Thanks for the reply. Very enriching. I will always respect people with older age, more experiences and greater wisdom. A few sum up:
- 50% resource is CCP controlled: does this mean 50% of wealth distribution goes to 'CCP elites families'?
- 40% of GDP is private consumption: this seems a different GDP statistical method than the prior …
Thanks for the reply. Very enriching. I will always respect people with older age, more experiences and greater wisdom. A few sum up:
- 50% resource is CCP controlled: does this mean 50% of wealth distribution goes to 'CCP elites families'?
- 40% of GDP is private consumption: this seems a different GDP statistical method than the prior one. 60% of GDP ends up in the form of investment or export, does this mean 60% of GDP is state or business profit?
- Judicial, I am taking the lawyer exam this year, and have been following relevant news, I think it's going towards the right direction. A new set of civil codes was just approved by NPC. Scholars here( many are giving online lessons for the exam) are quite optimistic about it. I am sure when the younger generation goes to various positions things will get better.
Glad to hear you're optimistic! From the sound of it, any country with more people like you moving up is in good shape.
-50% of resources is CCP controlled (meaning around half of economic activity is directly or indirectly done by SOE's): No, this doesn't mean half of all money goes to CCP elite families. Clearly the major shareholders in SOE's are, at the end of the day (meaning once the paper trail of cross holdings ends), elite families (whether in BJ or local), but of course SOE's pay salaries to their employees, and pay taxes, so like any company, the shareholders don't make anything close to 100% of revenue. The main issue with SOE's though again is that they are massively value destroying--again, not really a debate here, every study which looks at them finds they are wildly inefficient, and that without monopoly licensing, capital subsidies (state-owned banks lend to them preferentially, and at very low rates), land subsidies, bailouts etc, they would go bankrupt, which is fine when you really need things that only SOE's or public/private hybrids can do well on a massive scale (for instance, infrastructure, which as we can see in the US simply won't be built by private companies without massive gov't contracts or subsidies, essentially, so you'd rather have inefficient companies building great infrastructure than no one building it, and when infrastructure is really needed, the value of the infrastructure will still greatly outweigh the fact that the public company building it operates far less efficiently than a private company would, and of course there is value in simply being able to order the public company to build something that needs to get done, so purely worshipping private companies at all times doesn't work either, it just depends on the circumstances, does a country need a zillion massive infrastructure projects at a given moment, if so, state-owned infrastructure company are probably a good idea, or some policy to promote/force infrastructure construction whatever that may be, in the US it would probably be massive public contracts for private companies). Of course, once you don't need massive infrastructure projects everywhere, putting huge resources into companies which do that is obviously going to be a major drag on your economy, and the realization of this is what caused the CCP elite to start talking about rebalancing desperately (Wen Jiabao in 07 as I keep saying because it's such a dramatic example), but as the below consumption statistic shows, it has been completely unsuccessful, for political reasons.
40% of GDP is private consumption: Yes, different statistic, this doesn't have to do directly with state-owned or not, but rather with the breakdown in the economy of what % of GDP activity per year at the end of the day is individuals buying stuff, vs businesses investing, vs government spending, vs the current account (trade balance). I may have forgotten my intermediate college macro so please forgive me if I left something off that equation in this relatively informal forum. So if you say as I have that somewhere around half of economic activity is controlled by state-owned companies, again, most of their revenue is not profit, so most of that 50% ends up either with employees, or with other companies the state-owned company does business with, or with the government which taxes that state-owned company, so it's not like 50% of all economic activity actually ends up STAYING within the system. The problem with being state-owned has far more to do with the sector being massively value destroying/inefficient. So with that said, money from the SOE/government half of the economy, and from the private business half of the economy, gets distributed around in all the various economic ways we all know and love (some is given to employees as wages, some to other companies for services, some saved by the company, some is distributed as profit, etc). What the 40% of GDP is consumption REALLY means is that the structure of the economy is such that a far higher % than should be is saved (and hence invested, as savings equals investment) than consumed, which does NOT mean that people are just thrifty in general, this is a key point, it's not a moral issue just a mathematical one, it means that the % of national income which households receive is very low to begin with, so even if they spent 100% of what they got, consumption as a % of GDP would STILL be low. Why do households receive so little? The 3 major historical factors in China's development are financial repression (number one by far, meaning that most families put their money in the bank, which pays out what around 5% nominal right, so when China was growing at 10% real and 17% nominal, this represented a MASSIVE transfer of wealth from households to the financial system which then lent to the state sector at preferential rates), low wages (no unions, and the hukou system dramatically reduces the bargaining power of the large rural majority), and currency debasement (for a long time, apparently much less so now) which helps businesses who are net exporters but hurts families who are net importers (because foreign goods are then more expensive).
So again, the 40% consumption stat doesn't have to do with public/private, it has to do with what % of economic activity in the country, period, ends up saved/invested by businesses (public or private)/owners/the financial sector as opposed to in the hands of households for consumption. In sum, 50% of resources being state-owned means inefficiency and hence stagnation/colossal waste of resources/debt since the projects don't pay for themselves (now that massive infrastructure projects all over the country don't need to be built anymore), and 40% of GDP is consumption means the structure of the economy/economic institutions keeps money out of the hands of families (as compared to, say, the USA where consumption is 70%), which means that there is not enough domestic demand (assuming that there are not enough productive investment/infrastructure projects to soak up the investment, plus exports), which means by default, the economy is producing huge amounts of unprofitable projects every year (because not enough demand), and this explains the absolute explosion in debt in the past 10-15 years.
This is a great point. I think CCP took notice of it for quite some time. They put out a plan to allow share based incentive plan for SOE employees, hoping it will create certain vitality. And they are trying to privatize some industries, such as Aerospace. They are quite inspired by the success of Space X, and are allowing a dozen of newly founded private tech start ups to be involved in satellite and rocket launching.
They are also pushing for a plan to let the SOEs transform into state investment funds, more like a Singapore or Norway model, hoping the separation of ownership and management can create some value.
I noticed that the governance structure of most large corporations in the States are fairly diversely ownership among mutual funds and the culture of professional management is quite mature. Hopefully we can work towards that in the future.
- Lower percentage of consumption, means not enough distribution to local people:
The 19 statistics show that consumption takes 57.8% of China's GDP. I would also mention that education and healthcare are very much state owned and offered to citizens in fairly low price, sometimes near zero. This might also contributed to the low level of service industry nominal demand. There are strong arguments in our politician and scholar community whether we should privatize these two industries. After this pandemic, I think there are stronger social obstacle for healthcare privatization. The US healthcare system seems quite complicated to me, if you happens to know it well, would you please kindly share some insights on this?
- Debt issue: I think this is vividly discussed since 2009, when LGFV problem was first noticed by the global financial community. Whether we should contain the growth of it, or we should adopt the MMM theory, is a very big topic in our official/scholar community now. There are near fist fights level article debates between central bank and treasury now. Some argues that, US has even higher debt and those debt was raised to fund mainly welfare and military, which is a worse collateral than massive infrastructure. Of coz there will be the forever reasoning of US exceptionalism that China will never have the same qualification of similar recurring debt issuance capability. Also want to learn more about this, especially if there is any non Manifest Destiny or Superior Military Power kinda reasoning about why massive debt in US is more sustainable.
The 57.8% stat refers to % of GROWTH, not absolute %. Any reform which doesn't transfer state assets to average people will not fix the fundamental problem, stop debt growth, and prevent stagnation. All the other discussions are just window dressing which assume that because random CCP policy pronouncements correlated with huge growth in the past, they will in the future. But huge growth in the past came from privatization plus productive investment, neither of which is happening anymore, so CCP policy pronouncements not on these issues are useless.
China's debt is much than that of the US, even not counting implicit CCP guarantees of the financial system and SOE's. Monetary theory debate and debate about the proper debt levels are irrelevant because they miss the point. They question is: why has Chinese debt exploded in the past decade plus? The answer is unproductive investment. Why so much unproductive investment? Because infrastructure development is saturated. So why not shift away from CCP policy pronouncements about government investment to support the economy, and instead transfer economic power from the CCP to private parties to increase consumption? Because it's politically difficult. That's the situation, the other policy discussions are mainly irrelevant. Remember that rebalancing was a term used before Xi, now of course it's not used openly because it sounds critical and criticism isn't allowed in any substantive form any more, but banning the speech doesn't change the underlying factor, just like Trump not acknowledging Covid hasn't cured the disease :).
It would be amazing if there were genuine SOE reform. But SOE's are fundamentally political entities designed to maintain CCP control over the economy. Any management decisions which might be good for efficiency but threaten CCP control will not be allowed. This is why SOE's are so inefficient--one could easily make them efficient by allowing private competition, but that's not allowed because it threatens CCP control. Management theory is irrelevant. Why not just reform them out of existence (with the exception of standard things like utilities which tend to lend themselves to state control due to the natural monopoly)? Answer: because it would reduce CCP control. The fundamental issue is a political one, and again, all the policy pronouncements and discussions you reference just beg the question of what actually caused growth, which was productive infrastructure investment plus privatization, and now that privatization isn't expanding, and productive infrastructure investment has stopped, the only relevant policy discussion is what to do about those two issues, not just to assume that because growth happened in the past when the CCP said things, it will continue to happen in the future. The causes of growth are clear, the causes of stagnation are clear, and they go right up against fundamental CCP imperatives, and that's the issue. It's not unique to China, again, there are about two dozen countries in the past century who went through the exact same thing and then stagnated economically.
Thanks for the reply. Very enriching. I will always respect people with older age, more experiences and greater wisdom. A few sum up:
- 50% resource is CCP controlled: does this mean 50% of wealth distribution goes to 'CCP elites families'?
- 40% of GDP is private consumption: this seems a different GDP statistical method than the prior one. 60% of GDP ends up in the form of investment or export, does this mean 60% of GDP is state or business profit?
- Judicial, I am taking the lawyer exam this year, and have been following relevant news, I think it's going towards the right direction. A new set of civil codes was just approved by NPC. Scholars here( many are giving online lessons for the exam) are quite optimistic about it. I am sure when the younger generation goes to various positions things will get better.
Glad to hear you're optimistic! From the sound of it, any country with more people like you moving up is in good shape.
-50% of resources is CCP controlled (meaning around half of economic activity is directly or indirectly done by SOE's): No, this doesn't mean half of all money goes to CCP elite families. Clearly the major shareholders in SOE's are, at the end of the day (meaning once the paper trail of cross holdings ends), elite families (whether in BJ or local), but of course SOE's pay salaries to their employees, and pay taxes, so like any company, the shareholders don't make anything close to 100% of revenue. The main issue with SOE's though again is that they are massively value destroying--again, not really a debate here, every study which looks at them finds they are wildly inefficient, and that without monopoly licensing, capital subsidies (state-owned banks lend to them preferentially, and at very low rates), land subsidies, bailouts etc, they would go bankrupt, which is fine when you really need things that only SOE's or public/private hybrids can do well on a massive scale (for instance, infrastructure, which as we can see in the US simply won't be built by private companies without massive gov't contracts or subsidies, essentially, so you'd rather have inefficient companies building great infrastructure than no one building it, and when infrastructure is really needed, the value of the infrastructure will still greatly outweigh the fact that the public company building it operates far less efficiently than a private company would, and of course there is value in simply being able to order the public company to build something that needs to get done, so purely worshipping private companies at all times doesn't work either, it just depends on the circumstances, does a country need a zillion massive infrastructure projects at a given moment, if so, state-owned infrastructure company are probably a good idea, or some policy to promote/force infrastructure construction whatever that may be, in the US it would probably be massive public contracts for private companies). Of course, once you don't need massive infrastructure projects everywhere, putting huge resources into companies which do that is obviously going to be a major drag on your economy, and the realization of this is what caused the CCP elite to start talking about rebalancing desperately (Wen Jiabao in 07 as I keep saying because it's such a dramatic example), but as the below consumption statistic shows, it has been completely unsuccessful, for political reasons.
40% of GDP is private consumption: Yes, different statistic, this doesn't have to do directly with state-owned or not, but rather with the breakdown in the economy of what % of GDP activity per year at the end of the day is individuals buying stuff, vs businesses investing, vs government spending, vs the current account (trade balance). I may have forgotten my intermediate college macro so please forgive me if I left something off that equation in this relatively informal forum. So if you say as I have that somewhere around half of economic activity is controlled by state-owned companies, again, most of their revenue is not profit, so most of that 50% ends up either with employees, or with other companies the state-owned company does business with, or with the government which taxes that state-owned company, so it's not like 50% of all economic activity actually ends up STAYING within the system. The problem with being state-owned has far more to do with the sector being massively value destroying/inefficient. So with that said, money from the SOE/government half of the economy, and from the private business half of the economy, gets distributed around in all the various economic ways we all know and love (some is given to employees as wages, some to other companies for services, some saved by the company, some is distributed as profit, etc). What the 40% of GDP is consumption REALLY means is that the structure of the economy is such that a far higher % than should be is saved (and hence invested, as savings equals investment) than consumed, which does NOT mean that people are just thrifty in general, this is a key point, it's not a moral issue just a mathematical one, it means that the % of national income which households receive is very low to begin with, so even if they spent 100% of what they got, consumption as a % of GDP would STILL be low. Why do households receive so little? The 3 major historical factors in China's development are financial repression (number one by far, meaning that most families put their money in the bank, which pays out what around 5% nominal right, so when China was growing at 10% real and 17% nominal, this represented a MASSIVE transfer of wealth from households to the financial system which then lent to the state sector at preferential rates), low wages (no unions, and the hukou system dramatically reduces the bargaining power of the large rural majority), and currency debasement (for a long time, apparently much less so now) which helps businesses who are net exporters but hurts families who are net importers (because foreign goods are then more expensive).
So again, the 40% consumption stat doesn't have to do with public/private, it has to do with what % of economic activity in the country, period, ends up saved/invested by businesses (public or private)/owners/the financial sector as opposed to in the hands of households for consumption. In sum, 50% of resources being state-owned means inefficiency and hence stagnation/colossal waste of resources/debt since the projects don't pay for themselves (now that massive infrastructure projects all over the country don't need to be built anymore), and 40% of GDP is consumption means the structure of the economy/economic institutions keeps money out of the hands of families (as compared to, say, the USA where consumption is 70%), which means that there is not enough domestic demand (assuming that there are not enough productive investment/infrastructure projects to soak up the investment, plus exports), which means by default, the economy is producing huge amounts of unprofitable projects every year (because not enough demand), and this explains the absolute explosion in debt in the past 10-15 years.
Thanks for further explanation.
- SOE has weaker efficiency:
This is a great point. I think CCP took notice of it for quite some time. They put out a plan to allow share based incentive plan for SOE employees, hoping it will create certain vitality. And they are trying to privatize some industries, such as Aerospace. They are quite inspired by the success of Space X, and are allowing a dozen of newly founded private tech start ups to be involved in satellite and rocket launching.
They are also pushing for a plan to let the SOEs transform into state investment funds, more like a Singapore or Norway model, hoping the separation of ownership and management can create some value.
I noticed that the governance structure of most large corporations in the States are fairly diversely ownership among mutual funds and the culture of professional management is quite mature. Hopefully we can work towards that in the future.
- Lower percentage of consumption, means not enough distribution to local people:
The 19 statistics show that consumption takes 57.8% of China's GDP. I would also mention that education and healthcare are very much state owned and offered to citizens in fairly low price, sometimes near zero. This might also contributed to the low level of service industry nominal demand. There are strong arguments in our politician and scholar community whether we should privatize these two industries. After this pandemic, I think there are stronger social obstacle for healthcare privatization. The US healthcare system seems quite complicated to me, if you happens to know it well, would you please kindly share some insights on this?
- Debt issue: I think this is vividly discussed since 2009, when LGFV problem was first noticed by the global financial community. Whether we should contain the growth of it, or we should adopt the MMM theory, is a very big topic in our official/scholar community now. There are near fist fights level article debates between central bank and treasury now. Some argues that, US has even higher debt and those debt was raised to fund mainly welfare and military, which is a worse collateral than massive infrastructure. Of coz there will be the forever reasoning of US exceptionalism that China will never have the same qualification of similar recurring debt issuance capability. Also want to learn more about this, especially if there is any non Manifest Destiny or Superior Military Power kinda reasoning about why massive debt in US is more sustainable.
The 57.8% stat refers to % of GROWTH, not absolute %. Any reform which doesn't transfer state assets to average people will not fix the fundamental problem, stop debt growth, and prevent stagnation. All the other discussions are just window dressing which assume that because random CCP policy pronouncements correlated with huge growth in the past, they will in the future. But huge growth in the past came from privatization plus productive investment, neither of which is happening anymore, so CCP policy pronouncements not on these issues are useless.
China's debt is much than that of the US, even not counting implicit CCP guarantees of the financial system and SOE's. Monetary theory debate and debate about the proper debt levels are irrelevant because they miss the point. They question is: why has Chinese debt exploded in the past decade plus? The answer is unproductive investment. Why so much unproductive investment? Because infrastructure development is saturated. So why not shift away from CCP policy pronouncements about government investment to support the economy, and instead transfer economic power from the CCP to private parties to increase consumption? Because it's politically difficult. That's the situation, the other policy discussions are mainly irrelevant. Remember that rebalancing was a term used before Xi, now of course it's not used openly because it sounds critical and criticism isn't allowed in any substantive form any more, but banning the speech doesn't change the underlying factor, just like Trump not acknowledging Covid hasn't cured the disease :).
It would be amazing if there were genuine SOE reform. But SOE's are fundamentally political entities designed to maintain CCP control over the economy. Any management decisions which might be good for efficiency but threaten CCP control will not be allowed. This is why SOE's are so inefficient--one could easily make them efficient by allowing private competition, but that's not allowed because it threatens CCP control. Management theory is irrelevant. Why not just reform them out of existence (with the exception of standard things like utilities which tend to lend themselves to state control due to the natural monopoly)? Answer: because it would reduce CCP control. The fundamental issue is a political one, and again, all the policy pronouncements and discussions you reference just beg the question of what actually caused growth, which was productive infrastructure investment plus privatization, and now that privatization isn't expanding, and productive infrastructure investment has stopped, the only relevant policy discussion is what to do about those two issues, not just to assume that because growth happened in the past when the CCP said things, it will continue to happen in the future. The causes of growth are clear, the causes of stagnation are clear, and they go right up against fundamental CCP imperatives, and that's the issue. It's not unique to China, again, there are about two dozen countries in the past century who went through the exact same thing and then stagnated economically.