Not just another fake.docx

1、Not just another fakeNot just another fakeThe similarities between China today and Japan in the 1980s may look ominous. But Chinas boom is unlikely to give way to prolonged slump Chinas economyJan 14th 2010 | BEIJING | from PRINT EDITION Tweet Illustration by Derek BaconCorrection to this articleCHI

2、NA rebounded more swiftly from the global downturn than any other big economy, thanks largely to its enormous monetary and fiscal stimulus. In the year to the fourth quarter of 2009, its real GDP is estimated to have grown by more than 10%. But many sceptics claim that its recovery is built on wobbl

3、y foundations. Indeed, they say, China now looks ominously like Japan in the late 1980s before its bubble burst and two lost decades of sluggish growth began. Worse, were China to falter now, while the recovery in rich countries is still fragile, it would be a severe blow not just at home but to the

4、 whole of the world economy.On the face of it, the similarities between China today and bubble-era Japan are worrying. Extraordinarily high saving and an undervalued exchange rate have fuelled rapid export-led growth and the worlds biggest current-account surplus. Chronic overinvestment has, it is a

5、rgued, resulted in vast excess capacity and falling returns on capital. A flood of bank lending threatens a future surge in bad loans, while markets for shares and property look dangerously frothy. Related items Correction: Chinas economyJan 21st 2010 Chinas battered image: Bears in a China shopJan

6、14th 2010 A railway bonanza in China: Trouble down the trackJan 14th 2010 Google and China: Flowers for a funeralJan 14th 2010Related topics Asset-price bubbles Financial markets Asian economy Chinese economy Japanese economy Just as in the late 1980s, when Japans economy was tipped to overtake Amer

7、icas, Chinas strong rebound has led many to proclaim that it will become number one sooner than expected. In contrast, a recent flurry of bearish reports warn that Chinas economy could soon implode. James Chanos, a hedge-fund investor (and one of the first analysts to spot that Enrons profits were p

8、ure fiction), says that China is “Dubai times 1,000, or worse”. Another hedge fund, Pivot Capital Management, argues that the chances of a hard landing, with a slump in capital spending and a banking crisis, are increasing.Scary stuff. However, a close inspection of pessimists three main concernsove

9、rvalued asset prices, overinvestment and excessive bank lendingsuggests that Chinas economy is more robust than they think. Start with asset markets. Chinese share prices are nowhere near as giddy as Japans were in the late 1980s. In 1989 Tokyos stockmarket had a price-earnings ratio of almost 70; t

10、odays figure for Shanghai A shares is 28, well below its long-run average of 37. Granted, prices jumped by 80% last year, but markets in other large emerging economies went up even more: Brazil, India and Russia rose by an average of 120% in dollar terms. And Chinese profits have rebounded faster th

11、an those elsewhere. In the three months to November, industrial profits were 70% higher than a year before.Chinas property market is certainly hot. Prices of new apartments in Beijing and Shanghai leapt by 50-60% during 2009. Some lavish projects have much in common with those in Dubainotably “The W

12、orld”, a luxury development in Tianjin, 120km (75 miles) from Beijing, in which homes will be arranged as a map of the world, along with the worlds biggest indoor ski slope and a seven-star hotel.Average home prices nationally, however, cannot yet be called a bubble. On January 14th the National Dev

13、elopment and Reform Commission reported that average prices in 70 cities had climbed by 8% in the year to December, the fastest pace for 18 months; other measures suggest a bigger rise. But this followed a fall in prices in 2008. By most measures average prices have fallen relative to incomes in the

14、 past decade (see chart 1).The most cited evidence of a bubbleand hence of impending collapseis the ratio of average home prices to average annual household incomes. This is almost ten in China; in most developed economies it is only four or five. However, Tao Wang, an economist at UBS, argues that

15、this rich-world yardstick is misleading. Chinese homebuyers do not have average incomes but come largely from the richest 20-30% of the urban population. Using this groups average income, the ratio falls to rich-world levels. In Japan the price-income ratio hit 18 in 1990, obliging some buyers to ta

16、ke out 100-year mortgages. Furthermore, Chinese homes carry much less debt than Japanese properties did 20 years ago. One-quarter of Chinese buyers pay cash. The average mortgage covers only about half of a propertys value. Owner-occupiers must make a minimum deposit of 20%, investors one of 40%. Ch

17、inese households total debt stands at only 35% of their disposable income, compared with 130% in Japan in 1990. Chinas property boom is being financed mainly by saving, not bank lending. According to Yan Wang, an economist at BCA Research, a Canadian firm, only about one-fifth of the cost of new con

18、struction (commercial and residential) is financed by bank lending. Loans to homebuyers and property developers account for only 17% of Chinese banks total, against 56% for American banks. A bubble pumped up by saving is much less dangerous than one fuelled by credit. When the market begins to crack

19、, highly leveraged speculators are forced to sell, pushing prices lower, which causes more borrowers to default.Even if China does not (yet) have a credit-fuelled housing bubble, the fact that property prices in Beijing and Shanghai are beyond the reach of most ordinary people is a serious social pr

20、oblem. The government has not kept its promise to build more low-cost housing, and it is clearly worried about rising prices. In an attempt to thwart speculators, it has reimposed a sales tax on homes sold within five years, has tightened the stricter rules on mortgages for investment properties and

21、 is trying to crack down on illegal flows of foreign capital into the property market. The government does not want to come down too hard, as it did in 2007 by cutting off credit, because it needs a lively property sector to support economic recovery. But if it does not tighten policy soon, a full-b

22、lown bubble is likely to inflate. The worlds capitalChinas second apparent point of similarity to Japan is overinvestment. Total fixed investment jumped to an estimated 47% of GDP last yearten points more than in Japan at its peak. Chinese investment is certainly high: in most developed countries it

23、 accounts for around 20% of GDP. But you cannot infer waste from a high investment ratio alone. It is hard to argue that China has added too much to its capital stock when, per person, it has only about 5% of what America or Japan has. China does have excess capacity in some industries, such as stee

24、l and cement. But across the economy as a whole, concerns about overinvestment tend to be exaggerated.Pivot Capital Management points to Chinas incremental capital-output ratio (ICOR), which is calculated as annual investment divided by the annual increase in GDP, as evidence of the collapsing effic

25、iency of investment. Pivot argues that in 2009 Chinas ICOR was more than double its average in the 1980s and 1990s, implying that it required much more investment to generate an additional unit of output. However, it is misleading to look at the ICOR for a single year. With slower GDP growth, becaus

26、e of a collapse in global demand, the ICOR rose sharply everywhere. The return to investment in terms of growth over a longer period is more informative. Measuring this way, BCA Research finds no significant increase in Chinas ICOR over the past three decades.Mr Chanos has drawn parallels between Ch

27、ina and the huge misallocation of resources in the Soviet Union, arguing that China is heading the same way. The best measure of efficiency is total factor productivity (TFP), the increase in output not directly accounted for by extra inputs of capital and labour. If China were as wasteful as Mr Cha

28、nos contends, its TFP growth would be negative, as the Soviet Unions was. Yet over the past two decades China has enjoyed the fastest growth in TFP of any country in the world. Even in industries which clearly do have excess capacity, Chinas critics overstate their case. A recent report by the Europ

29、ean Union Chamber of Commerce in China estimates that in early 2009 the steel industry was operating at only 72% of capacity. That was at the depth of the global downturn. Demand has picked up strongly since then. The report claims that the industrys overcapacity is illustrated by “a startling figur

30、e”: in 2008, Chinas output of steel per person was higher than Americas. So what? At Chinas stage of industrialisation it should use a lot of steel. A more relevant yardstick is the America of the early 20th century. According to Ms Wang of UBS, Chinas steel capacity of almost 0.5 tonnes per person

31、is slightly lower than Americas output in 1920 (0.6 tonnes) and far below Japans peak of 1.1 tonnes in 1973.Many commentators complain that Chinas capital-spending spree last year has merely exacerbated its industrial overcapacity. However, the boom was driven mainly by infrastructure investment, wh

32、ereas investment in manufacturing slowed quite sharply (see chart 2). Given the scale of the spending, some money is sure to have been wasted, but by and large, investment in roads, railways and the electricity grid will help China sustain its growth in the years ahead.Some analysts disagree. Pivot, for instance, argues that Chinas infrastructure has already reached an advanced level. It has six of the worlds ten longest bridges and it boasts the worlds fastest train; there is little room for further productive investment. That is nonsense. A count