9 ms·

Investors Are in Denial About China

122 points by tokenadult 11y ago

jldugger 11y ago
There's obvious buildup in China with bubble-like properties. But on the other hand, continuing the policy of relaxing Hukou might offset that.
mibrah 11y ago
热牛肉注入将是中国需要继续
mvc 11y ago
Seems like a good time for Western governments to invest in infrastructure then. Every cloud...
dforrestwilson 11y ago
http://www.nytimes.com/2016/04/03/magazine/the-fall-of-chinas-hedge-fund-king.html http://www.nytimes.com/2016/04/03/magazine/the-fall-of-china... Another illustrative story of the forces at work in a semi-translucent economy.
anon987 11y ago
Investing in China? Sounds on-topic for HN to me.
duncan_bayne 11y ago
Of course, the Keynesian policies that have failed China will also fail the US and the EU. I do wonder how many times the Austrian school will be proved right before the public start to notice.
- samastur 11y ago
  It would help if it was proved right at least once :P
  - duncan_bayne 11y ago
    The failures occurring in China right now, as noted by Bloomberg, are exactly the failures that the Austrian school predicts will occur in the US and EU.
chvid 11y ago
I think this is a reasonable article about China. When people think about China they tent to assume that China is somewhat similar to a western country going thru the afterwards of some sort of overheated boom. Say the US from 2002 to 2007 and the big recession of 2008-2010. But China is not mature and developed like the west. Sure the east coast has nice modern cities which look like the cities of any Western country. But large parts of the country are still poor, rural and remote. When construction goes on here, a modern road is built where there was nothing before cutting the transport time between two cities from 5-10 hours to 1 hour. Houses are built for people to work in the city doing high-productive factory jobs where they before were doing small-time farming in the country side. This is a massive lift in real economic activity which can finance a lot of debt. Completely incomparable to the expansion of credit to low-income families to finance housing that gave the boom in the US and other western countries from 2002 to 2007. Secondly there is a now huge upper middle class who are travelling the world, sending their kids to Australia or US for study and still buying Apple products. They are not going away. And ultimately they will change China into something more driven-by-internal-demand, civic, modern ... even democratic.
- thkim 11y ago
  I agree - China is NOT going through the same trajectory as developed countries. China's population is multiple times greater, which creates far greater segmented market and demand. World is also going through information technology revolution -- explosive increase in productivity, extremely pace of information dissemination. It's just not the same and nobody can be sure what it's going to be like.
  - TheLogothete 11y ago
    >World is also going through information technology revolution -- explosive increase in productivity I thought so too. But it doesn't seem to be the case. Growth in productivity has been in steep decline over the last 50 years. http://www.economist.com/node/21695071 http://www.economist.com/node/21695071
- seanmcdirmid 11y ago
devy 11y ago
Author is an associate professor at Peking University HSBC Business school. [1] [1] http://english.phbs.pku.edu.cn/index.php?m=content&c=index&a=show&catid=627&id=1 http://english.phbs.pku.edu.cn/index.php?m=content&c=index&a...
sharetea 11y ago
The article talks about investors needing to know that 1.) China's construction boom is over 2.) Need to understand China better 3.) Take off the rose-tinted glass I would add a few more here: 4.) With all the capital controls currently in place, once you invest, you might not get your money out, ever. 5.) With president Xi becoming more dictator-like, and encouraging anti-foreign behaviors, once you get in to China, you might easily get in trouble. Jailed without trial. Or disappeared. 6.) With the great firewall becoming more restrictive, and VPN working less and less, you might not be able to hit any foreign websites from China. No communications with your family or loved ones. No search for foreign customers. 7.) With the impending yuan devaluation (20%-50%), it might not be worth it with a low growth environment in China.
- mastazi 11y ago
  Points 4-6 (financial freedom, rule of law and freedom of communication) are all long-standing problems in China, and personally I believe that, if not fixed, they will prevent China from becoming, in the long run, a developed economy. However I don't have evidence that the situation is now getting worse in relation to these specific 3 points. I would be interested in reading reliable sources related to the above.
  - kristofferR 11y ago
    5: https://www.washingtonpost.com/world/asia_pacific/is-china-heading-in-the-wrong-direction-for-once-the-west-calls-beijing-out/2016/03/22/c4cad76e-eacb-11e5-a9ce-681055c7a05f_story.html?tid=a_inl https://www.washingtonpost.com/world/asia_pacific/is-china-h... 5: https://www.washingtonpost.com/world/asia_pacific/pursuing-critics-china-reaches-across-borders-and-nobody-is-stopping-it/2016/01/26/cd4959dc-6793-473f-8b74-6cbac3f46422_story.html https://www.washingtonpost.com/world/asia_pacific/pursuing-c... 6: http://www.wsj.com/articles/china-seeks-more-legal-muscle-to-block-foreign-websites-1459230128 http://www.wsj.com/articles/china-seeks-more-legal-muscle-to...
    - mastazi 11y ago
      Thanks. I'd like to add this one, which came out with today's edition of The Economist.The Economist | Chinese politics: Beware the cult of Xi http://www.economist.com/news/leaders/21695881-xi-jinping-stronger-his-predecessors-his-power-damaging-country-beware-cult?frsc=dg%7Cd http://www.economist.com/news/leaders/21695881-xi-jinping-st...
sharetea 11y ago
> This is a massive lift in real economic activity which can finance a lot of debt. China's already hit its limit. "Also, the Chinese economy is over-indebted. The total social debt is now 300%. Together with external debt, this figure rises to about 350%." http://marketrealist.com/2016/01/george-soros-sees-crisis-reminiscent-2008-time-china/ http://marketrealist.com/2016/01/george-soros-sees-crisis-re... > Secondly there is a now huge upper middle class who are travelling the world, sending their kids to Australia or US for study and still buying Apple products. They are not going away "their buying power doesn't compare with that of their US counterparts. Between 2010 and 2014, only 12% of these people reported a household income of more than $3,200 a year, or $8.50 a day." http://www.businessinsider.com/demand-report-on-chinas-middle-class-2015-11 http://www.businessinsider.com/demand-report-on-chinas-middl...
- chvid 11y ago
  > China's already hit its limit. "Also, the Chinese economy is over-indebted. The total social debt is now 300%. Together with external debt, this figure rises to about 350%." http://marketrealist.com/2016/01/george-soros-sees-crisis-re.. http://marketrealist.com/2016/01/george-soros-sees-crisis-re.... There is good and there is bad debt/investment. If debt is used to finance productive investments then a high debt to GDP multiple is not a problem, it is in fact a sign of health. Secondly if GDP growth is high and interest rates are lower then debt is much less of a problem in general. > "their buying power doesn't compare with that of their US counterparts. Between 2010 and 2014, only 12% of these people reported a household income of more than $3,200 a year, or $8.50 a day." http://www.businessinsider.com/demand-report-on-chinas-middl.. http://www.businessinsider.com/demand-report-on-chinas-middl.... These numbers are off by a factor of 10. --- Of course the future is anyone's guess. Personally I think China is going to continue growing at a high pace until its GDP pr. capita matches Taiwan, South Korea or Japan.
  - adventured 11y ago
    > There is good and there is bad debt/investment. If debt is used to finance productive investments then a high debt to GDP multiple is not a problem, it is in fact a sign of health. We already have the answer on that one, and have for a long time. The return on debt - the growth derived from taking on increasing amounts of debt - for China has plunged the last ten years. At this point, taking on more debt accomplishes absolutely nothing in regards to growth. They've saturated their ability to grow using those methods. Their GDP per capita can never match the equivalent of Japan today. That's implying a Chinese economy that is nearly the size of the entire global economy today. That's the same kind of hype and absurdity the article is talking about. Where is the next $40 trillion in GDP going to come from? They're struggling to grow their economy at all today (and yes, the 6.x% figure is pure fiction), while taking on tens of trillions in new debt. If they can't grow their economy today, with that much debt financing, when will they be able to? The answer is: the party is long over, the only thing left now are consequences to all the bad choices that led to China becoming the world's most indebted nation in record time. > These numbers are off by a factor of 10. Support your position then.
intrasight 11y ago
Capital flees because capital is a perfectly rational meta-being. If capital is fleeing, it is for good and rational reasons. "Irrational exuberance" - sorry, there's no such thing. Capital works with the information it has at the time it makes decisions. "Risk of a correction" - sorry, but I see no mention of risk when I lookup "correction" in the dictionary. When capital updates its model with new information, there will be losers and winners. Finance is about having a better model and better information.
- emodendroket 11y ago
  "Irrational exuberance" was coined, or at least popularized, by free market true believer Alan Greenspan in a speech to the American Enterprise Institute.
  - intrasight 11y ago
    Yes. And it's sad that he is mostly remembered for a term which is effectively anti-market
    - emodendroket 11y ago
      That is certainly not what he is "mostly remembered" for, and I suspect the popularity of the term is precisely because that is not the case.
sbt 11y ago
This has been the consensus view for at least a few years now. Consequently, there has been a large fall in prices for companies benefiting from China, from miners to European tailors. I don't know if economists are in denial, but if anything asset markets still reflect a deep worry about China. I would rather worry about the flipside scenario, that China is in better shape than most Western analysts fear.

122 points by tokenadult 11y ago

There's obvious buildup in China with bubble-like properties. But on the other hand, continuing the policy of relaxing Hukou might offset that.

mibrah 11y ago

热牛肉注入将是中国需要继续

mvc 11y ago

Seems like a good time for Western governments to invest in infrastructure then. Every cloud...

dforrestwilson 11y ago

http://www.nytimes.com/2016/04/03/magazine/the-fall-of-chinas-hedge-fund-king.html http://www.nytimes.com/2016/04/03/magazine/the-fall-of-china... Another illustrative story of the forces at work in a semi-translucent economy.

anon987 11y ago

Investing in China? Sounds on-topic for HN to me.

duncan_bayne 11y ago

Of course, the Keynesian policies that have failed China will also fail the US and the EU. I do wonder how many times the Austrian school will be proved right before the public start to notice.

samastur 11y ago
It would help if it was proved right at least once :P
- duncan_bayne 11y ago
  The failures occurring in China right now, as noted by Bloomberg, are exactly the failures that the Austrian school predicts will occur in the US and EU.

chvid 11y ago

I think this is a reasonable article about China. When people think about China they tent to assume that China is somewhat similar to a western country going thru the afterwards of some sort of overheated boom. Say the US from 2002 to 2007 and the big recession of 2008-2010. But China is not mature and developed like the west. Sure the east coast has nice modern cities which look like the cities of any Western country. But large parts of the country are still poor, rural and remote. When construction goes on here, a modern road is built where there was nothing before cutting the transport time between two cities from 5-10 hours to 1 hour. Houses are built for people to work in the city doing high-productive factory jobs where they before were doing small-time farming in the country side. This is a massive lift in real economic activity which can finance a lot of debt. Completely incomparable to the expansion of credit to low-income families to finance housing that gave the boom in the US and other western countries from 2002 to 2007. Secondly there is a now huge upper middle class who are travelling the world, sending their kids to Australia or US for study and still buying Apple products. They are not going away. And ultimately they will change China into something more driven-by-internal-demand, civic, modern ... even democratic.

thkim 11y ago
I agree - China is NOT going through the same trajectory as developed countries. China's population is multiple times greater, which creates far greater segmented market and demand. World is also going through information technology revolution -- explosive increase in productivity, extremely pace of information dissemination. It's just not the same and nobody can be sure what it's going to be like.
- TheLogothete 11y ago
  >World is also going through information technology revolution -- explosive increase in productivity I thought so too. But it doesn't seem to be the case. Growth in productivity has been in steep decline over the last 50 years. http://www.economist.com/node/21695071 http://www.economist.com/node/21695071
seanmcdirmid 11y ago

devy 11y ago

Author is an associate professor at Peking University HSBC Business school. [1] [1] http://english.phbs.pku.edu.cn/index.php?m=content&c=index&a=show&catid=627&id=1 http://english.phbs.pku.edu.cn/index.php?m=content&c=index&a...

sharetea 11y ago

The article talks about investors needing to know that 1.) China's construction boom is over 2.) Need to understand China better 3.) Take off the rose-tinted glass I would add a few more here: 4.) With all the capital controls currently in place, once you invest, you might not get your money out, ever. 5.) With president Xi becoming more dictator-like, and encouraging anti-foreign behaviors, once you get in to China, you might easily get in trouble. Jailed without trial. Or disappeared. 6.) With the great firewall becoming more restrictive, and VPN working less and less, you might not be able to hit any foreign websites from China. No communications with your family or loved ones. No search for foreign customers. 7.) With the impending yuan devaluation (20%-50%), it might not be worth it with a low growth environment in China.

mastazi 11y ago
Points 4-6 (financial freedom, rule of law and freedom of communication) are all long-standing problems in China, and personally I believe that, if not fixed, they will prevent China from becoming, in the long run, a developed economy. However I don't have evidence that the situation is now getting worse in relation to these specific 3 points. I would be interested in reading reliable sources related to the above.
- kristofferR 11y ago
  5: https://www.washingtonpost.com/world/asia_pacific/is-china-heading-in-the-wrong-direction-for-once-the-west-calls-beijing-out/2016/03/22/c4cad76e-eacb-11e5-a9ce-681055c7a05f_story.html?tid=a_inl https://www.washingtonpost.com/world/asia_pacific/is-china-h... 5: https://www.washingtonpost.com/world/asia_pacific/pursuing-critics-china-reaches-across-borders-and-nobody-is-stopping-it/2016/01/26/cd4959dc-6793-473f-8b74-6cbac3f46422_story.html https://www.washingtonpost.com/world/asia_pacific/pursuing-c... 6: http://www.wsj.com/articles/china-seeks-more-legal-muscle-to-block-foreign-websites-1459230128 http://www.wsj.com/articles/china-seeks-more-legal-muscle-to...
  - mastazi 11y ago
    Thanks. I'd like to add this one, which came out with today's edition of The Economist.The Economist | Chinese politics: Beware the cult of Xi http://www.economist.com/news/leaders/21695881-xi-jinping-stronger-his-predecessors-his-power-damaging-country-beware-cult?frsc=dg%7Cd http://www.economist.com/news/leaders/21695881-xi-jinping-st...

sharetea 11y ago

> This is a massive lift in real economic activity which can finance a lot of debt. China's already hit its limit. "Also, the Chinese economy is over-indebted. The total social debt is now 300%. Together with external debt, this figure rises to about 350%." http://marketrealist.com/2016/01/george-soros-sees-crisis-reminiscent-2008-time-china/ http://marketrealist.com/2016/01/george-soros-sees-crisis-re... > Secondly there is a now huge upper middle class who are travelling the world, sending their kids to Australia or US for study and still buying Apple products. They are not going away "their buying power doesn't compare with that of their US counterparts. Between 2010 and 2014, only 12% of these people reported a household income of more than $3,200 a year, or $8.50 a day." http://www.businessinsider.com/demand-report-on-chinas-middle-class-2015-11 http://www.businessinsider.com/demand-report-on-chinas-middl...

chvid 11y ago
> China's already hit its limit. "Also, the Chinese economy is over-indebted. The total social debt is now 300%. Together with external debt, this figure rises to about 350%." http://marketrealist.com/2016/01/george-soros-sees-crisis-re.. http://marketrealist.com/2016/01/george-soros-sees-crisis-re.... There is good and there is bad debt/investment. If debt is used to finance productive investments then a high debt to GDP multiple is not a problem, it is in fact a sign of health. Secondly if GDP growth is high and interest rates are lower then debt is much less of a problem in general. > "their buying power doesn't compare with that of their US counterparts. Between 2010 and 2014, only 12% of these people reported a household income of more than $3,200 a year, or $8.50 a day." http://www.businessinsider.com/demand-report-on-chinas-middl.. http://www.businessinsider.com/demand-report-on-chinas-middl.... These numbers are off by a factor of 10. --- Of course the future is anyone's guess. Personally I think China is going to continue growing at a high pace until its GDP pr. capita matches Taiwan, South Korea or Japan.
- adventured 11y ago
  > There is good and there is bad debt/investment. If debt is used to finance productive investments then a high debt to GDP multiple is not a problem, it is in fact a sign of health. We already have the answer on that one, and have for a long time. The return on debt - the growth derived from taking on increasing amounts of debt - for China has plunged the last ten years. At this point, taking on more debt accomplishes absolutely nothing in regards to growth. They've saturated their ability to grow using those methods. Their GDP per capita can never match the equivalent of Japan today. That's implying a Chinese economy that is nearly the size of the entire global economy today. That's the same kind of hype and absurdity the article is talking about. Where is the next $40 trillion in GDP going to come from? They're struggling to grow their economy at all today (and yes, the 6.x% figure is pure fiction), while taking on tens of trillions in new debt. If they can't grow their economy today, with that much debt financing, when will they be able to? The answer is: the party is long over, the only thing left now are consequences to all the bad choices that led to China becoming the world's most indebted nation in record time. > These numbers are off by a factor of 10. Support your position then.

intrasight 11y ago

Capital flees because capital is a perfectly rational meta-being. If capital is fleeing, it is for good and rational reasons. "Irrational exuberance" - sorry, there's no such thing. Capital works with the information it has at the time it makes decisions. "Risk of a correction" - sorry, but I see no mention of risk when I lookup "correction" in the dictionary. When capital updates its model with new information, there will be losers and winners. Finance is about having a better model and better information.

emodendroket 11y ago
"Irrational exuberance" was coined, or at least popularized, by free market true believer Alan Greenspan in a speech to the American Enterprise Institute.
- intrasight 11y ago
  Yes. And it's sad that he is mostly remembered for a term which is effectively anti-market
  - emodendroket 11y ago
    That is certainly not what he is "mostly remembered" for, and I suspect the popularity of the term is precisely because that is not the case.

sbt 11y ago

This has been the consensus view for at least a few years now. Consequently, there has been a large fall in prices for companies benefiting from China, from miners to European tailors. I don't know if economists are in denial, but if anything asset markets still reflect a deep worry about China. I would rather worry about the flipside scenario, that China is in better shape than most Western analysts fear.