China's Subprime Crisis Is Here • Hacker News Board

Re: China's Subprime Crisis Is Here

#61

Post by tallanvor » Wed, Feb 17, 2016, 8:03 AM UTC

obblekk wrote: post #7

dh997 wrote: post #4

Earlier quoted context omitted.

Isn't the bigger issues China's structural draconian limits to freer movement of capital, external investment, the imaginary/real value of ghost cities and scale of holding illiquid foreign debt?

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…

>Yes, you have to make a 50% joint venture, bribe government officials, share technology, have no copyright/IP protection, and risk your partner entering the market as a competitor once they learn your business (see Asus). But, you can still make so much money that it's probably worth it (or so American corporations seem to believe).

All legitimate companies have strong rules against bribing officials, and it's illegal, so don't expect the company to have your back if you get caught.

Re: China's Subprime Crisis Is Here

#62

Post by foxhedgehog » Wed, Feb 17, 2016, 8:06 AM UTC

einar2812 wrote: post #36

Is it right that China owns a lot of its own debt AND a lot of US debt as well? And also heard that China supposedly has the largest gold reserves in the world, dwarfing any other country in comparison. Could that count for something?

They would probably have to spend at least a good chunk their dollar reserves in order to manage a truly catastrophic currency decline.

Re: China's Subprime Crisis Is Here

#63

Post by foxhedgehog » Wed, Feb 17, 2016, 8:08 AM UTC

greggarious wrote: post #5

Assuming this headline is correct, what effects would that have on the global economy?

I wonder how much of investment in, i.e. Apple, is presently based on assumptions of future Chinese domestic consumption.

Re: China's Subprime Crisis Is Here

#64

Post by carboncopy » Wed, Feb 17, 2016, 8:08 AM UTC

jcoffland wrote: post #60

carboncopy wrote: post #46

Earlier quoted context omitted.

Those are strange metrics of success you chose: number of cars produced annually, amount of public debt held. I'd have gone with GDP, military strength, set of advantageous alliances, or some other measure of economic, military, or political power.

You read it wrong. It's cash in hand not public debt they have more of.

No, I read it right. It's American public debt they hold. They don't have 1 trillion dollars in cash sitting in a vault. They are holding U.S. Treasury bonds.

And again, I don't understand why having 1 trillion dollars in a reserve bank is a useful measure of economic power. The Chinese economy has a GDP of $10tn compared with the U.S. economy of $17tn. That is an example of a meaningful metric of power.

^^^ the parent commenter edited his entry after I submitted my original comment, which changes the relevance of my comment.

Re: China's Subprime Crisis Is Here

#65

Post by roel_v » Wed, Feb 17, 2016, 8:08 AM UTC

jcoffland wrote: post #35

ktRolster wrote: post #23

Earlier quoted context omitted.

Probably small. China's financial system isn't entwined with the US/European system as much (the Fed buys bonds from the ECB, and vice versa). Commodities will be hit the hardest, because China will stop importing them. Alan S Blinder estimated that a very severe recession in China would affect the US GDP by .2% So that kind of gives you an idea.

China holds more US treasury bonds than any other country. How are we not intertwined?

You've been saying that across this thread, but let's say that Chinese banks start to go bankrupt because of nonperforming loans. The Chinese central bank holds large amounts of US treasury bonds. What would be the effect of the bankruptcies? A sell-off to bail out Chinese banks? How would that work; they'd get dollars for their tbonds; then what? Would it depress tbond yields? They can't go much further before you have to pay to hold them... I don't understand the reasoning behind the 'but the Chinese hold lots of US debt!' argument. This isn't like a mortgage where the lender can call in the loan at any point, and if you don't pay they'll repossess your house; or a loan from a loan shark who'll break your kneecaps if you don't pay up. What would happen with or because of these debts?

Re: China's Subprime Crisis Is Here

#66

Post by jcoffland » Wed, Feb 17, 2016, 8:08 AM UTC

foxhedgehog wrote: post #58

fasteddie wrote: post #39

Earlier quoted context omitted.

US treasuries are at historically low rates -- if China dumped 'em all it probably wouldn't move the needle that much. And the reason they hold so many is not as some control play against the US -- its because it was the best way to devalue their currency enough to support exports.

The research that I did on this for my grad school project with the GAO suggested that there was generally enough liquidity in the secondary bond market to absorb even a mass sale from China over the time period required to do so.

That may be true in the current environment, or in that which you measured in your study, but might be totally different in a struggling economy. Say they decide to have a massive sell of at a strategic moment. Combined with other factors it could have a larger effect. The value of one play matters in checkers but in chess it's the combined value of your moves that win the game.

Re: China's Subprime Crisis Is Here

#67

Post by foxhedgehog » Wed, Feb 17, 2016, 8:10 AM UTC

narrator wrote: post #51

hackuser wrote: post #25

Earlier quoted context omitted.

> 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…

I see you have a theory. So do the guys who write all these China crisis articles, but the empirical evidence proves them wrong and they don't care. They just write another article every six months. I'm sure I'll be back here in another six months arguing the flaws in the antiquated quantity theory of money. Briefly, the problem is that you are only looking at the supply of money and not the demand. If China increase…

Uh, based on what evidence? Empirically speaking, the Chinese stock market has, observably, lost enormous value in the past year, with probably further to fall.

Re: China's Subprime Crisis Is Here

#68

Post by foxhedgehog » Wed, Feb 17, 2016, 8:11 AM UTC

foxhedgehog wrote: post #58

fasteddie wrote: post #39

Earlier quoted context omitted.

US treasuries are at historically low rates -- if China dumped 'em all it probably wouldn't move the needle that much. And the reason they hold so many is not as some control play against the US -- its because it was the best way to devalue their currency enough to support exports.

The research that I did on this for my grad school project with the GAO suggested that there was generally enough liquidity in the secondary bond market to absorb even a mass sale from China over the time period required to do so.

Won't let me respond to the comment below this one, but China doesn't determine the volume of the secondary market for UST. It's mostly in New York and in London.

Re: China's Subprime Crisis Is Here

#69

Post by foxhedgehog » Wed, Feb 17, 2016, 8:13 AM UTC

zcbenz wrote: post #45

If you keep saying China has economic crisis, finally you are gonna be right some day.

That, or you were finally right last summer.

Re: China's Subprime Crisis Is Here

#70

Post by jcoffland » Wed, Feb 17, 2016, 8:15 AM UTC

draw_down wrote: post #44

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…

I don't really know whether the media is biased against China, it's certainly plausible, but in any case you said literally nothing about the actual situation the story is describing.

Other posts in this thread refuted the arguments in the article quite well I didn't see a need to repeat them.