The US "owes" China a trillion USD because the Chinese, investing on a national scale, need a safe investment that can support trillions and trillions of yuans. And in that regard right now, the US is the only game in town.
China's GDP growth is high, but that's because they're starting from a GDP that's much lower than that of the US. As with any logarithmic curve, growth starts quickly and then becomes harder over time. China has a ways to go.
The number of cars sold and the number of children enrolled in school are indicators that China does indeed have a much larger population than the US. Almost all of the BRIC nations have large populations, but are still in the process of turning that into wild economic growth. We'll see.
Other than the missing context for the numbers you provide, I agree with your general sentiment. There is a bit of schadenfreude among the US media whenever China struggles economicallly. This is probably because China is the US's biggest economic and military rival now that the Soviet Union is gone. It's natural to cheer for your team and boo the other team. I wouldn't take too much offense.
It is a primitive behaviour because it fosters racism and hatred for others instead of cooperation. The one thing we do not need more of right now is hatred, there's enough of it in the world.
Edit: It is also one thing if a private person holds his opinion (however detestable it might be - I don't care) and if we get this shoved down our throats on a large scale via all types of media and politicians. The latter is what I feel is offending.
There'd be no society, institutions, states, healthcare, education, families and friendships without cooperation.
Furthermore, entire social theories are built on the idea that selfishness is the driving force behind all human behavior. I could quote Nietzsche or Schopenhauer, but there are also contemporary examples (Dawkins and Singer, to name a few). I don't know if I agree with them or not, but there's plenty of conceptual drilling to do before dismissing them as "sociopaths."
An exponential curve, by definition, does not decrease over time.
Yes, soon China will have a financial crisis. It will have to undergo restructuring and debt forgiveness. It isn't going to evaporate from the earth.
As an interesting side note, the US has the largest shadow banking sector (as % of all financial assets) in the world: https://www.imf.org/external/pubs/ft/gfsr/2014/02/pdf/c2.pdf
China also holds more US debt than any other country
The reason that a bank holds government bonds is different than the reason a private investor would do so. Government bonds are the strongest type of reserve a bank can hold. Less safe reserves require a discount from face value. So for a bank there is a balance of risk between cheap and safe reserves like Treasuries and more expensive but better returning paper. A bank is always going to hold a mix of paper as a reserve[1].
China? China hold's US debt in order to be able to stabilize their currency against the dollar. And to backstop the value of their currency on the world market.
I don't see anything abnormal about any of this.
[1] For a bank, if the ratio of loans outstanding vs reserves in hand gets too low they can't loan out any more money. And since a bank makes money on fees inability to make loans is bad bad bad.
http://www.masslive.com/politics/index.ssf/2013/09/house_rep...
Oh yeah, now I remember why our credit rating was lowered.
Now you have a choice. You can try to maintain the postmortem reputations of your parents, by accepting their debt and making the payments. Or you can tell the creditors to FOAD.
For some reason, not only did our parents do that to us, but our grandparents did it to them, they chose to inherit the debt, and they still borrowed more money to throw their own party.
With government debt, the generational boundaries are not so clear, and the inheritance of debt smears together across thousands of deaths. But essentially, previous generations have been paying forward their debts instead of paying them back, to the point where almost everyone in the society is essentially born owing money to someone else. We already have so much inherited debt that we just can't afford to borrow the money for our own party. Also, we can't opt out.
That's not altogether untenable. I'd be willing to save up money and wait to throw my party until after the budget requirement is met. But it's hard to save anything when so much of your income is being sucked up by your elder generations' debt payments. And it is especially galling when people the same generation as you appear to be enjoying a party to which you were not invited.
That's the most persuasive rhetoric I know of in favor of repudiating national debt. To not do so is to reward the gross fiscal irresponsibility of our forebears.
The rhetoric against it, and also against mere default, states that it would devastate the ability of the current government to borrow more money. In other words, it would require the government to be more prudent and rational in regard to its budgeting. How is that a negative?
But that wasn't why the House Republicans threatened default. They were sending a big "F U" to the Obama administration, and playing a juvenile game of Chicken to do it. And they were only going to force some missed interest payments, without questioning the principal. Repudiating the debt would mean no more interest payments, and no repayment of principal, either. That would also, of course, cause a massive financial catastrophe that would preclude any partying for a long, long time, but at least it would temporarily stop the vicious cycle of kicking the snowball further down the mountain until it is so large that it starts killing any people unlucky enough to get in its way.
I'd love to have the national credit rating lowered. It would help stop the party-goers from running up another trillion that the non-invitees are ultimately tasked with paying off.
Don't presume that the government is necessarily using the sale of lower-interest bonds to pay off the principal on its higher-interest debts.
https://www.washingtonpost.com/news/wonk/wp/2013/03/05/john-...
As long as the principal on the bond cannot be repaid out of actual revenues, every bond you sell at a negative yield is one that may have to be refinanced at a positive yield later.
>Bass said in his letter that some of China’s reserves already are tied up in institutions such as policy banks and one of its sovereign-wealth funds.
>“The view that China has years of reserves to burn through is misinformed,” Bass wrote. “China’s back is completely up against the wall today, which is one of the primary reasons why the government is hypersensitive to any comments regarding its reserve levels or a hard landing.”
http://www.marketwatch.com/story/kyle-bass-warns-chinas-fore...
There are a lot of underlying facts to China's investment driven growth cycle that can be explained in math and global trade balances. Their reserves can be spent very fast. GDP growth doesn't matter so much if it's being spent on infrastructure that won't be maintained and will fall apart. In the past year or two, a giant piece of the GDP growth may have been from financial tricks as insolvent companies try to shift money around, offering high interest rates in the process (continous economic growth for a really long time mean no recession to shake out the leveraged companies which are surviving by finance alone, or outright scams.)
In the very long term, I think what will matter is the messed up demographics (shrinking population off balanced by too many males) and lack of diversity.
Japan had a similar death of growth situation after their investment driven model ran out of steam and their demographics shrunk. The big difference being their population was nearly all living a first world lifestyle by that time. China's isn't.
China can still be an important country. They can make a ton of stuff. They can wield outsized military influence globally thanks to nuclear weapons.
At the least I believe that this gives the US a huge advantage in attracting talent because the best from around the world can feel more at home here.
This needs to be observed through long term economic endurance rather than measurements of shorter term investment-driven growth like China, Japan, or Brazil experienced.
You can't sell into a vacuum. Hence, if they are "selling-off" at a strategic time, then there is someone "buying up" at the same strategic time.
China chose to put their own wealth into U.S. Treasuries, and therefore China will do everything it can to ensure that it can extract at least that much wealth out of U.S. Treasuries. They don't have a $1 trillion of free money that they can burn up just to hurt the U.S. by selling low. They need that money back!
The amount of U.S. debt held by China is often viewed as a negative thing, but it actually does a lot to stabilize our relationship with them. They want us to succeed financially, so that they can get their money paid back, and so that they have a place to sell the products they make.
Strong economic ties are the major reason we do not have a Cold War with China the way we did with Russia. Neither country wants to change that.
Edit to add: This is why there is so much U.S. reporting on China's economy. Not because Americans want it to fail, but because Americans want it to succeed, and have concerns.
Rates (i.e. yield) and price have an inverse relationship. If China were to sell their bonds, this should reduce the price of bonds (i.e. increase their yield). So, regardless of what we think about the likelihood of this happening, or the magnitude of the impact, 'historically low rates' do not provide any backstop.
Can you explain how that devalues a currency? Isn't a simpler explanation that the reason they hold so many is because US government bonds were and still are the safest way to invest your money?
You could worry that someday the Chinese might want to cash in on this investment, but increasing US exports to China isn't actually a problem. Increased demand for US exports would improve the US economy.
People like to try to figure out which side is exploiting the other, but both sides are largely getting what they want out of this deal.
QE programs have been propping up Wall Street for years now, and it would be just more of the same.
Certainly China could refuse to buy additional bonds that we put out which may impact liquidity but there are always buyers for US debt - Japan was the largest foreign holder of US debt just last year.
I'd have gone with GDP, military strength, set of advantageous alliances, or some other measure of economic, military, or political power.
We are declining? I wish someone had told me.
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.
You simply cannot trust Chinese government statistics at face value. Every level of government lies to make itself look better, because they are not accountable to the people but instead to punitive development goals that could have moderately successful bureaucrats uprooted and replaced in a nanosecond if they fall short anywhere.
China is the Titanic of nations: huge, ostentatious, and easier to snap than it looks.
- Money spent counts toward GDP, even if the money comes from a bank loan that will never be repaid (Example: big real estate project in a third-tier city that will never sell for its listed price)
- China's foreign reserves can not be used to pay back debt denominated in Chinese Yuan (foreign currency reserves are the result of people/institutions giving the Chinese government foreign currency in exchange for Chinese Yuan -- you can't do the conversion twice)
- China has a shrinking workforce due to demographic shifts. Specifically, they have moved from an agrarian birthrate to an industrialized one.
You are correct that China has a huge population and workforce. Their wages are rising (which is good for China!) which makes them less competitive as the factory to the world. The Chinese are making progress at moving up the value ladder to help justify those higher wages, but they aren't quite at the top yet. And the workers are very much getting squeezed between high living costs and soon-to-be higher costs to service all that debt and pay benefits to those not in the workforce. These are some reasons why experts are suggesting that China needs a new and more sustainable growth model.
The Chinese government will not allow the Chinese banks to fail the same way the USG did for Bear Stearns. They will likely buy the bad loans from the banks at face value and put them in government-owned asset management companies who will attempt to restructure them.
The cynic in me expects it will probably go worse than Japan since the '90s.
https://www.cia.gov/library/publications/the-world-factbook/...
I was in Tibet with some friends in October. At one point, our tour bus was detoured, because the bridge on our scheduled route wasn't big enough for it, so we drove a couple hours out of our way, and just happened to pass a 10MW solar plant. In the middle of Nowhere, Tibet. A thing we wouldn't even have seen if we hadn't had to detour down a dirt track road, still under construction (to the point that we had to stop and wait for the equipment that was carving the road bed out of the mountain face to clear enough room for our bus to pass). Who knows how many other such hidden infrastructure gems there are, down other roads that tourists don't get permission to use?
Later, we passed a seemingly endless convoy of dozens of fuel tankers and flatbeds loaded with construction equipment — all military green — headed south, as we were returning to Lhasa from Mt. Everest base camp. Doing some digging, it turns out this materiel was all accumulating at the Nepalese border.
See, just a week or two previously, Nepal had passed its new constitution, which favored closer ties with China over India. India, used to being Nepal's big brother and pushing it around, subsequently closed their border with Nepal — the border which, by treaty, was the only route through which Nepal could import fuel. Consequently, Nepal was starting to experience a ridiculous fuel shortage. (Talking with a taxi driver in Kathmandu a few days after having seen this convoy, the petrol rationing was down to 7L per family per week. Our flight from Kathmandu to Lhasa — about a 90 minute flight, going the long way, so people could get a view of Everest — was on an Air China A340, because they needed to send a plane that could carry enough fuel for the round trip, as there wasn't enough Jet A at KTM for the return.)
These convoys of fuel and construction equipment were waiting for a new treaty to be signed between Nepal and China, allowing emergency fuel imports from China. The purpose for all the construction equipment? The Nepalese side of the road that runs from Kathmandu to Lhasa was still destroyed from the Gorkha earthquake. The estimates I was reading suggested that, once the border was opened, the Chinese would be able to rebuild the road from the border to Kathmandu in about three days, and have fuel continually running down the repaired road as long as Nepal needed it.
China just happened to have the materiel on hand, in Tibet, to respond within days of India closing the border and Nepal going into crisis, with sufficient manpower, equipment, and fuel to rebuild a hundred-odd kilometers of mountain road in a few days and keep a city of a million people, and who knows how much of the rest of Nepal, from collapsing.
But they're completely backwards and corrupt, and have no idea what they're doing.
What is perhaps more alarming is their development of Africa. I passed through a few African countries last year and China was everywhere. They're in the up-and-coming metropolises like Addis Ababa, they're in despot states like Zimbabwe and they own vast numbers of resource mines in places like Zambia (copper) and Namibia (uranium).
Now almost every sub-Saharan African country has Chinese mining activity.
And the story is the same in all these places. China promises roads and power stations for mining rights, then they do all the work. They ship everything over, including workers. If there is any untrained scrot work for locals, they get paid a tiny fraction of what a Chinese worker would —let that sink in— but anything else is Chinese. There's no local training, no real number of local jobs.
They're investing hundreds of millions in exchange for the infrastructure they use to strip-mine a country.
While we're all fretting about how much cash China has, they have built a resource network that covers half the planet. They have millions of engineers and ton of resources and the political power (the debts of every other major power) to get away with nearly anything.
> They're investing hundreds of millions in exchange for the infrastructure they use to strip-mine a country.
They aren't even investing that much. The equipment is all being bought — from government-owned companies — with government grant money.
They're playing a very long game, and they're incredibly good at it.
But the "hundreds of millions" is what it would cost a western country to buy [from China]. You're right though, China isn't losing hundreds of millions for the investment. Probably only a tiny fraction of that.
People underestimate the ability of a country like China to utilize decades of modern economic thought and their willingness to apply it.
Yes Chinese are not saints but pure capitalists, I see no evil in their actions. On the other hand, white man's actions there were evil on quite a few occasions
From where I stand, China NOT being pure capitalists for the good of their citizens is more evil.
It's well and good when a developed country talks about ethics and capitalism - they have the luxury to. But when a country where millions live in humiliating poverty, don't have enough to eat, and have no hope for the future, it would be far more evil to follow the book and let down these millions.
Should the people living there leave, like they are leaving Alberta and North Dakota now? Is your country going to take them?
They don't though. We should all be helping underdeveloped African nations reach a basic level of education, economy and healthcare so they can decide their own future in the world.
As it is, they're being economically suppressed.
The best way I can think of to help a developing nation is to buy the exports of its domestic companies.
Foreign investment into resource extraction sends money in when the goods come out, but then it goes all the way round in the revolving door and comes right back out to pay the foreign investors. (Foreign investment in infrastructure at least leaves the roads/wires/pipes behind when the money goes.)
You want to help Africa? Buy African goods and services from African-owned companies, whenever they are competitive in the world market. Treat them like economic grown-ups, and eventually they will shake off the memory of living in their colonial power's basement apartment and getting a weekly allowance.
Stop sending free money. It just ends up fueling corruption and making local business less competitive.
Africa, like everywhere else, is perfectly capable of addressing and solving its own problems when outsiders aren't constantly intervening in its affairs.
Nepal passed the constitution barring a large section of its own population (Madehsis et al) from participation in the government function.
This has been the bone of contention. The barred ones are culturally tied to Indian state of Bihar, almost to the extent of having common identities.
There were violent protests in southern Nepal, and slowly the situation got out of control for Nepal government to handle. The same protesters were blocking the major connecting roads from the Nepalese side of border. While on the Indian side there were long queues of trucks lined up.
It is rumored that Indian government helped orchestrating these protests, just as much as it is rumored that Chinese government influenced to keep the Madhesis out.
But at the end of day a that constitution is certainly failing in many aspects.
Really? They have it ingrained in the constitution? If Geo-political situation changes, and they need to re-balance their ties? They are going to need constitutional amendments?
They look back to the men that wrote it hoping to divine their intent much like those who read the bible.
I don't see how a constitution can go "out of date". It's the founding document for a nation - the individual states that compromise the US ratified a document that forms the basis of their association. Individual words and phrases have gone out of common parlance, but to change the meaning of the document would require the agreement of the parties, i.e. the states. Is it ever reasonable for the other party to tell you "Now that you've signed this contract, we're going to change it"?
The genius of the US constitution is that it sets up a mechanism for a system of government without getting into policy. Policy is decided by the legislature, and the legal code changes all the time.
But the structure has served us well and is better than, or at least no worse than, that of anyplace else. Human nature hasn't changed, after all, and there hasn't been any real advancement in government for thousands of years.
The lawyering over language happens because a document is just a means of communication, after all - there's no purpose in a written agreement if you're going to allow the meaning of the words in that agreement to change.
> Rather than try to stretch a document written for a very different time to apply to modern disputes, why not hold a new convention, with a remit not to figure out what people were thinking 200+ years ago, but to figure out the best answers to the questions we have today?
Because you don't need to change the structure of a government to change policy. The legislature is there to provide "the best answers to the questions we have today".
Southern Nepal — the part of the country that is very closely tied, culturally and economically, with India — went on a general strike for weeks, to the point that there were police killing strikers and strikers lynching police, because they were bored?
Sorry, I didn't read the constitution, myself. I took the word of our local guide, an incredibly bright, aware Nepali gentleman and professor of anthropology in Kathmandu, and pretty much everyone else in the country with whom I spoke about the situation. (The exceptions being people who either didn't understand the situation well enough to comment, or didn't feel comfortable discussing it with a foreigner.)
http://www.inseconline.org/linkedfile/Bill%20Of%20Constituti...
Meanwhile, Wikipedia claims, "The promulgation of the new constitution was immediately followed by virtual blockade of all checkpoints at Nepal-India border." but without any citation.
turtles all the way down...
What do you mean by that?
(Your story seem to tell quite the opposite.)
No we did not close any border. This is false information.
How about the guy whose hands were cut off when he tried to smuggle fuel across the border that wasn't closed?
Or did that also not happen?
EDIT: To be fair, I do remember noting a rather curious difference in tone and content in the reporting about the Nepali constitution's passage and the subsequent border situation between Indian media and everyone else's.
What? I've never been anywhere near the Nepali border, but have spent enough time in India to know that it's not lawless anarchy. I'll have to ask you for a source on this please.
A couple quick comments:
1 - We'll feel the economic threat of China when they have a crisis. The world was less interconnected in the 90s, yet troubles in Mexico, Thailand and Russia caused global damage.
2 - The GDP growth #s are suspect, and off of a smaller base. Hard to make an apples to apples comparison.
3 - Hard to compare absolute #s of cars or people in school - given that it's a country of a billion people, they should have a lot more cars and people in school. (If anything, it should be 3X)
More then half of china lives in very poor farming villages - and the government intends for them to continue living that way.
The fair comparison you want to be making is the American urban vs Chinese urban population (Which is now close to the total population of America).
OH MY GOD THE WORLD IS ENDING.
oh wait, a country with a much higher population is able to sell more cars. Carry on.
I agree the articles we see are biased, and there's an undercurrent of fear in trying to downplay China's rise.
That said, I feel that the forces trying to explain away or ignore China's outright fabrication and lies about its growth are more, how shall I say, insistent.
http://grist.org/climate-energy/china-is-totally-crushing-th...
>J. Paul Getty
we have powerful enough printing presses to print $1T USD.
Edit: more interesting facts.
- China's percent GDP growth is more than twice that of the US. (7.4% vs 2.4% in 2015)
- China's government has $3.9T in cash reserves vs the US' $434B.
- China has twice as many children enrolled in primary and secondary school and 50% more undergrads than the US.
We can only say but, but, but for so long.