5 ms·

Isn't the bigger issues China's structural draconian limits to freer movement of capital, external investment, the imaginary/real value of ghost cities and scal

by dh997 11y ago

Isn't the bigger issues China's structural draconian limits to freer movement of capital, external investment, the imaginary/real value of ghost cities and scale of holding illiquid foreign debt?

obblekk 11y ago
One by one: 1. Freer movement of capital. This is a false herring in my opinion. Virtually no countries outside the US/EU offer completely free movement of money. The thing that matters is whether this prevents foreign capital investment (because people are scared of not being able to get their money back). In China, I don't think it does based on the last few decades of foreign investment. 2. External investment. As above, I don't think people are discouraged by the rules. Yes, you have to make a 50% joint venture, bribe government officials, share technology, have no copyright/IP protection, and risk your partner entering the market as a competitor once they learn your business (see Asus). But, you can still make so much money that it's probably worth it (or so American corporations seem to believe). 3. Ghost cities. I don't know much about this one honestly. I've been hearing about this since 2009, but consider that China is increasing their urbanization rate by 1 percentage point per year (~10M people/yr). If I were asked to manage that as a central planner, having excess inventory of housing would be critical to prevent slowdowns and allowing for some burstiness. Yeah, there's probably ghost cities, but how long do they remain before becoming occupied. Are the same cities hanging around forever (and people complaining about them forever), or is it new stock every year? 4. Illiquid foreign debt. Most of China's debt is in two categories: 1) Popular debt (US/EU) or 2) strategically important countries. For (1), there's likely some market. You're right that they can't sell too much, but they've already notified the world that they will begin selling their holdings over the next decade and since central banks in the western world are trying to increase the reserve interest rate there should be people willing to buy this stuff (or the government can buy it and reissue at a higher interest rate to make people want it). For (2), don't think of it as debt, but operating expense, never to be recovered.
- tyre 11y ago
  A few counterpoints. From your original comment > In addition, it doesn't seem like this rate is accelerating (since 2009), but linearly increasing. That is the overall percentage of bad debt increasing linearly, meaning accumulation of bad debt is accelerating faster than growth of "good" debt. This was also the case in the US mortgage crisis. From this comment 1) It would be less of a concern if China had less liquidity while Chinese companies were also getting less access to liquidity. Shadow lending from wealth management product (WMPs) is a massive structural issue for the Chinese economy. When the underlying assets fail, you have a recession. It also means a centralized economy with lots of the downsides (bribes, joint ventures, etc.) but without the control. 2) American corporations believe there is tons of money to be made, but not many have been successful. In the event of a Chinese recession, those experiments will be vastly drawn back when Chinese consumers become pessimistic. In the event of an American correction, they'll pull back to invest in proven markets. 3) I haven't seen evidence that these ghost cities are the result of central planners building slack for expected growth. 4) Internal private debt (see 1) is a much larger problem. Most of that is owned by the central government, which means either a bailout when companies fail, continued lending until a bailout, or letting their economy correct.
  - obblekk 11y ago
    Linearly increasing: True. I misread the axis. It still doesn't seem to have the form of something in a bubble or clearly unsustainable. 1. That's a fair point. But I suspect this has more to do with less developed capital markets in China than systematic weakness. I wonder if local supply of capital will be able to step up in the next American recession. 2. I think many have been successful in lowering their manufacturing costs. Not sure how an American correction would affect the Chinese economy. 3. Fair. 4. I'm generally skeptical of this argument. US corporations and households have maintained a high level of debt for more than 50 years without significant effect. I guess the Federal gov hasn't been the holder of that debt, but it actually seems better that way because they have the ability to print cash and add a stabilizing effect. I guess my point is that none of these individually seem extreme enough to cause a problem. Maybe in aggregate there could be a storm.
    - 11y ago
- tmptmp 11y ago
  >>Are the same cities hanging around forever (and people complaining about them forever), or is it new stock every year? I guess, googling "ghost cities in China" may bring out many interesting statistics about this. From the top links you get there one can fairly say that the "ghost cities" are in reality a biggish problem. Of course, we cannot get more complete picture just from these sites, but that is true for any communist regime: they will never allow any independent market study to happen in the first place.
- audunw 11y ago
  The ghost cities are indeed filling up, at least last time I read about it. You'll probably still have problems with misplaced building sprees when you build at that scale, no matter what. But it doesn't seem like a real crisis
- tallanvor 11y ago
  >Yes, you have to make a 50% joint venture, bribe government officials, share technology, have no copyright/IP protection, and risk your partner entering the market as a competitor once they learn your business (see Asus). But, you can still make so much money that it's probably worth it (or so American corporations seem to believe). All legitimate companies have strong rules against bribing officials, and it's illegal, so don't expect the company to have your back if you get caught.
- dh997 11y ago
  Isnt there an entire replica of Paris with barely 1k people? How can value be justified with whole half-finished cities with no customers? Sounds like deferring a real-estate crash is only making a future event even more painful when that paper value evaporates and takes real comparables along with them.
obblekk 11y ago
I think the bigger issue is that China faces labor competition on the lower end of the unskilled market from South East Asia and India and is trying to enter the lower end of the skilled labor market but finding out that the Americans, Europeans, and Israelis are fairly competitive. I'm generalizing and neither list of countries is exhaustive.
- jcoffland 11y ago
  China is miles ahead of South East Asia and much of India. Chinese tourists go to places like Vietnam and are seen as wealthy and sophisticated by the locals. From the Western perspective it may seem like China, SEA and India are on a level playing field but that is far from the truth.
  - seanmcdirmid 11y ago
    Bangkok is a much more cosmopolitan city than Beijing or even Shanghai. I get the feeling that Thailand is a bit richer than China per capita. That's about it though.
    - dh997 11y ago
      Beijing takes the cake for both craziest bus drivers and bicyclists, beating Hanoi and Davis, CA.
      - seanmcdirmid 11y ago
        This is so true. No matter what city I go to (Manila? Bangkok? Delhi? Kunming? Changsha?), it never feels as bad as home.

by dh997 11y ago

Isn't the bigger issues China's structural draconian limits to freer movement of capital, external investment, the imaginary/real value of ghost cities and scale of holding illiquid foreign debt?

obblekk 11y ago

One by one: 1. Freer movement of capital. This is a false herring in my opinion. Virtually no countries outside the US/EU offer completely free movement of money. The thing that matters is whether this prevents foreign capital investment (because people are scared of not being able to get their money back). In China, I don't think it does based on the last few decades of foreign investment. 2. External investment. As above, I don't think people are discouraged by the rules. Yes, you have to make a 50% joint venture, bribe government officials, share technology, have no copyright/IP protection, and risk your partner entering the market as a competitor once they learn your business (see Asus). But, you can still make so much money that it's probably worth it (or so American corporations seem to believe). 3. Ghost cities. I don't know much about this one honestly. I've been hearing about this since 2009, but consider that China is increasing their urbanization rate by 1 percentage point per year (~10M people/yr). If I were asked to manage that as a central planner, having excess inventory of housing would be critical to prevent slowdowns and allowing for some burstiness. Yeah, there's probably ghost cities, but how long do they remain before becoming occupied. Are the same cities hanging around forever (and people complaining about them forever), or is it new stock every year? 4. Illiquid foreign debt. Most of China's debt is in two categories: 1) Popular debt (US/EU) or 2) strategically important countries. For (1), there's likely some market. You're right that they can't sell too much, but they've already notified the world that they will begin selling their holdings over the next decade and since central banks in the western world are trying to increase the reserve interest rate there should be people willing to buy this stuff (or the government can buy it and reissue at a higher interest rate to make people want it). For (2), don't think of it as debt, but operating expense, never to be recovered.

tyre 11y ago
A few counterpoints. From your original comment > In addition, it doesn't seem like this rate is accelerating (since 2009), but linearly increasing. That is the overall percentage of bad debt increasing linearly, meaning accumulation of bad debt is accelerating faster than growth of "good" debt. This was also the case in the US mortgage crisis. From this comment 1) It would be less of a concern if China had less liquidity while Chinese companies were also getting less access to liquidity. Shadow lending from wealth management product (WMPs) is a massive structural issue for the Chinese economy. When the underlying assets fail, you have a recession. It also means a centralized economy with lots of the downsides (bribes, joint ventures, etc.) but without the control. 2) American corporations believe there is tons of money to be made, but not many have been successful. In the event of a Chinese recession, those experiments will be vastly drawn back when Chinese consumers become pessimistic. In the event of an American correction, they'll pull back to invest in proven markets. 3) I haven't seen evidence that these ghost cities are the result of central planners building slack for expected growth. 4) Internal private debt (see 1) is a much larger problem. Most of that is owned by the central government, which means either a bailout when companies fail, continued lending until a bailout, or letting their economy correct.
- obblekk 11y ago
  Linearly increasing: True. I misread the axis. It still doesn't seem to have the form of something in a bubble or clearly unsustainable. 1. That's a fair point. But I suspect this has more to do with less developed capital markets in China than systematic weakness. I wonder if local supply of capital will be able to step up in the next American recession. 2. I think many have been successful in lowering their manufacturing costs. Not sure how an American correction would affect the Chinese economy. 3. Fair. 4. I'm generally skeptical of this argument. US corporations and households have maintained a high level of debt for more than 50 years without significant effect. I guess the Federal gov hasn't been the holder of that debt, but it actually seems better that way because they have the ability to print cash and add a stabilizing effect. I guess my point is that none of these individually seem extreme enough to cause a problem. Maybe in aggregate there could be a storm.
  - 11y ago
tmptmp 11y ago
>>Are the same cities hanging around forever (and people complaining about them forever), or is it new stock every year? I guess, googling "ghost cities in China" may bring out many interesting statistics about this. From the top links you get there one can fairly say that the "ghost cities" are in reality a biggish problem. Of course, we cannot get more complete picture just from these sites, but that is true for any communist regime: they will never allow any independent market study to happen in the first place.
audunw 11y ago
The ghost cities are indeed filling up, at least last time I read about it. You'll probably still have problems with misplaced building sprees when you build at that scale, no matter what. But it doesn't seem like a real crisis
tallanvor 11y ago
>Yes, you have to make a 50% joint venture, bribe government officials, share technology, have no copyright/IP protection, and risk your partner entering the market as a competitor once they learn your business (see Asus). But, you can still make so much money that it's probably worth it (or so American corporations seem to believe). All legitimate companies have strong rules against bribing officials, and it's illegal, so don't expect the company to have your back if you get caught.
dh997 11y ago
Isnt there an entire replica of Paris with barely 1k people? How can value be justified with whole half-finished cities with no customers? Sounds like deferring a real-estate crash is only making a future event even more painful when that paper value evaporates and takes real comparables along with them.

obblekk 11y ago

I think the bigger issue is that China faces labor competition on the lower end of the unskilled market from South East Asia and India and is trying to enter the lower end of the skilled labor market but finding out that the Americans, Europeans, and Israelis are fairly competitive. I'm generalizing and neither list of countries is exhaustive.

jcoffland 11y ago
China is miles ahead of South East Asia and much of India. Chinese tourists go to places like Vietnam and are seen as wealthy and sophisticated by the locals. From the Western perspective it may seem like China, SEA and India are on a level playing field but that is far from the truth.
- seanmcdirmid 11y ago
  Bangkok is a much more cosmopolitan city than Beijing or even Shanghai. I get the feeling that Thailand is a bit richer than China per capita. That's about it though.
  - dh997 11y ago
    Beijing takes the cake for both craziest bus drivers and bicyclists, beating Hanoi and Davis, CA.
    - seanmcdirmid 11y ago
      This is so true. No matter what city I go to (Manila? Bangkok? Delhi? Kunming? Changsha?), it never feels as bad as home.