Item — HN Reader

Am I the only one who is still on the fence about China? It’s too early to say there is actually a mess. There is evidence maybe growth is glowing, but it’s far too early to call it a catastrophe, even though the doom and gloom media has been calling it one for the past year. The debate is over 7% GDP growth vs. 5.5%.

The Rise and Fall of the Chinese Economy.

If by 'fall' he means 5.5% GDP growth instead of 7%.

Maybe a lot of this doom and gloom comes down to a a simple math misunderstanding, which is that 'slowing growth' is not the same as shrinkage. Slowing growth implies the second derivative is negative, but the first one is still positive, meaning the size of the economy is still expanding. An example is the function ln(1+x)

Rather, his video does a good job of explaining what could go wrong, but I'm not sold on the idea that there's a crisis now. I would not be surprised if this blows over in a a couple months like it did in the past during past concerns over China.

3 comments

I'd say the main reasons to be worried are:

- notoriously murky economic figures from the government

- explosive growth of credit and especially shadow banking

Oversimplified, imagine borrowing money for 6% p.a. and investing all of it into some mutual fund that the last 10 years yielded 7% p.a. If the fund's returns drop to 5% that's still a pretty good return, but doesn't make you any less f'd.

So, given that people can't really trust any official statistic from China, and remembering very loose to non-existent shadow banking control, people are nervous.

And I'd say, it's best to be nervous and earn less, than euphoric and lose everything like during subprime.

I live there, and I think you are not far off the mark. Why?

In China, 1.4 billion people basically cede total responsibility for fiscal literacy and policy to the government, almost no questions asked (ever). That is a very different reality from the west. Hence, you cannot apply traditional western modes of analysis to the mainland Chinese domestic financial world.

I believe that such a perspective is in keeping with Soros' philosophy, ie. viewing the market not via false analogy with Newtonian physics (ideas of 'equilibrium', etc.) but instead as a large group of imperfectly informed actors: crowd psychology.

Hard to say, Steve Keen argues that the current "global" problem happened because of a slowdown in the rate of growth of private debt. Meaning that people borrowed less, but didn't stop borrowing completely.

This then had a knock on effect where debt fueled consumption slowed down, thus various companies found themselves below quarterly projections etc etc etc.

in essence the various economies are running on razor thin margins, and even a bad quarter can set a panic in motion.