国民收入核算: Short Observations

Due to a busy schedule, this blog post will contain various short points as opposed to the longer essay style posts I favor.

1.) Is the Chinese economy showing signs of consumption growth and an overall rebalancing away from investment?

No.

china-current-account

china-current-account-to-gdp

 

We know China is not rebalancing because China’s current account surplus is rising- see the two graphs above. The current account surplus is the difference between savings and investment; the resulting excess must be exported. China’s current account surplus declined around 2009 due to government led investment to fight off weakening foreign demand (Europe and America). Why is it rising now? China is over invested, so  debt burdens are forcing down the investment rate. The savings rate is forced up by repressing household income- effectively retarding consumption growth.  Savings is remaining high while investment levels are falling due to debt.  Perhaps the Chinese economy is in the process of rebalancing, but the current balance between savings and investment is not sustainable. Michael Pettis, in his book Avoiding the Fall writes:

China’s high trade surplus, in other words, is simply a residual that is necessary

to keep investment-driven growth manageable under conditions of repressed

domestic consumption.

 

2.) A real problem here is that the world is increasingly unhappy to absorb this surplus. Trade has already become a popular topic for the American election. I think trade is here to stay as a hot topic. To put it politely, I am anticipating more trade confrontations this year. Niall Ferguson provides excellent context for why trade is so suddenly important.

Bottom line here: China shouldn’t be happy with it’s current account surplus, and Americans are increasingly unhappy with China’s current account surplus. Confrontation looms.

3.) I hope this blog can stay closely related to economics and finance. However after talking to my father about world happenings, I recalled this article.  Two years later everything sounds so incredibly different. I wish I had something witty or interesting to say about the Brazil situation, but I am at a loss.  The world is watching you Brazil.

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我看不懂客套话: Short Observations

Due to a busy schedule, this blog post will contain various short points as opposed to the longer essay style posts I favor.

1.) I recently picked up Chairman Xi Jinping’s Book. It is a collection of his speeches. I purchased the book to gain some insight into the changes coming to China. In university I was taught to take stock in contributions to party doctrine from various administrations. For example- Jiang Zemin contributed the Three Represents, and Hu Jintao contributed the Scientific Outlook Development. By reading all of his speeches, I hoped to come to understand China’s new “supply side reform.”

I failed. I poured over the book with highlighter and pen to come away empty handed. My Chinese colleagues were extremely sympathetic. They gave me several great lessons in 客套话 (ketaohua- all syllables in fourth tone)  and 官话 (guanhua -first and fourth tone respectively). 客套话 and 官话  is the bureaucratic language of the Chinese Communist Party. It has also become something akin to the dominate legal and business dialect of China. In short, I read Chairman Xi’s speeches and was unable to discern any trends; the bureaucratic style was too tough to crack.

I am firm believer in looking at actions in China, giving reason to my ignoring of headlines such as this. However, I am still saddened at my inability to learn anything from this book.

2.)  Their exists an extreme duality in perceptions of future economic growth here. Chinese people in Beijing that are economically exposed to the slowing growth in second and third tier cities are scared.  Consider this graph from Bank of America taken from FT Alphaville not within the discussion of housing prices but as evidence of duality perception.

screen-shot-2016-03-10-at-14-32-29

Duality is the key word here. People either have liabilities not in tier one cities and are scared of the slow down, or people aren’t exposed (yet?) and blissfully unaware of any problems. I will restate this due to its importance. The economy is diverging and expectation are drastically different depending on where your assets and liabilities are. Many people are scared. Many people are doubling down on good times.

3.) I would like to chime in on the ZTE situation which is getting a lot of press in Beijing and within Beijing business circles. I think there is a plethora of good articles to read, however this action by the United States Government seems strange. Are we seeing a united effort by the American government at the end of the Obama administration to grow teeth in regard to Chinese business, or are different offices acting unilaterally due to a lack of directive from the executive office?

If you consider the gross negligence of the United States government to protect American investors from US listed Chinese companies for years (please read anything here for details), one must wonder what spurred sudden action here. Action and inaction define the the opaque American position. This, I believe, is a text book example of 20th century American national institutions working on 21st century problems with no clear guidance from the executive branch. There is great worry in Beijing because Washington has an incredibly poorly defined position. Washington hasn’t had teeth for years, and sudden sanctions and trade being a center of debate in the American presidential election is rustling feathers.