China’s Improving Economic Data Masks Deeper Problems

Short of cash, high debts & poor corporate governance has one simple answer; Beijing could force these private sector to sell equity . . .

Chinese investments rarely fail to return their capital with interest. Many are widely profitable. The Dujiang Water Diversion Project took eight years but now earns its entire capital investment every 24 hours. The Three Gorges Dam recoups its capital every 44 months. The High Speed Rail lines are paying off their 15-year (!) bonds. New cities pay for themselves through designed-in productivity enhancements. Really. A cost-benefit analysis of the first completed leg of the South North Water Diversion project (it dwarfs the Three Gorges) says it's returning its projected dividends. The Bank for International Settlements shows total credit to the non-financial sector (core debt) share of GDP thus: US 249%, China 255%. Total credit to households (core debt): US 77%, China 51%. Big whoop. BUT China’s economy is growing three times faster than ours and its debt is entirely internal, its debt burden is one-third ours. While the share of public property in national wealth is 0% in Western countries (public debt exceeds public assets in the US, UK, EU, Japan, Italy), the Chinese collectively own 30% of public property (compared to the 15-25% during the West's post-WWII boom). Without honest, accurate portrayals of China, as it actually is, we will continue falling behind it (because it also spends 300% more on R&D than we do).

China borrows money to build infrastructure for the masses for tomorrow. The US borrows money to fund tax cuts for the wealthy today. Which one has a problem?

From the article: China on Friday reported annual growth of 6.1 percent, the slowest pace in 29 years. Economists, however, are likely to pay closer attention to figures that indicate that the economy stabilized in the final three months of last year. The figures show that the Chinese economy grew 6 percent in the fourth quarter, compared with the same period a year earlier, matching the pace of the July-to-September period. There is a biased skew in this article. It assumes slower annual growth is a bad thing. While generally true for mature first world economies... it is NOT true for China. China sustained double digit annual GDP growth for almost 20 years straight. But China also realized that as their economy matures (in terms of first world standards)... double digit growth is unsustainable. The government in China as been slowly pulling back from many programs that helped fuel double digit growth in recent years.. and to a long term plan that began a decade ago. Their long term target growth of 5-7 % is in fact being met and the economy continues to grow as does the consumer middle class. This is healthy growth by any first world nations measure... and I would argue that China has now moved squarely into first world nation status. China's economy is maturing an evolving to a consumers and service based economy now.. and that is good thing.. for the world and for China's citizens.

The Chinese tyrant Xi, has turned his back on the move to capitalism that was working wonders in China. So instead, he imported a non-Chinese economic system (invented in the British Library) that has failed every time it has been tried.

I couldn’t finish the article because I couldn’t get over the fact there was not a single female in the negotiations table picture.

China probably realized that it can not sustain private sector competitiveness without almost constant flow of latest technology from few developed countries and also market access to other countries, mainly the more lucrative western markets. China also probably realized that forcing western companies to hand over their intellectual property or stealing such technology will not be so easy as it once was. As US China trade war worsened in last few years, most western Govt became increasingly aware of Chinese trade and economic malpractices in China and abroad along with its global geopolitical ambition with its primitive Communist ideology of force & blind allegiance. Many of smaller countries, mainly Western ones, found new vigor & urgency to oppose China more openly as US started demanding more market access inside China while asking it to minimise and eventually stop all those business malpractice, and gross human rights violation for its own citizens, foreigners, and also its rampant interferences in private companies. China probably knows that it's very challenging to comply with all WTO rules and align with western democracies in terms of corporate and political governance without disturbing current Communist system of Governance. China becoming more inward & increasingly distancing itself from outside world, as it was before late 1970s when US opened the door to outside world and granted it market access.

Yes yes, now how about one of these analyses on the US economy...in 2020 the government already on track for $1.4 trillion in deficit spending during an economic "expansion". Interest rates near the zero-bound, and the Fed having dumped $400 billion in short-term liquidity into the markets since September 2019. Total US debt (corporate, governmental, consumer) up to over 3x GDP. Social security, state/ municipal pensions, etc all very underfunded, even assuming 6% long term returns. It's okay, though. More tax cuts and share buybacks (borrow to buy back equity!) will fix all woes.

I think the Chinese Miracle will come back to reality when the government starts cracking down on billionaires millionaires and it’s people. Between Capitalism and communism, communism will win because they are in Charge. The day of reckoning will be closer than we think first Hong Kong protests now Singapore snubbing their nose. At some point they have got to stem the tide of uprising before it hits the mainland.  As far as their debt problems Or generally their economy I think comparing them to U.S. or anyone else in the world makes not much sense. Seems to me they don’t need to print money when they simply can nationalize any business or industry they want just wipe out the debt or internally refinance it. Being communist they have many more tools in their box than we do. For example when I was there the housing boom was going crazy and on a Wednesday they simply put a cap on how much housing prices could go up. Their economy is also built on disparity in entry to the market place. Again when I was there a copy of Microsoft Office was 15 bucks and probably gets passed around for free or cheaper than even 15 bucks. Where as a westerner needs to pop down 500- 800 bucks for same software to start their business. Simplistic example but if they ever get on board and have to pay real cost for licensing or intellectual property rights that would slow their Miracle down as well.

So the Chinese built an economy on massive amounts of (effectively) deficit spending on the part of the government and/or debt (plus foreign investment and trade income). The vast majority of that money went into the pockets of the people in the upper tiers of the party and military. Given the very low state of the consumer economy at the start of this process, the crumbs that went to the workers were enough to provide significant growth to the Chinese economy. Now the bill is coming due... and the question is, how is the Chinese debt crisis going to play out? Will the government intervene? Can it meaningfully intervene? What are the knock on effects going to be for the world economy? I often wonder what the ACTUAL numbers on the Chinese economy are, rather than the political numbers that they put out.

If those are the official numbers, no one knows for sure just what China's true economic numbers are.

Yes, China faces many problems, a weakening economy, too much debt, an aging and shrinking population, and political unrest in Hong Kong and western China. It will be interesting to see how it all plays out over the next decade. President Xi has my sympathies.

As Chinese economy grows larger, it can't maintain high level of growth. However, the growth is the fastest in absolute amount. At 6.1% growth rate, China added $850Billions in 2019. USA at 2% growth rate added $400Billions. China seems to be closing the gap. It probably has surpassed US in purchasing power parity because American GDP valuation is based on higher prices particularly of healthcare, defence, education and services like lawyers' fees, banks' fees, hair cut, auto repair,etc.

The markets in the US are in a fevered state fueled by trillion dollar deficits, cheap money and tax breaks galore. It seems that the smart money, though, is on continuing growth from the "animal spirits" those conditions unleash and the obscene consumption of garbage by US consumers. But fevers are bound to break and my prediction is that the even greater debt infecting the Chinese economy will be the cause. It's guaranteed that the Chinese leadership will continue to run their printing presses at full steam to delay the day of reckoning of debt backed not by productivity in the delivery of goods and services but by nothing more than paper. When that realization hits the world markets and that a similar (if somewhat lesser) problem also infects the US economy ... well, watch out as it's going to be a very bumpy ride.

It's not that I don't appreciate this analysis but, if China's economic data masks deeper (borrowing) problems, shouldn't it be someone whose own economic data masks a doubling of it's national debt, whose stock market is rising only because of corporate buybacks and whose top ten corporations no longer pay any taxes be the one that points it's finger? Pot meet kettle.

Makes no sense to me....for years I’ve heard the Chinese have one of the highest savings rates in the world...that their people had to be -riddled to spend money on consumer items. Now they borrow too much...makes no sense.