

However, the country has very well known and very large issues that they're unwilling or unable to address. Lower growth and - maybe - some form of stagnation are more likely, (I'm thinking it will be the former after a correction of some kind).

Re: China's Zombie Economy

#32

Post by fuoqi »

>But many enterprises simply took advantage of easy bank loans to refinance their existing debt without adding new spending or investment to the economy. These companies eventually became loan addicts; and as with any addiction, increasing doses were needed to generate diminishing effects.

Sounds like a description of the Western economic situation to me.

Re: China's Zombie Economy

#33

Post by freebee56 »

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?

There is no direct linkage. Since the Chinese capital account is closed by definition the Chinese central bank is holding on to foreign assets with yuan liabilities. When the exporter gets paid the central Bank creates offshore yuan which cannot be freely converted to onshore yuan and made into loans.

Re: China's Zombie Economy

#34

Post by zukzuk »

fuoqi wrote: post #32

>But many enterprises simply took advantage of easy bank loans to refinance their existing debt without adding new spending or investment to the economy. These companies eventually became loan addicts; and as with any addiction, increasing doses were needed to generate diminishing effects. Sounds like a description of the Western economic situation to me.

Yup! Complete with the inevitable government bailout that socializes failure while privatizing profits.

Re: China's Zombie Economy

#35

Post by duxup »

Vt71fcAqt7 wrote: post #14

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 t…

I don’t think this article is saying “China is dying”.

Re: China's Zombie Economy

#36

Post by nine_zeros »

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?

Foreign currency is assets in central bank balance sheet. Their own currency is liability.

When an exporter in China gets foreign currency for their export, it goes to the exporters bank. The exporters bank "sells" the foreign currency to the central bank. In this sale, the central bank usually "prints" the yuan to exchange for the foreign currency.

When a trader in China imports goods, it asks their bank for foreign currency. They give the bank yuan. The bank sells the yuan for the foreign currency with the central bank. The central bank sells it's foreign currency assets and "extinguishers" the yuan they received.

It's not as simple as this but this is the theory.

Re: China's Zombie Economy

#37

Post by gsatic »

fuoqi wrote: post #32

>But many enterprises simply took advantage of easy bank loans to refinance their existing debt without adding new spending or investment to the economy. These companies eventually became loan addicts; and as with any addiction, increasing doses were needed to generate diminishing effects. Sounds like a description of the Western economic situation to me.

Dont remind them why banks collapsed and why interest rates arent dropping any time soon. Focus on China, Russia, Elons cage match etc.

Re: China's Zombie Economy

#38

Post by Vt71fcAqt7 »

duxup wrote: post #35
Vt71fcAqt7 wrote: post #14

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 t…

I don’t think this article is saying “China is dying”.

How do you interpret "Zombie Economy?"

>a corpse said to be revived by witchcraft, especially in certain African and Caribbean religions.

Edit: I admit that I used the wrong word. I would correct it to:

I'm still not sold on the "China is Japanifying" theory.

Re: China's Zombie Economy

#39

Post by satvikpendem »

zukzuk wrote: post #34
fuoqi wrote: post #32

>But many enterprises simply took advantage of easy bank loans to refinance their existing debt without adding new spending or investment to the economy. These companies eventually became loan addicts; and as with any addiction, increasing doses were needed to generate diminishing effects. Sounds like a description of the Western economic situation to me.

Yup! Complete with the inevitable government bailout that socializes failure while privatizing profits.

Not sure why people point to bailouts as some sort of gotcha, they're loans, not free money. The US government made a profit from the 2008 bailouts:

> Early estimates for the bailout's risk cost were as much as $700 billion; however, TARP recovered $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6%, and perhaps a loss when adjusted for inflation.

https://en.wikipedia.org/wiki/Emergency_Economic_Stabilizati...

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