HeF

The IMF Warns About Surplus Countries, Global Imbalances

Coreopsis and Tony Daltorio I am very sure you are both a liar. I am a graduate finance student in Guanghua school at PKU and Professor Pettis is one of the most famous professor here and his classes are always very full. The dean has mentioned him many times in speeches about the school. Also he is on CCTV every month and his articles are translated into Chinese magazines. Most important Chinese in People's Bank of China, our central bank, and Ministry of Finance know him and speak to him. We all have a high value on his knowledge of China and his help to us. You are liars.

The IMF Warns About Surplus Countries, Global Imbalances

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What Should Have Been Discussed During the SED Meetings (Part II)

Yes Crispus, but over the past several years wages as a share of GDP haved dropped sharply, even during periods of flaming growth. That seems evidence that there are real constraints on workers' abilities to get their fair share. When this happens in the US, as it has during the same time period, we have no problem criticizing bad policy, and why not in China?

China: Explosion in New Lending

Morph, the last time they had a banking crisis in the late 1990s they bailed out the banks partly by injecting them with government funds and mostly by keeping deposit rates extremely low to force depositors (mostly households) to finance the bailout. Although this does not look like a tax, it effectively is. It is pretty certain that this is what they will be do again, and in fact the spread between lending and deposit rates (both set by the PBoC) is very high.

Stonefox, car sales were up big time, revenues were actually down, and profits way down. That is a little surprising.

Kappa, there were as you point out credit growth constraints in late 2007 and 2008 but the growth was still quite high (over 16%), it was off a very high base, and the credit constraints were undermined by an explosion in off-balance-sheet lending and what most believe to be a huge expansion in the informal banking sector, which may account for as much as 20-30% of all loans. But even ignoring all that, tripling the rate of loan growth in a six month period is still worrying, and when three of the last six months have the highest loan growth by far in Chinese history, that suggests rapid loan growth. There is no six-month period in Chinese history in which net new lending comes close to 1009 H1.

By the way loan maturities are on average more than one year and anyway these numbers are net new loans, not total loans.

China: Debt Is Up, Trade Is Down

Ben Gee, China's debt as a share of GDP is actually much higher than many think and rising quickly. I am not sure what you mean that Chinese banks are backed by the huge amounts of deposits of Chinese citizens. The Big Four have large deposit bases but the others depend a lot on purchased money. that is the same as banks all over the world. They are all "backed" by deposits and purchased money. At any rate ten years ago they were also "backed this way and they nonetheless managed to run up huge losses that forced the government into a massive recapitalization.

Should China Raise Wages?

Unfortunately, Kelaido, I think you are right. The best for now is to use the crisis to make some of the necessary long-term shifts, knowing that these long term shifts will not address the short term problem.

Is There More Trouble Brewing in China?

I think you're getting your multiplier wrong because you assume that minimum reserve levels in the US and China are similar. Cutting the reserve from 6% to 5% increases the multiplier from 16.7 to 20. Cutting it from 18% to 17% increases it from 5.6 to 5.9. In the end it probably doesn't matter anyway. The contraint on lending now isn't the minimum reserve requirment but rather bank unwillingness to lend, so the multiplier effect will be even lower.

China: Will the Rate Cut by the PBoC Make Things Better?

Yes, they should be cutting consumption taxes. They are focusing on the wrong side of the equation.

Would a Trade War Help Solve the Problem of Excess Capacity?

Chinawatcher, probably the best book on financial history is actually about that period, Eichengreen's Golden Fetters. Also Read Keynes' predictions in his emninently readable Economic Consequences of the Peace. Kindleberger has alos writtne great stuff about the period.

JWG, the dollar against what? My guess is that in the medium term the dollar risies aginst the euro. It should decline against the RMB, but the timing of that decline has a lot to do with PBoC policy.

Can China Take Up Consumption Slack From the U.S.?

Chinayouren, that's part of the answer. China cannot use foreign currency reserves for domestic investment without pushing the RMB through the roof and effectively killing off the export industry. But there is also the fact that reserves aren't unencumbered wealth. They are simply assets against which there are liabiltiies, in the same way that Citibank has a trillion dollars of assets but is not worth a trillion dollars (it also has nearly that much debt).

In other words the PBoC had to borrow RMB to buy the reserves, and some people think the rise in the value of RMB liabilities may have already wiped out the PBoC's capital cushion. Giving the government reserves as a 'gift' is no different than having the MoF borrow the money domestically, with the difference being that it would result in a rise in PBoC domestic liabilities rather than MoF domestic liabilities.

China: Expectations for Fiscal Expansion a Little Hasty

PA you certainly can't be accused of excessive optimism

How the US Slowdown Is Slowing Down China

It is no longer as useful as it once was to measure the dependency of two economies by the amount of direct trade to each other. One of the consequences of globalization has been that products are produced and assembled in several coutnries before they are shipped to their final destination, so if, for example, China produces a widget, sells it to Japan, who paints it green before selling it to the US, the widget will not appear as a China sale to the US even though ultimately it is US demand that abosrbs Chinese supply.

One of the side-effects of globalization has been the seeming paradox that each country's exports to the US has declined as a share of total exports even while US imports are growing as a share of world GDP. The first fact seems to indicate that the world is becoming less dependent on the US consumer while the second suggests that the world is more dependent on the US.

I would argue that the latter is true, and increased trade specialization explains the former fact. If the US slows down, and espcially if there is a sympathetic slow down in Europe, I have little doubt that developing coutnries, especially those reliant on exports, are going to be seriously affected.

As an aside, Paultaut, we will need to see September and October figures before we can be confident that internal consumption can take up the slack. I suspect much of the July/August surge was Olympics related.

China: Holiday Thoughts on Misunderstanding Data

Thanks for all the great comments. The main points I tried to make in the first part of my piece were: 1) As most of the comments implicitly ackowledge it is not very useful to assume that there is such a thing as "Chinese opinion" when in fact this is a very complex country undergoing huge social transformation and, not surprisingly, there is a very wide range of views including some very mixed feelings about the process of change. Chinese attitudes to China are at least as nuanced and conflicted as American attitudes to the US are, and the view of young people as being dominated by the fen qing (sorry for the typo) is no more accurate than to assume all young Austrians are neo-Nazis just because the neo-Nazis are more visible in the headlines. 2) This complexity and distrust has political and economic implications.

And AWJ, I am not disparaging young people from elite colleges (nor are all my young friends from elite colleges -- I actually deal with a pretty wide group of people here). At Beida, Tsinghua, Renda, Zheda, Fudan and several of the other elite schools at which I taught and lectured I have met lots of very impressive students who have a great deal of idealism and are eager to see Chinese advance in a wide variety of areas, but there is no point assuming that elite students have any more objective view than students from what you unfairly call the "trash" schools. In fact Beida students know that, one way or the otjher, their prospects for advancing in China or going abroad (and all six of the people I spoke to Sunday night said they would not hesitate for a second to emigrate if they could, but it was too difficult for them to do so) are fairly good, and this cannot help but affect their feelings and observations.

By the way I agree with your dismay about Bjork's silly and self-interested behavior. If you are Modern Sky come see me at the Maybe Mars booth, where i spend a lot of time.

The second part of my peice was, I guess, a warning about my own perspectives. I am no more objective than anyone else, but my many years experience in other developing countries leaves me very wary of the claim that economic processes are different in China. I think we need to look at data in China and understand that even when the data is right, it can give us a view that is the opposite of reality because the system has so many moving parts and they react in sometimes contradictory ways to each other.

China: A Run on the Bank of East Asia

John, I don't really follow either of those instruments so I don't have anything useful to say. Sorry.

Portable, I agree with you completely. Adding gasoline to speculative trading strategies in a market that is already completely dominated by speculation is not a good idea. Expect to see more, not less, volatility.

No Rest for the Chinese Stock Market

PAF, given current markets I am a little surprised that you think things are going so well. At any rate I am not a Chinese nespaper. It is not my goal to try to cheer people up. It is my goal to try to understand risks in the financial system, and you would have to be pretty foolish to argue for the bright side of collapsing real estate prices. The fact that collapsing real estate prices might help future buyers may very well be true, but it hardly is good news for existing investors, and it is always terrible news for banks. I would have thought that was sort of obvious.

By the way your IP numbers obviously haven't been deflated by PPI or you would have had a different view. As for consumer demand, I have always said July and August growth was high but this may because of the Olypmpics. We must wait and see. I suggest, again, that we wait and see.