China's Economy-A Big Greece?

[Kathianne]

Once again, those with better grip on economics want to wade in? In the past few days while digging up some help in understanding Greece/EU economics, kept coming across articles on China problems. This weekend China launched several different strategies trying to stabilize their currency, seems they are not having much luck.

This seems a simple explanation of comparison:

http://www.forbes.com/sites/panosmourdoukoutas/2015/07/05/a-scary-similarity-between-the-greek-and-chinese-economy/


<time itemprop="datePublished" content="2015-07-05T10:55:00-04:00" style="box-sizing: border-box;">7/05/2015 @ 10:55AM</time> 7,435 views

A Scary Similarity Between The Greek And Chinese Economy

China is the world’s second largest economy, still growing by leaps and bounds and plenty of foreign currency reserves. Greece is a tiny economy floundering in the swamp of depression, barely holding in the Eurozone.

But the two economies have one thing in common: From the late 1970s to this day, they shared a semi-Soviet economic model whereby a large part of the economy has been under the direct or indirect control of central and local government.

In both countries government has been present in “key sectors,” telecom, utilities, transportation, and energy — as regulator, owner, financier, entrepreneur, manager. This has helped keep inefficient enterprises afloat, though more in China, where the government is the outright owner of State Owned Enterprises (SOEs), Town Village Enterprises (TVEs) — producing goods as varied as steel, laundry powder, aluminum and toilet paper.

Government has also been present in the banking industry of both countries — controlling almost every major bank, and rationing credit by political fiat rather than by market forces.

The extensive presence of government in the economy — and most notably the simultaneous government ownership of banks, pension funds, and common corporations – has produced an odd state whereby the creditor and the borrower are both government units.


And that’s a state, which multiplies risks and uncertainties across the economy — in two ways:

First, government ownership of banks turns bankers into “abacus bankers,” — routine monitors of money flow into and out banks merely rather than true bankers, evaluators and managers of banking risks.

The result? Banks end up with piles of non-performing loans — as I discussed in my book, The Rise And Fall Of Abacus Banking In Japan and China.

Second, simultaneous government ownership of both the creditors and the borrowers concentrates rather than disperses credit risks, creating the potential of a systemic collapse, as the Greek crisis so vividly confirmed.

That’s what makes this common feature between the two economies scary.

...

[Balu]

I wonder what the USA will do if China will once ask you to return them your depts. :laugh:

[Kathianne]

http://finance.yahoo.com/news/chinas-stock-market-crashing-chinese-095900183.html


<header class="header" id="yui_3_18_1_1_1436192209831_2230" style="margin: 0px; padding: 0px 10px; overflow: hidden; color: rgb(0, 0, 0); font-family: 'Helvetica Neue', HelveticaNeue, helvetica, arial, sans-serif; line-height: 16.25px;">China's stock market is crashing, and the Chinese are trying to do the exact same thing America did in 1929

</header>http://media.zenfs.com/284/2011/06/08/biz-insider-65x27_102440.gif (http://www.businessinsider.com/) <cite class="byline vcard top-line" id="yui_3_18_1_1_1436192209831_2236" style="font-style: normal; font-size: 11px; line-height: 12.1000003814697px;">By Oscar Williams-Grut<abbr id="yui_3_18_1_1_1436192209831_2235" style="display: block;">4 hours ago</abbr></cite>



While attention is focused on Greece, China is having a serious market meltdown.
After exploding earlier in the year because of deregulation, China's benchmark Shanghai Composite has collapsed a crazy 29% since the highs of early June. China's other stock markets have had similarly steep falls.
Bloomberg notes (http://www.bloomberg.com/news/articles/2015-07-05/china-brokers-dust-off-wall-street-s-playbook-from-crash-of-1929) that the crisis is closely mirroring the 1929 Wall Street crash, which led to the Great Depression in the US in the 1930s.

https://pbs.twimg.com/media/CJNJ_odWcAE_7Kz.png

[fj1200]

Once again, those with better grip on economics want to wade in? In the past few days while digging up some help in understanding Greece/EU economics, kept coming across articles on China problems. This weekend China launched several different strategies trying to stabilize their currency, seems they are not having much luck.

This seems a simple explanation of comparison:

http://www.forbes.com/sites/panosmourdoukoutas/2015/07/05/a-scary-similarity-between-the-greek-and-chinese-economy/

The differences are more important. Chinese bankers lend to Chinese business; EU and IMF governmental entities lend to Greek government.

Where did you see that the Chinese are trying to stabilize their currency?

[Kathianne]

The differences are more important. Chinese bankers lend to Chinese business; EU and IMF governmental entities lend to Greek government.

Where did you see that the Chinese are trying to stabilize their currency?

I see that should have been 'markets.' Sorry.

http://www.nytimes.com/2015/07/05/business/fund-in-china-aims-to-stabilize-stock-markets.html?_r=0


China Moves to Stabilize Stock Markets; Initial Offerings Halted<header id="story-header" class="story-header" style="position: relative; color: rgb(51, 51, 51); font-family: nyt-cheltenham, georgia, 'times new roman', times, serif; font-size: 16px;">By KEITH BRADSHER (http://topics.nytimes.com/top/reference/timestopics/people/b/keith_bradsher/index.html) and CHRIS BUCKLEY (http://topics.nytimes.com/top/reference/timestopics/people/b/chris_buckley/index.html)<time class="dateline" datetime="2015-07-04" style="font-size: 0.6875rem; line-height: 0.75rem; font-family: nyt-cheltenham-sh, georgia, 'times new roman', times, serif; color: rgb(0, 0, 0); margin-left: 12px;">JULY 4, 2015</time>


</header>








HONG KONG — Struggling to respond to precipitous declines on China’s stock markets over the last three weeks, the country’s biggest brokerage firms unveiled a government-endorsed plan on Saturday to buy shares starting on Monday, while both of the country’s stock exchanges suspended all further initial public offerings of stock.

...


Halting initial public offerings encourages investors to keep their cash in existing stock listings instead. The Shenzhen exchange issued suspension notices on Saturday for 18 planned initial public offerings, citing “the recent significant market turbulence” in each case, and Shanghai issued notices for 10 offerings for the same reason.
The announcements came as the government has been scrambling to halt the steepest plunge in the Shanghai stock market in nearly a quarter-century. Share prices have fallen nearly a third since June 12, erasing more than $2 trillion of value and inflicting immediate hardship on millions of families who not only invested their savings but also borrowed heavily at steep interest rates to buy more shares.

...

[Balu]

Let us use our brains.
Once Charles André Joseph Marie de Gaulle
https://upload.wikimedia.org/wikipedia/commons/thumb/2/27/De_Gaulle-OWI.jpg/200px-De_Gaulle-OWI.jpg

sent a vessel with tons of YOUR dollars (BTW today is the Date of birth of your currency), and it caused a drop of Bretton Woods system. Think over WHERE you will find yourselves, should every country stop trusting your currency?
After WW2 your dollar substituted the British Pound of Sterling. You know it, Americans?
And where is the Swiss Franc and where is the Reichsmark :laugh:

[fj1200]

I see that should have been 'markets.' Sorry.

That makes more sense. :)


sent a vessel with tons of YOUR dollars (BTW today is the Date of birth of your currency), and it caused a drop of Bretton Woods system.

I see that you like to harp on this story for some reason but your rationale is incorrect. It didn't cause a drop, it was symptomatic of the "drop." The Fed had been dumping too many dollars (Because LBJ jawboned the Fed head into easing IMO) into the markets causing dollars to be inexpensive compared to gold. A rational actor, France in this case, decided to do the job that the Fed was supposed to do by swapping dollars for gold to restore the Bretton Woods balance. I hope this clears up your confusion. :)

Is this what you consider a "good" national currency?

https://qzprod.files.wordpress.com/2014/12/the-bitcoin-collapse-is-even-worse-than-the-ruble-rout-ruble-usd-bitcoin-usd_chartbuilder.png?w=640

[Drummond]

I wonder what the USA will do if China will once ask you to return them your depts. :laugh:

Balu - tell us. What should Americans infer from your obvious, and persistent, expressions of amusement ?

Care to be candid ?

[Kathianne]

China is getting attention, at least in Australia:

http://www.news.com.au/finance/economy/chinese-chaos-worse-than-greece/story-fnu2pycd-1227430761673


Chinese chaos worse than Greece



11 HOURS AGO JULY 07, 2015 12:10PM


WHILE the world worries about Greece, there’s an even bigger problem closer to home: China.
A stock market crash there has seen $3.2 trillion wiped from the value of Chinese shares in just three weeks, triggering an emergency response from the government and warnings of “monstrous” public disorder.

And the effects for Australia could be serious, affecting our key commodity exports and sparking the beginning of a period of recession-like conditions.

“State-owned newspapers have used their strongest language yet, telling people ‘not to lose their minds’ and ‘not to bury themselves in horror and anxiety’. [Our] positive measures will take time to produce results,” writes IG Markets (http://www.ig.com/au/market-update/2015/07/05/greferendum-moving-to-grexit-25870).

“If China does not find support today, the disorder could be monstrous.”

In an extraordinary move, the People’s Bank of China has begun lending money to investors to buy shares in the flailing market. The Wall Street Journal reports this “liquidity assistance (http://www.wsj.com/articles/beijing-aims-big-booster-shot-at-teetering-stock-market-1436123277)” will be provided to the regulator-owned China Securities Finance Corp, which will lend the money to brokerages, which will in turn lend to investors.

The dramatic intervention marks the first time funds from the central bank have been directed anywhere other than the banks, signalling serious concern from authorities about the crisis.

At the same time, Chinese authorities are putting a halt to any new stock listings. The market regulator announced on Friday it would limit initial public offerings — which disrupt the rest of the market — in an attempt to curb plunging share prices.

While the exact amount of assistance hasn’t been revealed, the WSJ reports no upper limit has been set.
​
All short-selling — the practice of betting that stocks will fall — has been banned, and Chinese media has rushed to reassure citizens.
Yesterday, shares in big state companies soared in response to the but many others sank as jittery small investors tried to cut their losses (http://www.news.com.au/finance/markets/chinese-investors-flee-for-safety/story-e6frfm30-1227432115075), Associated Press reports. The market benchmark Shanghai Composite closed up 2.4 percent but still was down 27 percent from its June 12 peak.

...

[Kathianne]

Funny name, good info:

http://www.smalldeadanimals.com/2015/07/its-probably-no-335.html


It's Probably NothingBy Kate (http://smalldeadanimals.com/) on <abbr class="published" title="2015-07-07T09:57:45-05:00" style="border: 0px;">July 7, 2015 9:57 AM</abbr> | 13 Comments (http://www.smalldeadanimals.com/2015/07/its-probably-no-335.html#comments)

While you were flag debating... (http://www.news.com.au/finance/economy/chinese-chaos-worse-than-greece/story-fnu2pycd-1227430761673)

A stock market crash there has seen $3.2 trillion wiped from the value of Chinese shares in just three weeks, triggering an emergency response from the government and warnings of "monstrous" public disorder.[...]
In an extraordinary move, the People's Bank of China has begun lending money to investors to buy shares in the flailing market. The Wall Street Journal reports this "liquidity assistance" will be provided to the regulator-owned China Securities Finance Corp, which will lend the money to brokerages, which will in turn lend to investors.
The dramatic intervention marks the first time funds from the central bank have been directed anywhere other than the banks, signalling serious concern from authorities about the crisis.
More: (http://www.marketwatch.com/story/story?guid=17fc50cd-b7aa-4245-abe8-de7b5e0a5836) Over 20% of listed China stocks now in trading halt

[fj1200]

Big Trouble: Little China.

Old China is drowning (https://www.yahoo.com/news/old-china-drowning-173858576.html)

There haven't been many days in 2016, but every single one of them has been ugly for China's economy.It should surprise no one, then, that Wall Street's most lauded China analyst, Charlene Chu of Autonomous Research, has a dark outlook for the country's economy this year (http://www.businessinsider.com/chinese-secondary-industrial-production-2016-1), especially its corporate sector.
That is because a huge portion of it is drowning.
As the country transitions from an investment-based economy to one driven by consumer consumption, older growth drivers known as the secondary industry — think the property market and manufacturing — are becoming less profitable.
What we are witnessing is the slow death of Old China, and it isn't pretty.
"We expect China’s GDP growth to continue to slow in 2016 driven by further deterioration of secondary industry, which comprises 43% of economic output and whose growth plummeted to a record low of 1.2% yoy in 3Q15," Chu wrote in the note.
China's secondary industry is drowning in debt. Old China's companies are not growing fast enough to keep up with interest payments on their debt.

China needs $5 trillion to save its economy — and it might not work anyway (https://www.yahoo.com/finance/news/china-needs-5-trillion-save-175519382.html)

At this point, it's pretty much consensus that it's going to take some doing to get China's economy back on track.The country is dealing with a falling currency, an incredibly volatile stock market, and thinning corporate margins in sectors that used to drive the country's growth.
These are huge structural problems that will require both brilliance and cold hard cash to solve. The question is, how much?
According to Charlene Chu of Autonomous Research, who is widely considered one of the best (if not the best) China analyst in the world, it's going to take more money than you could possibly imagine.
"Larger credit injections are possible, but we would need to see CNY37.5trn in net new credit in 2016 to achieve the same magnitude credit impulse as in 2009," Chu wrote in an email to Business Insider.
That is $5.7 trillion. $5.7 trillion!

[Russ]

Once again, those with better grip on economics want to wade in? In the past few days while digging up some help in understanding Greece/EU economics, kept coming across articles on China problems. This weekend China launched several different strategies trying to stabilize their currency, seems they are not having much luck.

This seems a simple explanation of comparison:

http://www.forbes.com/sites/panosmourdoukoutas/2015/07/05/a-scary-similarity-between-the-greek-and-chinese-economy/

But the two economies have one thing in common: From the late 1970s to this day, they shared a semi-Soviet economic model whereby a large part of the economy has been under the direct or indirect control of central and local government.



I'm no economist, but I would say there is one huge difference between the economies of Greece and of China. The Greek economy manufactures virtually nothing that can be exported, so they have nothing to balance their imports against. There economy is mostly mom-and-pop shops that are too small to do any exporting, and most of their jobs are either patronage jobs working for the government, or else tourism.

The Chinese economy, on the other hand, is a manufacturing and exporting juggernaut, even today. I think that their huge manufacturing/exporting base will carry them through their current problems.