Episode 16
The Chinese Financial System and the Prospects for a Hard Landing in China | Anne Stevenson-Yang
Episode 16
Anne Stevenson-Yang
The Chinese Financial System and the Prospects for a Hard Landing in China | Anne Stevenson-Yang
summary
In this week’s episode of Hidden Forces, host Demetri Kofinas speaks with Anne Stevenson-Yang. Anne is the co-founder of J Capital Research, which conducts ground-up, primary research for institutional money managers on stocks, the Chinese economy, and the Chinese financial system. She is also the author of the recent book China Alone: China’s Emergence and Potential Return to Isolation, in which she sets out her views on the Chinese economy and political system, arguing that China historically repeats a cycle of expansion and retreat.
In today’s conversation, we take a trip around the world to the land of China. Our conversation concerns itself with the contemporary changes in Chinese society that came after the death of Chairman Mao. What was life like in China before Nixon and Kissinger made their famous visit in 1971? Why did modernization and reform in China begin after 1978? Who was responsible for the opening in China? What was the role of Deng Xiaoping, and why is he remembered as “the architect” of a new brand of thinking that combined socialist ideology with pragmatic aspects of market economics – a system the Chinese call “Socialism with Chinese Characteristics?”
What changes did the Chinese experience between 1979 and 1989, during the implementation of the economic reforms of Deng Xiaoping? How did these reforms culminate into the protests in Tiananmen Square in 1989? What was the Chinese government’s reaction to the uprisings? The Chinese response differed significantly from the Soviet reaction to the fall of the Berlin Wall in the same year. The Chinese government decided to follow a different path after the massacres in Tiananmen Square, by turbocharging economic development. Explicit targets were set for GDP growth. There was selective liberalization of the Chinese economy, particularly in Chinese real estate. China placed a huge emphasis on building its manufacturing industries and on acquiring hard currency through exports. The Chinese financial system remained highly centralized and China’s currency, the renminbi, carefully controlled. All this was used towards re-investment with an almost single-minded commitment to hitting the government’s GDP targets.
Some have called the rise of China in the late 20th century a miracle. It is more appropriate to call it “the Chinese miracle.” The size of the Chinese economy has increased more than 25-fold in the last 25 years. Thirty years ago, the Chinese economy measured in at less than 5% of US GDP in exchange terms (perhaps as low as 2%). By 1992, the Chinese economy was only 6% of US GDP. By 2000 China weighed in at roughly 12-15% of US GDP. Today, China boasts a Gross Domestic Product that is roughly 60% that of United States. Loan Growth in the Chinese financial system has averaged 16 percent in the last 20 years. Loan growth in China reached an all-time high of 35% percent of GDP in June of 2009, amidst the greatest economic contraction since the Great Depression. Total debt in China recently surpassed 300% of GDP. This makes the finances of Western nations like the United States, France, and the United Kingdom seem frugal by comparison. In the first 7 years since the financial crisis, bank liabilities in the Chinese financial system grew by nearly $15 trillion dollars. This is the near equivalent of the consolidated size of all US commercial banks. China has used more cement in 3 years of massive overbuilding than the U.S. employed in all of the 20th Century. Hundreds of thousands of meters of unsold residential real estate sit empty around the country. There is a massive amount of industrial overcapacity in China. Chinese ghost cities have become almost as cliche as the fake Paris’, Venice, and Dubai’s created within mainland China. The Chinese economy is in terrible need of a recession. But the Chinese government cannot afford the recession that it desperately needs. Nevertheless, it cannot avoid the crisis that has been building in the Chinese financial system. How will the citizens of China, its trading partners, emerging markets and developed economies react when the reckoning finally arrives. How much longer can the Chinese government continue to postpone the inevitable?
Producer & Host: Demetri Kofinas
Editor & Engineer: Stylianos Nicolaou
Join the conversation at @hiddenforcespod
bio
Anne Stevenson-Yang co-founded J Capital Research in late 2007 and is J Capital’s Research Director. Her coverage areas include solar, internet, medical devices, property, some consumer and direct-sales names, and China’s macro-economy. Anne was formerly co-founder of a group of Online Media Businesses called Blue Bamboo Ventures and also founded and operated a CRM software company, Clarity Data Systems, and a publishing company whose flagship magazine is City Weekend. Over 25 years in China, Anne has also worked as an industry analyst and trade advocate, heading the US Information Technology Office and, 1993 through 1997, the China operations of the US-China Business Council. Anne authored the 2013 monograph China Alone: China’s Emergence and Potential Return to Isolation for the National Autonomous University of Mexico. The book set argued that China historically repeats a cycle of expansion and retreat.
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Bonum negas esse divitias, praeposìtum esse dicis? Sed ne, dum huic obsequor, vobis molestus sim. Aliter homines, aliter philosophos loqui putas oportere? Sed eum qui audiebant, quoad poterant, defendebant sententiam suam. Videamus animi partes, quarum est conspectus illustrior; Est enim effectrix multarum et magnarum voluptatum. Si quidem, inquit, tollerem, sed relinquo. Nam Metrodorum non puto ipsum professum, sed, cum appellaretur ab Epicuro, repudiare tantum beneficium noluisse; Duo Reges: constructio interrete. Nunc vides, quid faciat.
Inde sermone vario sex illa a Dipylo stadia confecimus. Isto modo ne improbos quidem, si essent boni viri. Multoque hoc melius nos veriusque quam Stoici. Morbo gravissimo affectus, exul, orbus, egens, torqueatur eculeo: quem hunc appellas, Zeno?
Utilitatis causa amicitia est quaesita. Ait enim se, si uratur, Quam hoc suave! dicturum. Semper enim ex eo, quod maximas partes continet latissimeque funditur, tota res appellatur. Hic, qui utrumque probat, ambobus debuit uti, sicut facit re, neque tamen dividit verbis. Itaque ad tempus ad Pisonem omnes. Quae animi affectio suum cuique tribuens atque hanc, quam dico. Age, inquies, ista parva sunt. Atque ab his initiis profecti omnium virtutum et originem et progressionem persecuti sunt. Quem si tenueris, non modo meum Ciceronem, sed etiam me ipsum abducas licebit.
Cum id fugiunt, re eadem defendunt, quae Peripatetici, verba. Haeret in salebra. Et si turpitudinem fugimus in statu et motu corporis, quid est cur pulchritudinem non sequamur? Teneo, inquit, finem illi videri nihil dolere. Unum nescio, quo modo possit, si luxuriosus sit, finitas cupiditates habere. Nemo igitur esse beatus potest. Etenim nec iustitia nec amicitia esse omnino poterunt, nisi ipsae per se expetuntur. De quibus cupio scire quid sentias. Qui autem diffidet perpetuitati bonorum suorum, timeat necesse est, ne aliquando amissis illis sit miser. A villa enim, credo, et: Si ibi te esse scissem, ad te ipse venissem.
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed ad haec, nisi molestum est, habeo quae velim. Quae est igitur causa istarum angustiarum? Quamquam te quidem video minime esse deterritum. Non est ista, inquam, Piso, magna dissensio. Duo Reges: constructio interrete. Quod quidem iam fit etiam in Academia. Quod non faceret, si in voluptate summum bonum poneret. Tamen a proposito, inquam, aberramus.
Qui ita affectus, beatum esse numquam probabis; Propter nos enim illam, non propter eam nosmet ipsos diligimus. Sed in rebus apertissimis nimium longi sumus. Eadem nunc mea adversum te oratio est. Ergo id est convenienter naturae vivere, a natura discedere. Est igitur officium eius generis, quod nec in bonis ponatur nec in contrariis. De ingenio eius in his disputationibus, non de moribus quaeritur. Longum est enim ad omnia respondere, quae a te dicta sunt.
Dici enim nihil potest verius. Nam, ut paulo ante docui, augendae voluptatis finis est doloris omnis amotio. Quicquid porro animo cernimus, id omne oritur a sensibus; In quo etsi est magnus, tamen nova pleraque et perpauca de moribus. Consequens enim est et post oritur, ut dixi. At iam decimum annum in spelunca iacet. Sed quid sentiat, non videtis. Nam memini etiam quae nolo, oblivisci non possum quae volo.
Multoque hoc melius nos veriusque quam Stoici. Nihil enim iam habes, quod ad corpus referas; Octavio fuit, cum illam severitatem in eo filio adhibuit, quem in adoptionem D. Et nunc quidem quod eam tuetur, ut de vite potissimum loquar, est id extrinsecus;
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Duo Reges: constructio interrete. Qua tu etiam inprudens utebare non numquam. Suo genere perveniant ad extremum; Quarum ambarum rerum cum medicinam pollicetur, luxuriae licentiam pollicetur.
Quod si ita se habeat, non possit beatam praestare vitam sapientia. Dicam, inquam, et quidem discendi causa magis, quam quo te aut Epicurum reprehensum velim. Duo enim genera quae erant, fecit tria. Ut non sine causa ex iis memoriae ducta sit disciplina. Ait enim se, si uratur, Quam hoc suave! dicturum. Quis non odit sordidos, vanos, leves, futtiles? Scio enim esse quosdam, qui quavis lingua philosophari possint; Atque haec ita iustitiae propria sunt, ut sint virtutum reliquarum communia. Cur igitur, inquam, res tam dissimiles eodem nomine appellas? Dat enim intervalla et relaxat.
Atque hoc loco similitudines eas, quibus illi uti solent, dissimillimas proferebas. Aliter enim explicari, quod quaeritur, non potest. Quasi ego id curem, quid ille aiat aut neget. Quia nec honesto quic quam honestius nec turpi turpius. Qui-vere falsone, quaerere mittimus-dicitur oculis se privasse; Hoc etsi multimodis reprehendi potest, tamen accipio, quod dant.
Re mihi non aeque satisfacit, et quidem locis pluribus. Nam memini etiam quae nolo, oblivisci non possum quae volo. Nunc agendum est subtilius. Dolor ergo, id est summum malum, metuetur semper, etiamsi non aderit; Sed non alienum est, quo facilius vis verbi intellegatur, rationem huius verbi faciendi Zenonis exponere. Qui ita affectus, beatum esse numquam probabis; Atqui reperies, inquit, in hoc quidem pertinacem; At ille pellit, qui permulcet sensum voluptate.
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. Isto modo, ne si avia quidem eius nata non esset. Quid, si etiam iucunda memoria est praeteritorum malorum? Duo Reges: constructio interrete. Omnium enim rerum principia parva sunt, sed suis progressionibus usa augentur nec sine causa;
Et non ex maxima parte de tota iudicabis? Ut in voluptate sit, qui epuletur, in dolore, qui torqueatur. Ergo id est convenienter naturae vivere, a natura discedere. Quid turpius quam sapientis vitam ex insipientium sermone pendere?
Summus dolor plures dies manere non potest? Tu autem negas fortem esse quemquam posse, qui dolorem malum putet.
Longum est enim ad omnia respondere, quae a te dicta sunt. Quem si tenueris, non modo meum Ciceronem, sed etiam me ipsum abducas licebit. Eaedem enim utilitates poterunt eas labefactare atque pervertere. Neque solum ea communia, verum etiam paria esse dixerunt. Quamquam te quidem video minime esse deterritum. Collige omnia, quae soletis: Praesidium amicorum. Atqui reperies, inquit, in hoc quidem pertinacem; Quicquid porro animo cernimus, id omne oritur a sensibus;
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Lorem ipsum dolor sit amet, consectetur adipiscing elit. An est aliquid, quod te sua sponte delectet? Polemoni et iam ante Aristoteli ea prima visa sunt, quae paulo ante dixi. Ab hoc autem quaedam non melius quam veteres, quaedam omnino relicta. Tantum dico, magis fuisse vestrum agere Epicuri diem natalem, quam illius testamento cavere ut ageretur. Sedulo, inquam, faciam. Non laboro, inquit, de nomine. Duo Reges: constructio interrete. Sed id ne cogitari quidem potest quale sit, ut non repugnet ipsum sibi.
Quamquam haec quidem praeposita recte et reiecta dicere licebit. Quia nec honesto quic quam honestius nec turpi turpius. Illi enim inter se dissentiunt. Fortitudinis quaedam praecepta sunt ac paene leges, quae effeminari virum vetant in dolore.
Atque haec coniunctio confusioque virtutum tamen a philosophis ratione quadam distinguitur. Videamus animi partes, quarum est conspectus illustrior; Istam voluptatem perpetuam quis potest praestare sapienti? Quid ei reliquisti, nisi te, quoquo modo loqueretur, intellegere, quid diceret? Egone non intellego, quid sit don Graece, Latine voluptas? Diodorus, eius auditor, adiungit ad honestatem vacuitatem doloris. Si alia sentit, inquam, alia loquitur, numquam intellegam quid sentiat; Qua tu etiam inprudens utebare non numquam. Huius, Lyco, oratione locuples, rebus ipsis ielunior. Sed haec quidem liberius ab eo dicuntur et saepius.
An tu me de L. Uterque enim summo bono fruitur, id est voluptate. Quare, quoniam de primis naturae commodis satis dietum est nunc de maioribus consequentibusque videamus. Quod autem in homine praestantissimum atque optimum est, id deseruit. Te enim iudicem aequum puto, modo quae dicat ille bene noris. Ergo id est convenienter naturae vivere, a natura discedere.
