A China bull

Peter Diamandis sounds like one.

these homegrown Chinese tech giants are driving China’s AI revolution at an unprecedented pace, building out everything from autonomous vehicles and smart cities to facial recognition capabilities and AI-driven healthcare platforms.

He is referring to Baidu, Alibaba, and Tencent. The quote is from his “blog,” Abundance Insider, which currently is available by email subscription (free) but not on the web.

4 thoughts on “A China bull

  1. There is a lot to bullish on China about and the high amount of labor supply and population still gives them room to grow. These stories are great to see China moving forward. And I rather have their foreign policy that focuses on investment instead of military and human rights stuff. But we have seen similar stories about Japan in the late 1980s as well. (Note Japan is doing reasonably well although I still think they are second but bigger government debt/population bust in the future. I say the first one is a smaller European nation say Italy.) However, we still don’t know:

    1) How they react to a financial crisis which will happen at some point. (Because they always happen in any capitalist society.)

    2) How will China react when one of their foreign investments go bust. Again it will happen (Isn’t Valenzuela close? And there 10 other nations here.) and China will no longer have the US for the foreign nation to blame. Do they negotiate the debt down or use military means?

    3) There is still risk of lack of Chinese freedom and innovative they can be. The government is much more in control of the population and they are riding a wave. Again waves end and we will have to see what happens.

    4) China still does let the currency completely float. This can last forever either and they have been riding this wave. (So I suspect the Chinese shoots up 20% and then drops a lot.)

  2. The unsung hero in Chinese economic progress is the People’s Bank of China.

    They have a simple method for solving debt problems in China. The People’s Bank of China buys bad debt . This recapitalizes the banks and prevents the bank system from seizing up.

    In the West, we say that this process would lead to moral hazard, misallocation of resources, more bad loans and possibly inflation.

    All true. But the People’s Bank of China is in fact below its inflation target and inflation does not seem a problem in China. There is the misallocation of resources in China, but since the state compels so much resources into investment, this problem is overcome.

    I am not suggesting the China way is a better way. In fact, I am repulsed by the lack of freedom in China.

    But Western hysterics about debt problems and the misallocation of resources in China is probably overwrought.

    • There is the misallocation of resources in China, but since the state compels so much resources into investment, this problem is overcome.

      My guess here is China is growing so fast and has so many people that there is ‘Mininum’ misallocation of resource today the economy grows around. Same could be said for Japan in 1985 or say US tech 1997 or the US Railroads in 1890 or US consumer goods in suburbs in 1968. We are hearing a little more China is “This time is different” stuff a little louder.

      The People’s Bank of China buys bad debt . This recapitalizes the banks and prevents the bank system from seizing up.

      Sooner or later this creates issue or the People Bank of China can not buy enough of the bad debt. I still suspect that the Chinese Yuan goes up 20% at some point in high growth and then crashes 30 – 40% making it impossible for clean all the debt out. (Yes, basically a Chinese rhymes with the Japanese experience.) So saying there will be a Crisis is some does not mean a collapse of society either.

      • Sorry but neither Mr. Cole nor you understand China’s banking system. First, it should be said the central bank (PBC) is not a typical central bank because around 1995 it was accepted that PBC would take an important part of the inflow of deposits in the four state banks (at that time well over 90% of that inflow were deposited with these four banks) to be invested abroad (if you look at the consolidated balance sheet of PBC and the four banks you are going to see that starting in 1995, well over 10% of the savings deposits were invested abroad, in particular, invested in U.S. Treasury bonds). It was part of a new strategy to improve the portfolio of PBC+the four banks by investing abroad rather than in state enterprises. It has nothing to do with monetary policy (the Chinese government has not been running a large deficit and never printed money to finance the deficit –the last year in which there was a large inflationary pressure was 1993, and it was because the four state banks lent the funds that they had accumulated in PBC as reserves, but the monetary reforms of early 1994 started to change the system). There is much more in this story to argue that in the following years China was able to develop the largest banking system in the world thanks to the huge inflows of household deposits into the state banks, and that the main problem has been to prevent that the inflows were wasted in lending to state enterprises and other governments agencies. From the very beginning, many national and foreign fake experts have been worried about a crisis but the lack of reliable and relevant information has always inhibited any serious analysis.

        Anyway, the first step in such analysis is to understand why Chinese households have continued saving at high rates (very high in comparison with all other countries). We still have no idea (the last paper of the late Franco Modigliani, jointly with a Chinese economist, was about this particular issue, and remember that FM got a Nobel Prize because of his work on saving and consumption).

Comments are closed.