China’s “Great Wall” of Debt Chinese Debts and their Macroeconomic Implications. Bertelsmann Stiftung GED Focus Paper

The figures of the Chinese debts are subject to ongoing discussion among economists. The question whether the enormous rise in Chinese corporate and private debt over the past decade will lead to another global financial crisis or will be managed by the Chinese government is one of vital importance to the global economy: if China’s debt management fails, the macroeconomic effects are expected to overshadow the catastrophic effects of the 2008 financial and economic crises by large. The Economist (7 May 2016) even goes as far as to state the question not if, but when China’s debt bubble will burst. The term “China’s Great Wall of Debt” coined by Dinny McMahon (2018) to emphasize the connection between recent Chinese growth and corresponding debt seems therefore very well put

The End of Chimerica

For the better part of the past decade, the world economy has been dominated by a world economic order that combined Chinese export-led development with US over-consumption. The financial crisis of 2007-2009 likely marks the beginning of the end of the Chimerican relationship. In this paper we look at this era as economic historians, trying to set events in a longer-term perspective. In some ways China's economic model in the decade 1998-2007 was similar to the one adopted by West Germany and Japan after World War II. Trade surpluses with the U.S. played a major role in propelling growth. But there were two key differences. First, the scale of Chinese currency intervention was without precedent, as were the resulting distortions of the world economy. Second, the Chinese have so far resisted the kind of currency appreciation to which West Germany and Japan consented. We conclude that Chimerica cannot persist for much longer in its present form. As in the 1970s, sizeable changes in exchange rates are needed to rebalance the world economy. A continuation of Chimerica at a time of dollar devaluation would give rise to new and dangerous distortions in the global economy.

The Impact of Stock Markets on China's Economic Development: Some Preliminary Assessments

The role that stock markets should be afforded in economic development policy in China is the subject of debate. Some argue that they are essential to reforming state-owned enterprises (SOE's) and overcoming deficiencies in China's credit markets. However, others claim they are not necessary institutions for achieving high levels of economic development and are more likely to be destabilizing. This paper seeks to shed light on the impact that stock markets have had on China's economic development to date. Available data suggests that listing SOE's has been important in terms of raising funds for their reform. However, the corporate governance impact has been ineffectual and stock markets were also an insignificant source of funding for non-state owned firms. Finally, on a macro-level, their impact on the overall level of savings mobilization and the allocative efficiency of capital has been negligible. The policy conclusions are that, firstly, the state should begin trading the shares that it controls, and secondly, non-state owned firms should also be allowed to list.

Walmart in China

[Excerpt] What happens when the world\u27s largest corporation encounters the world\u27s biggest country? There are two areas of special interest — the impact of the Walmart supply chain, including the impact on the Chinese workers who manufacture Walmart products; and separately, Walmart\u27s retail business and its brand of management practices when imported across cultures into the Walmart supercenters inside China. In both respects, has Walmart succeeded in a Walmartization of China

Shanghai rising in a globalizing world

In a globalizing world, cities at or near the apex of the international urban hierarchy are among the favored few--New York, London, and Tokyo--that have acquired large economic, cultural, and symbolic roles. Among a handful of regions that aspire to such a role--such as Hong Kong, Miami, and Sao Paulo--Shanghai has reasonable long-term prospects. If the Chinese economy can sustain its growth rate, it will rival the United States in a few decades. And if Shanghai can sustain its preeminence in China, it is the Asian city most likely to become a global center. The authors explore the makings of a world city, identify ingredients essential for that status, indicate national and municipal policies that may set Shanghai on the path to being a global city, and show how such policies are being implemented. As urbanization continues, the authors say, and as information technology and finance-related service activities take on even more importance, the number of regional and global centers could increase, but only if they satisfy some exacting requirements. Shanghai's chances, for example, depend on the extent to which China opens up and on a host of municipal policies--policies that emphasize Shanghai's industrial strength, substantially enlarge its base of information technology and producer services, ensure an adequate supply of skills, expand available housing and infrastructure enough to meet demand, and improve the quality of life.Decentralization,Banks&Banking Reform,Municipal Financial Management,Payment Systems&Infrastructure,Environmental Economics&Policies,Environmental Economics&Policies,ICT Policy and Strategies,Public Sector Economics&Finance,Banks&Banking Reform,Municipal Financial Management

The Role of the State in China's Industrial Development: a Reassesment

In this paper, we argue that the role of the State (to be understood as a holistic term referring to the public sector as whole), far from being withering out, is in fact massive, dominant, and crucial to China's industrial development. Actually, it has been strengthened by the successful implementation of the "keep the big dump the small" policy, which in turn is consistent with a more general strategy shift towards re-centralization in many areas of economic and social policies. This trend that not only is still going on, but is inevitably bound to be further accelerated by the massive package of fiscal and other interventions made necessary as a response to the world financial and economic crisis. State-owned and state-holding enterprises are now less numerous, but much larger, more capital- and knowledge-intensive, more productive and more profitable than in the late 1990s. Contrary to popular belief, especially since the mid-2000s, their performance in terms of efficiency and profitability compares favourably with that of private enterprises. The state-controlled sub-sector constituted by state-holding enterprises, in particular, with at its core the 149 large conglomerates managed by SASAC, is clearly the most advanced component of China's industry and the one where the bulk of in-house R&D activities take place. The role of the public sector, moreover, goes beyond that of those enterprises which are owned or controlled by the State. In the specific Chinese context, many of the most advanced formally private industrial enterprises are in fact related to the public domain by a web of ownership, financial, and other linkages, to an extent that is qualitatively different and deeper than that of their counterparts in capitalist countries. The role public sector is paramount in engineering an extraordinary boom in S&T and R&D activities (both inside the industrial sector and outside, in universities and research centers), and in fuelling a massive investment drive aimed at enhancing China's infrastructural and human capital environment. These processes also generate major systemic external economies, which are reaped by public and private enterprises alike, contributing to abating their operative costs and to sustain their competitiveness and profitability. Contrary to many other analysts, we do not view the dominant role of the state in China's industry (and, more generally, in China's economy) as a possibly necessary - albeit wasteful - evil, which will be superseded once the transition from a centrally-planned to a fully capitalist modern economy will be completed. We rather see it as a primitive, embryonic, ever-evolving but permanent form of strategic planning aimed at fostering industrial development, and as a key distinctive, structural, and pioneering characteristic of market socialism.market socialism; China's Economy

From the Grabbing Hand to the Helping Hand

I present a study of ownership of firms under government rent seeking. Using its control of regulated inputs, a government agency extracts rents from a manager who undertakes an investment. Such a government rent seeking activity leads to a typical hold-up problem. Government ownership is shown to serve as a second best commitment mechanism through which the government agency will restrain itself from the rent seeking activity and even offer the manager support and favor such as tax breaks and subsidies. This mechanism works at a cost as government ownership compromises ex post managerial incentives and creates distortion in resource allocation. Nevertheless, under some fairly general conditions, government ownership Pareto dominates private ownership. The analysis corresponds to a host of stylized empirical observations concerning local government-owned firms during China's transition to a market economy. Based on this analysis, I suggest that local government owned firms will be transformed to private ownership as China's input markets become more liberalized.http://deepblue.lib.umich.edu/bitstream/2027.42/39448/3/wp58.pd

Reflections on Chinese Political Economy

he aim of this paper is to discuss the reasons for the rapid growth in the Chinese economy over the last three decades. China has been growing fastest in human history, which has an impact on the global economy and also various challenges that the country faces. It is seen as heralding a major shift in the international division of labour through changes in its output and employment pattern. China is described as becoming the “work-shop” of the world as a result of the expansion of its manufacturing production. Its impact on other Asian economies and also on the world economy has the potential to be enormous. Market reforms and opening up of the Chinese economy to trade and foreign capital since the early 1980s, have unleashed entrepreneurial energies. China’s development policies can be best understood if these are looked at from an institutional economic perspective. This article is based on a review of published papers in the field of economic policies, focusing on the debate concerning the respective roles of the state and the market. A wide range of data sources are presented, including statistics compiled and generated by wide range of organisations such as IMF, World Bank and WTO that are non-governmental agencies. Secondary data of this type provides greater potential for addressing the research questions than statistics produced by the national government. This study finds that corporate debt has risen in recent years in China, a large part of these loans having been financed with investment in trust products issued by the banks. In addition, a huge amount of credit has been channelled into the real estate sector, and seems to be heading towards the housing and estate sectors, meaning that most of this is speculative. Investments are financed by credit; which clearly needs to be repaid. If these levels of debt become unsustainable this could pose a major challenge for the Chinese economy