I am about to tell you something which you probably don’t know.
The reason I say this is because I, myself, and most people I know didn’t know this basic fact, despite reading a lot about politics and economics.
The man below is called Michael Pettis
He is a professor of finance, working at Guanghua School of Management at Peking University (Beijing).
He alleges that China’s growth is less than half of what is reported:
So far, so “mainstream”. Many others have made this point. What is fascinating about his analysis is that he isn’t alleging that China is “faking” the numbers.
He is merely stating something he says is a fact – the way China calculates GDP is different from the rest of the world.
GDP isn’t a standardized thing. Even France and the UK calculate GDP in a slightly different way. China just calculates it in a very different way.
You could argue, perhaps legitimately, that every country has a right to calculate GDP in the way it sees fit.
That may be true, but we also, therefore, have to see how these different definitions might affect the overall picture.
As the old saying goes, “lies, damn lies and statistics”!.
To quote him directly “the Chinese economy operates under soft budget constraints. A hard budget constraint means “you’ve got to have the money to spend it,” whereas a soft budget constraint means there’s no limit to one’s spending and losses can in principle be rolled over indefinitely.
Local governments in China operate under soft budget constraints, in contrast to the hard budget constraints of other major Western economies, and because they comprise a significant share of economic activity, China’s GDP numbers are fundamentally different in nature and as such, incomparable.
He illustrates this point by two hypothetical, identical Chinas—with the only difference being one has hard budget constraints and the other has soft budget constraints.
In the first China, a construction firm spends $100 digging a hole, then $100 filling it up. “In a hard budget constraint economy or in a normal accounting, you have an expense of $200 and nothing to show for it,” said Pettis.
In the second China, a construction firm similarly spends $100 digging a hole, then $100 filling it up. “But in [this] China, you don’t expense it,” he explained. “You call it an asset.
You say, I have now built an asset worth $200.” This, Pettis noted, is how GDP accounting works in the China that we all know. What this means is that China’s official GDP figures as currently reported are significantly inflated relative to actual economic conditions, and are also impossible to compare with the GDP figures of other nations.
You can see the full article here:What China means when it says it wants “high quality” GDP growthBeijing wants to focus on quality over quantity of GDP growth, but that’s much easier said than done.https://qz.com/2119395/what-china-means-by-high-quality-economic-growth/
To give a simple example to his point, let’s say one province in China has a GDP of 600billion and the target is 6% growth (so 630 billion is needed).
Now let’s say there is so real growth of 3%. However, it is fairly easy, with the soft budget constraints for the local government to engage in unproductive (or low-yielding at least) investments to achieve the other 3%, which wouldn’t be counted in a hard constraint economy.
That is one reason there are so many ghost cities and excessive infrastructure projects in China, such as second and third airports in cities that don’t need them.
So, China grew by 5.95% in 2019 versus 2%-3% for the US, using both country’s accepted GDP growth measurements.
However, if you were to standardize the measurements, China and the US would have grown by a similar amount.
What is interesting is that he also appears regularly on the Chinese state, so his findings aren’t seen as embarrassing by the regime, and China itself is now focusing on “high-quality growth” because they recognize the problem.
I have yet to find somebody who has actually refuted his central claim that there is not necessarily any lying or manipulation going on, but the different use of statistics is distorting the total figures.
This should be interesting for investors thinking about investing in Mainland Chinese private companies.
I don’t think it makes any difference to those looking to invest in Chinese stocks because GDP growth and stock market performance often aren’t linked.
So, we can’t say that weaker GDP growth will mean lower valuations for Chinese stocks, especially as they look very cheap compared to some markets.
A comparison of Chinese political thinking against American political thinking, focusing primarily on China. As always, if you enjoy the video please consider supporting the channel with a like/subscribe/comment/share, or consider supporting me with $1 on Patreon: https://www.patreon.com/rchapman.
01:47 The Basics
08:02 The CCP
10:52 The Left and the Right
13:33 Linear vs. Lateral Thinking
The Analects – Confucius
The Art Of War – Sun Tzu
The Governance Of China – Xi Jinping
The Selected Works Of Mao Zedong – Mao Zedong
On China – Henry Kissinger
The American Political Tradition – Richard Hofstadter
China In The 21st Century – Jeffrey Wasserstrom
The Party – Richard McGregor
Culture Hacks – Richard Conrad
Has China Won? – Kishore Mahbubani
In this episode of On The Margin Mike is joined by returning guests Grant Williams & Luke Gromen. We welcome back two financial market veterans for a special episode exploring the fracturing geopolitical landscape between the east and the west. Grant and Luke share their insight surrounding China’s declaration of war on the U.S, how the current monetary system could collapse China’s economy, the consequences of globalization, what the end game is for the dollar & how to prepare for the changing world order as two global superpowers collide.
00:00 ・ introductions
00:55 ・ The great power competition: China vs U.S
08:39 ・ Is it ethical to be in business with China?
18:44 ・ The consequences of globalization
20:11 ・ A battle of ideologies between the east and the west
24:51 ・ The current structure of the monetary system
31:30 ・ Inflation is the only way out of a sovereign debt crisis
31:30 ・ Emblematic of moral decay
49:38 ・ Understanding the financial oppression
55:06 ・ Opinion on how Bitcoin plays in all this
Goldsmith warned elites about the dangers of free trade.
00:55・The great power competition: China vs U.S
08:37・The difference in financial markets between China & the U.S
18:42・The consequences of globalization
20:08・A battle of ideologies between the east and the west
24:48・The current structure of the monetary system
28:45・Coinbase Prime Ad
31:26・Inflation is the only way out of a sovereign debt crisis
36:52・The end of an empire
49:32・What assets to buy during financial repression
54:58・Grant & Luke’s framework for Bitcoin
Kung Fu vs MMA fails again. Xu Xiaodong just seems to be walking through so many Chinese Martial Arts practitioners. Why does this keep happening? After all, Chinese Martial Arts has the tradition of challenge fighting.
Why do Chinese Martial Arts keep loosing on challenge fights. Well this week we discuss the main problem. The difference in culture of training between the East and the West. It’s simply down to the difference in the approach of training martial arts.
Of course this leads to other questions: How do you know that Chinese Martial Art will WORK in a Real Fight? How do you tell it works for REAL? Is the Martial Art that you train fit for self defence or is it FAKE? We have made a few videos on these questions.
Most martial arts fail in street fights or self defence because people train for the wrong fight. This week we look at what self defence means and why martial arts may not always help you focus in the right way.
Self Defence or Martial Arts Training: Which is best to learn to defend yourself? Simple question, but there is a big difference between training a martial art and learning to defend yourself. This week we discuss the differences and what you should look for if you wish to learn to defend yourself.
Chinese citizens are being told to treat the USA and the Outside world as the Enemy, they’re being prepared for war whilst we tiptoe around worrying about hurting the feelings of the Chinese government…. Time to wake up
For a deeper dive into China’s Propaganda influence and soft power, watch our liveshow ADVPodcasts: https://www.youtube.com/advpodcasts
Anyone who says that China’s President Xi Jinping does not have a sense of humor is definitely not following the news from the Pacific these days.
China last week applied for membership in the Trans-Pacific Partnership — the trade deal that was originally negotiated by President Barack Obama precisely to counter China’s economic power in the Pacific. Unfortunately, President Donald Trump promptly tore it up rather than learn what it was about and get Congress to ratify it, and the Democrats have since then made no move to revive the deal, known as the TPP.
Beijing applying to join the TPP is the diplomatic equivalent of the U.S. asking to be a member of China’s “belt and road” trade and investment initiative in Asia, or Russia applying to be a member of the new NAFTA because it controls part of the Arctic north of Canada. In other words, a deliciously mischievous ploy.
But it’s a ploy that exposes a real weakness in U.S. foreign policymaking toward China, which has become the biggest challenger to American pre-eminence in setting the rules of today’s international system in both trade and diplomacy.
China’s announcement came the day after Britain, the U.S. and Australia took geopolitical competition with China to a new level by announcing a historic security pact to help Australia deploy the most advanced nuclear-powered submarines, to counter Beijing’s growing naval clout in the Asia-Pacific region.
But we need a strategy for not just containing China with submarines that could take years before going on patrol. We need a strategy for changing China’s behavior today, which is what the TPP was partly designed to do.
China was never formally excluded from the TPP by its Obama administration designers. But the message to Beijing was: If you want to be part of this American-crafted 21st-century trade pact, you have to play by our rules. That’s why reformers in China were intrigued by the TPP — they saw it as a lever to open the Chinese system — and hard-liners feared it more than submarines.
But after the U.S.-U.K.-Australia sub deal, the Chinese obviously said to themselves: “Let’s have some fun. After the Americans were so stupid as to never join the trade pact that they designed to keep us out, America in and its Pacific allies close, the 11 other partners went ahead without them. They even renamed it the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). So, let’s try to use the attraction of easier access to China’s giant market to take over the TPP on our terms instead of America’s! And what better way to counter the American submarine deal with Australia?”
It was a brilliant move. As The Wall Street Journal reported last Friday: “A decade ago, it was a trade club led by the U.S. seeking to limit the influence of China’s economic model. Now Washington is out of the Trans-Pacific Partnership and Beijing wants in — as the group’s biggest member.”
While China’s admittance is not likely anytime soon (it requires unanimous consent of the members), just by applying Beijing is exposing how unserious the American far left and far right are when it comes to China. They rail against Beijing’s human rights policy and then they block one of America’s most effective tools to nudge — and that is the most we can ever do — China toward more transparency and the rule of law, i.e., TPP.
“Reformers in China carefully monitored the original TPP negotiations with the hope that China joining the TPP could lead to domestic reforms,’’ said James McGregor, the chairman of the consultancy APCO Worldwide, Greater China. “Those days are gone. In its new bid to join, China will likely try to use the lure of its huge market to entice the other members to live with China meeting some TPP requirements while muddying others.’’
What makes this Chinese maneuver more ridiculous is that Trump was so ignorant about the contents of the TPP before he tore it up — his main objection was surely that Obama had negotiated it — that when he was first asked about it in a campaign debate in November 2015, Trump incorrectly suggested that China was in it from the start. Trump was just ahead of his time!
But Trump’s foolishness had a lot of tacit support from Bernie Sanders and his fellow progressives with their knee-jerk opposition to the pact — even though it was designed by Obama to address all the core labor and environmental issues that the left did not like about free trade.
Let’s go to the videotape and recall what the Obama team — not Trump, not the G.O.P. — O-B-A-M-A — built into the original TPP, which also included Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
One of the largest multilateral trade agreements ever negotiated, it included restrictions on foreign state-owned enterprises that dumped subsidized products into our markets. It detailed intellectual property protections for the newest and most advanced American-made tech products — like free access for all cloud computing services, which China restricts. It set out explicit anti-human-trafficking provisions that prohibited turning guest workers into slave labor. It banned trafficking in endangered wildlife parts, a practice still common in China that may have played a role in the pandemic. It required signatories to permit their workers to form independent trade unions to collectively bargain and to eliminate all child labor practices.
Indeed, speaking on a trip to Australia in 2012, then-Secretary of State Hillary Clinton said that “this TPP sets the gold standard in trade agreements to open free, transparent, fair trade, the kind of environment that has the rule of law and a level playing field.” It would build in “strong protections for workers and the environment. … Respecting workers’ rights leads to positive long-term economic outcomes, better jobs with higher wages and safer working conditions.”
Typical of a Democrat, though, candidate Clinton ran away from the deal when she ran against Trump, rather than explain that some 80 percent of the goods from our 11 would-be TPP partners were already coming into the U.S. duty-free, while our goods and services were still being hit with some 18,000 tariffs in their countries — tariffs that the deal would have eliminated. By accounting for 40 percent of global G.D.P., the original TPP would have become a real standards-setter in the Pacific.
The Peterson Institute for International Economics estimated that U.S. national income would also have grown by some $130 billion a year by 2030 with the TPP. Not huge, but a nice bump.
This is all the more a tragic comedy because our Pacific allies actually gave America trade concessions to create the agreement that they would not do before — precisely because they wanted us in the neighborhood as a bigger economic counterweight to China’s growing domination. And then we walked away, and now China wants to take our place — on its terms.
It is not too late for America to get back into the TPP and even strengthen it by insisting on stricter rules of origin (which Trump added to the new NAFTA). This would ensure that if somehow China were admitted to the partnership, it could not get around U.S. tariffs on certain Chinese exports by moving their final assembly to Vietnam, while keeping the core value chain in China.
I’ll take America joining the TPP today over helping to deploy submarines years from now. By then, if America continues to stay out, the CPTPP surely will be renamed again. It will have the same initials but they will stand for the “Chinese People’s Trans-Pacific Partnership.”
Now wouldn’t that be funny. …