World
The illusion of China's stimulus

Like the Federal Reserve, the Chinese government continues to pump in money, but the real problem is that both are facing “structural problems that counter-cyclical remedies cannot fix, so the private sector cannot find areas to make enough profit to justify its investment”

 
Over the past few years markets have been wild for any sort of economic stimulus that central banks and governments can dole out. The whole idea is that stimulus leads to economic growth. This may been true at one time have, but, at this point, investors may have placed too much faith in the capacity of central banks and governments to counteract economic weakness. The stimulus may in fact be counterproductive, because it is misleading, encouraging investors to take risks when those risks are not warranted. This problem is most acute in China, where the government has an institutional ability to mislead; a strong motive to do so and where the risk is greatest.
 
Economists and analysts have long been predicting that China would have a soft landing because the Chinese would stimulate to prevent a hard landing. The political background is especially reassuring to this thesis. Once every decade the Communist Party holds a Congress. The purpose of this gathering is to change leadership at all levels. In the past the new leaders, especially at local levels, have outdone themselves in spending money to grow the local economies. Most western commentators believe that this year will be no different. But times change and sadly the commentators did not ask the Chinese.
 
According to a commentary published by the official Xinhua News Agency, “a massive stimulus is not only unlikely, but would be detrimental to the country’s sustainable economic growth.” So another stimulus package like the Rmb 4 trillion ($632 billion) package issued in 2008 is not on the cards. One of the reasons is that like the most recent stimulus attempts by western central banks, it probably wouldn’t work. According to one highly respected Chinese economist quoted in the Financial Times: “I believe China is going to experience a very serious economic downturn and I think it has already started. The government is trying now to stabilize the economy but the instruments they have are very limited. If it can’t turn things around then I expect huge and widespread social unrest.”
 
In a way it is hard to blame the commentators. Like their western counterparts the Chinese have been falling all over themselves making pronouncements of vast projects involving untold billions. The central government has approved 25 urban rail projects, 13 highway construction projects, seven waterway projects, nine waste water treatment plants and plans for energy conservation and carbon emissions. The total cost would be Rmb 3.4 trillion ($537 billion), which is not far from the 2008 numbers. Not to be outdone the presumptive local leaders have advertised Rmb1.5 trillion ($236 billion) investments in large industries such as petrochemicals, automobiles, electronics and advanced equipment.
 
All of this sounds great, but there is one problem: no money. Approval of a specific project by the central government does not mean that the central government will pay for it. It means that the central government has approved a loan by a state-owned bank to a local government to pay for it. This process has been going for the past four years on a massive scale and unlike taxpayer-funded stimulus or new money from a central bank; loans eventually have to be paid back. This is a problem for local governments because their main sources of income have been dwindling.
 
Most of the local government revenues come from local land sales to developers, who then sell the houses. These sales have been restricted by the central government to cool prices, but the restrictions have also reduced the income of the local governments by about 25%. Local governments do collect taxes from local business, but these are not the huge state-owned businesses that are often in the news. Those businesses are owned and taxed by the central government. Often the local firms are smaller and involved in exports have been plummeting thanks to slow or negative growth in the global economy. So, local governments have between Rmb 11 trillion and Rmb 14.5 trillion worth of debt. With declining revenue, it is doubtful that many of these loans will be paid back.    
 
Besides most market experts have assumed that the Chinese slowed their stimulus last year to control inflation. This is simply false. If you look at the graphs below it is obvious that Chinese have been issuing new bank loans at a relatively steady rate since 2010.  If anything, the Chinese have been pumping out new money faster since the beginning of 2012. Despite all the cash the growth rate of the Chinese economy has steadily declined since the end of 2009.
 
 
So like the US Federal Reserve, the Chinese government continues to pump in money, but the real problem is that both countries are facing “structural problems that counter-cyclical remedies cannot fix, so the private sector cannot find areas to make enough profit to justify its investment.”
 
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages. Mr Gamble can be contacted at [email protected] or [email protected]).
 

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COMMENTS

SuchindranathAiyerS

4 years ago

The reality is that all the economies have reached the limits of planning after having painted themselves into a corner.More pump priming with more currency in the system that will return to the hands of the wealthy! When we used to play "monopoly" as kids, as the game neared its end with all the properties and hotels in the hands of the one or two with the rest facing bankruptcy, the winners would propose a redistribution of the money in the Bank equally to all the players. This would delay closure of the game and prolong the joy of winning for the winners who would tote up record sums of "assets". The losers would soon lose the "redistributed" currency to the winners already in possession of all the assets on the board. Our "economists" "central bankers" and "elected representatives" should play a few games of "monopoly" to get the drift.

Pratibha Patil to return 155 artifacts to Rashtrapati Bhavan by 15 June 2013, reveals RTI reply

To a RTI query by this writer asking about the list of gift items loaned specifically to Pratibha Patil along with the evaluated price of each item, Rashtrapati Bhavan says information not necessary as it is a ‘temporary’ arrangement

The Rashtrapati Bhavan has officially admitted through a RTI (Right to Information) reply to this writer that “An MoU was signed on 15th June 2012 between Rashtrapati Bhavan and the Vidya Bharti Shaikshnik Mandal, Amravati, for display of 155 artifacts/mementos on a purely temporary basis, which in any case, cease to be operative with effect from 15th June 2013 and all the artifacts presently on loan shall be returned to the Rashtrapati Bhavan Museum thereafter” but refuses to divulge detailed information on the list of artifacts transferred to Ms Patil’s museum.

The Central Public Information Officer (CPIO) of the President’s Secretariat takes this ‘temporary’ arrangement as an excuse to not provide the list of artifacts given to Ms Patil to display it in her museum in her hometown, Amravati, along with their individual costs and countries that they were gifted from.

The RTI application filed by me on 3 August 2012, specifically asked the PIO of the President’s Secretariat, “List of gift items loaned specifically to Ms Pratibha Patil along with the evaluated price of each item; from which country did each gift item come from; what was the purpose of her visit when she received each of the gift item.” The reply is “do not arise in view of the answer at (3) above” (which is she would be returning artifacts by 15 June 2013 as the agreement would cease by then.

The RTI reply interestingly suggests that it was President Abdul Kalam who started the trend of moving out gifts received in the capacity of being President of India. The CPIO Saurabh Vjay states in his reply dated 6 September 2012, “No such requests have been made by any former President of India. It is, however, stated that in the past, 36 artifacts were handed over during the Presidency of Dr APJ Abdul Kalam for being displayed in the Brahmos Centre, New Delhi.” This reply came to the writer’s query under RTI seeking “copies of official requests made by Presidents of India for loaning of gifts from 1990 onwards. Provide copies of all such correspondence within the President of India office as well as between President of India office and the relevant district/city authority where the President of India may have resided or the place where she/he wants to display the loaned gift items, form 1990 onwards.”

The RTI reply also states that “no such rules and regulations are available for loaning of gift items received by the President of India. This was in reply to my query, “Copies of Rules/GRs/amendments/correspondence for rules and amended rules regarding gift articles and souvenirs which are received by Presidents of India from other countries and within the country; Copy of rules and regulations for ‘loaning’ official gifts received by President of India to presidents on their retirement or loaned to any other organisation.”

To the query, “How many gift items in total does the ‘Tosha Khana’ of the President’s office have at the moment and what is the total amount in value?” CPIO Saurabh Vijay states in his reply that “as per our records there are about 2,500 gifts in ‘Tosha Khana’ of the President’s Secretariat and as regards the value of these items, no such records are available in the Art section.”  This is indeed shocking for, as per the ministry of home affairs, any contribution in the form of gifts received by President of India or other dignitaries must be valued within 30 days of receipt of gift.

It may be recalled that a museum is being specially set up in Pratibha Patil’s hometown by the family trust, Vidya Bharti Shaikshnik Mandal, run by her politician-son Rajendra Shekhawat.

The writer is filing a first appeal to the President’s Secretariat since the information received is inadequate.

Read the previous article here: Pratibha Patil’s Museum: Gifts received by VVIPs from foreign countries can be purchased by them but can they be loaned?

 

(Vinita Deshmukh is the consulting editor of Moneylife, an RTI activist and convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting which she won twice in 1998 and 2005 and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals. She co-authored the book “To The Last Bullet - The Inspiring Story of A Braveheart - Ashok Kamte” with Vinita Kamte. She can be reached at [email protected].)

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COMMENTS

Karma

4 years ago

If the PIO has not responded completely, then you should file an APPEAL, a provision which the RTI act offers.

Details here http://www.fixindia.org

Shadi Katyal

4 years ago

I have few questions about this bhaviour of our Former Presidents.
How many took such gifts and wer those ever returned?
These are nation's property and not any private gifts as no one even know such a person if not on the sid chair.
Why is that this lady not only abused her power by ferrying around the world her whole family and friends and thank asking for a palacve to reire and has the audicity to take that many gifts with her.Who agreed for such acquisitaion?
Why does she needs these national gifts?
It is evidewnt that we as a nation has proved to be nothing else but people without any Ethics and will do to get away wtih anything.What a shame that we elected a lady who was not happy being the President but wants such gifts. Why not take the Raj Bhavan as private proeprty.Shame shame

Shadi Katyal

4 years ago

I have few questions about this bhaviour of our Former Presidents.
How many took such gifts and wer those ever returned?
These are nation's property and not any private gifts as no one even know such a person if not on the sid chair.
Why is that this lady not only abused her power by ferrying around the world her whole family and friends and thank asking for a palacve to reire and has the audicity to take that many gifts with her.Who agreed for such acquisitaion?
Why does she needs these national gifts?
It is evidewnt that we as a nation has proved to be nothing else but people without any Ethics and will do to get away wtih anything.What a shame that we elected a lady who was not happy being the President but wants such gifts. Why not take the Raj Bhavan as private proeprty.Shame shame

prakash C Sheth

4 years ago

RE: Pratibha Patil to return 155 ARTIFACTs to RASHTRAPATI BHAVAN---As ALL GIFTS received by the PRESIDENTs,VICE-PRESIDENTs, Prime Ministers and Central CABINET and State ministers of INDIA are , in fact, received in their OFFICIAL CAPACITY, ALL such GIFTS be placed in the ARCHIVES and / or MUSEUMS specifically for the purpose. Full and Complete notations / descriptions and PICTURES of such GIFTs together with DONOR countries GIFTING notes be officiall recorded, and be Made available for RIGHTs to INFORMATION ACT.INDIAN Parliament should ENACT legislation covering such modalities, incl. Whether Loaning be permitted adn , if YES, HOW and Whether such Loaned GIFTs are in fact recovered and restored in the ARCHIVES. ANNUAL AUDITs be performed and such AUDIT reports be placed before the Parliament. Regards--Prakash C. Sheth

Black Mamba

4 years ago

Its really shameful to read it. Mahatma Gandhi carried only a few items of daily use with him. On the other hand todays politicians have no end to their greed.

Will the markets end positive for the 9th day?

The Nifty has closed positively for eight consecutive days, for the first time since 30 June 2011 and only the 3rd time since 2007, as it rallied from 5,238.4 to 5,577.65, up 6.48%. What does the past suggest about today’s close?

 
The Nifty has closed positively for eight consecutive days, for the first time since 30 June 2011 and only the 3rd time since 2007, as it rallied from 5,238.4 to 5,577.65, up 6.48%. The streak is a result of several factors, especially the US Federal Reserve quantitative easing, or printing more dollars. Even the European Central Bank (ECB) has pledged to buy troubled sovereign bonds indefinitely which had cheered the markets world over. Finally, the paralysed Indian government has announced several policy changes such as allowing foreign investment in airlines and retail companies and a major disinvestment programme of public sector units. After eight days of rally what will Nifty do today? Will it close up for the 9th day too?
 
A Moneylife research found out, by pouring over data going as far back as the 1990s, that there were 44 instances where Nifty has had a streak of eight consecutive green days. We found out that when this happened, the 9th day turned out to be positive 24 times, or a 54% of the time—almost a random outcome. The average return of these days was 1.06%, while overall return was 0.04%. The maximum return was a 2.80% recorded on 1 October 2007. Furthermore, we found out that the probabilities of the 10th day being positive, given that the 9th day is positive, was only 11 occurrences out of 24, or less than 50%. In either case, it seems like a near random event and anybody’s guess.
 
Moreover, the Indian market was surprised when the government suddenly decided to undertake reforms, by allowing foreign direct investments into the aviation and retail sectors, two of the politically sensitive areas. This knee-jerk reaction from the government amidst scams has hugely impacted the market, positively, at least in terms of sentiment. But already opposition to these moves are building up. Nevertheless it cannot be denied that the sentiment has changed and the speculative bulls, long starved of a good story, are in a mood to keep charging ahead. 
 

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