Much as I dislike it, the fact is that any government can raise taxes (until they hit the point on the Laffer Curve where higher rates == lower revenue ... and it's far from clear that China is at that point).
Thus, China's "bankrupcy" is nonsense as long as the government is willing to up taxes.
Also, just as you have to evaluate the P/E ratio of a company in the light of its growth rate, you have to evaluate the debt of any entity in terms of its growth rate.
E.g.: would I be happy to loan $100k to someone earning $25k/yr ?
No.
...but what if I knew for a fact that the person's income was going to double every year for the next 10 years?
Well, that's a different story: in 10 years, the person's income will be $25 mill/year, and the debt will be trivially easy to repay.
China has had a 10% GDP growth rate for a decade now. That means that every decade their GDP is 2.5x higher than before.
A "high" debt load (measured in % of current GDP) seems a lot less worrying in that context.
To really nail the issue down, you need to figure out if they're going to keep up that growth rate, and China won't grow at that rate forever ... but another 10 or 20 years sounds like a safe bet.
Interesting - I am not sure if I buy into this, but an interesting article.
In the USA, we stopped publishing our M3 figures 7 or 8 years ago -- a stunning lack of transparency, but as the article says, all governments lie about their finances.
The basic outcome of that article is that any country is bankrupt on paper if you apply the right criteria and filter them through some historical information super-imposed onto what may or may not be happening now.
The fact they picked China gives it a high propaganda rating in my eyes.
weego: excellent point! The countries with the worse problems (at least that will also badly effect the rest the world) are the UK and the USA. In making predictions we should be informed by chaos theory: things are basically unpredictable because small events can have such large unexpected consequences. That said, I expect the UK to pop sometime in the next several years and then my country to pop sometime after that.
We _know_ that the UK, and while it isn't within my direct sphere of knoweldge, it seems common knoweldge the US too are in a fairly dire financial situation, though their AAA credit rating and various other orchestrated advantages cover that for them (oil bought in Dollars for example). Also we can see that plenty of other countries that don't have similar advantages are closer to real trouble (Greece being propped up by massive EU funding, Spain also are cutting a very fine line).
What exactly is there to find calming about this smoke-screen information? That China might not be in as much trouble as us? I guess considering the incredible amounts of Dollars they hold that might be comforting incase they start to sell them off. Or that if they aren't in so much trouble then perhaps we aren't either? I can assure you that that isn't the case whatever the truth about China.
The question at hand is essentially: What is the truth about China? I am not sure why you are bringing up US and UK finances and itching to make the comparison.
Sure, making China look bad might further interests in the west, but it says nothing as to the article's accuracy. It is good to note that the article may be biased against China, but I think the focus should be on the facts and analysis provided.
> What exactly is there to find calming about this smoke-screen information?
I don't think berntb was saying the article made him feel calm -- I think he was calling into question your credibility, just as you have called into question the journalist's:
>> I would have felt calmer if that assuring voice wasn't the third comment from a month old account.
>>I don't think berntb was saying the article made him feel calm
Right, I meant that weego's comment were calming, since China and the West are connected economically. If one gets big problems it will probably spread to the other.
I've just seen too many new accounts argue positions like defending China's behavior in Tibet, etc to trust unknown voices about things that can look bad for China's government.
I'll take that -4 as a notice to try to write better/clearer. :-)
Debt is only ever a problem for a country if a) it is trying to maintain a fixed exchange rate or b) the debt is denominated in gold or a foreign currency. Neither of these is true for China, so it's level of debt is not a problem. In fact, under a fiat currency system the entire concept of "debt" is a misnomer for sovereigns. Sovereign debt is must better thought of as interest bearing currency.
This is why China is going through all of the effort to keep the debt hidden. One really big problem with state-backed business is that the credit-worthiness of the business is fundamentally tied to it's backer.
If your doing business in China, massive debt heightens the risk that you simply won't be paid. The real risk here is ever tightening controls on Chinese borrowing and investment dollars flowing in. That would have a crippling effect on overall growth.
Sort of, but China's main concern is to prevent its currency from appreciating too much. The danger of too much debt is the opposite problem - too much debt forces a devaluation. So again, the level of debt is not a problem for China.
To speak of bankruptcy when talking about sovereign governments is somewhat misleading since they have many options that are simply unavailable to even the largest of private debtors.
Articles like this always strike as being not only fuzzy from an economic perspective, but also willfully blind to the political implications.
Something is odd with this web page. At least using chrome on Win7 x64.
I have VS2008 and SQLProfiler, even the Windows Task manager open in the background and they all have parts flickering every ~4 seconds when this page is opened in chrome.
For example in Visual studio the Solution Explorer is refreshing every four seconds.
anybody have any ideas? it's kind of unnerving. Or maybe it's just me.
I just tried it with a few configurations. And I can conclude that it's not just you.
With Chrome and VS2008 with a project open I at least get the Solution Explorer refreshes you described. I don't have time to investigate further right now but my first reaction was that it was a bit scary that a webpage would be able to influence a separate application like that... But a more likely scenario is that VS has hooked up a debugger to the thread and it triggers this behavior.
I don't have any experience with .NET on the web, so I can't say for sure. But I am for sure going to bookmark this and have a look at it later.
Bankruptcy is a legal concept which cannot be applied to a sovereign entity. All you can really talk about is credibility to potential lenders. I would say China's credibility is pretty damn good at the moment.
One reason I'm skeptical about this is the the United States has a ton of debt (this is a definite fact), and someone had to lend us the money. China has over $1T of U.S. Treasury Bonds. It might be plausible that they have cash flow problems, since they can't exactly liquidate $1T of U.S. Bonds, but then why do they keep buying them? In any case, I don't buy this one bit, especially since I haven't heard a single reputable economist ever say anything like it.
They have to keep buying them -- their economy is based on keeping the yuan artificially cheap compared to the dollar. In order to maintain this out-of-balance price, they have to keep buying dollars with yuan, taking dollars out of the market and increasing the supply of yuan.
We're going to be explaining to school children how every sovereign entity in the world can be in crippling debt simultaneously for centuries. Here's hoping those next societies actually learn something from this. With a bit of luck and a whole lot of making hard choices, perhaps ours will be one of them.
Thus, China's "bankrupcy" is nonsense as long as the government is willing to up taxes.
Also, just as you have to evaluate the P/E ratio of a company in the light of its growth rate, you have to evaluate the debt of any entity in terms of its growth rate.
E.g.: would I be happy to loan $100k to someone earning $25k/yr ?
No.
...but what if I knew for a fact that the person's income was going to double every year for the next 10 years?
Well, that's a different story: in 10 years, the person's income will be $25 mill/year, and the debt will be trivially easy to repay.
China has had a 10% GDP growth rate for a decade now. That means that every decade their GDP is 2.5x higher than before.
A "high" debt load (measured in % of current GDP) seems a lot less worrying in that context.
To really nail the issue down, you need to figure out if they're going to keep up that growth rate, and China won't grow at that rate forever ... but another 10 or 20 years sounds like a safe bet.