Tag Archives: China

The quality versus the quantity of debt

A recent conversation with my boss prompted me to think about an interesting point. There seems to be a divergence in the way market commenters think about debt in China versus debt in developed economies. Every day in the headlines … Continue reading

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(Slightly) Positive PPI: The light at the end of the tunnel?

The Chinese Producer Price Index (PPI) finally recorded a positive growth rate of +0.1% in September 2016 after 52 months of negative growth (see Chart 1). One way to interpret this is to consider the government’s recent efforts to reduce … Continue reading

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Chinese Wealth Management Products: A Brief Introduction

An academic conference recently held by the Tsinghua PBC School of Finance featured some of China’s brightest academics presenting their latest research on various elements of the rapidly evolving Chinese financial system. A topic that was widely discussed was the situation regarding wealth management products (WMPs)- a relatively shadowy and potentially dangerous and destabilizing part of the Chinese financial system. I will use this piece to summarize my own understanding of the situation with WMPs: how we got here and what does the continual evolution of the WMP space mean for the Chinese financial system. Continue reading

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From nicotine to alcohol: China’s continued addiction to credit-intensive growth

Last Friday, China’s GDP data for the first quarter of 2016 was released and it gave financial markets a sign of relief that the world’s second largest economy continues to hum along at a steady pace (at 6.7% y/y) with … Continue reading

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And the award for the province that is rebalancing the fastest goes to…Shanxi!

Official media often regards economic rebalancing as switching growth from the secondary sector to the tertiary sector. Much of China’s current growth in the tertiary sector is driven by increased activities on the part of the financial sector. Finance ultimately is a tool that attempts to better allocate current resources and does not create new wealth in the economy. Ample amount of evidence points to the financial sector supporting unproductive activities in the Chinese economy and brings into question towards the sustainability of this growth. When we define rebalancing as the difference between tertiary and secondary sector growth, we find some unlikely candidates to be rebalancing the quickest. These unlikely results question the underlying GDP data itself, and combined with the national trend of increased financialization, paints a picture of a dangerous situation where much of the financing occurs in economically weak areas of the country. Continue reading

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A financial crisis with Chinese Characteristics

Recently there has been a lot of media attention on the increased probability of an imminent financial crisis in China because of the continual built-up in financial sector vulnerabilities. With the recent memory of a financial crisis in the US, … Continue reading

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