5 ms·

China's central bank governor publicly warns of rising risks to financial system

75 points by cepth 9y ago

icu 9y ago
Ironically China's Central Bank is to blame for the enormous, and questionably productive, private debt... the true extent of which is opaque. For more info the Aug 2017 IMF report is worth a read: http://www.imf.org/en/Publications/CR/Issues/2017/08/15/People-s-Republic-of-China-2017-Article-IV-Consultation-Press-Release-Staff-Report-and-45170 http://www.imf.org/en/Publications/CR/Issues/2017/08/15/Peop...
- danmaz74 9y ago
  On the other hand, if China had tried to reign in its bubbles during the crisis from 2008, that would have been bad for then and the whole world economy.
  - seanmcdirmid 9y ago
    Perhaps, but it would have been better for china itself in the long term. The worldwide crash would have also provided political cover for its leaders, while if it crashes now, they are pretty much on their own in taking blame. I don’t envy the spot they put themselves in, can kicking can only last so long.
    - fooker 9y ago
      Their leaders are not as answerable as you might expect.
      - seanmcdirmid 9y ago
        They have pressure and really care about their face. They are like concrete: they break much later, but can’t bend and there are no pressure valves. Their is only catostrophic failure, nothing in between. They still have to scapegoat like other politicians.
    - danmaz74 9y ago
      Of course, you can never know the "ifs" of history, but crashing your internal demand at the same exact time when your external demand is collapsing looks to me like a perfect recipe for depression.
      - seanmcdirmid 9y ago
        I was there at the time. It would have just been a minor correction, they could have pushed through more reforms at the same time. Instead they decided to to go full turkey on bubble expansions.
- eru 9y ago
  The debt doesn't have to weigh on the economy, even if people were to deleverage their investments: China's Central Bank just has to 'print' enough money to keep nominal GDP stable.
  - enkid 9y ago
    Then the peg to other currencies would be wrecked and external investment would be destroyed, and the banks would not be able to profitably push out new loans.
    - eru 9y ago
      Yes, there would be side-effects. The classic formulation in economics is you can at most pick two out of three for your monetary policy: control over domestic variables like GDP, open capital markets, control over exchange rates. I was suggesting to leave the capital markets open and stabilize GDP, but to give up on control over exchange rates. That's basically how the Bank of England reacted after the Brexit referendum: they let the pound take the hit so that the real economy wouldn't have too. Not sure what you mean by 'external investment would be destroyed'?
danmaz74 9y ago
Honestly, this looks like a very serious (non-political) analysis and the recommendations look very good: use regulation where necessary (eg against bubbles and fraud), use markets where they can work best (eg to foster competitiveness). Being able to follow up on these is where the difficulties come.
NicoJuicy 9y ago
This is what I said 2 weeks ago, about China: People who travel there report empty buildings ( cause : loans not paid back and the mortgage are the buildings )+ multiple articles about bank failure ( eg. Google China shadow banking) I always thought China's motto was: Fake it, untill you make it ( their annual growth of 8% is based on a big part on empty buildings and not repaying loans. It is controlled by the governement and they try to eliminate the crisis by expanding influence in the world. Eg. Too big to fail) ---------- In short, the growth of China is artifically inflated to 8% per year, since many years --> huge internal debt. Now they are doing the same on a global scale. We are all doomed :) ================ Can anyone elaborate where I was wrong or what the report says about this? Going to read it now..
- eru 9y ago
  About the 'ghost cities': start at http://www.themoneyillusion.com/?p=23817 http://www.themoneyillusion.com/?p=23817 and follow the links. They are seldom ghost cities for long.
  - NicoJuicy 9y ago
    Never said the cities, but unfinished buildings through bad loans
  - seanmcdirmid 9y ago
    Kangbashi is still a ghost city, they’ve just zoned out a bunch of empty apartment buildings and moved the goalpost from millions of people to a few hundred thousand. Anyways, most 3rd tier and up cities in china have zones with lots of empty apartments, they are all sold out to speculators, but even the government can’t think of anything to do with them. I find it really crazy whenever I visit my wife’s hometown in south Hunan (a small city with a couple million people and lots of dead real estate developments).
shaunlgs 9y ago
I expect people to predict this will cause the downfall of China. People had been attributing causes to the downfall of China. "He is best known for his book The Coming Collapse of China (2001), in which he argued that the hidden nonperforming loans of the "Big Four" Chinese State banks would likely bring down China's financial system and its communist government and China would collapse in 2006, 2011, 2012, 2016, & 2017. Critics say that Chang has destroyed his own credibility by making wrong predictions repeatedly."[0] Here, Gordon Chang predicted that demographics will be the downfall of China.[1] Does anyone want to add other causes to the downfall of China? Being an author trying to make some money off people's wishful thinking is not a bad idea though. [0]: https://en.wikipedia.org/wiki/Gordon_G._Chang https://en.wikipedia.org/wiki/Gordon_G._Chang [1]: http://nationalinterest.org/feature/chinas-self-inflicted-demographic-disaster-here-14216 http://nationalinterest.org/feature/chinas-self-inflicted-de...
- zht 9y ago
  It's actually really frustrating every time I see Gordon Chang on CNN or some other news channel as an "expert" on China. He makes these Harold Camping like predictions about how China will fail by a specific year, none of which have obviously come true. I actually wonder if people who don't know his history of poor predictions that well see his last name "Chang" and assume that he has some inside knowledge or knows more about China than the actual pundit.
  - eru 9y ago
    CNN wants to catch your attention long enough to look at the next advertisement. They don't care about whether Gordon Chang's predictions turn out true or not. Predictions of doom and gloom are more exciting than 'most likely systems will muddle through and status quo stays king'.
- askgoranything 9y ago
  China is already in a downfall. Did you not notice the stock market crash, strict capital control, prevention of outward investment by companies, outlaw of bitcoin, etc? Don't rule out the messege, just because of the messenger. Here are some others: - China central bank warns against 'Minsky Moment' due to excessive optimism (non gordon chang) http://www.reuters.com/article/us-china-congress-debt-minskymoment/china-central-bank-warns-against-minsky-moment-due-to-excessive-optimism-idUSKBN1CO0D6 http://www.reuters.com/article/us-china-congress-debt-minsky... - China’s debt surpasses 300 percent of GDP https://www.cnbc.com/2017/06/28/chinas-debt-surpasses-300-percent-of-gdp-iif-says-raising-doubts-over-yellens-crisis-remarks.html https://www.cnbc.com/2017/06/28/chinas-debt-surpasses-300-pe... - Why China Lost About $3.8 Trillion To Capital Flight In The Last Decade https://www.forbes.com/sites/insideasia/2017/02/22/china-capital-flight-migration/#76f64b4c4a37 https://www.forbes.com/sites/insideasia/2017/02/22/china-cap... - S&P says downgraded China as credit growth still too fast http://www.reuters.com/article/us-china-economy/sp-downgrades-china-says-rising-debt-is-stoking-economic-financial-risks-idUSKCN1BW18Z?il=0 http://www.reuters.com/article/us-china-economy/sp-downgrade...
baybal2 9y ago
Whatever is written there, was said for the last 15 years.
- seanmcdirmid 9y ago
  Yes, just like people warning about the housing bubble before 2008, that was never going to happen. In the 80s people kept talking about a Japanese asset bubble. Chicken little. Also, this is coming from china central bank leader himself. Might as well be something Xi is saying.

75 points by cepth 9y ago

icu 9y ago

Ironically China's Central Bank is to blame for the enormous, and questionably productive, private debt... the true extent of which is opaque. For more info the Aug 2017 IMF report is worth a read: http://www.imf.org/en/Publications/CR/Issues/2017/08/15/People-s-Republic-of-China-2017-Article-IV-Consultation-Press-Release-Staff-Report-and-45170 http://www.imf.org/en/Publications/CR/Issues/2017/08/15/Peop...

danmaz74 9y ago
On the other hand, if China had tried to reign in its bubbles during the crisis from 2008, that would have been bad for then and the whole world economy.
- seanmcdirmid 9y ago
  Perhaps, but it would have been better for china itself in the long term. The worldwide crash would have also provided political cover for its leaders, while if it crashes now, they are pretty much on their own in taking blame. I don’t envy the spot they put themselves in, can kicking can only last so long.
  - fooker 9y ago
    Their leaders are not as answerable as you might expect.
    - seanmcdirmid 9y ago
      They have pressure and really care about their face. They are like concrete: they break much later, but can’t bend and there are no pressure valves. Their is only catostrophic failure, nothing in between. They still have to scapegoat like other politicians.
  - danmaz74 9y ago
    Of course, you can never know the "ifs" of history, but crashing your internal demand at the same exact time when your external demand is collapsing looks to me like a perfect recipe for depression.
    - seanmcdirmid 9y ago
      I was there at the time. It would have just been a minor correction, they could have pushed through more reforms at the same time. Instead they decided to to go full turkey on bubble expansions.
eru 9y ago
The debt doesn't have to weigh on the economy, even if people were to deleverage their investments: China's Central Bank just has to 'print' enough money to keep nominal GDP stable.
- enkid 9y ago
  Then the peg to other currencies would be wrecked and external investment would be destroyed, and the banks would not be able to profitably push out new loans.
  - eru 9y ago
    Yes, there would be side-effects. The classic formulation in economics is you can at most pick two out of three for your monetary policy: control over domestic variables like GDP, open capital markets, control over exchange rates. I was suggesting to leave the capital markets open and stabilize GDP, but to give up on control over exchange rates. That's basically how the Bank of England reacted after the Brexit referendum: they let the pound take the hit so that the real economy wouldn't have too. Not sure what you mean by 'external investment would be destroyed'?

danmaz74 9y ago

Honestly, this looks like a very serious (non-political) analysis and the recommendations look very good: use regulation where necessary (eg against bubbles and fraud), use markets where they can work best (eg to foster competitiveness). Being able to follow up on these is where the difficulties come.

NicoJuicy 9y ago

This is what I said 2 weeks ago, about China: People who travel there report empty buildings ( cause : loans not paid back and the mortgage are the buildings )+ multiple articles about bank failure ( eg. Google China shadow banking) I always thought China's motto was: Fake it, untill you make it ( their annual growth of 8% is based on a big part on empty buildings and not repaying loans. It is controlled by the governement and they try to eliminate the crisis by expanding influence in the world. Eg. Too big to fail) ---------- In short, the growth of China is artifically inflated to 8% per year, since many years --> huge internal debt. Now they are doing the same on a global scale. We are all doomed :) ================ Can anyone elaborate where I was wrong or what the report says about this? Going to read it now..

eru 9y ago
About the 'ghost cities': start at http://www.themoneyillusion.com/?p=23817 http://www.themoneyillusion.com/?p=23817 and follow the links. They are seldom ghost cities for long.
- NicoJuicy 9y ago
  Never said the cities, but unfinished buildings through bad loans
- seanmcdirmid 9y ago
  Kangbashi is still a ghost city, they’ve just zoned out a bunch of empty apartment buildings and moved the goalpost from millions of people to a few hundred thousand. Anyways, most 3rd tier and up cities in china have zones with lots of empty apartments, they are all sold out to speculators, but even the government can’t think of anything to do with them. I find it really crazy whenever I visit my wife’s hometown in south Hunan (a small city with a couple million people and lots of dead real estate developments).

shaunlgs 9y ago

I expect people to predict this will cause the downfall of China. People had been attributing causes to the downfall of China. "He is best known for his book The Coming Collapse of China (2001), in which he argued that the hidden nonperforming loans of the "Big Four" Chinese State banks would likely bring down China's financial system and its communist government and China would collapse in 2006, 2011, 2012, 2016, & 2017. Critics say that Chang has destroyed his own credibility by making wrong predictions repeatedly."[0] Here, Gordon Chang predicted that demographics will be the downfall of China.[1] Does anyone want to add other causes to the downfall of China? Being an author trying to make some money off people's wishful thinking is not a bad idea though. [0]: https://en.wikipedia.org/wiki/Gordon_G._Chang https://en.wikipedia.org/wiki/Gordon_G._Chang [1]: http://nationalinterest.org/feature/chinas-self-inflicted-demographic-disaster-here-14216 http://nationalinterest.org/feature/chinas-self-inflicted-de...

zht 9y ago
It's actually really frustrating every time I see Gordon Chang on CNN or some other news channel as an "expert" on China. He makes these Harold Camping like predictions about how China will fail by a specific year, none of which have obviously come true. I actually wonder if people who don't know his history of poor predictions that well see his last name "Chang" and assume that he has some inside knowledge or knows more about China than the actual pundit.
- eru 9y ago
  CNN wants to catch your attention long enough to look at the next advertisement. They don't care about whether Gordon Chang's predictions turn out true or not. Predictions of doom and gloom are more exciting than 'most likely systems will muddle through and status quo stays king'.
askgoranything 9y ago
China is already in a downfall. Did you not notice the stock market crash, strict capital control, prevention of outward investment by companies, outlaw of bitcoin, etc? Don't rule out the messege, just because of the messenger. Here are some others: - China central bank warns against 'Minsky Moment' due to excessive optimism (non gordon chang) http://www.reuters.com/article/us-china-congress-debt-minskymoment/china-central-bank-warns-against-minsky-moment-due-to-excessive-optimism-idUSKBN1CO0D6 http://www.reuters.com/article/us-china-congress-debt-minsky... - China’s debt surpasses 300 percent of GDP https://www.cnbc.com/2017/06/28/chinas-debt-surpasses-300-percent-of-gdp-iif-says-raising-doubts-over-yellens-crisis-remarks.html https://www.cnbc.com/2017/06/28/chinas-debt-surpasses-300-pe... - Why China Lost About $3.8 Trillion To Capital Flight In The Last Decade https://www.forbes.com/sites/insideasia/2017/02/22/china-capital-flight-migration/#76f64b4c4a37 https://www.forbes.com/sites/insideasia/2017/02/22/china-cap... - S&P says downgraded China as credit growth still too fast http://www.reuters.com/article/us-china-economy/sp-downgrades-china-says-rising-debt-is-stoking-economic-financial-risks-idUSKCN1BW18Z?il=0 http://www.reuters.com/article/us-china-economy/sp-downgrade...

baybal2 9y ago

Whatever is written there, was said for the last 15 years.

seanmcdirmid 9y ago
Yes, just like people warning about the housing bubble before 2008, that was never going to happen. In the 80s people kept talking about a Japanese asset bubble. Chicken little. Also, this is coming from china central bank leader himself. Might as well be something Xi is saying.