China Economy: News & Discussion

[Martian]

China's 2014 nominal GDP was $10.4 trillion. Once China moves from the old SNA 1993 to the SNA 2008 accounting standard, the Rhodium Group estimates China's nominal GDP will increase by 13.2% to 16.3%. This would mean an increase of $1.3 to $1.6 trillion in China's nominal GDP.

SNA 2008 should increase China's 2008 nominal GDP by 13.2% to 16.3%

There are two revisions.

The first one is minor, which added $308 billion (3.4% of GDP). The upward revision was due to a 2013 national economic census, which provided better data.

A Better Abacus for China | Rhodium Group

----------

We are waiting for the big one; the SNA (System of National Accounts) 2008 accounting standard with 17 chapters.

China is currently using the old 1993 SNA accounting standard to determine its nominal GDP.

The citation below estimates the upcoming SNA 2008 accounting standard update should add 13.2% to 16.3% onto China's 2008 GDP. The range of estimate is due to uncertainty over the size of China's R&D budget.

A Better Abacus for China | Rhodium Group

----------

Additional References.

China's revised nominal GDP for 2015 should be about $13.3 trillion

China is updating its GDP methodology to a more recent version. It affects the way services is counted and other issues. The net effect is a Chinese nominal GDP of around $13.3 trillion for 2015. The revision is supposed to happen sometime this year.

Reference: [URL='http://nextbigfuture.com/2015/01/china-will-pass-europe-in-nominal-gdp.html']Next Big Future: China will pass Europe in nominal GDP this year[/url]
----------

China is moving to the SNA (ie. System of National Accounts) 2008 international accounting standard.

Reference: [URL='http://blogs.piie.com/china/?p=4080']China Economic Watch | China’s New GDP Measurement: Impact on Growth, Income, and Productivity[/url]

 

[blueblood]

Was this before or after Li Keqiang said China's "GDP numbers are man made" and for "reference only"?

China's GDP is "man-made," unreliable: top leader

China's GDP figures are "man-made" and therefore unreliable, the man who is expected to be the country's next head of government said in 2007, according to U.S. diplomatic cables released by WikiLeaks.


"That China's GDP is not reliable, especially for local GDP, that is nothing new," said an economist with a foreign bank who requested anonymity because of the sensitivity of discussing top national leaders.

"Some of the volume data, such as power and rail freight and even (bank) credit, are interesting because there is less incentive to massage them at the local level. But they reveal only part of the truth, not the entire truth," he said.

http://www.reuters.com/article/2010/12/06/us-china-economy-wikileaks-idUSTRE6B527D20101206

 

[Sylex21]

While conspiracy theories abound, there is no truly credible evidence that China's GDP is inflated and such arguments can be made about nearly any other nation. For now the only logical thing to do, is to take them at face value.

 

[ezsasa]

Let's wait and see if this change in calculations happen in 2015, as such there is no harm even if the Chinese do. They will move from 11.3 trillion to 13 Trln USD. nothing much changes in scheme of things, they will still be number 2 in terms of nominal GDP.

 

[sorcerer]

China’s Energy Security Achilles Heel: Middle Eastern Oil

While recent turbulence in the Chinese economy has caused investors and pundits much concern, observers may be missing another critical threat to both Chinese and world markets. Soaring Chinese oil consumption and turmoil in the Middle East have been central, and seemingly irrevocable, features of the global energy landscape in recent years. But China’s outsized and growing reliance on crude oil imports from this increasingly turbulent region leave the world’s largest crude importer highly exposed to the adverse effects of a major supply disruption. The Middle East’s precarious security situation and fragile political balance constitute serious threats to China’s energy security and, by extension, the stability of global markets.

China is thirsty for crude oil. The world’s most populous country consumed over 11 million barrels per day (mbd) and accounted for over one third of global oil demand growth last year. It is reliant on imports for 60 percent of its crude oil needs, and that reliance is growing as China’s demand growth has outpaced the country’s lagging domestic production growth. While the “new normal” rate of economic growth in China is expected to cut into crude oil demand growth, Chinese consumption is still projected to exceed 13 mbd by 2020. This sustained demand growth ensures that China will remain one of the largest and most sought-after crude oil markets on the planet, with suppliers from Caracas to Moscow jockeying to increase their market share in the Middle Kingdom. Despite the best efforts of producers like Russia, China will continue to be disproportionately reliant on imports from the Middle East. In 2014, Middle Eastern crude accounted for over half of total Chinese imports, a share that is unlikely to decrease in a meaningful way given current market trends.

When Saudi Arabia decided in November 2014 to protect market share rather than cut production in the face of falling prices, it effectively set into motion a supply side arms race in which Middle Eastern producers began pumping crude at breakneck rates. This summer, Iraq produced record-high volumes of crude and Gulf Arab OPEC production surged to the highest levels on record, with Saudi production peaking at roughly 10.6 mbd. Even as resilient U.S. shale production and lagging demand growth sent prices tumbling again this summer, Saudi Arabia has been steadfast in its refusal to cut production and cede market share to geopolitical rivals like Russia and Iran. Absent an unlikely Saudi production cut, other Middle Eastern suppliers like Iraq must also continue producing at breakneck rates to protect their market share.

The Chinese market’s strategic importance to competing Middle Eastern producers will incentivize them to maintain or expand current export levels to the People’s Republic. Likewise, China has a commercial interest in importing Middle Eastern oil as many of its refiners prefer Gulf producers’ medium and heavy grade crudes. In short, China will find itself locked in the embrace of Middle Eastern producers for the foreseeable future.

China’s heightened dependence on Middle Eastern crude leaves its import market vulnerable to the region’s various threats, chiefly the Islamic State (IS), factional tensions stemming from weak governance, and potential commercial fallout from ongoing political uncertainty. Unrest caused by ISIS is already impacting China’s key Iraqi and Saudi suppliers. In Iraq, ISIS set fire to wells at the Ajil oil field, held the Baiji refinery north of Tikrit, and attacked pipelines to Turkey. The group currently operates in the country’s north and west, a best-case scenario given that the Shia-dominated south comprises 90 percent of Iraq’s oil production and 85 percent of its exports. However, oil majors including BP and ExxonMobil have evacuated employees from facilities in anticipation of future threats, and a diverted security presence has seen a rise in attacks and kidnappings of southern oil workers.

In neighboring Saudi Arabia, China’s largest supplier of crude oil, ISIS aims to foment sectarian unrest in the Sunni Kingdom’s oil-rich Eastern Province. The Shia-dominated province is critical to Saudi production and has been the target of attacks in the past, including the 2006 attempted al-Qaeda bombing at the Abqaiq processing facility, through which an estimated 70 percent of Saudi crude exports pass. ISIS carried out a deadly mass shooting in the Eastern Province in November, targeted Shia mosques for suicide bombings during Ramadan, and the bombing of a Riyadh security checkpoint spurred a massive crackdown by Saudi authorities. Bombings against oil infrastructure or widespread sectarian unrest could threaten to disrupt Chinese supply.

In addition to physical threats to supply, political disputes could disrupt the delicate balance that makes Iraq an attractive commercial opportunity for international oil companies (IOCs). As ISIS has weakened Baghdad’s governance capacity, anger over violations of a shared oil export agreement between the central government and the Kurdistan Regional Government (KRG) has risen. This tension threatens to unravel the fragile oil-sales agreement, undermine reform efforts by KRG Prime Minister Haidar Abadi, deter future investment by IOCs, and potentially disrupt future Iraqi supply.

Compounding the energy security vulnerability caused by political and security instability is a crucial but largely overlooked side effect of the ongoing battle for market share: decreasing global spare capacity, the amount of production that can quickly come online in the event of a major market disruption to minimize price volatility.

Crude oil markets are most stable when spare capacity is at least 5 percent of total oil market demand, which amounts to roughly 4.7 mbd in today’s market. Traditionally, Saudi Arabia maintained sufficient spare capacity to stabilize the market in the wake of supply disruptions. As Riyadh has increased production to protect market share, however, its spare capacity has fallen significantly. Keen observers placed Saudi spare capacity it roughly 1 mbd in May before it ramped up production by roughly 300,000 barrels per day this summer. While it is difficult to pinpoint current Saudi spare capacity, it is clearly well below 5 percent of today’s market demand, and is expected to remain so at projected production levels. As a result, the safety net to ease the pain of a potential major supply disruption has vanished.

Low spare capacity has troubling implications for an import-dependent and energy-intensive country like China, whose economy has shown signs of fragility in recent months. China currently benefits from low oil prices and a market awash in excess crude; weathering a supply disruption is more manageable at $50 a barrel than $100. But given the infamous volatility of oil markets, China cannot depend on sustained low prices for its energy security.

So what can Beijing do to address its Middle East energy insecurity? In the short-term, the reality is: not much. Transitioning from a free-rider on the “public good” of U.S. security to regional guarantor would require force projection to rival that of the United States, and it is unlikely that Beijing is willing to invest the resources necessary for such a massive foreign undertaking.

Additionally, China is on the wrong side of the Gulf’s security politics. Its de facto alignment with Iran, evidenced by their burgeoning naval cooperation, its United Nations Security Council vetoes with Russia of any action against the Syrian regime, and an alleged illicit nuclear pipeline from its private citizens to Iran make China an uncertain entity to the Gulf Arab monarchies. While the Gulf states may be willing to reap the benefits of Chinese trade and petrodollars, they are unlikely to warm to an external security presence so close to Iran. Beijing has taken some steps to secure its regional interests on a smaller scale through anti-piracy and evacuation missions, and could aim to boost bilateral ties with key exporters to further bolster the security of its interests. But for now at least, China’s energy security will largely be reliant on U.S.-led efforts to stabilize the regional security situation.

From a domestic perspective, Beijing could create its own supply security by building out its strategic petroleum reserve (SPR), a process that is already well underway. The size and composition of China’s SPR is shrouded in secrecy, but the Chinese National Bureau of Statistics announced in November 2014 that China had amassed 91 million barrels of crude, equating to roughly 30 days of import protection, in the first phase of its strategic stockpiling efforts; it aims to add another 168 million barrels to its strategic reserves in the next phase. However, this effort is complicated by China’s need to build new storage infrastructure, as it reportedly filled nearly all of its current storage capacity during a buying spree late last year. Furthermore, analysts estimate that China must amass roughly 600 million barrels in strategic reserves to match the import protection required of International Energy Agency (IEA) member states, a goal that Beijing is years away from realizing.

Given these realities and the outsized role that China plays in the global commodities trade, the country’s reliance on Middle Eastern oil constitutes a very real threat to the stability of energy markets and the global economic order. A major energy supply disruption today would place even greater stress on the Chinese economy, which is currently reeling in the wake of this summer’s stock market crash, and could potentially cause grave harm to financial markets across the globe. For this reason, it is critically important for the international community to engage with China to address its energy security vulnerabilities and head off a potential international crisis.

Owen Daniels is a program assistant at the Middle East Peace and Security Initiative of the Atlantic Council’s Brent Scowcroft Center on International Security. Chris Brown is a program assistant at the Atlantic Council’s Global Energy Center.
http://thediplomat.com/2015/09/chinas-energy-security-achilles-heel-middle-eastern-oil/

 

[sob]

Merging this with the sticky thread on Chinese Economy here at http://defenceforumindia.com/forum/threads/china-economy-news-discussion.2744/

 

[Martian]

Taiwan-made cancer drug gains landmark FDA approval in U.S. | Focus Taiwan

A Taiwan-developed cancer drug (called Onivyde) "could raise the five-year survival rate for pancreatic cancer patients from 6 percent to 50 percent." Onivyde was developed by Taiwan's National Health Research Institutes (NHRI).

Taiwan-made cancer drug gains landmark FDA approval in U.S. | Society | FOCUS TAIWAN - CNA ENGLISH NEWS

 

[Martian]

Taiwanese lab develops smallest-ever transistor - Taipei Times

 

[Martian]

IMF: China will still be the largest growing economy in 2016

Look at the IMF nominal GDP projections for 2016. China will still be the largest growing economy. The Chinese economy will grow by about $900 billion.

Keep in mind that China's nominal GDP is missing $1 trillion from the official data. China is still using the antiquated 1993 SNA accounting standard. Everybody else is using the more modern SNA 2008.

The exciting event will occur in 2020. When China's currency is allowed to freely float, the traders will decide its real value.

For 2016, China should accumulate a trade surplus around $750 billion (due to the low price of oil). Between 2015-2020, China would have accumulated trillions of dollars in trade surpluses. This will affect the value of the Chinese currency. We should see a spike in China's 2020 nominal GDP.

World Economic Outlook Database October 2015
Report for Selected Countries and Subjects

 

[Martian]

China to build world's largest supercollider | GCR

China has operated its own linear accelerator, the Beijing Electron Positron Collider (BEPC), for 28 years.

The Beijing Electron Positron Collider was upgraded in 2008 and is commonly referred to as BEPC II.

China has twice upgraded the sophisticated detector, now called Beijing Electron Spectrometer III (BES III).

After 28 years of experience, China is well-qualified to build the world's largest super-collider.
----------

GCR - Trends - China to build “Higgs factory” twice the size of Cern’s Large Hadron Collider

----------

First e+e- Collison at BEPCII/BESIII----Institute of High Energy Physics

----------

Updated collider produces particle results in Beijing | Malamalama, The Magazine of the University of Hawai'i System

 

[Martian]

China's economic fundamentals are rock-solid | See Brookings Institution

According to the Brookings Institution, China's trade-weighted exchange rate has appreciated 50% in the last ten years. Over the same time period, China's merchandise export surplus has exploded from $100 billion in 2005 to $600 billion in 2015.

This means China's technological base has grown much stronger. Despite the sharp 50% rise in the Chinese currency, China is exporting more high-value goods and increasing its trade surplus.

A reasonable question to ask is: Why doesn't China just let the Yuan keep appreciating? The Chinese trade surplus doesn't seem to be affected.

If China wanted a US-style economy then it would let the Yuan continue its appreciation. However, China has two different economies. The high-tech Chinese economy is performing well. On the other hand, the low-tech export economy (like steel) is getting hammered. In China, social stability is an important government priority. Thus, we expect the Chinese government to moderate future appreciations of the Yuan. The Chinese government wants to keep the steel workers employed and off the streets.
----------

Anchor aweigh? China’s currency devaluation and the global economy | Brookings Institution

 

[Batfan]

Hi guys need some help here. I was amazed with how fast the Chinese economy grew with 1+trillion addition in some year and I was dazed whether it could happen with India too. So I was trying to calculate the growth figures of China and for the period from 2004-2014 the average chinese GD.P growth rate was 10%. With the formula
N=O(1+0.0G)^n for calculating the GDP growth the figures I found were 5.42trillion which is no where near the present 10+trillion.
Can someone explain me how?

Sent from my XT1068 using Tapatalk

 

[Martian]

Hi guys need some help here. I was amazed with how fast the Chinese economy grew with 1+trillion addition in some year and I was dazed whether it could happen with India too. So I was trying to calculate the growth figures of China and for the period from 2004-2014 the average chinese GD.P growth rate was 10%. With the formula
N=O(1+0.0G)^n for calculating the GDP growth the figures I found were 5.42trillion which is no where near the present 10+trillion.
Can someone explain me how?

Sent from my XT1068 using Tapatalk

Nominal GDP is based on three factors.

1. Real GDP growth
2. Inflation rate
3. Currency appreciation

You made a calculation based solely on real GDP growth rate. You forgot about the other two factors (e.g. inflation rate and currency appreciation). For example, the old exchange rate was 8.26 Chinese Yuans per US dollar in the year 2005. Today, China's currency has appreciated to 6.5 Chinese Yuans per US dollar.

During the last 10 years, the Chinese inflation rate averaged close to 3%. Lately, I think it's down to 1.5% per year.

 

[Kshatriya87]

China FX reserves fall almost $100 bn to lowest since May 2012

Read more at: http://www.moneycontrol.com/news/wo...-may-2012_5354721.html?utm_source=ref_article

China's foreign reserves fell USD 99.5 billion to USD 3.23 trillion in January, the lowest level since May 2012, central bank data showed, but higher than the median forecast of USD 3.20 trillion from economists surveyed in a Reuters poll.

China's foreign reserves fell for a third straight month in January, as the central bank dumped dollars to defend the yuan and prevent an increase in capital outflows.

The size of the drop was second only to the USD 107.9 billion fall in December, the largest monthly decline on record. The central bank has intensified efforts to prop up the yuan after it staged a surprise devaluation in early August.

China's reserves remain the world's largest despite losing around USD 420 billion in the last six months. In 2015, they fell by USD 513 billion, the largest annual drop in history.

The country's foreign exchange regulators said on February 4 that trade and investment had caused USD 342.3 billion of the drop in reserves in 2015, while currency and asset price changes caused another USD 170.3 billion fall.

Officials said the fall had been further exacerbated by a rush by local firms to repay foreign debt and increased dollar buying by local residents as the yuan fell.

Capital outflows have gained momentum since the yuan's August devaluation, fanned by concerns about China's economic slowdown and expectations of US interest rate rises.

"Monetary easing is highly needed amid economic slowdown, but the capital outflow will naturally tighten the monetary policy," Hao Zhou, senior emerging markets economist at Commerzbank in Singapore, said in a note after the data.

"In the meantime, to prevent the currency from a fast depreciation, the PBOC (People's Bank of China) will have to sell its FX reserves, which will tighten the liquidity."

The PBOC has taken recent steps to curb currency speculation, including setting a limit on yuan-based funds to invest overseas and implementing a reserve requirement ratio on offshore banks' domestic yuan deposits.

China also eased capital rules for foreign institutional investors to buy onshore stocks and bonds.

Economists expect Beijing to tighten capital controls and close regulatory loopholes to curb the flight of money.

China's gold reserves rose to USD 63.57 billion at the end of January, from USD 60.19 billion at end-2015, the PBOC said.

They stood at 57.18 million fine troy ounces at the end of January, up from 56.66 million fine troy ounces in December.

China's International Monetary Fund reserve position was at USD 3.76 billion at end-January, down from USD 4.55 billion in December. The central bank held USD 10.27 billion of IMF Special Drawing Rights, compared with USD 10.28 billion at end-December.

 

[ezsasa]

Can anyone guide me to chinese budget document for year 2016 in english? i would like understand how their budgets are planned for the current year.

 

[Indx TechStyle]

China's debt is 250% of GDP and 'could be fatal', says government expert

 

[Indx TechStyle]

However, India's Forex Reserves are growing faster instead, we will take time to catch up. China's Forex Reserves are more than 8 times of hours.
Aug 6, 2016
China's July forex reserves fall to $3.20 trillion

A Chinese national flag flutters outside the headquarters of the People's Bank of China, the Chinese central bank, in Beijing, April 3, 2014.
REUTERS/PETAR KUJUNDZIC/FILE PHOTO

China's foreign exchange reserves fell to $3.20 trillion in July, central bank data showed on Sunday, in line with analyst expectations.

Economists polled by Reuters had predicted reserves would fall to $3.20 trillion from $3.21 trillion at the end of June.

China's reserves, the largest in the world, fell by $4.10 billion in July. The reserves rose $13.4 billion in June, rebounding from a 5-year low in May.

China's gold reserves rose to $78.89 billion at the end of July, up from $77.43 billion at end-June, data published on the People's Bank of China website showed.

Net foreign exchange sales by the People's Bank of China in June jumped to their highest in three months, as the central bank sought to shield the yuan from market volatility caused by Britain's decision to leave the European Union.

China's foreign exchange regulator recently said China would be able to keep cross-border capital flows steady given its relatively sound economic fundamentals, solid current account surplus and ample foreign exchange reserves.

China's foreign reserves fell by a record $513 billion last year after it devalued the yuan currency in August, sparking a flood of capital outflows that alarmed global markets.

The yuan has eased another 2 percent this year and is hovering near six-year lows, but official data suggests speculative capital flight is under control for now, thanks to tighter capital controls and currency trading regulations.

However, economists are divided over how much money is still flowing out of the country via other channels, with opaque policymaking and some inconsistency in the data raising suspicions that the fall in the yuan may be masking capital outflow pressure.

After the yuan slipped to below the psychologically important 6.7/dollar level on July 18, it has seen a mild rebound as the central bank stepped in to control the pace of its depreciation.

Still, most China watchers expect it will resume its descent soon, risking a renewed surge in outflows.

A Reuters poll on Wednesday showed analysts believe the yuan may fall more than 3 percent against the dollar by a year from now, more than expected just a month ago, as the economy struggles to maintain momentum and as the dollar edges up on views of an eventual U.S. rate rise.

China will keep the yuan basically stable and continue with market-based interest rate reform, the central bank said on Wednesday.

The country's economy expanded slightly faster than expected in the second quarter but private investment growth shrank to a record low, suggesting future weakness that could pressure the government to roll out more support measures.

(Reporting by Judy Hua and Benjamin Lim; Editing by Sam Holmes)

 

[SANITY]

CHINA FACES BATTLE OVER MARKET ECONOMY STATUS

China's battle for recognition as a market economy that would help it avoid penalties from key trade partners has been thwarted, as a key clause in Beijing's deal to join the WTO expires Sunday.

As China marks the 15th anniversary of its accession to the WTO, the United States, European Union and Japan are maintaining tough rules that protect them from cheap Chinese products flooding their markets.

An outraged Beijing said the failure of its major trade partners to grant China market economy status on December 11 as promised was an example of "covert protectionism" and "double standard" by the West.

Beijing highly covets market economy status, which would make it more difficult for other countries to launch anti-dumping cases against it. Dumping is when a country prices its exports below what it would charge for the same product in its home market.

When China joined the WTO on December 11, 2001 it was written into the terms of the deal that member states could treat it as a non-market economy, allowing them to impose heavy anti-dumping duties on the basis that its low prices did not reflect market reality.

China was told all that would change by the end of 2016 when it would be upgraded to market economy status.

But rather than enjoying this trade advantage, Beijing continues to face a climate of mistrust towards its exports, with critics arguing the country has not done enough to qualify for the designation.

"China will take steps to defend its rights if (WTO) members continue this old practice of anti-dumping regulation against Chinese products after the expiration date" of the accession agreement clause, China's commerce ministry spokesman Shen Danyang was quoted as saying by state media on Friday.

International trade experts say China will have to start a lengthy legal battle at the WTO against its trade partners in order to get recognition of its new status.

- Protectionism in disguise -
In a vitriolic commentary, the official Xinhua news agency said that "China would automatically move to market economy status" on December 11.

"The refusal is nothing short of covert protectionism, which runs against the trend of globalization and poisons the recovery of the global economy," it said Friday, denouncing "another double-standard applied by the West against China".

But for Washington, the granting of market economy status is not automatic and other anti-dumping clauses of the accession agreement "remain intact".

"The United States remains concerned about serious imbalances in China's State-directed economy, such as widespread production overcapacity, including in the steel and aluminum industries, and significant State ownership in many industries and sectors," according to a statement by the Department of Commerce.

"China has not made the reforms necessary to operate on market principles."

Washington will therefore continue to apply "alternative" methods for calculating dumping margins, added the DoC.

That is unlikely to change under a Donald Trump administration after the president-elect threatened to impose 45 percent punitive tariffs to protect American jobs.

The position is also supported by the Alliance for American Manufacturing (AAM), who say China's trade surplus has cost 3.2 million jobs in the US since Beijing joined the WTO.

"It is no coincidence that economic pain played such a central role this election season. For 15 years our workers and makers have asked China to play by the rules, and for fifteen years Beijing hasn't budged," according to Scott Paul, president of the AAM, in a statement that says over 1,000 anti-dumping cases have been initiated against China globally since 1995.

Meanwhile, Brussels is taking a somewhat different approach after the European Commission announced last month a new method to combat price dumping which doesn't specifically target China but could apply to any country suspected of selling at a loss.

"This avoids possible retaliation from China since everyone will be treated the same way," said Franck Proust, a member of the European Parliament.

But any decision on China must have the agreement of the EU's 28 member states as well as the European Parliament, something which the bloc was unable to achieve before the December 11 deadline.

"We have lost a lot of time. This date, we have known it was coming since 2001 but unfortunately this proposal won't be enacted before the summer of 2017 at best," Proust added, leaving plenty of time for China to appeal to the WTO's dispute settlement body.

Japan also said it would not recognise its neighbour as a market economy.

For as long as the global trade watchdog does not deliver a final verdict on the disputed clause, "the EU and other WTO members can continue to treat China as the non-market economy it is", said Milan Nitzschke, spokesman for Aegis Europe, an industry alliance which represents some 30 European industries.

 

[airtel]

Japan Overtakes China as Largest Holder of U.S. Treasuries
by
Sarah McGregor
December 15, 2016, 4:00 PM EST December 15, 2016, 5:23 PM EST

• Biggest holder of American govt debt held $1.13 Tln in Oct.
• China holdings fell to a six-year low of $1.12 trillion

China Sheds Treasury Holdings: How Big Is the Selloff?

China’s holdings of U.S. Treasuries declined to the lowest in more than six years as the world’s second-largest economy uses its currency reserves to support the yuan. Japan overtook China as America’s top foreign creditor, as its holdings edged down at a slower pace.



The most important market news of the day.
Get our markets daily newsletter.

A monthly Treasury Department report showed China held $1.12 trillion in U.S. government bonds, notes and bills in October, down $41.3 billion from the prior month and the lowest investment since July 2010. The portfolio of Japan decreased for third month, falling by $4.5 billion to $1.13 trillion, according to the data. Collectively, the two nations account for about 37 percent of America’s foreign debt holdings.

China’s foreign reserves, the world’s largest stockpile, declined for the fifth straight month in November to $3.05 trillion -- the lowest since March 2011 -- amid support for the sliding currency. That stockpile has fallen from a record $4 trillion in June 2015.

The report, which also contains data on international capital flows, showed net foreign buying of long-term securities totaling $9.4 billion in October.

International investors sold $63.5 billion in U.S. Treasuries in October, while foreigners purchased a net $4.5 billion of corporate debt, $20.5 billion in equities, and $32.4 billion in agency debt, according to the report.

^ I think this data is wrong .


https://www.bloomberg.com/news/arti...kes-china-as-largest-holder-of-u-s-treasuries

 

[airtel]

The Other Side of the Chinese Economic Miracle
By Deepanshu Mohan on 21/12/2016 •
Over the last three decades, under China’s infrastructure-led public investment boom, total aggregate debt has grown from $2.1 trillion to $28.2 trillion.

Shanghai. Credit: whiz-ka/Flickr CC BY 2.0

David Graeber, an economic anthropologist, in his book Debt: The First 5000 years says, “One has to pay for one’s debts”. But there is one taboo of economics that the government is hiding from the public, Graeber argues – the fact that if the government balances its books, it becomes impossible for the private sector to do the same. This inevitable debt, he claims, often lands on those least able to repay it in a society.

Graeber’s fascinating historical account explains how the creation of debt remains vitally linked with the demand and creation of money (from barter to paper in all its forms). To understand debt, one needs to understand the history and creation of different mediums of exchange within the economy as an important tool to explain how swelling levels of debt emerge. Perhaps China, with its recent history of accumulating a ‘great wall’ of debt, may learn a lesson or two from Graeber’s own work.

Since 2000, China’s debt in terms of debt to GDP ratio has grown up to 280-290% (approximately), which exceeds the debt levels of highly-indebted developed countries, including the US (269%) and Germany (258%), and emerging countries like Brazil (160%) and India (135%). Over the last three decades, under China’s infrastructure-led public investment boom, the total aggregate debt has grown from $2.1 trillion to $28.2 trillion, which is greater than the combined GDP of the US, Germany and Japan over the same period.

While mainstream macroeconomics literature tends to largely focus on the government proportion of total debt, it is also important to note that other constituents like corporate debt, financial debt and household debt (in the Chinese context) tend to matter more in gauging a country’s overall indebtedness. In the Chinese case, government debt (marked at 55% of the GDP) remains low as compared to the other three constituents. Corporate debt and financial debt levels are marked at 125% and 65% of China’s GDP. But which economic factor has elicited such a vast volume of debt in China?

In a recent analysis on China’s public infrastructure-led investment model by some Oxford-based economists, it is shown how lower-quality, high cost ridden public infrastructure investments across China triggered a massive volume of overall debt, bringing the Chinese economy to the cliff of a national debt crisis.

On observing the investment and debt figures closely, one finds that the growth in China’s absolute debt is almost in equal proportion with the total capital investment; which between 2000 and 2014 was cumulatively $29.1 trillion. Scholars Steven Barnett and Ray Brooks support this further through their study, highlighting that the majority of investments China has made since 2000 remain debt-fuelled.

China’s Gross Fixed Capital Formation (blue bars) vs China’s government debt-GDP level (dotted line). Source: Trading Economics Database

China’s growing debt pile (debt-to-GDP, %). Source: McKinsey

The biggest increase in the accumulation of debt came in from the corporate and financial sector (dominated by the big four state-owned banks in China). Most of these companies (including the non-state owned private enterprises) borrowed extensively from financial markets to finance large scale infrastructure projects.

The infrastructure investment-led bubble

The traditional wisdom in macroeconomics on the utility of infrastructure investment, in recent times is built from studies by Paul Krugman (1991), David Aschauer (1989, 1993) who provided econometric evidence for the case of large-scale infrastructure projects (such as rail, roadways) that in lowering transport costs led to increasing returns (i.e. through greater output, more private investment, employment growth).

While the econometric evidence cited in these studies does present a strong policy case in pushing for greater large-scale public infrastructure investment, in the Chinese case there is scant bottom-up evidence in this regard. The actual outcomes of specific investment projects present massive costs incurred in the building process of these mega projects, particularly in emerging economies like China.

The study by Ansar, Flyvbjerg, Buzier and Lunn reports results on “95 road and rail transport infrastructure projects built in China from 1984 to 2008 and comparative results with a dataset of 806 transport projects built in ‘rich democracies’”. The economic value of a given infrastructural project is tested by the benefits to cost ratio level (BCR) which needs to be either equal to or greater than one (BCR > 1.0).

Average Schedule Overrun of Chinese Projects (in %). Source: Study by Ansar, Flyvbjerg, Buzier, Lunn

In their results, 75% of the 95 transport projects in China suffer a cost overrun (in local currency terms), while the actual costs incurred on these projects remain 30.6% higher than the original, estimated cost.

The figure above helps in giving an approximate idea on the average schedule overrun (in %). As projected by the analysts, the actual average construction time taken to complete infrastructure projects (4.3 years) remained less than the average time used by the richer democracies (6.9 years). At the same time, there aren’t any schedule overruns (only one in every two projects encountered a schedule delay in China, compared to seven out of ten in richer democracies). The problem, however, remained with the costs incurred and the quality and safety attached with actual outcomes delivered in the infrastructure projects completed.

In building infrastructure at an impressive speed, the Chinese corporate enterprises (state and non-state owned), financial markets traded off with quality, safety and the estimated cost of these projects. The combined effect of benefit shortfalls and cost overruns pushed the BMR below one.

While conventional macroeconomic theory may typically treat all infrastructure as part of an exogenous cost-reducing technological input into the economy, to drive growth, it is increasingly becoming evident that most models arguing for such investment, intuitively assume that more and better infrastructure reduces the cost of transporting goods and services.

The evidence cited from China lucidly suggests that poor project-level outcomes translate into “substantial macroeconomic risks”, like accumulating debt, higher percentage of non-performing assets, distortionary monetary expansion from central banks (involving printing of more local currency to finance high cost infrastructure investment) and so on.

Such a pattern clearly signals a warning sign for most emerging economies that seek to embark on a China-style public investment model in the quest of achieving higher economic growth. China’s case offers significant macroeconomic policy lessons where emphasis on deep institutional reforms along with the development of quality, sustainable physical infrastructure needs greater emphasis (both from the government and the private sector).

Countries like India, which are currently in process of homogenising large scale infrastructure projects across the country, need to be wary of the costs-returns attached with such projects. Robust project designing frameworks, periodic monitoring tools and better outcome-based impact assessment models are critical in the process of achieving consistent developmental growth.


source =The Other Side of the Chinese Economic Miracle