Episode Summary for the Chinese Financial System and the Hard Landing of the Chinese Economy
In this episode of Hidden Forces, host Demetri Kofinas speaks with Anne Stevenson-Yang. Anne is the co-founder of J Capital Research, which conducts ground-up, primary research for institutional money managers on stocks, the Chinese economy, and the Chinese financial system. She is also the co-founder of a group of online media businesses called Blue Bamboo Ventures. She also founded and operated the CRM software company, Clarity Data Systems. Additionally, Anne Stevenson-Yang is the founder of a publishing company whose flagship magazine is City Weekend, one of the highest-circulation English magazines in China. Over 25 years in China, Mrs. Stevenson-Yang has also worked as an industry analyst and trade advocate, heading the US Information Technology Office and the China operations of the US-China Business Council. Anne Stevenson-Yang is the author of the recent book China Alone: China’s Emergence and Potential Return to Isolation, in which she sets out her views on the Chinese economy and political system, arguing that China historically repeats a cycle of expansion and retreat.
In this episode, we take a trip to the other side of the world. We travel to the land of China. Our conversation concerns itself with the contemporary changes in Chinese society that came after the death of Chairman Mao. What was life like in China before Nixon and Kissinger made their famous visit in 1971? Why did modernization and reform in China begin after 1978? Who was responsible for the opening in China? What was the role of Deng Xiaoping, and why is he remembered as “the architect” of a new brand of thinking that combined socialist ideology with pragmatic aspects of market economics – a system the Chinese call “Socialism with Chinese Characteristics.”
What changes did the Chinese experience between 1979 and 1989, during the implementation of the economic reforms of Deng Xiaoping? How did these reforms culminate into the protests in Tiananmen Square in 1989? What was the Chinese government’s reaction to the uprisings? The Chinese response differed significantly from the Soviet reaction to the fall of the Berlin Wall in the same year. The Chinese government decided to follow a different path after the massacres in Tiananmen Square, by turbocharging economic development. Explicit targets were set for GDP growth. There was selective liberalization of the Chinese economy, particularly in Chinese real estate. China placed a huge emphasis on building its manufacturing industries and on acquiring hard currency through exports. The Chinese financial system remained highly centralized and China’s currency, the renminbi, carefully controlled. All this was used towards re-investment with an almost single-minded commitment to hitting the government’s GDP targets.
Some have called the rise of China in the late 20th century a miracle. It is more appropriate to call it “the Chinese miracle.” The size of the Chinese economy has increased more than 25-fold in the last 25 years. Thirty years ago, the Chinese economy measured in at less than 5% of US GDP in exchange terms (perhaps as low as 2%). By 1992, the Chinese economy was only 6% of US GDP. By 2000 China weighed in at roughly 12-15% of US GDP. Today, China boasts a Gross Domestic Product that is roughly 60% that of United States. Loan Growth in the Chinese financial system has averaged 16% in the last 20 years. Loan growth in China reached an all-time high of 35% of GDP in June of 2009, amidst the greatest economic contraction since the Great Depression. Total debt in China recently surpassed 300% of GDP. This makes the finances of Western nations like the United States, France, and the United Kingdom seem frugal by comparison. In the first 7 years since the financial crisis, bank liabilities in the Chinese financial system grew by nearly $15 trillion dollars. This is the near equivalent of the consolidated size of all US commercial banks. China has used more cement in 3 years of massive overbuilding than the U.S. employed in all of the 20th Century. Hundreds of thousands of meters of unsold residential real estate sit empty around the country. There is a massive amount of industrial overcapacity in China. Chinese ghost cities have become almost as cliche as the fake Paris’, Venice, and Dubai’s created within mainland China. The Chinese economy is in terrible need of a recession. But the Chinese government cannot afford the recession that it desperately needs. Nevertheless, it cannot avoid the crisis that has been building in the Chinese financial system. How will the citizens of China, its trading partners, emerging markets and developed economies react when the reckoning finally arrives. How much longer can the Chinese government continue to postpone the inevitable?
Reading List for Genetics, Genomics, and Big Data in Medicine
China Alone: The Emergence from, and Potential Return to Isolation by Anne Stevenson-Yang
The Search for Modern China by Jonathan D. Spence
Wild Swans: Three Daughters of China by Jung Chang
Mao: The Unknown Story by Jung Chang
Age of Ambition: Chasing Fortune, Truth, and Faith in the New China by Evan Osnos
Street of Eternal Happiness: Big City Dreams Along a Shanghai Road by Rob Schmitz
The Corpse Walker: Real Life Stories of China From the Bottom Up by Liao Yiwu
Country Driving: A Journey Through China from Farm to Factory by Peter Hessler
The Beautiful Country and the Middle Kingdom: America and China, 1776 to the Present by John Pomfret
Understanding China: A Guide to China’s Economy, History, and Political Culture by John Bryan Starr
China’s Economy: What Everyone Needs to Know by Arthur R. Kroeber
Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise by Carl Walter and Fraser Howie
The Economic History of China: From Antiquity to the Nineteenth Century by Richard von Glahn
The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma
On China by Henry Kissinger
This Brave New World: India, China, and the United States by Anja Manuel
The Party: The Secret World of China’s Communist Rulers by Richard McGregor