The Chinese Government Likely Borrowed More than the US in 2017
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That means that China can invest in infrastructure (roads, trains, airports, education) which have high real return making the increase in debt much less of a problem. This is also the reason why China has grown persistently 7-10% over the past two decades compared to USA which have grown 2-3% in the same period.
Per person China's GDP is less than a fifth of the US hinting that this still has some way to go.
Where China has a risk is if they can't transition to a developed country's style of debt spending where GDP growth is much lower. It's also where endemic corruption becomes a big problem.
Taking Gini coefficient into consideration, China still has a long way to go.
So does the US [1]: The top 1 percent of earners in America now take home about 20 percent of the country’s pretax national income, compared with less than 12 percent in 1978, according to the research the economists published at the National Bureau of Economic Research. Over the same time in China, the top 1 percent doubled their share of income, rising from about 6 percent to 12 percent.
[1] https://www.cbsnews.com/news/usa-china-income-inequality-eco...
But because it's a different situation and harder to change in the US, doesn't mean we shouldn't be strongly aware of the implications of its worsening in the US.
I lived in a Chinese first tier city for 10 years. Income inequality was much more obvious there than I ever saw in the states (even in the boonies of Mississippi). A lot of that was related to china’s caste/hukou system that basically denies social services to migrant workers.
Yes, the USA has first world income inequality problems. But China has third world ones.
The joke goes: the USA has so many homeless people, they are just everywhere! China has no homeless people, because the police beat them pretty harshly so they are either dead or really good at hiding.
PPP GDP per capita is okay, but the PPP portion is rife with assumptions, some untenable. For instance, you really really don't want to live in a heavy industrial area in China, the air is like soup -- sometimes it pegs the AQI needle at 999. US hasn't ever had air that bad, even before the Clean Air Act.
http://www.businessinsider.fr/us/china-ghost-cities-satellit...
That sky scraper in question was built for a small seaside village limited by land because they were stuck between a mountain and water. It was really a one off and I don’t think it contributed much to USA debt.
>Ordos: The biggest ghost town in China (bbc 2012)
> In Inner Mongolia a new city stands largely empty. This city, Ordos, suggests that the great Chinese building boom, which did so much to fuel the country's astonishing economic growth, is over. Is a bubble about to burst?
While now:
>However, in 2017, the ghost city label is getting more than a little difficult to hang on Ordos Kangbashi. According to a recent report, there are now 153,000 people living there, 4,750 businesses are now in operation, and housing prices have risen roughly 50% on average from the end of 2015, when the local real estate market bottomed out. Of the 40,000 apartments that had been built in the new district since 2004, only 500 are still on the market.
The ghost city thing is exaggerated.
In the US, everyone associated with the investment would have lost their shirts years ago. In Communist China, debt pays you!
The really interesting thing is that the units are mostly owned. Why? Because you can't move very much money out of China due to the capital controls, tremendous flows of money go into property -- lots of people buy real estate never intending to live in it, or sometimes even to rent it... there are actually property sales ads that suggest no one should live there as the property is not designed for human habitation. :)
> That means that China can invest in infrastructure (roads, trains, airports, education) which have high real return making the increase in debt much less of a problem.
What does that have to do with being a developing nation? The US could do the same.
So China, not having the infrastructure the US does, likely gets a benefit on doing projects that would be a loss in the US.
The reason the US doesn't invest in infrastructure is because the benefits go to everyone instead of a specific party interested enough to lobby for it.
The ROI is the much the same in the US as it is elsewhere, provided the investment is made where it's needed rather than on pork barrel projects. For example, the value of building a bridge is X, but that's also the value of maintaining/replacing it because if it collapses or has to be closed for safety reasons then you no longer have a bridge. Moreover, you can productively build things like new subway lines in cities that are growing because that's where the demand exists to justify the cost.
The lobbying problem is where we've started to see this "public private partnership" scam show up. Then you have a specific party interested enough to lobby for it, but it's because they intend to rent seek on public infrastructure by taking the public's money and then putting up a gate and charging them a second time for admission. Because $100 is a lot, but if you pay $75 in taxes and $75 in tolls then it's less, right? And if that discourages productive use of sunk cost infrastructure and is a regressive tax on the poor, let's try not think too much about that.
While generally true for developing be developed countries, are you actually familiar with China's infrastructure development practices? If one thing is for sure, it's that there isn't a shortage of bridges, trains, airplanes, and roads... The Chinese government uses infrastructure-building programs to ensure it meets its centrally-planned GDP targets and to make sure everyone has jobs. Economists are actually concerned that the infrastructure is so overbuilt that the costs of future maintenance may make the return on many new infrastructure projects negative.
Meanwhile the US is notorious for crumbling infrastructure...
Yes, somewhat. They've poured lots of money into it over decades to catch up to the developed world. They're not likely there yet.
A simple example: they're close to the same area as the US, around 4 times the population, yet they have around 2/3 as much road miles. They make less electricity per capita than the US. They have less than half as many miles of train infrastructure than the US. If you look at all sorts of metrics for how much per capita that they have compared to the US (or any first world county), they still lag.
So if they want to get to first world levels in many of these areas, they still need to create more infrastructure.
As such, they might still get more benefit for certain infrastructure projects than the US.
>Meanwhile the US is notorious for crumbling infrastructure...
... among people in the US that complain without understanding how the rest of the world fares. In world rankings the US does very well on quality of infrastructure [1,2].
[1] https://lpi.worldbank.org/international/global?order=Infrast...
[2] http://www3.weforum.org/docs/GCR2016-2017/05FullReport/TheGl...
As you state there is real return in infrastructure expenditure - roads, trains, airports, education is genuine investment. A business case can be made for putting in a new 300kmh train set that spans the country. Over in the West we don't get that, instead we have to pay untold billions to the banks because if we don't then the sky will allegedly fall in so we have to kick the can down the road.
GDP is also a useless figure. If we all decide to decide that our houses are worth double what they were worth five years ago and go about buying and selling these crumbling piles of bricks then have we really increased GDP? If, on the basis of these increasing property values everyone remortgages and buys fancy German sportscars and monster SUVs then have we really increased GDP?
I am sure there is plenty of hubris going on in the Chinese economy and that status anxiety drives people to buy pointless luxury goods as per what happens in America, however, GDP is not all it is cracked up to be and there is a big difference in debt used to build an economy compared to debt used to prop up the rent-seeking classes.
I agree that the GDP is a flawed metric, though.
Unfortunately in the US, like you said, it seems like a lot of the capital has gone into west coast real estate and the stock market. Why wouldn't it? It's a lot easier to make money from rents than to actually build things.
I'm always awed by how much indirect ROI you can get from infrastructure, and I'm always disappointed in how bad the US is at it these days. I like to cite the hoover dam as a wildly successful infrastructure project - I visited it for the first time recently and learned that it was built for ~49M USD (639M USD in today's dollars). The indirect ROI on it is epic. It spawned Las Vegas and allowed other west coast cities to grow all along the southwest, not to mention the money it's made back in hydroelectric power and tourism. It did take a crisis (the great depression) to build it for so cheap though... The recession probably would have been a good time to do this stuff. Unfortunately, we got higher asset prices instead.
As for the GDP, yeah, it's a poor measure of growth. Yay, homes are now twice as expensive and people are relatively poorer, but we've succeeded in meeting our growth target!
Here is a fun example of how expensive infrastructure is here now:
Irvine to Corona tunnel (11.5 mile tunnel under mountains) which would connect Orange County to Riverside County: estimated 28.3 billion [1]. Both are large population centers with large economies, separated by a small-ish mountain range. They spent almost 30 million on environmental studies.
Norway made a 15 mile tunnel through the mountains for 113 million, or 0.4% of the cost. [2]
1. https://www.ocregister.com/2010/08/27/plans-for-irvine-coron...
https://en.wikipedia.org/wiki/Tappan_Zee_Bridge_(1955%E2%80%...
On the plus side, we have some of the cleanest air and water any civilization has ever enjoyed, so regulation isn't all bad. Maybe the Boring Company can tunnel that out for a mere $250M.
Per capita GDP depends on things like natural resources and corruption levels. So China is likely to lag behind on that measure long term, still they plenty of room for improvement.
Also, PPP is a dumb metric, many things in China beyond services and food are much more expensive than they are in the USA.
A "developed nation" should be called a "day two nation." See Jeff Bezos' excellent shareholder letters. A developed nation has a "day two mentality." No nation is developed but some are stuck.
Part of the problem is that we compare ourselves to other nations and think "wow, we're awesome." We should ignore all other nations and think "what can we do now?"
Unfortunately I'm not optimistic. The last election was a contest between a narcissistic reality TV star and a dull apparatchik with no vision. Our selection of such inferior representatives reflects our collective expectations about our future, or lack thereof.
People need to stop assuming all governments work identically and that numbers are comparable in any way. In China local governments COLLECTS NO TAXES, thus they fund all their expenditures by debt. In 2 years there's going to be widespread tax reform and all this debt will be wiped away.
Also, they make the state-owned banks lend to them regardless, at a low interest rate since there is an implicit garauntee they won’t default.
It isn’t really sustainable. It is only a matter of time before China introduces a property tax to fund local governments.
Other thing that totally changes the discussion is if the debt in local currency or in foreign currency.
Links in Chinese:
1. https://zh.m.wikipedia.org/wiki/地方税务局
2. https://wapbaike.baidu.com/item/地方税/4480452?fromtitle=地税&fro...
Here's an insightful bit in US context, but it's much the same for China: https://youtu.be/pex89N9Oqog
The situation is the same with China’s military budget. In reality it’s probably 2x or 3x larger than the official numbers we have.
Domestically, the provinces are very powerful. the PLA is not out in force in complex, expensive hardware, its paramilitary presence which is not a huge increasing cost given mandatory post-university universal conscription.
Missiles and Nuke are a fixed cost.
TL;DR absent a plan for war (which they don't have, and show no signs of wanting) there is no visible basis to assume a huge hidden military budget.
This is not primarily military budget, any more than the US army corps of construction is military budget when it builds dams and Levees in the USA mainland (which btw, it does, a lot)
Military budget is materiel. Sand, even runways, is not Materiel.
So yes, there is a war war not jaw jaw aspect to building the islands, but the budgetary impact? low. Until they fund bulding the aircraft carriers, and stealth UAVs.
IIRC it's not even a secret that China's GDP stats are useless. It's a problem the government has officially admitted to. As a sibling comment notes, the issue is that they aggregate stats from regional governors who are incentivised to tell the party what it wants to hear.
> other way around ... likely to be inflated, not suppressed.
If their GDP is actually 10% of what they report, then the reports are inflated.
The comment you are replying to is suggesting that the actual figures are inflated, not the ones they report, meaning actual GDP is higher than reported GDP.
The actual (real, factual) number just is what it is. The only number that can be inflated/suppressed/fudged/faked is the reported number.
[1] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...
The US doesn’t respect trademarks like Kobe Beef, Parmesan Cheese etc.
http://www.internationaltrade.law/blog/why-youve-probably-ne...
That is a bizarre claim. If you’ve only ever bought pre-grated Kraft “Parmesan”, that might be true. But it’s not difficult to buy Parmigiano-Reggiano in nicer grocery stores.
Also the EU has hundreds of special designations. It’s not surprising that the US would decline to give a blanket deference to EU law in this area.
Why should China respect IP of USA if USA doesn’t respect IP of Europe?
This is one of China's advantages btw, the US should abolish IP to get more competitive.
China's geography, size, and population makes a foreign land invasion very unlikely, beyond some strips of land disputed with Russia and India or a tide of refugees from North Korea. Think of how expensive and difficult Iraq and Afghanistan are for the U.S.; China would be orders of magnitude beyond that.
The real threat is Tasmania: haven't you seen the wargames maps? We need those US-Chinese troops to fight back against the daemon armies from cradle mountain.
Its a really bad argument. As long as we are happy to export tertiary education and then proffer immigration channels, there is no basis to argue the Chinese polity wants to invade: it can get people here legally, for good benefit both sides.
Pleae, don't feed the racist troll. The chinese are not swamping us and they cannot cause earthquakes by jumping up and down at the same time.
The point of the parent's reference isn't to a lack of actual space, it's to Germany's complaint in the 1930s of not having enough Lebensraum: https://en.wikipedia.org/wiki/Lebensraum
... which was similarly spurious -- the Germans had plenty of room for their population too. Lebensraum wasn't about actual space, it was about imperalism, about the Germans feeling strong enough to grab territory from their neighbors just because they could. One could be forgiven for looking at China's military expansionism in the South China Sea, for instance, and thinking the Chinese polity is feeling the same way.
Lebensraum was a manufactured need of political expediency and an explicitly expansionist act. The South China Sea is not lebensraum, its open-fishing rights, and over-flight and sailing rights, and mineral rights. It's also a vision of a defensive ring.
You know, that domino theory we used to be sold about chinese expansionist policy in S.E. Asia? its being played in reverse: they need this barrier, because we are trying to re-apply opium war logic to opening chinese capital investment markets, and land in China...
the other reference is to turn-by-turn games of war on maps (I think)
I guess with a government like they have you have greater possibilities to cover up and postpone the effects, but who knows how this will manifest. I'm hesitant to believe any current scenarios painted by western "experts" because they have basically been wrong for the past decade, but every time they're like "but this time it's for real!"
The only real risk here currency revulsion. At some point there is a risk that nobody will want the currency. But the risk of internal revulsion is low. Chinese citizens have to pay taxes and many other kinds of fees and fines in the currency. They have no choice. External revulsion is a threat but here again the Chinese have opted to buy out their external dependencies. This is why China wants to own all that farmland in Brazil. It never wants to find itself in a situation where it must buy dollars in order to buy soybeans and other critical food stuffs.
People will go on and on about China's sovereign debt. They just don't get it. This is basic MMT (modern monetary theory). The bigger risk for China is that they grow too slowly not that they grow too fast.
Inflation must be kept in check or bad things happen.
Maybe the current levels are sustainable. But not all increases in deficit are sustainable.
At some point, particularly given the last 40 years of evidence to the contrary, people need to simply accept that monetary expansion does not "cause" inflation [1]. Inflation is not a monetary phenomenon at all. Inflation is a price level [2] phenomenon largely driven by trade imbalances. Inflation is about market power, or what some call pricing power. The common case here, btw, is when your external partners from whom you need to import critical goods get even a little bit pricing power then you will get inflation. China is seeking to own all its externals and deliberately suppress any such pricing power not driven by its own banks.
[1] https://www.bloomberg.com/news/articles/2018-03-22/the-great...
From where I sit, the past 40 year have shown that, if you grow the money supply only a little bit faster than the real economy grows, then you only get a little bit of inflation.
It still requires them to get many other rich countries to generally buy into their story.
Where do you think your iPhone is built?
I mean, I suppose they can all imagine that spherical cows exist, but wishing won't make it so.
The “they keep predicting economic collapse” is a huge red herring used by pro Chinese media to discredit western media who never made such claims out of a few fringe elements like Gordon Chang.
This? It’s not sustainable. Sooner or later this will result in a correction. This could range from aggressive budgetary measures, an internal crisis all the way to China monetising its overseas investments (which are extremely extensive).
(Ireland had some problems just after the crunch but a) entirely because they took on a bank they could have let fail and b) they’ve paid that off now.)
Going back to my original point: if increasing your revenue faster than increasing your interest payments, you can do this forever. Sure, the credit crunch gave some countries a shock, but you really should read up on exactly how egregious the Greek borrowing situation was. It was insanely unsustainable. Germany, Denmark, Sweden, France, Slovenia? They'll be fine.
China has not that problem. The only danger for China is inflation (that can be controlled with, for instance, taxes), otherwise, the People's Bank of China can buy directly the debt and nothing would happen. In fact, they could just stop emitting debt, but that would be inconvenient for banks and other big investors.
Private and local government debts is a different issue.
The EU should do everything in its power to end the unfair dollar hegemony.
There is a limit to the total rate of government spending - spending beyond the rate of the economy's ability to produce - which causes hyperinflation. That is unrelated to the deficit though (theoretically it could even happen in surplus e.g. if you destroyed all your factories and farms).
Even in the US, "lowering the printing speed, which is high", is considered a ""tightening""
And this is why credit ratings matter. Because for people to buy the bonds the credit rating needs to be high to keep the yield (interest) low.
If a country receives a less-than-stellar credit rating, the only way they can entice people to buy their bonds is by offering higher yield (interest rate) which means they have to pay back more.
Mario Draghi, the President of the Central European Bank (who can emit so many Euros as they wish with typing something in a computer) made a statement (1) that he will defend the Euro.
The next day the debt problem was solved.
'The markets' know that governments that emit debt in their own currency, are not depending of ratings or people buying bonds because they control the currency.
The European case is complicated because the Euro is kind of a foreign currency for the Euroarea, but the China case is obvious.
(1). https://www.telegraph.co.uk/finance/financialcrisis/9428894/...
Savings bonds end up being the poster child of the debt, but less than 1% of the debt is actually bonds like that.
Supply is just as important as demand when looking at debt.
The story looks similar too, which is why the CPC is shifting to encouraging demographic growth (including strongly incentivizing young professionals to form families.)
This is exactly what you expect to see happen as China further eclipses the US as the world's largest economy and the renminbi supplants the dollars as the choice of reserve currency.
Could happen in a year or 10 years, it's very hard to predict these things.
China's solution has always been to growth itself out of problems.
At some point, that becomes impossible.
The yuan does not provide the same service to other countries, nor could it since it isn’t fully convertible anyways.
"God 100K ! your code must be filled with so much boiler plate !"
- During the Second World War Britain / US went deep in the red to fund their survival, I wonder if anyone
though "We cannot afford to go into debt to defeat the Nazis !".
- Debt and deficit by itself is neutral - being a creditor is not inherently a good thing just like being
a debtor is not inherently a bad thing.
- If you look at the list of countries that have the lowest debt / Gdp ratios you will find its mostly low income, low productively countries, the question is not "damn how do they not need credit !" but "why are creditors not willing provide credit to these countries".
- A country with high deficit is also a country with either high FDI or high rate of internal investment, its
just doesn't sell as good a headline to say that though.
- For China is makes sense since they are quickly ageing, so the current cohort of working age people will
have high savings to draw down from at old age, same for the US / Japan / EU.
- The big question is what does the saving and investment get you ? Is it to fund foreign wars like Vietnam during Nixon, real estate speculation, education for the next generation ?
- The world is awash with credit and savings due to rise in income across all of humanity, driving down interest rate, its a good time to be a debtor and a awful time to a creditor (only generally, if you are a creditor/debtor in the payday loan sector then the inverse applies ).
Looking at public numbers by themselves does not tell much of a story.