<blockquote>‘..the “group” .. debt..’
– Frans Veldman (Context:
Affective Introspection,
'A judgment of value .. a man's affective response to definite conditions of the universe..' - Ludwig von Mises)</blockquote>
'..China, once supported by strong household savings, is on a debt binge..'<blockquote>'..the government cannot and will not likely put deleverage as a priority.
..
The situation worsens with households. Household debt to GDP has multiplied by four in the past ten years. China, once supported by strong household savings, is on a debt binge that, by 2020, where the ratio of mortgage payments and disposable incomes in China will match the peak level in the
US before the financial crisis.
..
..China also has a strong saving ratio, at 39%, but the myth of the country’s high savings is debuked by the extent of its debt and the link to speculative bubbles and poor returns. If China decides to tackle its imbalances tapping into those savings through financial repression -like Japan did-, it would massively impact its growth, consumption and send the country to stagnation.
And that is the positive outcome. China can endure the end of its vicious circle of poor capital allocation, high debt and rising imbalances through stagnation avoiding a social collapse and massively increasing public debt. But that is all it can do. If it wants to avoid a giant financial crisis that would clean the system and resume sustainable growth, but at the same time create significant social challenges, it will have to accept high-debt-zombified stagnation the way that Europe, Brazil or Japan ended. There is no magic solution that will sort these enormous imbalances while delivering world- leading growth.
- Daniel Lacalle,
Crisis or Stagnation: Why China Cannot Deleverage, October 26, 2017</blockquote>
'..It probably wouldn’t be much of an exaggeration to say that the Chinese economy is a Keynesian jobs project of outrageous scale, which also means that is as removed from real value creation as any Keynesian undertaking.'<blockquote>'This image is one of wasteful spending and immense economic errors. The contrast is as puzzling as it is scary. It tells us something important about the nature of the recent Chinese economic miracle: that it is fundamentally fake.
The Chinese economy obviously relies very heavily on state-sponsored, state-planned projects such as these constructions of buildings. It probably wouldn’t be much of an exaggeration to say that the Chinese economy is a Keynesian jobs project of outrageous scale, which also means that is as removed from real value creation as any Keynesian undertaking.
The much talked about “One belt, one road” project is the same thing on an international scale. The project aims to recreate the silk road with modern infrastructure, connecting the Far East with Europe via both land and water. Consisting of numerous infrastructure projects in about 60 countries and trade deals to leverage the projects,
the OBOR is a political project to connect the East and the West. It is state-planned and state-sponsored, and intended to, at least during the build phase, create projects primarily for Chinese companies abroad (though the immediate effect seems to have been capital outflow). It will most likely boost Chinese GDP, just as intended, and will be a catastrophic failure due to its reliance on planning rather than markets. But as states tend to think of GDP statistics as actual economic growth, rather than as a crude and faulty measure of it, the project may seem like a success at first.
What China teaches us about economics and economic policy is the lesson that is generally not provided in college classrooms: the important distinction within production between value creation and capital consumption. The story of China’s economic development is to a great extent one of unsustainable, centrally planned growth specifically in terms of GDP — but a lack of sustainable value creation, capital accumulation, and entrepreneurship.'
- Per Bylund,
China: A Keynesian Monster, July 31, 2017</blockquote>
'We know that the private sector is driving the Chinese economy and has improved the living standard of many Chinese individuals despite state economic manipulation. Yet, we still have to emphasize that the Chinese economic model is dominated by Keynesianism and cronyism. If we ignore this, the false prosperity we see would make us misread what is happening in China.'<blockquote>'Dr. Per Bylund’s recently published article poignantly states one of the core problems in the Chinese economy and its the state-manipulated Keynesian foundation. I do agree with his opinion. And if we dig deeper into the exact situation of Chinese economy, we will find that it’s a typical failing of the Keynesian, cronyist system.
..
Consider
the story of a small business boss Li Lang, who is a typical Kirznerian alert businessman in China. Several years ago, he observed a shortage of moving companies in the Southwest Chinese town of Chengdu. He started his business to serve the local people. The business is not easy, not only because it requires hard work, but Li also must bribe and maintain good relations with the local politicians to let them “protect” his business and help him introduce some business opportunities. According to Li, if the local bigwigs in the crony system had already discovered the opportunity of earning a fortune by managing a moving company, it wouldn’t have been possible for him to enter the business. Though now that he has earned a lot of money, he still has to carefully maintain the relationship with the politicians to "protect" his business. His is not an isolated case. In China, the less connections you have with the cronyist system, the less business opportunity you have. And even if you become successful in your business, be careful, the state has eyes on your wealth.
We know that the private sector is driving the Chinese economy and has improved the living standard of many Chinese individuals despite state economic manipulation. Yet, we still have to emphasize that the Chinese economic model is dominated by Keynesianism and cronyism. If we ignore this, the false prosperity we see would make us misread what is happening in China.'
- William Hongsong Wang,
The Chinese Economy's Fatal Flaws, August 21, 2017</blockquote>
Context<blockquote>
'..this long Credit cycle going back to the conclusion of WW II .. the “granddaddy of Bubbles”..''..Xi is steering the country away from the rule of law and toward the rule of the Party.''..most are unprepared for the worst bear market ever..''..Xi is steering the country away from the rule of law and toward the rule of the Party.'</blockquote>