China economy crashing? by SIGNYM

REAL WORLD EVENT DISCUSSIONS

China economy crashing?

POSTED BY: SIGNYM
UPDATED: Monday, March 10, 2014 19:09
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Saturday, March 8, 2014 12:34 PM

I believe in solving problems, not sharing them.

Since the 2008 crash, China has been trying to replace its lagging export activity by increasing internal consumption. They've been doing this, apparently, by bumping up debt. According to various reports, loans or loan-like arrangements are increasingly being made outside of the official banking system. The lenders are part of what is being called the "shadow banking system": local and regional governments which issue bonds, lenders of last resort like the local mafia, various "trust" investment firms which lend out the collective investments of the wealthy. These loans, or loan-like arrangements, combined with official lending, have exploded the debt by $14 trillion since 2008, up to 140% of the GDP. Much of this is in the hands of corrupt officials or their families.

http://www.zerohedge.com/contributed/2014-03-07/china-crashing-%E2%80%
A6-predicted

The first two "trust" companies which approached default were saved by an unknown angel investor- possibly the People's Bank of China (PBOC). The latest was allowed to fail.

China is experiencing a series of bubbles in real estate, commodities, etc. Wealthy Chinese who fear a financial collapse are buying gold; Chinese individual gold purchases sucked up the equivalent of the entire world's output last year, and then some. That's a lot of Chinese voting with their yuan!

Xi Jingping foresaw this, and has been attempting crack down on corruption. Many of the wealthy are fleeing China with their ill-gotten gains. The USA, Canada, Australia and the UK are seen as favorable locations for wealthy ex-officials with a shady/ criminal past. In fact, the immigration has become so intense that Canada just canceled its visas-for-millionaires program.

I swear, ya can't make this shit up. I'll provide more links if you're interested, but just to let you know I've verified these observations thru many sources including Financial Times, Xihnua, and the BBC.

Interesting times, and bears further watching.

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Saturday, March 8, 2014 10:07 PM

KPO

Sometimes you own the libs. Sometimes, the libs own you.

It's how booms typically end. And China has had one hell of a boom. We shall see. Not what the world economy wants right now...

It's not personal. It's just war.

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Saturday, March 8, 2014 11:30 PM

1KIKI

Goodbye, kind world (George Monbiot) - In common with all those generations which have contemplated catastrophe, we appear to be incapable of understanding what confronts us.

Signy
I think you just came up with a great title for a blog/ news republishing website: Interesting Times.

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Saturday, March 8, 2014 11:47 PM

SIGNYM

I believe in solving problems, not sharing them.

Too many people do the blog thing better. I recommend Zerohedge.com but, like I said, make sure you have a good shitscreen in place. They're either bang-on-brilliant or WTF? crazy.

In any case, hubby and I were talking about what this means for China. In the case of China, this isn't money that they owe others, it's money they owe internally. (China has a large sovereign wealth fund and a positive balance of trade.) So, if the high-flyers and connected corrupt plunk their yuan into shaky investments, and the investments go belly-up, what does that do to the Chinese economy? The financial-class gets a haircut, and .... ????

I'm not sure that affects such a large part of their economy, so I'm going to have to think about that some.

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Sunday, March 9, 2014 11:52 AM

SIGNYM

I believe in solving problems, not sharing them.

I guess what this might affect are their raw materials and "resources" suppliers... if less money is coming in from their export market and there is less money circulating overall, maybe there is less money with which to buy those massive amounts of soy from Brazil and Argentina, and possibly less money for imported coal (from Africa) and iron ore (both suffering specific gluts). In some cases, this might also mean fewer jobs, as real estate and local/ regional projects suffer a sharp slowdown. Not sure if anyone is aware, but there are MANY empty housing developments in China.

The Chinese leadership is very sensitive to unemployment. Again, I think Xi Jingping has tried to head this off. China has complex problems rooted in many specific policies from the past. For example, local and regional governments have almost no tax base, literally. They collect the taxes, but send them on to the national government. This has forced local/ regional governments to issue bonds for every project that they want to engage in. Also, China's "benefits" system - education, health, unemployment benefits - can only be collected by the beneficiary if they're residing in their registered province/ canton. So those hundreds of millions of migrant workers and their children have no support. In addition to rooting our corruption, the last plenum committed to reversing these policies. Another statement that pops up frequently is the desire to make the Chinese economy more "market driven". I think what that means is to make sure that there is a ROI... return on investment... for the various investments and projects being committed to.

The last plenum addressed all that. I do have an issue with making the economy more "market driven" because many projects... such as pollution control, environmental restoration, infrastructural change etc... don't have clearly identifiable ROIs; they aren't "profit centers" but they DO create the base for a sustainable economy. I hope the Chinese leadership realize that.

I have to add, it's difficult getting information out of China. The Chinese are culturally extremely indirect. Reading the plenum statements in Xihnua was a nightmare. And the western financial press either (1) doesn't know what's going on or (2) doesn't provide clear explanations. So this is kind of a "figure it out as you go along" project.

Also... that indirectness... When the Chinese craft a statement for western press, being required to lay bare their intent and their approach (We're going to dump the dollar. We need to be able to provide military cover for our allies) must seem like the crudest of crude statements. And when western diplomats craft a statement for their Chinese counterparts, it must seem like mincing, sneaky language. It's a wonder our two cultures can even communicate.

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Sunday, March 9, 2014 12:13 PM

6IXSTRINGJACK

I'm sure you would not have to stray very far off of China's path to see us fall in the very same pitfalls.

That's why the common misconception is that WE owe China the 17 Trillion. I don't know China's national debt figure, but there's no doubt that they've leveraged more than their entire workforce on credit.

This article of China falling in the exact same pitfalls we've pioneered solidify my view on that.

If everybody is in debt, who do we all owe?

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Sunday, March 9, 2014 12:22 PM

SIGNYM

I believe in solving problems, not sharing them.

Quote:
I'm sure you would not have to stray very far off of China's path to see us fall in the very same pitfalls.

Been there, done that! In 2008!

Quote:
That's why the common misconception is that WE owe China the 17 Trillion.

Oh, we owe them, alright. It's not a misconception.

Quote:
I don't know China's national debt figure, but there's no doubt that they've leveraged more than their entire workforce on credit.

But their entire workforce is NOT leveraged. The typical Chinese person is a notorious saver. It's only a small portion of the population who is in debt.

Quote:
If everybody is in debt, who do we all owe?

Bankers (and other lenders).

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Sunday, March 9, 2014 12:29 PM

6IXSTRINGJACK

Quote:
Originally posted by SIGNYM:
..... (last post)

Show me legitimate figures that agree that China is not also in debt.

We all owe somebody, but it's not China. And it's sure as hell not the dipshit bankers we run across in our lives. One of my old friends is one of those guys. Trust me, when our collective debt is called, he'll be on our side of the fence.

EDITED TO ADD:

What makes you think that ouside of "Urban" areas in this country that people aren't notorious savers.

Sure, 1/2 of the US population is shit when it comes to budgeting, but that only accounts for 5% of the land.

If elections were won by square footage of the voters by property, we'd be over 90% republican in any election.

EDITED TO ADD2:

You should consider putting a space between your JPG and the start bracket for the "end bold/quote". I had problems replying to two of your messages, but that seems to be the fix.

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Sunday, March 9, 2014 12:43 PM

SIGNYM

I believe in solving problems, not sharing them.

Quote:
Show me legitimate figures that agree that China is not also in debt.

China is in debt, but not to us. Their debt... as I mentioned before... seems to be mostly internal debt.... Chinese owing Chinese. Their sovereign wealth fund, managed by the China Investment Corporation, has about a half-trillion dollars -valued in US dollars (USD) - in its vault. Of that, approximately $3 trillion is as actual dollars- altho China is attempting to reduce its dollar holdings. http://en.wikipedia.org/wiki/China_Investment_Corporation

Its current account... roughly categorized a total balance of trade...

Quote:
China recorded a Current Account surplus of $498 USD Hundred Million in the fourth quarter of 2013. Current Account in China is reported by the State Administration of Foreign Exchange, China. Current Account in China averaged 372.99 USD Hundred Million from 1998 until 2013, reaching an all time high of 1330.85 USD Hundred Million in the fourth quarter of 2008 and a record low of -8.96 USD Hundred Million in the second quarter of 2001. Current Account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid).

Problem with China is their political class got involved in the same kind of financialism that OUR upper class and banksters got involved in. The kind of financialism, as Frem so clearly said, that involves putting ten marbles into a can and expecting to get eleven out. Let's see how China digs itself out of this self-created hole. If they let the shadow banks collapse, that would solve several problems at once:

Funny money would evaporate
Income inequality would be less of an economic problem
The upper class would also be less of a political problem- especially if they're allowed to leave.

It will be interesting to see how beholden the central government is to its moneyed class, which also happens to be its mid-political echelon.

OH YEAH, I FORGOT: Income inequality was also on the Chinese Central Committee Plenum's list of things to address.

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Sunday, March 9, 2014 12:47 PM

1KIKI

Goodbye, kind world (George Monbiot) - In common with all those generations which have contemplated catastrophe, we appear to be incapable of understanding what confronts us.

We could look at historical crashes for information. The roaring twenties roared up to the crash b/c, afaik, everyone (well, not EVERYone, but a lot of people) was up to their eyeballs in debt. Interesting parallel, while the US boomed in the 20s, due to internal debt levels, China boomed in the 2000s due to external debt. Meanwhile, in the 20s Germany fell under economically crippling reparations debt and started WWII. So the lesson I draw is debt finances booms (a bubble that includes production) and bubbles (production-free booms aka speculation). The fallout depends on who holds the debt, and what is the policy response.

Off hand I'd say that the Chinese ultra-wealthy are going to feel the pinch. But having the money supply reduced will improve the lot of the workers and savers who will find their currency more valuable. And all will be well, unless the Chinese government feels compelled to make the ultra-wealthy whole and rips the country off to do that, like what happened with us and many other western economies after 2008.

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Sunday, March 9, 2014 4:19 PM

SIGNYM

I believe in solving problems, not sharing them.

Unfortunately, one of the usual responses to a major crash is war. So I'm trying to figure out whether that is a possibility.

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Monday, March 10, 2014 2:30 PM

6IXSTRINGJACK

So what you're saying is that even though all of the houses are linked up for wireless communication and they didn't have to lay millions of miles of telephone lines, they're still bankrupt.... to themselves.

Of course the Chinese owe the Chinese.

They might be dumb, but they're not stupid. They learned from the Best.

Once whatever inevitable bubble burst happens that puts ripples through China's new middle class, it's all downhill from there.

My question is, how do we owe that money to China when China owes itself more than it makes?

Methinks we've all been duped.

We're just lucky the Chinese havn't figured it out yet and our clothing costs haven't skyrocked along with gas and beer and cigarettes.

Just you wait ;)

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Monday, March 10, 2014 7:09 PM

JONGSSTRAW

China will be just fine. An hour after America borrows a few hundred billion, we're hungry to borrow billions more.

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