Tuesday, 26 April 2011

One Good & Two Half-Decent Editorials

This piece by the strangely named "Derek Scissors" in today's Taipei Times was good - one of the better pieces of analysis published in the TT for some time. Choice quote:
"Using official Chinese data, the state share of investment last year was 38 percent, suggesting to some that the private share was 62 percent... False. What China calls the private sector, plus wholly foreign-owned firms, generated only 24 percent of investment. The remainder is attributable to mixed ownership."
Good stuff. The designation of economic activity in China as "capitalist" or "free market" is a common error which has to be corrected all too often, which itself may suggest that sometimes this is not in fact an error, but a deliberate attempt to smear free market ideas.

J.Michael Cole also had a nearly-sensible editorial concerning related problems viz Taiwan's exposure to what will almost certainly be yet another instance of Gresham's Law revealing itself. I had two comments for him early this morning. The "key point" to those comments, as Taiwanese up and down the island are trained to say, is that the figure he gives for PRC national debt (U.S.$276 billion) is a monstrous underestimate precisely because it does not take account of the size and shape of the loans racked up by the various SOEs and "limited liability" companies which Scissors cut out from the ambiguation of Chinese paper terminology. The real figure is likely to be at least U.S.$2-3 trillion, if not more. That means inflation is coming, and not your average, garden-variety <5% annual type either.

Also in the Taipei Times today was a piece on disaster management, which, although it contained many worthwhile points about record keeping, emergency drills, reaction times and the import of shortening such times for logistical organization, it didn't really follow through on the question of how to realize these obvious priorities. All the authors managed was a short paragraph at the end beginning with the ceremonial flourish:
"We sincerely recommend the government do the following..."
That's not nearly good enough. I can do better than that myself, I did so three years ago, and I'll have to have another go at it again soon.


  1. Scissors stuff in general is rather good. I've been following some of his work at the Heritage Foundation. You might want to take a look there. (I've also cited some of his work in past editorials and even a couple papers [classwork] I've done. I recommend his work.)

    Also, J. Michael's work on PRC public debt is about as close as anyone (besides that WSJ article I sent to you earlier) can get to actual numbers regarding the sheer scale of bad loans. As you've touched on, China is able to claim that its debt is so low because it simply doesn't count things which are national debt as national debt. Wouldn't it be great if we could all do that personally? The US would currently face much fewer problems if it could just pretend--as the Chinese do.

    Anyway, I won't cut J. Michael too much slack--all he'd have to do is check out several articles at the WSJ to get a more accurate number. But in his defense, all people can do is take wild estimates. I just wish he'd have taken a better look at numbers and evidence provided elsewhere before he wrote a very inaccurate and wildly low number.

  2. I forgot to mention Green's work (your note on J. Michael's blog). His may be a bit of an exaggeration, but I think the total definitely falls somewhere between the 3-8 trillion categories. It would be hard to imagine anything lower.

  3. "The US would currently face much fewer problems if it could just pretend--as the Chinese do."

    Er, no... the problems will still be there. The U.S. Left (including many Republicans) has been steadfastedly refusing to face up to the problem of national debt - which is a problem of their own making. The congressional spending cuts of $38 billion were pathetic.

    "...all people can do is take wild estimates..."

    They will not be "wild" estimates: in estimating this sort of thing you make a choice between assumptions - Green's estimate will most likely derive from the assumption that a substantial percentage of the loans he has data about will be bad ones (e.g. >50%). Other economists might believe there is sufficient reason to assume a lower percentage, and consequently they will give a lower estimate than Green.

    The other thing about the Chinese banking sector that I've always thought must be a significant problem is the likely difficulties for banks of refusing bad loans to politically connected people in industry - and perhaps even at lower levels too (e.g. mortgages, personal finance etc). There are aspects of Chinese culture which I imagine will sometimes interfere with the professional culture necessary to running a bank properly (not that that doesn't occassionally happen in the West also).

  4. I concede that my figures are on the low end of the estimated total debt. However, beyond this, what I think is equally important is the fact that a large share of that debt will never be repaid, something that is unlikely to happen in, say, the US. Writing off hundreds of billions of dollars in debt is going to create untold problems for China; those problems will only be more painful if the figures you provide are closer to the mark, as they very well might be.

  5. My meaning, Mike, was that if the US government could simply pretend, there would be fewer political issues, both between parties (although I don't really think either party truly gives one shit about actual spending beyond political points, given the US$38 billion shave, which amounts to nothing compared to the true figures of public debt) and with the domestic audience if it just pretended it didn't exist. Most people believe China doesn't have a debt problem. These people are not only uninformed (or deliberately trying to deceive) but just plain incorrect.

    J. Michael: It is impossible to get an accurate number from "the outside." (I would imagine as well it is difficult to get accurate numbers even on "the inside" as well, however.) I've seen all kinds of estimates--as Mike says, based on different assumptions--and considering the variation, I call many of them rather wild (which doesn't necessarily mean incorrect, it just means they are all over the place).


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