China banks under pressure as loans turn sour

Not unless they are willing to unemploy whatever factors are grossly misallocated (oh oh, that's a political decision). If they do then supply cost increases will reduce our relative exchange rate/terms of trade which means I won't be able to trade my great insights into the world for as many $2 bits of plastic

 

China's high savings rate is preventing people from spending their money on consumption of Chinese goods. If they're saving, they're not spending and that is slowing their transition from an export driven economy to a consumption based economy. It comes back to the age old problem of either whacking people over the head (well, over the wallet) using interest rates or figuring out some other, more subtle ways of getting people to spend money in the domestic economy.

This isn't necessarily a good thing or a bad thing, but one of the aspects of centrally planned economies is that they can Just Do Stuff. China would also be starting their welfare state from scratch, so they can build it exactly how they like, spend as much or as little money on it as they like and everyone who disagrees with them can go take a hike. They don't have to worry about appeasing slash bribing voters with double-barrelled projects, they just have to not piss people off so badly that they start rioting.

In any case, China's reliance on the West to keep buying their cheap goods is dangerous for them, given the state of many Western economies. They need to diversify.

 

I disagree with this to some degree.

Even with a sizable savings base the economy can still prosper (see Japan; they used to save a lot; now not so much!).

People save money to spend in the future. Not many people hoard cash under the mattress for 60 years.

As for interest rates...

I'd say the Chinese government should stay out of manipulating them if history is anything to go by.

 

"High" savings has never been and is not now a problem (unless you happen to be a misguided Keynesian like Krugman who doesn't understand Say's Law). Savings is necessary to fuel economic growth.

As I said earlier, the Chinese citizens are certainly producing ship-loads of stuff but they are not being allowed to enjoy the fruits of their labour. Most of this stuff is not actually what they want however (books written in English by Krugman for example) and so they need to alter the structure of their production to stuff that the Chinese people actually want.

 

Apparently that $800B China stimulus is not true. I just read the comments and people in China said they have not seen anything on the news about it.

Who knows...

 

The reason why people save too much money is because of future uncertainty. You can goose spending by lowering interest rates and encourage people into debt (borrow, borrow , borrow) thereby causing a huge bubble with further consequences down the road (the usual MO of governments). Or you can provide a stable economic environment where people don't feel they have to save as much ie, not one with ever increasing amplitude of booms and busts. But if you think about it, that's just not in the best interests of govts. They always take the easy credit route. Providing a stable environment would be allowing the market to set interest rates. And then what would we need a central bank for?

 

I'm not saying living within your means and saving money for the future is a bad thing (hey, I do it), just that the sheer volume of cash that the Chinese are saving is creating a huge imbalance in their economy which is partially flowing back out into the rest of the world.

They're getting massive amounts of money coming in from overseas buyers of their cheap products, the people earning the money are stockpiling a huge percentage of it and the banks entrusted with holding it for them are lending it out to developers (including government-backed developers) who are building entire cities that remain empty and highways that nobody drives on since people aren't spending their money buying new houses and new cars...because they're saving it instead. Maybe one day those cities will fill up with people and there will be more cars on the streets. It will happen, eventually, but the money isn't being spent locally anywhere near as quickly as it is rolling in from overseas.

 

To prevent misunderstanding between us, let us distinguish between individual savings (from people's after tax wages) and national savings (from the aggregate accounts i.e. C+S+G = C+I+G+X-M etc).

From my understanding I think most of the national savings arise from the foreign trade imbalances which don't get anywhere near the average citizen to even make the decision. This pool essentially needs to be redirected to the average citizen to choose to do with as they wish. If they willingly save it all (which they probably won't) then it won't be a problem. If they spend it on current consumption then the economy will start getting back on track but will almost undoubtedly require a restructuring of the productive capacity of the economy (and global economy).


...and Shiney, I think you would be crazy to open a term deposit in a country whose currency is manipulated even more than the US$.

 

But this is what make China different. They play a very long game and their entire government is dedicated to advancing China's interests. It is also dedicated to enriching the people who serve the Communist Party, but that goes with the territory in any government and in China's case they have the benefit of corruption being unofficially sanctioned - you pay your "introduction expenses"/"commission"/"service fee" and you can do all the stuff you like. Their officials don't always have to be on the lookout for new opportunities to make extra cash because they're going to get it anyway, simply being an official. If only Western governments could be as efficient as the Chinese in their corruption, they might find time to get some work done on behalf of the public.

If China's goal is for the Chinese to enjoy the same standard of living that we do in the West, they can't just do the "print more money" thing we do. They've got a lot of people working on figuring out what they should be doing and collectively they're far from stupid.

 

^^^ If Yippe or Jonesy had written that exact same thing I would have thought they were totally taking the piss. Coming from you however I think you actually believe that a bunch of technocrats (who are just average people who happen to have a bit of education in something or other) with no objective feedback mechanism can accurately plan to meet everybody's real needs in the most efficient way possible.

The whole reason why the capitalist system works is because it has rapid feedback from consumers and (ignoring the crony capitalists and fraudualent banking system) only make a profit if they actually provide a real benefit to people. The so-called "waste" from looking for new opportunities is precisely the mechanism that brings new opportunities. We don't have iPhones with freakin' sweet apps because a technocrat somewhere in China planned it 20 years ago in a back office knowing that it would enrich people's lives in the future.


Edit: People are just people. In the absence of an objective feedback mechanism then collectively they're probably way more stupid and slow than entrepreneurial individuals willing to take a risk for profit as they have to bicker and politic their way to success.

Edit again: "Benefit of unofficially sanctioned corruption"! Sweet Jesus. If you think corruption in any circumstance is beneficial you are waaaaaaaaaaaaaaaay wrong in the head. Ffs that's exactly the thing that other people say when being sarcastic.

 

Aaah. Then you want to go short term deposit. Hate to see it locked up at an inopportune time

 

China has an objective feedback mechanism in how the world responds to what China does.

China is the ultimate corporation - an entire sovereign nation that accepts market forces where it is convenient and exerts the power of the state where it is necessary in the course of doing business with the rest of the world.

It also has a captive market in the Chinese people so it doesn't have to worry too much about "freedom of choice" and "what the market wants" all that jazz. If people aren't starving and are actually enjoying constant, incremental improvements in their quality of life, that's good enough.

 

Isn't everyone on here :lol: More I meant not being able to trade back before a second random manipulation drives it the other way.

 

I admit that thinking about China as a massive corporation whose sole purpose is to make the lives of us Westerners (and gradually others in the world) better and better is an intriguing concept. That Westerners will be better off is almost a given. However, whether in the process China make the lives of its hundreds of millions of internal workers better off is in serious doubt (let alone better off to the extent possible). There's no way of really knowing if they aren't allowed to be real consumers as well.

However, all you've done is prove to me that socialism deprives and exploits** it's own citizens for the benefit of a few internal power brokers.

** "Exploits" in the pejorative sense if JulieW is reading

 

A corporation's sole purpose isn't to benefit it's customers, it is to benefit the corporation's shareholders.

If we in the West are better off because of what China sells to us, that is a happy co-incidence, but China's goal is to improve things for China.

Ah, but this is "socialism with Chinese characteristics."

Bribes are okay because the market is willing to pay them.

 

Get it right. The only reason why a customer buys from a corporation is because they benefit. Hence we are better off.

Ordinarily the only reason why people sell is because they have a real comparative advantage in making what they sell so they also benefit. However, part of the point of this thread is that they are taking random IOUs and are calling this a "benefit". Is it really a benefit to its 'shareholders'? I (and others) seriously doubt it and the corporation will go bust (or, in the case of the Chinese corporation, reduce wages and conditions to its shareholders).

 

True, and it does that by providing products and/or services a customer wants. If the customers decide they don't want them the corporation loses money and/or goes broke losing the shareholders money. Unless, it gets a bailout from the state of course.

Government's reward big corporations who provide shoddy products and services by giving them money so they can keep doing so in order to "save jobs". Or in order to "save the banking system".

I think you meant to say that the Chinese govt's goal is to improve things for the Chinese govt and to it's citizens also, if that is of benefit to the Chinese govt.

Bribes are only possible because the power exists to be corrupted. The more power, ie, the bigger the govt (of any kind) the more corruption.