PeakTrader.com

[administrator]

http://www.nakedcapitalism.com/2011/01/connecting-the-dots-between-chinas-falling-consumption-level-and-its-banking-crisis.html

PeakTrader said...

China's GDP, particularly at PPP, is a limited measure that doesn't truly reflect living standards:

Connecting the Dots Between China’s Falling Consumption Level and Its Banking Crisis
January 22, 2011

As countries become more affluent, consumption tends to rise in relationship to GDP. And the ample evidence of colossally unproductive infrastructure projects in China raises further doubts about the sustainability of the Chinese economic model.

Household consumption has declined over the decade as a share of gross national product from a very low 45 percent at the beginning of the decade to an astonishingly low 36 percent last year.

It now takes $7 of debt to produce $1 of GDP growth...The combination of implicit debt forgiveness and the wide spread between the lending and deposit rate has been a very large transfer of wealth from household depositors to banks and borrowers. This transfer is, effectively, a large hidden tax on household income, and it is this transfer that cleaned up the last banking mess.

It did not result in a collapse in the banking system, but it nonetheless came with a heavy cost. The banking crisis in China resulted in a collapse (and there is no other word for it) in household consumption as a share of the economy."

--------

PeakTrader said...

Why Your World Is About to Get a Whole Lot Smaller
May 2009

"Distance will soon cost money, and so will burning carbon – both will bring long-lost jobs back home. We may not see the kind of economic growth that globalization has brought, but local economies will be revitalized, as will our cities and neighborhoods."

China's Growth: Too Good to be True?
04 February 2011

"If you think that China's double-digit growth is too good to be true, it probably is. Here are a couple of reasons why China's GDP could be smaller than it seems:

1. Environmental damage

He Ping, Chairman of International Fund for China's Environment, believes that China will have to spend at least 2% of its GDP per year to clean up 30 years of industrial waste.

2. Misallocated investments

If you invest $20, then you're expecting to get more than $20 in return...sometimes the returns actually turn out to be less than the cost of the investment...Some estimates say that up to 1-2% of China's current GDP growth can be attributed to this.

If you combine that 2-4% of GDP spent on cleaning up China's environmental waste and the 1-2% of growth attributed to misallocated investments, that'd mean that China's GDP could be overstated by roughly 5% each year."

---------

PeakTrader said...

Also, I cited other factors before that not only reduce China's GDP growth (e.g. smaller gains-in-trade), but also result in harder work for GDP growth (e.g. deteriorating terms-of-trade).

Consequently, China's household consumption collapsed from 45% of GDP in 2000 to 36% of GDP in 2010.

---------

juandos said...

"Consequently, China's household consumption collapsed from 45% of GDP in 2000 to 36% of GDP in 2010"...

Interesting comment PT and something I was wondering about...

I was thinking that the for awhile at least the Chinese GDP growth was outrunning Chinese household consumption...

Both measures were growing but the GDP was growing faster...

--------

PeakTrader said...

Juandos, it seems, few people note the squandered resources in achieving high GDP growth. Most focus on the high output and ignore the wasted inputs (e.g. labor, capital, raw materials, land, energy, etc.).