China’s New Bridges: Rising High, but Buried in Debt(nytimes.com)
nytimes.com
China’s New Bridges: Rising High, but Buried in Debt
https://www.nytimes.com/2017/06/10/world/asia/china-bridges-infrastructure.html?_r=0
46 comments
It might be politically motivated in that China shows a different way to progress but while they have lifted hundreds of millions out of utter poverty, their recipe to success includes union-busting, child labor, long work-hours, etc as well as their foray into "imperialism lite" in Africa. Everything the NYT stands against. So in that light they cannot possibly hold them as exemplars, given those things, even if ideologically the CN gov is leftist.
Children are required to be in school, by law. Some work as well (often in family restaurants as all over the world) or leave early and get low skilled jobs, but outside of purely agricultural areas this is pretty rare.
In my experience work hours are the same as the US (which itself is famously bad on holidays and worker freedom from a European or Australian perspective) for the most part, with a six day per week maximum but better holidays than the US. People who work hard tend to take longer holidays or contract work.
Re: 'stands for' ... not sure how valid bringing in to any discussion the supposed moral stance of a news outlet is.
In my experience work hours are the same as the US (which itself is famously bad on holidays and worker freedom from a European or Australian perspective) for the most part, with a six day per week maximum but better holidays than the US. People who work hard tend to take longer holidays or contract work.
Re: 'stands for' ... not sure how valid bringing in to any discussion the supposed moral stance of a news outlet is.
I'm honestly not sure what to think about China at this point because I've read so many news articles and reports from credible sources that paint seemingly contradictory pictures of the health of the Chinese economy.
Perhaps Quora would be a better venue for this, but I'm having a difficult time understanding what exactly may happen to the Chinese economy if all of the following are simultaneously true:
1. China has a trade surplus in its favor, on the order of ~40B/mo
2. China has an exceptionally high savings rate, ~50%
3. China is in an incredible amount of debt
4. China is experiencing a massive outflow of capital by firms and individuals
I understand that macroeconomics is a very complicated and nuanced subject, but would greatly appreciate it if a HN reader could point me towards a comprehensive article or is willing to share their own analysis.
[1] http://www.marketwatch.com/story/china-trade-surplus-widens-...
[2] https://www.bloomberg.com/news/articles/2015-05-01/chinese-c...
[3] http://www.barrons.com/articles/why-chinas-debt-bomb-has-not...
[4] http://www.telegraph.co.uk/business/2017/02/05/asias-top-ban...
Perhaps Quora would be a better venue for this, but I'm having a difficult time understanding what exactly may happen to the Chinese economy if all of the following are simultaneously true:
1. China has a trade surplus in its favor, on the order of ~40B/mo
2. China has an exceptionally high savings rate, ~50%
3. China is in an incredible amount of debt
4. China is experiencing a massive outflow of capital by firms and individuals
I understand that macroeconomics is a very complicated and nuanced subject, but would greatly appreciate it if a HN reader could point me towards a comprehensive article or is willing to share their own analysis.
[1] http://www.marketwatch.com/story/china-trade-surplus-widens-...
[2] https://www.bloomberg.com/news/articles/2015-05-01/chinese-c...
[3] http://www.barrons.com/articles/why-chinas-debt-bomb-has-not...
[4] http://www.telegraph.co.uk/business/2017/02/05/asias-top-ban...
I am no expert, but my rough understanding is that China has 'trapped' itself in a tricky situation by relying on its export economy and on debt/investments to stimulate growth. Ideally, a 'healthy' economy is balanced between exports, local consumption, and debt/investment. But China has weak local consumption due to their high saving rates and their capital outflows. This means they have had to rely on the other two (debt, exports) to grow the economy. High debt normally isn't an issue because a healthy economy can always 'grow out of it' (i.e. over time inflation will make it more manageable). But because China is export driven, if their currency rises too much, that part of their economy will crash (because their exports get more expensive). Had they had more local consumption, the impact would be smaller because the stronger currency would mean increased buying power for local consumers. But because local consumption is weak, they have to hope that growth in exports outpaces growth in debt (which recently hasn't been the case).
The big question mark, is how actively the government will intervene if things go south. In a normal market, too much debt results in bankruptcies. This results in people losing money (all of those savers who have been socking their money away in banks). But a lot of institutions in China are state owned, so it's possible that they could prop up these institutions. No one really knows what that would look like, or how it would impact the economy, but the assumption is you will have a lot of zombie companies that only exist because the government is making good on their debt obligations.
The big question mark, is how actively the government will intervene if things go south. In a normal market, too much debt results in bankruptcies. This results in people losing money (all of those savers who have been socking their money away in banks). But a lot of institutions in China are state owned, so it's possible that they could prop up these institutions. No one really knows what that would look like, or how it would impact the economy, but the assumption is you will have a lot of zombie companies that only exist because the government is making good on their debt obligations.
Thank you for sharing, especially your concerns centered around government intervention in case things go south.
From my understanding, capital outflows seek higher returns in foreign markets which would eventually (in theory) be repatriated to drive eventual consumption. If the Yuan is strengthened, would this not make foreign produced goods cheaper to consume within the country? Would it truly be a "crash" if goods are consumed domestically instead of shipped to foreign countries? Considering the high savings rate, could these accelerated savings be used to purchase productive foreign assets?
Strange times, to say the least.
From my understanding, capital outflows seek higher returns in foreign markets which would eventually (in theory) be repatriated to drive eventual consumption. If the Yuan is strengthened, would this not make foreign produced goods cheaper to consume within the country? Would it truly be a "crash" if goods are consumed domestically instead of shipped to foreign countries? Considering the high savings rate, could these accelerated savings be used to purchase productive foreign assets?
Strange times, to say the least.
My understanding from what I've read is that the capital outflows aren't just seeking higher returns in foreign markets. Instead, they are also seeking to protect that money from an expected economic collapse in China and lord knows what means of trying to claw that capital back by the government.
So I'm not sure a strengthening Yuan would necessarily remove the need for that reduction of risk.
So I'm not sure a strengthening Yuan would necessarily remove the need for that reduction of risk.
That is my understanding as well. These aren't your typical international investments, the goal is to get the money out of China entirely.
Worth noting, China is also trying to limit international investments (in addition to capital flight mentioned above) to try and encourage domestic investments[1]. If I had to pick one sign that there might be trouble ahead, it would be this one. It's one thing to try and clamp down on people dodging capital controls, but it's another thing entirely to try and limit international investments that would broaden China's economic footprint.
And one final thought. While there are some troubling signs, no major modern economy is or has been as tightly controlled as China's. So I don't think anyone really knows how this will play out. It's quite possible that they thread the needle and keep everything rolling smoothly. And as others mentioned in this thread, there are plenty of examples in history where massive infrastructure investments caused some big financial pain/failures in the short term, only to result in positive long term impacts. It's quite possible that China is playing the long game here, ready to suffer some short term pain, but looking 20-30 years down the road. As their economy matures, infrastructure projects will get more expensive (see the US for example), so might as well overbuild now.
[1] https://www.theguardian.com/business/2016/dec/26/china-to-re...
Worth noting, China is also trying to limit international investments (in addition to capital flight mentioned above) to try and encourage domestic investments[1]. If I had to pick one sign that there might be trouble ahead, it would be this one. It's one thing to try and clamp down on people dodging capital controls, but it's another thing entirely to try and limit international investments that would broaden China's economic footprint.
And one final thought. While there are some troubling signs, no major modern economy is or has been as tightly controlled as China's. So I don't think anyone really knows how this will play out. It's quite possible that they thread the needle and keep everything rolling smoothly. And as others mentioned in this thread, there are plenty of examples in history where massive infrastructure investments caused some big financial pain/failures in the short term, only to result in positive long term impacts. It's quite possible that China is playing the long game here, ready to suffer some short term pain, but looking 20-30 years down the road. As their economy matures, infrastructure projects will get more expensive (see the US for example), so might as well overbuild now.
[1] https://www.theguardian.com/business/2016/dec/26/china-to-re...
That's actually a really good question. But think about what it would mean for any one single individual to be able to answer you. How could they possibly know? And I don't mean how could the _possibly_ know, I mean _how_ could they possibly know. What would you have to learn, assimilate, and understand before you could be reasonably expected to be able to answer your question? Granted, I could reply like this to any highly complex question but as so many macro-economic questions reduce to this position from what you're asking I think it's justified.
Personally, I haven't a clue. What I see is this though. People keep predicting that China's growth is going to hit a wall. But China keeps posting figures (if you can believe them) that point to the inevitable fact that that nation will be by far the largest economy in about a decade. What happens then is anybody's guess. My _feeling_ is that there will be a swing of political power that trails economic power. What we have to figure out is whether this political transition happens relatively peacefully or not. That's the _real_ question I think.
Personally, I haven't a clue. What I see is this though. People keep predicting that China's growth is going to hit a wall. But China keeps posting figures (if you can believe them) that point to the inevitable fact that that nation will be by far the largest economy in about a decade. What happens then is anybody's guess. My _feeling_ is that there will be a swing of political power that trails economic power. What we have to figure out is whether this political transition happens relatively peacefully or not. That's the _real_ question I think.
As far as I can see, political transition is not a problem in near term. The situation is actually better after Arab Spring.
Like all developed economies, China is in a complex state with both good and bad things going for it. The good things for China are very good, the bad things are very bad. How things shake out will depend more on how the Chinese react to things than on the inherent levels of goodness/badness that exist in the Chinese economy today. They have the capacity to overcome their problems, but will they?
If you are interested, buy a ticket to china. see and feel by yourself.
most of western media are negative about China.
PS: I am Chinese and live in US.
most of western media are negative about China.
PS: I am Chinese and live in US.
Right, I mean I've visited China half a dozen times now, for a total period of probably half a year or more, and half of my family is now Chinese. But I can't answer any of those questions, and neither can any of my family members (except for one rich uncle who won't talk about that sort of thing). I don't think visiting China is going to help answer these questions.
The total extent of economic policy discussion that I've been able to solicit from Chinese friends & family is thus:
1. Save lots of cash 2. Buy lots of apartments
And that's it.
The total extent of economic policy discussion that I've been able to solicit from Chinese friends & family is thus:
1. Save lots of cash 2. Buy lots of apartments
And that's it.
This comment is a bit concerning considering what's going on in the housing markets of Vancouver, Seattle, Toronto, and the Bay Area.
Not sure what to tell you, other than I look forward to reflecting on these comments sometime in the next 2-3 years.
Not sure what to tell you, other than I look forward to reflecting on these comments sometime in the next 2-3 years.
Ignoring people's nationalistic/racial biases for a moment, a contradiction is somewhat normal with some economic events. Imagine there is a real estate bubble in some country. We'd expect articles painting a hugely positive picture of growth, and also negative articles about debt and surplus housing. Both sets of articles are valid, if perhaps cherry picking facts. Journalists like to spin things to be more sensationalized.
I think that all of these are true, and not necessarily contradictory?
1. The Chinese _economy_ has a trade surplus
2. Chinese _people_ have a high personal savings rates
3. The Chinese _government_ has a lot of debt.
4. Chinese companies and firms are trying to diversify their investments by investing outside of the country. Especially when the government is mostly good but has potential for being capricious and totalitarian.
1. The Chinese _economy_ has a trade surplus
2. Chinese _people_ have a high personal savings rates
3. The Chinese _government_ has a lot of debt.
4. Chinese companies and firms are trying to diversify their investments by investing outside of the country. Especially when the government is mostly good but has potential for being capricious and totalitarian.
FWIW, NYT is always shining negative lights on China related articles.
A lot of the UK's railways were built on the back of a private investment bubble in the 19th century. Many of the schemes were caught up in corruption and many of the investors lost money.
https://en.wikipedia.org/wiki/Railway_Mania
Looking back though, those investments were absolutely without doubt a net positive for the country. It's hard to even quantify the benefit having 10,000 miles of railways cut through the country has brought us over the 150 years since. Building even a few hundred miles of railway now is extraordinarily expensive and mired in all sorts of legal issues.
I'm sure not all of these big infrastructure projects will succeed, but I bet they will be a net positive over the long term.
https://en.wikipedia.org/wiki/Railway_Mania
Looking back though, those investments were absolutely without doubt a net positive for the country. It's hard to even quantify the benefit having 10,000 miles of railways cut through the country has brought us over the 150 years since. Building even a few hundred miles of railway now is extraordinarily expensive and mired in all sorts of legal issues.
I'm sure not all of these big infrastructure projects will succeed, but I bet they will be a net positive over the long term.
> A lot of the UK's railways were built on the back of a private investment bubble in the 19th century.
A lot of the internet infrastructure was built out during the bubble period of the late 90's / early 2000's
A lot of the internet infrastructure was built out during the bubble period of the late 90's / early 2000's
I am not an economist but I suspect China's debt might not be such a big problem....until it is. But China is too big to fail
and before it hits China hard the world will try to save what it can so it wont hit others as well.
Ah the beauty of globalization.
>> I am not an economist but I suspect China's debt might not be such a big problem....until it is
I'm not an economist either, but I have a working memory, and I can remember being warned about Chinese debt in the early aughts. The debt has grown, weathered a global 'great' recession and the warnings continue...
The Chinese bubble is still being inflated. Chinese debt won't matter until that bubble pops. There is no evidence that the bubble is about to pop; GDP growth has been north of 6% since Clinton's first term and that rate of growth has, if anything, become more stable recently. There is still plenty of Western industry that is ripe for evacuation to Asia, and China -- for all it's changes and growth -- is still appealing for this purpose; they've kept their regulatory apparatus at bay and there are still another 500-ish million Chinese peasants to keep wages in check.
It's still too early for the inevitable snap back. It will happen, but there is some time yet.
I'm not an economist either, but I have a working memory, and I can remember being warned about Chinese debt in the early aughts. The debt has grown, weathered a global 'great' recession and the warnings continue...
The Chinese bubble is still being inflated. Chinese debt won't matter until that bubble pops. There is no evidence that the bubble is about to pop; GDP growth has been north of 6% since Clinton's first term and that rate of growth has, if anything, become more stable recently. There is still plenty of Western industry that is ripe for evacuation to Asia, and China -- for all it's changes and growth -- is still appealing for this purpose; they've kept their regulatory apparatus at bay and there are still another 500-ish million Chinese peasants to keep wages in check.
It's still too early for the inevitable snap back. It will happen, but there is some time yet.
In an economy the size and importance of China, what happens is protracted stagnation due to the debt, rather than a Venezuela style meltdown. China is repeating, almost perfectly, the Japan-scenario, with a similarly predictable outcome.
> China is repeating, almost perfectly, the Japan-scenario, with a similarly predictable outcome.
My imperfect understanding of China is stagnation is tantamount to ouster of the Politburo members, or at least the Standing Committee; they will go to great lengths to avoid that outcome during their tenure. From what I've read, the population supports the political and economic status quo so long as there is relatively discernible economic improvement decade-over-decade. If that is true, then a 3+ decade stagnation scenario might be difficult to sketch out, though the US middle class is going on 4+ decades of stagnation now [1], so perhaps that same scenario is possible in China, given enough variety of distractions from the general trend line.
China's infrastructure build-out will also lag behind the economic effects to follow by many years. I personally think it will eventually prove prescient, creating new markets for China's industrial output in the coming centuries, but it won't come without its own set of challenges. If China pulls a wildcard move like monetizing infrastructure debt, holding out promises of enormous growth on the back of that infrastructure, then they can perhaps forestall stagnation far longer than anyone anticipates currently.
[1] I've yet to see a credible rebuttal to the assertion of middle class stagnation that accounts for not just health insurance, land, and education inflation, but also terms and conditions inflation like smaller quantities for same price, or less or lower-quality health insurance coverage for same price, or inferior ingredients substitution for the same price, or better supply chain logistics yet still shipping enriched flour, for example.
My imperfect understanding of China is stagnation is tantamount to ouster of the Politburo members, or at least the Standing Committee; they will go to great lengths to avoid that outcome during their tenure. From what I've read, the population supports the political and economic status quo so long as there is relatively discernible economic improvement decade-over-decade. If that is true, then a 3+ decade stagnation scenario might be difficult to sketch out, though the US middle class is going on 4+ decades of stagnation now [1], so perhaps that same scenario is possible in China, given enough variety of distractions from the general trend line.
China's infrastructure build-out will also lag behind the economic effects to follow by many years. I personally think it will eventually prove prescient, creating new markets for China's industrial output in the coming centuries, but it won't come without its own set of challenges. If China pulls a wildcard move like monetizing infrastructure debt, holding out promises of enormous growth on the back of that infrastructure, then they can perhaps forestall stagnation far longer than anyone anticipates currently.
[1] I've yet to see a credible rebuttal to the assertion of middle class stagnation that accounts for not just health insurance, land, and education inflation, but also terms and conditions inflation like smaller quantities for same price, or less or lower-quality health insurance coverage for same price, or inferior ingredients substitution for the same price, or better supply chain logistics yet still shipping enriched flour, for example.
And we in the US struggle with getting anything built for less than eye watering sums - does anyone remember the recent bay bridge saga? Corruption, incompetence, etc?
> And we in the US struggle with getting anything built for less than eye watering sums - does anyone remember the recent bay bridge saga?
You mean the one partially built by the Chinese?
http://www.nytimes.com/2011/06/26/business/global/26bridge.h...
Also, don't assume those bridges are built particularly well and will last for a long time. The Chinese have their own fair share of corruption, incompetence, etc...
You mean the one partially built by the Chinese?
http://www.nytimes.com/2011/06/26/business/global/26bridge.h...
Also, don't assume those bridges are built particularly well and will last for a long time. The Chinese have their own fair share of corruption, incompetence, etc...
Yeah, except for the facts that the leaky bolts that were the primary source of consternation last year (?) weren't part of the Chinese-built part of the bridge.
The problem with the welds in the Chinese part of the bridge came much earlier in the bridge building process:
http://media.sacbee.com/static/sinclair/sinclair.jquery/bayb...
Overall, it looks like the Chinese didn't do that bad of a job here.
http://media.sacbee.com/static/sinclair/sinclair.jquery/bayb...
Overall, it looks like the Chinese didn't do that bad of a job here.
Can someone who knows more about economics than I do explain to me how China can be in debt while itself being the largest holder of American debt at the same time?
Don't the debts at least cancel out, or has China really borrowed more than the US borrowed from it? Or does this all only really matter on paper, but somehow in the real world it doesn't at all?
Don't the debts at least cancel out, or has China really borrowed more than the US borrowed from it? Or does this all only really matter on paper, but somehow in the real world it doesn't at all?
AFAIK, the debt is internal: it's Chinese firms that owe Chinese banks who owe Chinese people. The possible problem is if those firms aren't solvent; that could bring lots of Chinese savers to lose their savings.
If you read the article it mentions that local governments borrow from government owned banks. Perhaps that explains some of it.
So is this a case of merely moving money from one pocket to another? Or are local governments actually independent of China's allegedly totalitarian central government?
We do the exact same stuff.
http://money.cnn.com/2016/05/10/news/economy/us-debt-ownersh...
Also as for holders of debt. Japan beats China
http://money.cnn.com/2016/12/16/investing/china-japan-us-deb...
http://money.cnn.com/2016/05/10/news/economy/us-debt-ownersh...
Also as for holders of debt. Japan beats China
http://money.cnn.com/2016/12/16/investing/china-japan-us-deb...
China is not biggest holder of US debt - that's a title held by the US people who the government owes social security payments to.
China is not the largest holder of American debt. This is a myth that contains not even a sliver of reality.
China does this for one reason: jobs, jobs, jobs. Infrastructure buildup (and maintenance) is surprisingly labor-intensive and so China trades (mostly internal) debt to build long-term-valuable infrastructure plus relieving job market stress.
The current Chinese model of exporting infrastructure (financing, materials and laborers usually come from China) is also quite interesting and fits in the same long-term worldview: they build trains and road infrastructure across all of Africa.
Most people think it's a waste of money, but they ignore that China is on track to prop up Africa, so that African countries can actually buy stuff once orders from the European and US markets fade (be it due to Trump protectionism or simple market saturation).
All in all, the Chinese government is probably the one single government in the world that actually looks into the future and not just to the next quarter financials (or the next elections).
The current Chinese model of exporting infrastructure (financing, materials and laborers usually come from China) is also quite interesting and fits in the same long-term worldview: they build trains and road infrastructure across all of Africa.
Most people think it's a waste of money, but they ignore that China is on track to prop up Africa, so that African countries can actually buy stuff once orders from the European and US markets fade (be it due to Trump protectionism or simple market saturation).
All in all, the Chinese government is probably the one single government in the world that actually looks into the future and not just to the next quarter financials (or the next elections).
I've read that China is building massive infrastructure in Africa[1]. Are they doing this to have other sources of export? Think about this, America may eventually lessen consumption and as such, China will need some way to pay back/down debts. We may see China unload and drop US treasury notes when/if American consumption slows/halts. If China has other markets to consume their exports, then they will be safe. Does this scenario seem realistic?
[1] https://www.fastcompany.com/3050167/in-africa-chinese-develo...
[1] https://www.fastcompany.com/3050167/in-africa-chinese-develo...
obviously.
> Its cost, $300 million
For a 1.4 mile bridge 100 meters off the ground? That is a fucking steal. How do they pull this off?
For a 1.4 mile bridge 100 meters off the ground? That is a fucking steal. How do they pull this off?
I didn't have an intuition for this, so I took a shot in the dark as a baseline. Wolfram Alpha suggests that the Golden Gate bridge was about $350M in modern money, and given length and height, I'd say they're pretty comparable. They're both within probably $25M of what you'd sort of expect of each other, with the Golden Gate being a little longer (0.3 miles) and the one you're referencing is much lower (GG is 120m higher).
Now, I'd guess there's some debate if the Golden Gate was worth it, but I think in the long run these sorts of things define regions and become essential.
EDIT: Noting I already did the 1930s money conversion.
Now, I'd guess there's some debate if the Golden Gate was worth it, but I think in the long run these sorts of things define regions and become essential.
EDIT: Noting I already did the 1930s money conversion.
it worth 350M in modern money does not mean you can build it today with 350M.
To be sure - and in fact people seem to debate the idea that the same bridge would even be built at all these days. It was apparently quite the political undertaking.
Similar price to big bridges in Europe (https://en.wikipedia.org/wiki/Millau_Viaduct)
Total length 2,460m
Width 32.05m
Height 343m
Cost €394,000,000Substantial amounts of overbuild in villages and creating new villages i.e. Apartment towers due to developers wanting to use credits offered by the government.
Source: was in mainland China recently
Source: was in mainland China recently
each time US news talking about China's infrastructure, I am thinking about Seattle area's ST3 project. It's basically build 62 miles light rail with $54 Billion projected budget and 25 years construction phase. How it could be so expensive and take so long time? Isn't that a huge corruption with a legal name?!
Beijing: "We are connecting economic development to border regions and neighbouring countries for geostrategic and unification purposes, we don't care about cost"
Personal observation: Beijing is smart. I personally lived on and near the southwestern Chinese border for most of the last 16 years and they are definitely kicking ass with infrastructure, including high speed trains, renewable energy (wind/hydro/solar) and highways. They have achieved their goal of economic integration for a lot of formerly isolated people. There were abuses earlier but now they generally give people who are moved a pretty good deal, eg. free rice and oil for life, free apartment plus a life long monthly stipend per household member (source: Personal interview with someone to be moved, Chinese New Year 2017).
Western media: "Build it and they will come!"
Beijing: "They are already here."
Personal observation: Beijing is basically right, except in some private sector residential building projects.
Another low quality China-bashing article from the NYT.