Perceptions

China doesn’t own as much debt as people think.

Fed Now Largest Owner of U.S. Gov’t Debt—Surpassing China

How much does China hold then?

Meanwhile, as of the end of this September, entities in mainland China owned $1.1483 trillion in U.S. Treasury securities

I think it’s valuable to remember here: Out of 15 trillion of national debt, China holds less than a tenth.

On the subject of China:

Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis

China is really not as sound as people hope, no system like it ever is.

Fourthly, that the regime’s officially published GDP of 9 percent is also fabricated. According to Lang’s data, China’s GDP has decreased 10 percent.

China has gone as far as it has because of social infrastructure which allowed the central government to do more than a european model would have. The fundamental issues remained. A funny part to me is the western obsession with organic, bio-fuels and anthropocentrism-warming ‘theory’ is really undermining China (do what you want for yourself, but don’t force it on everyone else). The increases in costs for necessities wrecks systems like China is trying to balance (and doomed to fail at because of the corruptibility of humanity).

China is going on a building spree because of the un-affordability of housing for their working and middle classes; government bureaucrats who contributed to the hyper-inflation of housing will of course still have their fingers in it.

China is trying to set up food banks to fill in shortfalls for their lower classes to avoid social instability caused by hunger which is expected due to food prices inflating.

As an aside, it’s always funny to realize who buys US bonds.

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8 Responses to Perceptions

  1. Ape Man says:

    It is not as simple as the chart that you link to makes it out to be. Before he sold out and got a job with the Government, Brad Setser was the go to man for explaining China’s debt holdings. As he demonstrated time and time again, the figures quoted in the article are not reliable even though they are the “official numbers”. This is because China does (or at least did) try to hide some of its buying through London.Based on what I have read in the past, most of the purchases that are listed under the U.K. are most likely Middle Eastern or Chinese holdings that operate out of London. Thus, the Chinese could still hold more than the Fed.

    Having said all that, I must admit that I have not been following the issue all that closely over the last year or so. But I doubt much has changed since then in terms of how the Chinese operate.

  2. Ape Man says:

    I should also point out that my last comment was more in a way of a nit pick than a serious disagreement. I think China’s strength has been oversold myself. At the same time though, don’t underestimate how much pain it would cause the US if China stopped buying and started selling in a large way.

    • MG says:

      None of the governments are particularly honest. (Fed might be holding collateral of something on the order of 4 trillion in US debt, which isn’t counted.)

      China’s ability to sell appears to be limited currently, where else are they going to go with a trillion dollars? And, how are they going to handle balancing their bank books since a lot of that actually came, technically, from loans?

      I also still think the world is caught in a relativism of who is likely to fail the least. In the end, the US wins that currently.

  3. Engineer Bob says:

    “GDP” in China may not mean what you think.

    The article Bamboo capitalism argues that China now runs on two tracks — a visible Communist state, quite controlling, and a mostly invisible “System D” capitalism, completely unregulated. The official businesses are growing at an average 4% CAGR, the unregulated ones at roughly 15% CAGR.

    • Engineer Bob says:

      To expand on “System D”, the article The Shadow Superpower argues that the size of the black market economy is second only to the US economy.

      Which should cheer libertarians up, I’d think.

    • Engineer Bob says:

      To expand on “System D”, the article The Shadow Superpower argues that the size of the black market economy is second only to the US economy.

      Which should cheer libertarians up, I’d think.

    • MG says:

      GDP in China doesn’t mean what most think, that’s a point Lang was making in the quote. Realistically, even for me, a GDP number from the US isn’t what it was to my grandfather.

      Both articles are interesting reads.

      The Economist article doesn’t really give some of the issues their due or identify them well.

      It is a wonderfully flexible system, but without a consistent rule of law, companies are prey to the predilections of bureaucrats.

      It is a function of corruption and favoritism; there’s no way for the people and government to not have trouble with that, at some point. You can’t have durable, long term growth while such instability exists. You do get opportunistic growth, but it’s quickly destroyed; as seen with the desire of so many wealthy Chinese to emigrate.

      Rampant free enterprise also lives uncomfortably alongside the country’s official ideology. So far, China has managed this rather well.

      I just don’t believe that a system like China doesn’t know they’re there; tolerance because of favoritism/cronyism is not acceptance of free-action. We’re talking about a country that has done forced sterilizations after a woman remarried; there’s no way they missed a factory with workers unless a ‘sponsor’ wanted it ‘missed’.

      The legal uncertainty pushes capital-raising into the shadows, too. The result is a fantastically supple system of financing, but a very costly one.

      That’s… one way to say it. The more realistic one? Companies that don’t have the clout to get access to funds from the government-run banks are using organized crime lending; that’s what the 200% number comes from, for sure, and the short terms. In one of the cities, a number of ‘independent’ business people have been running, and vanishing, as their loans came due; others have been hurt and/or killed. In such short timeframes there is no way to make a new, durable product; an economy can not be healthy that way.

      The Chinese consumerism appears to have dangerously capped already, at levels far too low for their economic size. However, I think people are ignoring real social psychology issues in that. Their current consumerism will absolutely not support their economy’s size; it exists, at its current level, to produce goods for other countries.

      I think FP is being a bit too romantic in their piece. They’re walking a fine line, and parsing definitions. A black market shows a need or desire for something which governments restrict; a desire to be ‘off the record’ pretty much shows the same thing. The correct answer is to decide if the service or object hurts someone else, and if not, to lower the restrictions. Any black-market function is going to ultimately be a negative unless laws are changed to allow people to engage more freely in it. The struggle between ‘legitimate’ and ‘shadowy’ is harmful in the long term.

      Now, I actually do think that most new companies come into existence before being ‘filed’ with a government, and often their early products do too. But if they lose the desire to engage the formality, which should provide protections to them, then something is wrong with the laws and regulations governing business (yes, there are major problems).

      All in all, both, to me, point to governments denying their people their people’s desire to attempt and obtain; definitely the right answer is for governments to stop being childish and interfering with their people’s efforts. In China I don’t see a road to that without many more changes to their nation (attended with much pain).

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