Read in GARP Risk Review magazine an article about glooming perspective on Chinese economy (link below). I know that there are some Chinese 'experts' here. So the question is whether this article is a 'typical' product of American propaganda machine or there is some substance behind it?Link to paperThanks.

QuoteOriginally posted by: torontosimpleguyRead in GARP Risk Review magazine an article about glooming perspective on Chinese economy (link below). I know that there are some Chinese 'experts' here. So the question is whether this article is a 'typical' product of American propaganda machine or there is some substance behind it?Link to paperThanks.Seems I am the first one to respond this question. I dont call myself a "Chinese experts", but as a chinese with true knowledge of chinese history and economic, I want to share some of my opinions here. I didn't go through the whole article, but based on what I have read, this "bullshit" article can be split to two parts. In first part, author address the "hide" bad debt of Chinese gorvernment. It's truth that, the state owned commercial bank have serious bad debt problem before they go public. I wont deny the truth. But chinese is a big economy indeed, have the strong capability to digest these bad food. And a significant number of bad debt are not just pure bad. They are also supported by some sort of deposit asset, such as bankupted factory and free lands. Due to the low liquidity upon that time, they just kept dead on the balance sheet. But with time passing and economy developing, the effiency of market has been much more improved. According to the report last year, all these bad debt have been deduced to about 10% - 15% of their orginal number. " Chinese property market. It is a big problem we are facing currently, but not that serious as author said (or expected). We dont have problem such as "subprime crisis". Think about how large chinese population is. And traditionallly, young people have to get a new apartment before they get married. So the demand is huge. The problem is not people dont want to buy the property, instead of they are looking forward to the price decline. Chinese property price goes too fast in last two years and property developer are just too greedy ( they always want more than 50% profits). As long as the property price can go back to a rasionable price, the bubble will not ever exist. It is driven by market. And chinese bank are much more powerful than US bank. No one want to pissed them off.(go on)"Chinese bank may have 1 trillion investment in subprime debt...." It is ridiculous and just make-up by author, I dont comment on people's shit words.Think about how tight chinese foreign investment policy and currency policy are.

OK. The second part, author is extremely concerned about china's "selective default" on "historical loan". Seems it ends up the main point he wants to address. And based on this, he argues a country with default history should not be given a A+ credit rating. Let me introduce the history so you will understand what the truth is. Before PRC's foundation, we have 5-year civil war with the old government after Japnese surrendered.And US is the biggest source to support old government to fight against us.The most impoart support is to directly invest money -- a lot of money. US government was actually speculating, they bet PRC is weak and old government is more powerful. So they fund the old government to force them agree the loan with ridiciously high coupon. They hope eventually when the old gov'n wins they will get money back with handsome profits. Unfortunatly, they bet on a wrong guy, and they now still want to get their betting back? NO WAY! It's just like, one day on the street, you got arm-robbed by a criminal. You bravely fight back and killed the bad guy. Some years passed, the gun shop that sold the guy's weapon come to you and told you that, the bad guy own their money when he took the gun. Because you killed this guy, you have to take over his debt. Will you accept and gladly to pay the money? Chinese may have many problems but we are stronger than many of these authors believed. They will know who is actually naked swim.

The civil war was not an exogenous factor, though was it ?Any appraisal of the stability of a state would have to take that into account.Personally, I'd give it a low weighting since in the short term China is unlikely to start fighting itself, but in the longer term it has violent disputes on pretty much every border.The older regimes in China were the bad guys I agree, but then they got replaced with nastier bad guys, don't see any possibility of morality being useful as a guide to future behaviour.And it is "future behaviour" we are dealing with here. Legally the old regime was the government of China, and any hint of a mindset that thinks that a change of government means they can walk away from debts decreases trust.The chances of the current Chinese regime dying in the next year is vanishingly small, but I grew up with the Soviet empire as permanently owning a chunk of Germany, all of Poland, Romania, Georgia all the way to China. It's gone now.If you have any interest in modeling the stability of nations, try an exercise of identifying any period of history where states could be said to be stable (say a <1% failure rate per year, I think the mean is several times that).

QuoteOriginally posted by: DominicConnorThe chances of the current Chinese regime dying in the next year is vanishingly small, but I grew up with the Soviet empire as permanently owning a chunk of Germany, all of Poland, Romania, Georgia all the way to China. It's gone now.And the same logic applies to the U.S. And possible to Canada as well as Harper is relentlessly alienating Quebec now.

Hey, I dont care you are dominic or pizza "domino". If you are interested to talk, please comment based on the article and my comment. If you didnt read the article then dont say anything. Do not take it personally and politically, I dont think it is the right place to talk. QuoteOriginally posted by: DominicConnorThe civil war was not an exogenous factor, though was it ?Any appraisal of the stability of a state would have to take that into account.Personally, I'd give it a low weighting since in the short term China is unlikely to start fighting itself, but in the longer term it has violent disputes on pretty much every border.The older regimes in China were the bad guys I agree, but then they got replaced with nastier bad guys, don't see any possibility of morality being useful as a guide to future behaviour.And it is "future behaviour" we are dealing with here. Legally the old regime was the government of China, and any hint of a mindset that thinks that a change of government means they can walk away from debts decreases trust.The chances of the current Chinese regime dying in the next year is vanishingly small, but I grew up with the Soviet empire as permanently owning a chunk of Germany, all of Poland, Romania, Georgia all the way to China. It's gone now.If you have any interest in modeling the stability of nations, try an exercise of identifying any period of history where states could be said to be stable (say a <1% failure rate per year, I think the mean is several times that).

stupid article I don't even bother to comment..linking China's current credibility to some sovereign debt during world war II is just ridiculous!

I agree about Canada, and similar logic applies to Spain, China is not unique in its level of breakup risk.Hard to work out numbers here. I do not see the USA suffering from this particular problem in the life of any current bond. QFSurvival : Hey, I dont care you are dominic or pizza "domino".You need to understand that your nationalism does not equal analysis. Calm down, and ask yourself if your outburst contributed to this discussion. If you are interested to talk, please comment based on the article and my comment.I am indeed commenting on that basis, and including a view that puts China's possibility of default in the same terms as any other country.Countries die. Big ones, small ones. Zimbabwe soon perhaps, China not in this decade, even a tail probability that Scotland leaves Britain. Do not take it personally and politically, This is from the person who equated me to inferior pizza ? (I prefer Pizza Hut).You cannot separate politcal issues from sovereign credit risk. Unlike a corporation, a state cannot be forced to pay its debts, a lesson that each generation of bankers needs to learn because it is so quicfkly forgotten.The current Chinese regime is extremely unlikely to default, even if it looks attractive. The political dynamic in a tyrrany is different to a democracy. When a democracy hits the zone where a default it likely, a change in the urling party become much more likely. A tyrrany is unlikely to fall under those conditions and may well perceive that the regime's survival is enhanced by screwing foreigners. Or it may go the other way, a democratic government may default in order to divert the money to buy votes, and a tyrrany may choose to ignore complaints by its population to think more about the long term.Thus the nature of government is a factor. Democracies are on average less likely to default, but the variance within that means that understanding the political will to pay is critical.

QuoteOriginally posted by: QFsurvivalChinese may have many problems but we are stronger than many of these authors believed. They will know who is actually naked swim.What petty sentiment! Proletariat has no nationality.

QuoteOriginally posted by: DominicConnorI do not see the USA suffering from this particular problem in the life of any current bond.If the US ceases to be economically number one country in the world all its internal problems will come out.Why ex-soviet republics decided to leave? Because they thought they would be economically better either by themselves or in alliance with another powers (the US and EU).Thus if the US looses its economic and military dominance in the world then for example its economical and political elite can decide that better to dissolve the country than continue paying out the massive US debt.P.S. And Pizza Hut is a total BS.

I agree with Dominic that China's history can't be dismissed. Prior to 1953, China had several discontinued or hyper-inflated currencies (hyperinflation being a de facto default on debt). Perhaps the current goverment is an entirely different beast but perhaps the underlying Confucian culture contains the seeds for debt default or debt repudiation behaviors. I certainly don't claim to know about that but for the purposes of risk management, one needs to be prudent and assume that a history of failed currencies in a country can't be entirely discounted. Even if we ignore history, the Yuan is a young currency, especially in the context of operating in the broader world. If I observed no defaults for only 55 years, my estimate for future defaults conditional on those observations of non-default would still be non-negligible, especially if I only think that the last 20 years of data are representative.Finally, the ongoing crisis in the US (and similar crises before) also support the hypothesis that a growing economy can hide a risky core of distressed debt that collapses if the growth stutters. China is clearly bootstrapping from a very low state of development to a very high state of development. The vast amounts of capital used to build China's new economy depend on continued growth. A Chinese factory is only useful collateral to the extent that Chinese exports continue to grow -- an empty factory repays no debts. That makes China's economy fragile even if it appears to be quite strong.

Ther PRC is taking a risk, by integrating into the world economy it cannot hope to be safe from it.By generating so much wealth by exporting it is vulnerable to the world economy shrinking more than many other countries, indeed in some ways I think of it as a bit like an oil state such as Saudi Arabia.The USA and most European countries are less dependant upon exports so a decrease in world trade ought to hurt them less.Of course a complex issue is that the PRC exports are driven by low costs, and in hard times consumers may be driven more by price which would help them choose Chinese products.But the people who live in the PRC are getting richer, and that necessarily means wage inflation at a level not seen in the West for a century.Bad economic conditions may push western wages down through some combination of market pressure, currency depreciation and efficiency gains.So in a couple of years Chinese wage advantages may by a lot lower than they are now.Also, China has a big % of all the manufacturing that can rationally be done at a distance from where it is sold. That puts a visible horizon on growth.Some things make little sense to do in China due to shipping costs, local access to cheap energy, or the need to get the stuff to markets very quickly.I cannot see a way out of these issue, the more the PRC economy succeeds the harder it will be to succeed more. Of itself, this is merely saying that the PRC cannot grow at 9% for ever. Even the lower levels of growth forecast for the next few years are so high that a Western government would be panicking that inflation was about to explode, indeed the PRC is a factor behind the low inflation growth the West has had for some years.We've seen this before with Japan. From WWII to the 1990s it grew very impressively, coming from behind, but as soon as it got near to the lead its growth shuddered almost to a halt.Taiwan also showed roughly the same pattern as have other successful eastern economies. Catching up is easier than overtaking.The biggest variable in analysing the default probability for the PRC is in my opinion what you think will happen when China catches up and settles into western levels of growth of 2-3% in good years and 1% in bad.There's obvious possibilities here, and a non-trivial possibility of something none of us have seen before.

I admin that it is a bit emotional of my words. But, it spurs when I read the words like this, "The older regimes in China were the bad guys I agree, but then they got replaced with nastier bad guys, don't see any possibility of morality being useful as a guide to future behaviour."Sorry to refer you to Pizza, I actually quite like domino, more than Pizza hut. I just dislike your tone of speaking. I have been in this forum for about two years, see your comments everywhere. Every time you show up, you appear to be some kind of expert and make a lot comment. I know you are expert of job hunting or whatever related , so it's fine you do your judgement to guys who look for the guide to their career path. But it's not the reason make you feel great to be in the forum to act as a host, or you are? Do respect our country, [you like or not], please!QuoteOriginally posted by: QFsurvivalHey, I dont care you are dominic or pizza "domino". If you are interested to talk, please comment based on the article and my comment. If you didnt read the article then dont say anything. Do not take it personally and politically, I dont think it is the right place to talk. QuoteOriginally posted by: DominicConnorThe civil war was not an exogenous factor, though was it ?Any appraisal of the stability of a state would have to take that into account.Personally, I'd give it a low weighting since in the short term China is unlikely to start fighting itself, but in the longer term it has violent disputes on pretty much every border.The older regimes in China were the bad guys I agree, but then they got replaced with nastier bad guys, don't see any possibility of morality being useful as a guide to future behaviour.And it is "future behaviour" we are dealing with here. Legally the old regime was the government of China, and any hint of a mindset that thinks that a change of government means they can walk away from debts decreases trust.The chances of the current Chinese regime dying in the next year is vanishingly small, but I grew up with the Soviet empire as permanently owning a chunk of Germany, all of Poland, Romania, Georgia all the way to China. It's gone now.If you have any interest in modeling the stability of nations, try an exercise of identifying any period of history where states could be said to be stable (say a <1% failure rate per year, I think the mean is several times that).