Chinese Bubble Go Pop? | 46 comments (46 topical, editorial, 0 hidden)

Re: Chinese Bubble Go Pop? (none / 1)

My question is more on the political side. If a bubble bursts in China, who will bear the burden? Will the phony assets be wiped out or will they be upheld at any cost?

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by A swedish kind of death on Thu Jun 20th, 2013 at 05:44:21 AM EST

Re: Chinese Bubble Go Pop? (4.00 / 3)

I'm hearing reliable reports that MOST Chinese banks have suspended payments (in default) to WMPs that lent to them on interbank market
— Patrick Chovanec (@prchovanec) June 20, 2013

@JELMECH @BullionBaron PBOC doesn't want WMPs to fail, but it wants to rein them in because it fears many are Ponzi schemes
— Patrick Chovanec (@prchovanec) June 20, 2013

@lamboftrain WMP = wealth management product, a form of investment vehicles marketed by Chinese banks, part of so-called "shadow banking"
— Patrick Chovanec (@prchovanec) June 20, 2013

Finance is the brain [tumour] of the economy

by Carrie (migeru at eurotrib dot com) on Thu Jun 20th, 2013 at 05:53:51 AM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 1)

The PRC could re-discover its Marxist roots - except, almost certainly, the families governing the PRC comprise a high percentage of the holders of the WMPs. They will probably try creating TITFFs, To Important To Fail Families. Those not strongly connected are likely to find out just how effective are their financial shelters - as that will be all that remain to them.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Jun 20th, 2013 at 10:37:27 AM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 1)

WMP holders should mostly be the common folks. In "Marxist" countries, workers are forced to be big savers, especially in China with its one child policy. The government basically gets deeper into debt to its own population - with a power of monopolist debtor though. The Chinese Party "enterprenuers" benefited very handsomely from cheap borrowing (at negative rates, essentially). Their profits are priveleged to be saved by various means. Options are different for the wide population.

by das monde on Fri Jun 21st, 2013 at 12:25:00 PM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 0)

Incorrect phrasing on my part. Instead of 'holders of the WMPs' I should have said 'originators', although low level members of the CPC may be 'investors'. Do you have knowledge of the current structure and extent of the CPC. Do they currently aspire to have a large portion of the population as members? Are there junior branches like the old Komsomol with little power within the party but important for spreading the word?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jun 21st, 2013 at 01:44:20 PM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 0)

I imagine things are more openly inheritable in China now. But the country still needs mass of talented, well educated technocrats to keep the stories of improving living standards an economy performance viable beyond all challenges.

by das monde on Sat Jun 22nd, 2013 at 07:48:34 AM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 1)

ARGeezer:

Do they currently aspire to have a large portion of the population as members?

According to wikipedia apparently yes. 80 million members and up from 60 million in 2000.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sat Jun 22nd, 2013 at 01:26:39 PM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (4.00 / 9)

I wouldn't hold my breath on the bubble being wiped out.

One of the ways that the party has been able to keep control over the country has been to allow liberalization while the old party elites retain control over assets. Yesterdays communists become today's capitalist elite. Dynastic cycle complete.......

Moreover, one of the secrets of the Chinese "miracle" has been that most of the reflationary spending since 2008 has come from local, rather than the national, government. The principle source of income for local governments in China? Land sales......

This all comes at the same time as massive wage inflation is hitting. Wages in Guangdong have nearly doubled since 2009......

The knock on effects of this are disastrous not only for China, but for the developing world. Without Chinese demand, commodity prices are going to collapse. Look at what happened to oil prices during the 1997-1998 Asian economic crises.... If this happens again, the good times in Africa are going to be coming to a close.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Fri Jun 21st, 2013 at 04:48:01 AM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (4.00 / 2)

Moreover, one of the secrets of the Chinese "miracle" has been that most of the reflationary spending since 2008 has come from local, rather than the national, government.

Could you put figures on this?

_{*Lunatic*, n.

One whose delusions are out of fashion.}

by DoDo on Fri Jun 21st, 2013 at 04:51:36 AM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 1)

For the 2008 period, it may take some time to dig.

But, for the trend, see here.

Central government spending is divided into two parts: central-level expenditures (中央本级支出), which includes spending by central government ministries and bureaus; and transfer payments/tax refunds (税收返还和转移支付), which includes money reallocated from the central to the provincial authorities (transferred-down payments). For years, the latter has been the dominant part of overall spending. In 2013, money reallocated to provincial authorities accounted for 70.2% of the total budget....
This fiscal arrangement traces its root to the 1994 tax reform, the most monumental fiscal reform of the last 30 years. In the 1980s and early 1990s, tax collection was delegated to local governments, who kept most of the revenues at the local level. Although this system motivated local governments to catalyze regional economic development, it severely weakened the financial capacity of the central government and skewed the balance of power between central and local authorities. In 1994, the central government enacted a radically new policy, requiring that most taxes be collected and kept at the central level. The central government then distributed the revenues to provincial authorities to cover their expenses. In 2012, the transferred-down payments made up 42.6% of all of the revenue of local governments. The post-1994 system engendered made local governments financially dependent on the central government, and turned the tables in the balance of power, as reflected in the previous chart.

So over two thirds of the central government budget is administered at the local level, but those transfers make up only about half of local budgets. The other half comes from land sales.

China's use of land sales to fund local governments is no longer on such solid ground, according to a top legislator....
"It's getting so bad that if (local governments) don't sell land, they can't even pay salaries," said Mr. Li, a member of the legislature's Standing Committee, a grouping of its senior members.
"How long can this `land fiscal policy' last? Another five years?" he moaned in front of an audience at a financial forum.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Fri Jun 21st, 2013 at 05:29:58 AM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 0)

But this is all spending since 1994, not reflationary spending since 2008.

_{*Lunatic*, n.

One whose delusions are out of fashion.}

by DoDo on Fri Jun 21st, 2013 at 05:54:51 AM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 1)

That said, if I think of an example familiar to me: if a city builds a metro system by combining transferred-down funds from the central government's stimulation programme and its own income on land sales, a bursting bubble for the latter can kill the project even if the central government continue to offer the money.

_{*Lunatic*, n.

One whose delusions are out of fashion.}

by DoDo on Fri Jun 21st, 2013 at 06:03:15 AM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 0)

Actually the quoted figures are for 2012 only.

Anything prior to 2009 it is very hard to get accurate statistics on. Detailed budget reports only date from that year on, and it's still rather vague. The reflationary spending has primarily been directed to infrastructure and attempts to stimulate domestic demand.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Fri Jun 21st, 2013 at 06:25:59 AM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 1)

The 'land sale' method of civic finance can only be a stopgap. It reminds me of the use of 'assignats', or 'assignments' of confiscated church lands during the French Revolution. Sure, The Church held the prime third of all agricultural land in France, but it was transferred relatively quickly to new owners. In China it is a process of local CPC officials identifying land that can profitably be redeveloped and simply confiscating it from powerless owners. But the people to whom the land is transferred are far from powerless, so there will be an endpoint to this process relatively quickly, which is what Li is saying.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jun 23rd, 2013 at 12:55:06 AM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 1)

the good times in Africa are going to be coming to a close.

Not to mention Australia.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jun 21st, 2013 at 10:32:34 AM EST
[ Parent ]

Re: Chinese Bubble Go Pop? (none / 0)

Here's the bottom line: the financial crash will be arranged to artfully suck out any money not needed for bare survival of the middle class.

Like the hummingbird's tongue, the extractive mechanism has evolved, and will be co-opted by the very efficient administration of China.

It will have Chinese characteristics. See www.sinocism.com

Align culture with our nature. Ot else!

by ormondotvos (ormond.otvosnospamgmialcon) on Sun Jun 23rd, 2013 at 03:03:14 AM EST
[ Parent ]

Chinese Bubble Go Pop? | 46 comments (46 topical, 0 editorial, 0 hidden)

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