I don't know why people keep comparing China to Japan, the only real similarity is that they're both in east Asia. China has an order of magnitude more people, isn't a small island, has a larger military, different form of government, different economic system, etc. etc.
Much of China's debt is in the form of housing and infrastructure - it's debt nonetheless, but is also an asset. Not all debt is strictly a "liability." Not to mention Chinese citizens save far more than American's, so a simple comparison of the total debt load isn't entirely fair to either nation.
China's main issue is not making sure their (debt) investments are fueling more growth and not going into the ether, like other countries' debt. Of course, this challenge is hardly unique to China. Fortunately for them, they have a large domestic population to use to fuel growth. They'll just need to make sure they can properly incentivize more population growth to keep the positive feedback loop humming along.
If an asset depreciates or isn't worth what you paid for it, refusing to write down the asset and take your medicine sooner rather than later just drags out the pain. Better to take your medicine and get the pain over with so your economy can quickly reallocate and quickly bounce back. The losers must lose. This approach does not go down well with politicians, but is the best medicine for a sick patient.
We're planning on the protocol being able to lend liquidity into existence out of thin air (well more accurately, taking advantage of collateral dynamics and protocol stablecoin flows) and packaging that debt into decentralized stablecoins denominated in $…
Thanks to the moral hazards, they've have motivated me and others to pursue alternatives that in their eyes have systemic risk, and I'd agree, very risk to their bailoutistan system :D
Because they both went through hyper-growth periods after economic shock (war for Japan, and for China war then Mao).
During that period of hubris they took on a lot of debt.
They both had declining GDP growth and bad demographics.
The negative momentum overwhelms the positive moment at some point.
Your comment misses the bit were Real Estate is not a productive asset. Building new buildings on land is productive, but like Canada's housing bubble, when homes double in value quickly, it's just inflation.
" They'll just need to make sure they can properly incentivize more population growth to keep the positive feedback loop humming along."
I hope you realize the folly of this statement.
Imagine if we all just did the 'body count for GDP strategy'.
So there is no sense in which it's an asset.
It's actually more of a Ponzi scheme with concrete accessories.
In any case, it's not really a useful, or meaningful metric anyway.
https://www.abc.net.au/news/2021-09-21/china-property-bust-e...
https://data.census.gov/cedsci/table?t=Vacancy&d=ACS%201-Yea...
I have no horse in this game, but 17/300 = 5.2% and 90/1300 = 6.9%. (edit: wikipedia says population of China is 1.4 billion, which would give 6.4%).
17/330 = 5.2% 60/1400 = 4.2%
the grandparent poster was mistaken (the 90 million represented the amount of people the empty housing could house, not the amount of empty homes itself) so I found real number and included the link.
The difference is there investments are all leveraged, whereas Westerners have a larger share of investments that are in equities with no leverage.
It's easy to have a lot of "savings" when 100% of your investments on 5:1 leverage are appreciating at 7%+ per year for 2 decades.
It's also easier to get that much appreciation when it's all debt fueled and on leverage.
did the one child policy mess that up? What i understand is China is short on women and the population situation is going to get worse before it gets better.
China has a lot of issues, one being a questionable government for those who are not Han, but China's existential issue is making sure the population of (young) people remains high and growing steadily.
tl;dr: China's population has already peaked and in 2070 there will be 50% of the current population.
I would not be very confident that any of what you are talking about is going to fix China's massive demographic problems, and such policies have generally had limited success elsewhere.
Additionally, with the new entrants to the workforce in 15-20 years already having been born, even if improvement was seen, you're talking many decades before you're going to have that said improvement in births be sufficient to stop the workforce from shrinking, dependency ratios getting worse, etc.
China loosened it's policies about 20 years too late.
https://chinese.yabla.com/chinese-english-pinyin-dictionary....
https://www.sourcingallies.com/blog/cha-bu-duo
https://en.wikipedia.org/wiki/Tofu-dreg_project
https://www.youtube.com/watch?v=s-2DtL-Wjkc
The presumption that you can compare US financial/economic norms to Chinese is Epic Fail as an assumption. You have to take your head out of the clouds and challenge you ideals assumptions that underlie your understanding of the world!
The fact is that China is urbanizing at an unprecedented rate. You don't really have to believe the government - just go visit basically anywhere in China.
Problem is that despite the urbanization potential that doesn’t mean the properties are correctly priced or that they’ll continue to go up.
I spent some time in another Asian country that has a per capita GDP 1/10th of the US, yet housing prices are comparable to the mid-west US and most are empty. Most are owned by the ultra rich and used to launder money. And I’m not talking prime location, these are basic apartments on the edge of the city going for $100,000USD or 30-40x average annual salaries. Unless GDP goes 3x no way those prices will hold.
It’s a massive bet on continued income growth and demand for real estate which is not a given, which Japan showed with its massive property bubble.
Real money just buys western passport (for themselves of their children via birth tourism) and buy real estate on the North-American west coast.
Meanwhile my current home outside china is almost 100 years old and not garbage.
Here we are talking about all the largest borrowers in China being government owned: China Mobile, ICBC, China Railway, China National Petroleum, SAIC Motor, Sinopec Group, etc.
See https://fortune.com/2015/07/22/china-global-500-government-o...
Given the great difficulty truly privately owned businesses face in obtaining credit, and how most of them need to go to the shadow financial system, the bulk of private debt doesn't even show up in these measures, and the bulk of what is officially considered private debt should be counted as public debt.
This creates all sorts of problems for China because if there is a banking crisis, then the banks, which are government owned, are lending money to state owned enterprises that are not allowed to fail. This is why you get the zombie bank problem in China - it's different than the situation in Japan. In Japan, the problem was real estate zombie loans, but in China the problem is zombie loans to politically connected state monopolies as well as individual real estate. China can perhaps say "screw the households" but it can't say "screw Sinopec".
It would seem to me that the amount of additional debt you could consider the government as having taken on by virtue of these being SOEs would however be compensated by the fact that they're SOEs... i.e. the government also has equity ownership in them. The asset would somewhat or entirely cancel out the liability as it where.
The equivalent enterprises in the US aren't owned by the governemnt. Less debt, for sure, but less equity too.
The only bound on these SOEs raising prices would be civil unrest, so the question is whether the government is keeping prices low because of policy or because they cannot politically raise prices. The government can also choose to devalue the currency to reduce outstanding liabilities.
So there are two points to make here.
1. How to measure the debt burden
There is a reason debt sustainability is measured in terms of debt service to revenue metrics as opposed to things like debt to book value, as it's much harder to sell off your company to retire the debt.
I mean, yes, China could decide to privatize all these companies and then wash their hands of the debt. But I think it is a matter of strategic importance for the CCP to control these companies. I could be wrong.
2. How to determine whether a given burden is sustainable
The larger point, though, is that it's never a problem for the Chinese government to run out of money, anymore than it's a problem for the US government. Both governments print their own money. The issue is one of economic management, e.g. is the current policy one that promotes the growth of the chinese economy in a sustainable way? This has nothing to do with running out of money as you can print money. Money is just paper used to get people to be productive. It's a just prop. The real economy is what matters. When people worry about debt, you have to translate their worries into something to do with the real economy. A debt crisis means that the pie of real resources is smaller than people thought it was. You thought you had $100 in the bank, but you only have $50. That's a big deal. The revelation that the pie is smaller is a real economy thing, and it is true even if the banking crisis is averted. E.g. you can tax people and give the money to the banks and the banks will be made whole. That's still recognizing that the pie is smaller. So when we talk about the banking crisis, we do not mean that the government will run out of money, what we mean is that the chinese people will have to bear the cost of reduced real consumption than what they had planned when they were given bonds with a promised interest rate which they thought would pay off.
And there is a structural problem to bailing out failing businesses in terms of misallocation of real resources, as politically connected bureacracies get money but innovative companies do not. That means more real resources are wasted in China. As more real resources are wasted, the economy becomes less efficient and the chinese standard of living either declines or grows more slowly than it should. That is what is at stake here. It is also a problem in the west, where we keep subsidizing politically popular companies at the expense of making the economy more inefficient. This is the main temptation of letting government control the financial system and print its own money.
Balance sheets and sustainability metrics are just bookkeeping to track how many real resources are being wasted. China (and the US) have an enormous amount of real resources to waste, so we are not going to run out of things to screw up any time soon. But if the standard of living does not increase fast enough for people's expectations, it could cause political unrest for those who enjoy spending other people's money on their favorite causes.
You'd think "China makes everything" but they do need raw materials and fuel. They also import a lot of food, not sure how necessary it is.
So the smart thing to do is invest heavily into poor but resource rich countries in Africa.
US Federal Debt = all loans to the US Federal Government (which excludes loans to state and local governments).
Private Debt = all loans to non-governmental entities (individuals/businesses/corporations) in a country.
It seems like the music has to stop eventually for Chinese growth, especially since the differential between "real" GDP and reported GDP is likely larger than even this seems.
If they lean into US bonds, wouldn't that weaken their strategic position? I'm not sure they'd be willing to do so.
The housing crisis and stagnation followed a tradewar after which the US forced it to do technology transfers, limit exports to the US, take a minimum amount of american imports in industries, etc and forced it to pick up a shitty monetary policy.
The thing is. Japan kind of had to roll with it. Exporting to the USSR was a nono, other markets like china were not nearly as developed yet and western Europe being another export market was joining the US in it's efforts. Additionally they weren't allowed a standing army but did have the US military around.
China has less of those restrictions.
I think this was the real killer. There’s a bestselling book on that in Japan, Princes of the Yen (and documentary on YouTube).
If they, like everyone else in the world, paper over the problem, bail out their financial industry, and kick the can down the road, well, they may still become #1 but it will be much less threatening to anyone else, and it will be much less certain, and depending on how deep they go, yeah, seeing the sort of stagnation Japan did is on the table.
Which way will they go? I have no idea. They seem to lie as big as any other country in the world about their economic progress, which would suggest covering over the problems and propping up zombies just like the West is doing. But they might have leadership that can see the advantages in the long term of letting the economy actually experience the pain it needs to align itself properly.
Eventually you end up in a place like we are in America, where we've kicked the can down the road so many times that the requisite short-term pain to fix the economy would be almost terminal, if not outright terminal.
This makes no sense. If there is a magical investment that would pay 10% interest then companies would jump all over it and borrow money leading to the usual inflation boom which is followed by interest rate increases. Considering the total lack of negotiating power of labor and the fact that workers are competing for jobs rather than companies competing for workers it doesn't appear that the problem is a lack of productivity. To be blunt, there is too much productivity, too many people are working and saving too much instead of actually spending their money. In fact, most people want to work less but they do so by saving money for an early retirement.
>Eventually you end up in a place like we are in America, where we've kicked the can down the road so many times that the requisite short-term pain to fix the economy would be almost terminal, if not outright terminal.
There is no such thing as a "requisite short-term pain to fix the economy". Is it really that hard to understand that an economy is reaching saturation and has no need for further exponential investments?
It's a pity HN doesn't permit direct messages, because I suspect you'd be hearing from me in less than a year about this bold prediction.
Our economy is an absolute clusterfuck held together only by the absurd productivity modern technology has enabled. We've got zombie companies barely paying their debt load, a economy that is increasingly unable to employ people, supply chains breaking down as the result of decades of very stupid decisions and misallocations, an insane amount of parasitism in our financial services sector which has long since abandoned its proper role as servant of the economy and become its master. We're entering the final phase here where the Fed must raise interest rates to control the inflation that is the result of their already-ill-advised "stimulus" policies to paper over the other failings of the financial sector, and they must not raise interest rates because it will render the government's debt load unsustainable, to say nothing of the private sector's debt load.
We're not merely "not merely growing exponentially", we're contracting quickly and hard. The only reason you don't realize this is that there's this one indicator going up, which is the stock market. On every other indicator the economy is flashing red lights, but the stock market goes up and the Pravda keeps banging the drum about how wonderful the economy is (ignore the increasing shortages, shrinkflation, and unemployment numbers citizen, don't trust your eyes and personal experience trust us) so people who aren't paying attention don't notice.
There's a very, very good reason my post wasn't a triumphalist one about how inevitable it is that China will in fact just go like Japan and the US/West will remain dominant. The truth is the entire world economy is being held together by duct tape and lies. China may be a bit bolder than us in its lies... then again I can't discount the possibility that I'm just underestimating the success with which my own culture is able to lie to me as well. Because lies coevolve with the ones being lied to, the lies in other cultural meme ecosystems are often much easier to discern than the lies told to you in the one you live in.
The fix to this situation requires that a lot of debt that exists now is not going to be serviced, which is to say, defaulted on. Since we've been fixing the problem of "X can't service the debt" by loaning them more money and increasing the debt even more, we've been digging in deeper and deeper and increasing the pain necessary to fix things. We seem to be reaching the point where the situation is going to fix itself regardless of what we do, pushed on by the pandemic response.
It seems that a peer competitor benefiting from doing the hard right thing seems like the only thing that could force the US govt back on track at this point.
I love this phrase you've crafted. If only we could force China into picking up, like... no less than 14 shitty monetary policies.....
I think you meant Akihabara, and yes it changed, but not into an office park. It went from hard electronics to video game shops and maid cafés.
I did visit Akihabara and it was a lot of fun browsing he gadget shops, but most of the actual devices were under powered little toys like tiny laptops running Windows CE.
I guess in another timeline Chiba could have become Shenzhen. That would have been cool.
The thing is, the factories, farms, power plants, equipment, knowhow don't go away.
If you have the people and can feed them, a developed country will do fine even if it defaults on its debts and the world hates them.
Contrast that with more conservative/isolationist countries that took the dumb advice not to take debt and build fast - they'll be stuck being poor or at best mediocre for a long time.
That's much of Eastern Europe imo.
Torn down for imaginary stock market money that vanished in a few years anyway. Can thank the likes of Jim Slater[1] for that.
Neuromancer is the only novel set in Chiba. Chiba is not famous for any gadget shops, it's an industrial and port town, which is most likely why it's the setting of the opening of Neuromancer - the protagonist is an outsider, down on his luck, living in a pretty shitty place.
I went to the famed Akihabra back in 2012. I'd been expecting, I guess, some super high tech futuristic place. Instead I wandered through rows and rows of street vendors selling what looked like bits of 1980s arcade games.
https://www.weforum.org/agenda/2020/09/the-world-population-...
One interesting theory I heard about the entire Latin world (explaining why it tends to be poor) is that the old Spanish empire was deliberately modeled to be an extension of aristocratic Roman empire. The problem that this causes is too much power in the hands of aristocrats, with not enough space left for risk-taking entrepreneurs. To the degree that this is true (I'm not sure..), longstanding contact with the US may moderate it in Mexico in particular. Here is a video about it:
Whether it's because of proximity, that so many come without family and/or plan on eventually returning home, or the related effect of so much of earnings getting sent back to Mexico every month, but there is definitely a cultural difference of some sort at play.
What IF manufacturing pivoted outside of China? What would that do to the global balance of power?
Just a few examples of why China will be tough to dethrone:
- China has a much larger pool of labor. It has literally hundreds of millions of potential migrants who can move from rural areas to urban areas to work in factories. This is multiples of Vietnam's entire population.
- Vietnam is not yet anywhere near competitive with China in terms of skilled labor.
- It was comparatively easy for China to develop the Pearl River Delta, which was once primarily agricultural, and turn it into one of the world's most powerful industrial regions because it can produce food in other parts of the country. Vietnam, which is much smaller, doesn't have that luxury with the Mekong Delta. So there's a land limitation in Vietnam.
- The supply chains in China are far more robust and often highly integrated. For example, it's common to find factories located in super close proximity to the suppliers of the raw inputs they need. Sometimes the manufacturers are vertically integrated or have overlapping ownership with suppliers.
- Although Vietnam has invested heavily in improving its infrastructure, China is still many years ahead in terms of roads, rail, deep water ports, etc.
- Foreign companies that manufacture in China have also invested in Chinese manufacturing because it helps them open the door to China's domestic consumer market. The Vietnamese domestic consumer market is much much smaller.
Believe me, you don't want to hire the people left there in villages, even if they are young, and moderately educated. But in its majority, the labour that still drips from inland China is of lower quality kind. Anguished, tired, middle-aged men who didn't manage to move to the coastal cities during the heydays.
> - It was comparatively easy for China to develop the Pearl River Delta, which was once primarily agricultural, and turn it into one of the world's most powerful industrial regions because it can produce food in other parts of the country. Vietnam, which is much smaller, doesn't have that luxury with the Mekong Delta. So there's a land limitation in Vietnam.
Vietnam makes quite a lot of food, more than China by acreage by far. China is surprisingly agriculturally unproductive country. Take a look on Bangladesh, it has turned a food exporter, despite the truly microscopic size of arable land.
To knock China off, a country needs quantity, not quality. But even then, once again, Vietnam doesn't have an advantage here. Skilled labor is still very much in short supply in Vietnam.
> Vietnam makes quite a lot of food, more than China by acreage by far. China is surprisingly agriculturally unproductive country.
But that's the point. Vietnam is agriculturally rich and farming is part of the fabric of the Vietnamese culture. The country will not give the Mekong Delta to industry in anywhere near the same way China was able to sacrifice large swaths of historically agricultural land to industry. See again the Pearl River Delta.
I'd personally love to see China replaced but post-COVID, spend some time in Vietnam or Bangladesh and it won't take you long to see that these countries are nowhere near close to mounting a serious challenge. Like I said, Vietnam has a very bright future and will gain, but it's not going to supplant China.
Vietnam is tiny, it's entire industries are said to be less than a single district of Dongguan... but
The lion share of China's light industry sits in the Guandong, and Shenzhen once famously had 50%+ of world's electronics output singlehandedly.
Everything else up north was economically inconsequential until GD became too expensive.
Guandong's population at the time was <100M. So it's well doable for both countries. A giant, giant influence here is where the winds of global capital will blow.
As it's said, Samsung is now 1/3 of Vietnam's GDP, and singlehandedly runs the whole supply chain for all what it makes there, and that is without Samsung group giving any special commitment to Vietnam. Imagine what will it be if Samsung decides to up the states, and move it's heavy industry, and Semi there.
If Foxconn, will decide on moving the "Foxconn city" into Vietnam, and other OEMs of the same size too, just every opportunity opens.
Skilled assembly line workforce now comes at CNY10000-CNY15000 per month, more than the labour cost in cheaper US states, not to say that employers in USA pay close to nothing besides the salary itself (social security, pension fund, other welfare payments are minimal)
Yet, nobody runs to open factories in USA. Some Chinese companies tried, and everybody seen how it went.
In short: biggest manufacturing MNCs want nothing, but very skilled, educated, and young workforce coming at near no cost, and they bet everything on an all in investment in the country where have it.
Samsung chose Vietnam. Now it is 1/3 of Vietnam's GDP.
Given how things are going here in the states, I'm not sure this is a problem limited to single party states.
The biggest exhibit of what's wrong with India, is to compare it to Bangladesh.
Despite stating of with pretty much nothing in 1971, 2 decades surviving off humanitarian aid, and effectively 2 more decades of civil war, BD has now higher GDP per capita than India, better projections for coming years, and beating India on many, many more economic stats.
And Bangladesh is by no means an example of good governance, or brilliant leadership.
Is it even harder than registering a company in China?
And due to the size of their debt, getting stuck means going bust - in their case, just quitting capitalism, calling it a mistake and returning to the good old days.
Throughout the 70s and 80s it looked like Japan was the future. They made all the latest cool gadgets, and were buying up forgegin assets. Cyberpunk novels were set in the high tech mega-hub of Chiba City, a district of Tokyo famous for it's gadget shops.
The massive real estate collapse in the 90s ended all that, and when I visited Chiba around 2000 for work the bit I went to was a drab business park. Two decades later Japan is still mired in debt. Japanese nation debt is 234% of GDP. China's is 270% of GDP. The USA has 100% of GDP.
As long as China's growth rate offers a chance of growing out of that debt hole all looks rosy. If growth slows significantly, or if debt keep pace with growth until that happens, they could find themselves in deep trouble for a very long time.