China's Emergence as a Superpower (till 2014)

[Dayuhan]

And more...

http://blogs.wsj.com/chinarealtime/2...-debt-mystery/

China’s Local Debt Mystery

Leaders in Beijing know that swelling local government debt is one of the greatest threats to China’s economy. What they don’t know, apparently, is just how big the threat is.

Speaking to reporters ahead of high-level meetings between U.S. and Chinese officials next week, China’s Vice Finance Minister Zhu Guangyao said the government was aware of the risks associated with both shadow banking and local government debt.

“A very crucial task for this administration is to clearly determine exactly how much debt there is in local financing platforms,” he said, noting that the most recent estimate was a 2011 report by the National Audit Office that put total local government debt the previous year at 10.7 trillion yuan ($1.74 trillion) – equivalent to 27% of gross domestic product at the time.

“I think this number is going to go up,” following a national survey, Mr. Zhu said...

[Dayuhan]

You know it's mainstream when Krugman jumps on the bandwagon...

http://www.nytimes.com/2013/07/19/op...all.html?_r=1&

Hitting China’s Wall

...China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be...

What all this means... there's a building consensus among Western economists that China may be closing in on a major economic dislocation. That of course was inevitable, but when remains an open question: the consensus of economists is not always correct. It might, however, be correct, and there's a notable lack of discussion (at least that I've seen) of what the implications of a serious recession could be for domestic political stability and for regional security.

There's no way to know what will happen or to change what's shaping up, but it can't hurt to be prepared...

[Bill Moore]

You know it's mainstream when Krugman jumps on the bandwagon...

http://www.nytimes.com/2013/07/19/op...all.html?_r=1&


What all this means... there's a building consensus among Western economists that China may be closing in on a major economic dislocation. That of course was inevitable, but when remains an open question: the consensus of economists is not always correct. It might, however, be correct, and there's a notable lack of discussion (at least that I've seen) of what the implications of a serious recession could be for domestic political stability and for regional security.

There's no way to know what will happen or to change what's shaping up, but it can't hurt to be prepared...

I would just caution these estimates are made by experts in a field (economics) where there are no experts. I suspect if someone did a non-bias study on economic forecasts more than half would turn to be incorrect, but even if they get half right, then we would just as well off flipping a coin.

I remember the projections that Japan was going to pass the U.S. and become the world's largest economy and our worthless media was bringing on "expert" talking heads and telling them that their kids needed to learn Japanese. Then when Asia had their meltdown due to globalism the U.S. economy was at great risk. It created little more than a ripple, similar to the EU crisis. It also these experts that created derivatives, and collapsed a number of major banks. The list is endless.

However, I certainly agree China's economy may take a significant downturn, and if it does we should attempt to assess the impact on the region and our interests. It may present an opportunities for us to regain some of the market we lost? It may also lead to dangerous instability within China that isn't in anyone's interest. I think we should embrace our inability to know and develop plans for multiple contingencies. Plans is really too strong of term, what we actually need to do is start thinking about multiple contingencies.

[Dayuhan]

Certainly we can't conclude that the Chinese economy is about to implode, but it's also pretty clear that the Chinese economy, much like the overhyped Japanese economy of the early 80s, is not the unstoppable world-devouring eternal growth juggernaut that it's sometimes cracked up to be.

China will, of course, eventually have a serious recession. We don't know when that will come or how it will arrive, but it will come. There are many signs that all is not well, which may or may not mean anything in the short term sense.

Of course there's nothing to be done about it, but there's a real possibility that if the domestic economy gets rocky the Chinese government may try to fire up support with some patriotic jingoism. Arguably that's already going on.

Of course in the event of serious domestic instability (very hypothetical at this point but thoroughly possible) the probable winner would be the PLA, and as you say that would do no good for anyone, except perhaps the PLA.

[Firn]

Sometimes it is good to look once again at some older articles, The End of Hypergrowth: Political and Economic Responses to a Slowing China by Naughton in late 2012.

The Opportunity for a Revival of Broad Market-#Oriented Reforms

These challenges have created a rich new opportunity for China’s frustrated market reformers. Reformers have been sidelined for years, especially since the muscular response of the Chinese government to the global financial crisis in 2008–2009. Now their fortunes have changed. Reformers can now get a hearing, and find outlets for their views. Many reformers today strike a note of doom and gloom: without major reforms, there would be big trouble ahead.

I did already write about the many issues, especially in the financial sector. China did the right thing in stimulated the economy big time in 2008 when the export-driven economy faced a collapse in demand. However they lacked in execution especially after the quick initial response which could of course not be perfect given the dire circumstances. I think the Chinese government got too complacent about the economy and their Chinese way and now China is paying the price for the lack of liberal market reforms. This has changed in the last year or so and some of recent reactions point into the right direction. For example the interest rates, partly responsible for the shadow banking system are no longer controlled. I explained my rather similar view a couple of posts earlier.

China certainly faces big problems and will face big problems in the future. The hyper-growth of the last decades has been amazing and likely unmatched on that scale. There is IMHO still considerable scope in China for the 'old' type of growth we saw in the last decades, with a still relatively large rural population and much demand for big infrastructe, social security, education, health spending. The deep integration into the global value chain will be a key element from the market side. A very big question mark is the political aspect of China. So far only rather democratic countries have achieved a high standard of living without sitting in on a sea of oil, and for good reasons touching the heart of economics.

[Dayuhan]

China did the right thing in stimulated the economy big time in 2008 when the export-driven economy faced a collapse in demand.

I'm not entirely convinced that the stimulus will turn out to be a good move, though only time will tell. Aggressive stimulus in an economy plagued with high-level corruption and credit-sector cronyism can be a risky business. The construction boom did effectively take up the slack left by weakening exports, but the financing of much of that construction was... creative, to use a polite term, and it remain to be seen how sustainable that solution will be, and how long it will take before that creativity snaps back.

[Dayuhan]

More on the pessimistic side... much discussion of economic implications, less on potential security/stability issues:

http://www.ibtimes.com/chinas-econom...owdown-1361579