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April 2024

China is leveraging up

While the rest of the world is going through a deleveraging process, China has been leveraging up. Its economy is getting bubbly.

According to research by Standard Chartered Bank, China’s overall leverage ratio (the sum of the leverage of government, corporate and household) now reached 210% of GDP, rising from a rather high level 150% of GDP in early 2000s.

China overall leverage

Dividing the overall leverage ratio in into three sub-components, we see the biggest increase came from the corporate sector: the ratio in that sector has increased from 80% of GDP at the beginning of the Great Recession to around 130% of GDP today.

China leverage decomposition

Most of the leveraged-up corporations are SOEs.  They are the natural candidates to respond quickly to government’s  call for stimulus spending in the aftermath of the financial crisis during 2007-2009.

Besides SOEs, local governments also created all sorts of firms outside of government’s (and bank’s) balance sheet, the so-called local-government-investment-vehicles, or LGIVs.   This is Chinese version of shadow banking system. My sense is that they have contributed a great deal to China’s housing bubble.

fools, and greater fools

’60 minutes’ investigates the recent development of Chinese housing bubble in the following video.

Following my previous posts (here, here, here, here and here) on China’s housing bubble, I am now re-organizing my thoughts, and starting to work out a formal economic analysis on China’s housing bubble.

Specifically, I will address the question if the current housing price in China can be justified by the story of China’s fast economic growth coupled with her fast industrialization and urbanization. My initial analysis clearly says no. I call this a ‘fools-and-greater-fools’ theory.  In history, great bubbles always came with even greater stories.  China is no exception.

Will keep you guys posted.

How China sees America?

In the following video, Andrew Nathan talks about his new article (with the same subject title), which is about to appear on the next issue of Foreign Affairs.


The share of world’s manufacturing

According to Data Mine, the U.S. share of global manufacturing value has been on a fairly steady decline since 2000 as Chinese manufacturing has shot up, surpassing Germany in 1999 and Japan in 2007.

The decline of US manufacturing is relative.  US manufacturing, on an absolute basis, is still growing.  However, this is not the case for the manufacturing employment.  More than one-third of American million manufacturing jobs disappeared between 1970 and 2010, while the Chinese now enjoy a total labor force five times that in the U.S.

Combining the two facts above, one can conclude that the growth of US manufacturing has relied on shedding domestic labor (incl. shifting manufacturing to China), and increasing productivity.

Does China do capitalism better than America?

An interesting debate.

Debater: Orville Schell, Peter Schiff vs. Ian Bremmer, Minxin Pei.

Jim O’Neill interview with Charlie Rose

Jim O’Neill, Chairman of Goldman Sachs Asset Management, or GSAM, talks with Charlie Rose about the emerging markets, especially China, European debt crisis and the future of European Union, the prospect of US recovery, and how to think about China’s economic model and today’s Chinese Communist Party. A very interesting interview.

The largest migration in human history

During the past three decades, 168 million rural Chinese migrated to the coastal area to work, and some of them eventually settled down. (courtesy of Economist.com)


The exodus of Chinese rich

According to WSJ, one recent survey found that 60% of about 960,000 Chinese people with assets over 10 million yuan ($1.6 million) were either thinking about emigrating or taking steps to do so. The U.S. was the top destination, followed by Canada, Singapore and Europe. Most people cited their children’s education as the main reason, followed by concerns over air quality, food safety and financial security.

Here is a snapshot of China’s new millionaires:


And the related WSJ video interview.