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I have some personal experience with China's shadow banking. I barely understand what's going on with it, but I thought I'd state how it seems like it works in the lives of some 'regular people' in China. A couple I know is in the military and the local government. As far as I can understand, they had/have some control over who gets to join the military, and my assumption is they were profiting from bribes extracted from each person looking to join up. Normal Chinese people see a military job as both stable and a great source of guanxi and I've heard people paying figures of 100,000 RMB to enlist as a private. Their rental properties + interest payments + salaries total about $70,000 per year which is great in China. Out of that the salaries make up less than $5,000 USD per year, neither one is required to pay income taxes on their salary due to it being about 2500 RMB/month as government and military workers, and they don't report the other income as it's all under the table. This is only a part of their actual income, they have investments they didn't detail when I was trying to help them figure out how to pay for their son to study in the USA, except to say they had lots more if it was necessary, but it would be more difficult to get it out quickly. As for these investments, I've looked over them and even been invited to invest myself, which I am totally tempted to do even though I know it would be crazy and I'd possibly lose it all as I have a really strong feeling this is a Ponzi scheme. The person who runs the investment program is a neighbor of theirs, they live in a restricted military complex, so this person is ex-military as well. The investment product was explained like this. Pay 1,000,000 RMB into the investment fund. You will get a guaranteed payment of 20,000 RMB per month from that investment, 2% per month, 24% per year. There's no talk of risk. It's stated as a guaranteed payment. Just to be clear how ridiculous this rate is, imagine you put $120,000 dollars into your retirement fund at age 20, then retired at age 65 with about 2.5 billion dollars. Bernie Madoff paid people about 10% per year, though other Ponzi schemes I guess would burn themselves out quickly at 20% per year. So far as I can tell, they've had their money in this fund for at least 3 years. When I asked how this money is invested, I was told that it's lent to developers who are building apartments. Of course I have the obvious questions, what if the developers go under? They encouraged me to throw my money in so quickly, which is something that's necessary to the continuation of all schemes of this sort, if that's what it is. Still, as far as I know, they could have no money left in there at all. 3 years at 240,000 per year means that they haven't exhausted their principal. Do military officers have a big part in this, as they do in lots of business in China, where their power and guanxi allow them to force repayments when debts are due which other people wouldn't be able to do? It's all very interesting to me, but the money involved is so ridiculous, I don't see any way it could last. Other people we know who are sending kids to school in the US also have these things they refer to as investments or investment products, all of which seem to be offering guaranteed interest payments, and which aren't easy for people to pull out of without a lot of advance notice.
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May 8, 2014 17:08
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There's no way that's not a ponzi scheme.
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May 8, 2014 17:11
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If the article above which talked about a 581% rate of return between 2006 and 2012 on real estate was true, it isn't necessarily, that's what's crazy about the shadow banking thing here, it's almost impossible to know what's going on, though yeah I agree with you it's probably bullshit and people are going to get hosed over big time in the end. But there are some people who are really making insane amounts of money in essentially a legitimate fashion, and the demand for all Chinese people to own property still isn't going away. more apartments = better than
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May 8, 2014 17:19
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The salaries in China for bureaucrats is one of the more compelling reasons for why capping pay for legislators is a dumb idea. They'll still get the money, it'll just be mostly in graft instead.
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May 8, 2014 17:19
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Imagine the fallout if the next Congress tried to raise the incomes of party members and functionaries to middle class income levels though. People would go insane, they already think the government is bad enough without voting themselves a massive pay raise, plus they would still be corrupt if it's not tied to non-guanxiable, non-Party oversight, which is impossible at the moment.
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May 8, 2014 17:22
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computer parts posted:The salaries in China for bureaucrats is one of the more compelling reasons for why capping pay for legislators is a dumb idea. If graft goes unpunished people will do it regardless of their salary.
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May 8, 2014 17:23
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Sheng-ji Yang posted:If graft goes unpunished people will do it regardless of their salary. It is sort of a chicken-egg thing but I don't think even in China you can live that well on $5k USD/year. I guess according to this the average household income is ~$10k/year but I imagine that's kind of low: http://www.forbes.com/sites/moneybuilder/2010/06/24/one-big-difference-between-chinese-and-american-households-debt/ e: corrected units because I'm dumb. computer parts fucked around with this message at 17:35 on May 8, 2014 |
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May 8, 2014 17:27
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one of the understated points of the high pay is to maintain loyalty when someone powerful orders the judiciary and executive to go after someone only marginally less powerful, but with potentially more money
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May 8, 2014 17:29
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computer parts posted:It is sort of a chicken-egg thing but I don't think even in China you can live that well on $5k USD/month. Are you saying that the average household income in Chian is one hundred and twenty thousands United States Dollars per year? Because I don't think that's right.
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May 8, 2014 17:31
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FrozenVent posted:Are you saying that the average household income in Chian is one hundred and twenty thousands United States Dollars per year? Pretend I said year instead of month. 
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May 8, 2014 17:34
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Fall Sick and Die posted:
While you obviously can already smell the stink on this, rule of thumb used at the SEC is that if it guarantees rates greater than 10% its probably a Ponzi scheme.
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May 9, 2014 00:40
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That's what really concerns me about the manufacturing dip. With all the side-lending and other odder loans, once China slows down, I'm worried about all those things going to hell at once.
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May 9, 2014 01:34
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Jagchosis posted:While you obviously can already smell the stink on this, rule of thumb used at the SEC is that if it guarantees rates greater than 10% its probably a Ponzi scheme. Sure but that advice is in the context of Zero Interest Rate Policy environment. Who knows what the on the ground CPI in China actually is? I've asked many colleagues and never gotten a straight answer. If the CPI is high enough, a 20% annual return on investment may be low.
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May 9, 2014 01:39
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If their actual CPI is high enough that a 20% APR return is low, you still shouldn't invest because that economy is about to loving explode.
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May 9, 2014 01:54
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China's CPI isn't that high. It's around 3% at the moment and post-2008 it's only peaked around 6%. So 24% APR is loving nuts and it's pretty drat likely that investment is just a ponzi scheme to keep distressed developers afloat. If you're wondering how CPI has been so low despite the huge credit boom in China, the aforementioned 581% rise in real estate profits points out what's really going on. China's been experiencing an asset inflation. When lay people talk about inflation it almost always refers to the price of goods and services. However, China had a credit boom and not a simple expansion of the money supply. This means the money flowing into the system has to be paid back with interest. So investors went looking for interest-bearing assets and not things to consume. It's pretty obvious now that a lot of that credit went into real estate, hence the meteoric rise in housing prices in the past 6 years.
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May 9, 2014 04:05
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Fall Sick and Die posted:I have some personal experience with China's shadow banking. I barely understand what's going on with it, but I thought I'd state how it seems like it works in the lives of some 'regular people' in China. A couple I know is in the military and the local government. As far as I can understand, they had/have some control over who gets to join the military, and my assumption is they were profiting from bribes extracted from each person looking to join up. Normal Chinese people see a military job as both stable and a great source of guanxi and I've heard people paying figures of 100,000 RMB to enlist as a private. Their rental properties + interest payments + salaries total about $70,000 per year which is great in China. Out of that the salaries make up less than $5,000 USD per year, neither one is required to pay income taxes on their salary due to it being about 2500 RMB/month as government and military workers, and they don't report the other income as it's all under the table. This is only a part of their actual income, they have investments they didn't detail when I was trying to help them figure out how to pay for their son to study in the USA, except to say they had lots more if it was necessary, but it would be more difficult to get it out quickly. If they are so successful then why would they need your money? Also, if guanxi helps them force repayments, wouldn't it also help them deny their payments to you?
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May 9, 2014 23:48
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What happens when everything collapses, does China blame the market and start rolling back liberalization measures?
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May 10, 2014 02:18
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OwlBot 2000 posted:What happens when everything collapses, does China blame the market and start rolling back liberalization measures? Fair amount of unrest, the major infrastructure projects will probably stop/be slowed, and a fair amount of misery for a while. The thing about liberalization measures though is that since Tiananmen Square China has been fairly strict on actual political measures (freedom of speech, etc). This may actually be a catalyst for loosening some of those, though I wouldn't count out some bloodshed first. e: I predict two major spots of unrest. The first would be the fastest growing parts of Southern China, especially Guangdong and Fujian. They've been some of the fastest growing parts of China and a significant part of that is probably due to cheap credit. The other major spot will be the rural areas of central China. There's a large migratory population that goes from there to Southern China and back again (think 100 million people), so when the jobs dry up they will be the hardest effected and the ones least resistant to bad times. computer parts fucked around with this message at 03:11 on May 10, 2014 |
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May 10, 2014 03:08
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I suppose China's government has no legal, cultural or economic limitations in its ability to simply hire the unemployed to build infrastructure directly or expand its SOEs as needed, and raise taxation to make up for any budget shortfall. It will be interesting to see how they deal with an economic crisis.
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May 10, 2014 03:47
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You're making the unfounded assumption that they will care about there being more unemployed people than there are now.
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May 10, 2014 04:43
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I'm assuming they don't want unemployment to reach such catastrophic levels that they're forced to carry out Tiananmen times ten if they want to stay in power. Since so much is off the books and tied up in who knows what it's hard to know whether this will be a minor blip or a total, instantaneous collapse.
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May 10, 2014 05:18
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Install Windows posted:You're making the unfounded assumption that they will care about there being more unemployed people than there are now. You're assuming the massive amount of starving unemployed won't start poo poo. China doesn't have nearly the welfare programs western countries do; an unemployed populace is likely to grow restless really fast.
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May 10, 2014 05:21
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OwlBot 2000 posted:What happens when everything collapses, does China blame the market and start rolling back liberalization measures? reversal of neoliberalization didn't happen in indonesia in 1998, despite collapse of the regime - if anything, it accelerated under an easing of anti-chinese laws the political quid pro quo being sold is not "i'll give you growth if you accept me taking away the iron rice bowl", which was a bargain that was only ever reliable in the heavy industries of the northeast anyway, it's "i'll give you growth if you accept me being wantonly corrupt". therefore the backlash, like in Indonesia, is liable to be against perceived corruption rather than neoliberal reform ronya fucked around with this message at 05:34 on May 10, 2014 |
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May 10, 2014 05:31
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FrozenVent posted:You're assuming the massive amount of starving unemployed won't start poo poo. They don't have room to start poo poo if they're hustled back to the rural areas. It's easy to not hear from them that way.
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May 10, 2014 05:38
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OwlBot 2000 posted:I suppose China's government has no legal, cultural or economic limitations in its ability to simply hire the unemployed to build infrastructure directly or expand its SOEs as needed, and raise taxation to make up for any budget shortfall. It will be interesting to see how they deal with an economic crisis. I do recall hearing that overall, the fiduciary situation of the Chinese government itself is very good, so they might have room to do a make-work program there. To my mind, the problem comes from the far more heavily indebted local governments and the large firms who are now causing such a boom in the shadow banking sector. If lots of those start to go under, the Chinese government will face enormous pressure to nationalize their losses.
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May 10, 2014 12:48
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What is the balance of power in China between the local and national parties? There is this narrative in popular US thinking that the national party is all powerful but that seems pretty simplistic. I guess what I'm asking is if the national party will be able to blame the local and regional groups for graft and get out of trouble, or if the blame will flow the other way with the local areas attacking the central government for pushing unsustainable policy.
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May 10, 2014 14:19
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Southeast Asia also entered the 97 crisis with, generally speaking, good fiscal books. the problem was all the private debts racked up by politically linked crony companies, which (because they were politically connected) some investors thought would be bailed out, but (because they were not on-the-book debts) some investors thought otherwise. these debts were large enough that, if considered on the books, the good fiscal status would have evaporated it was a gigantic bet on whether political connections would come through. that's how one selects people to pay the costs of the recession: you pick those who, it turns out, didn't actually have the political importance that they thought they did. when push comes to shove in China, it'll be the central govt sending the PLA to distribute food, whilst local govt officials do their best to kick each other off the cart, so it seems safe to say that the central govt will have enormous latitude - provided it can remain united. No Zhou Yongkangs permitted.
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May 10, 2014 15:18
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The current anti-corruption drive can be good in that respect. They can use this time while the crisis is still in the offing to identify companies and officials who have the clout to make serious trouble in a crisis, then either co-opt them or get rid of them preemptively.
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May 10, 2014 16:03
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Shifty Pony posted:What is the balance of power in China between the local and national parties? There is this narrative in popular US thinking that the national party is all powerful but that seems pretty simplistic. The CCP is the CCP regardless of if it's a chubby guy in Henan with pants up to his elbows or one in Beijing with significantly more expensive pants up to his arm pits. The many factions within the party are not officially recognized like in Vietnam. The party has to keep up the illusion that it's a top down operation with Beijing giving the OK on every move. Scapegoats will probably be found and then executed in the event things go to poo poo pretty quickly. Even if it happens slowly, I can see a major decline in home prices resulting in some face saving executions. Regardless of how prepared the Chinese government is for the housing collapse, people are going to be angry their life savings disappeared overnight. I can easily see that anger manifesting as riots, which are not that uncommon in China. RocknRollaAyatollah fucked around with this message at 18:16 on May 10, 2014 |
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May 10, 2014 18:12
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Well at least Kaiser Kuo will be able to afford an apartment in Beijing.
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May 11, 2014 01:29
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Has this happened before in the party? If this is a first, doesn't attacking each other at that level eventually lead to a breakup, as it is now an accepted way to get your way? I read about this back back when that aid ran to the US embassy or whatever, but didn't know they have basically executed him. Femur fucked around with this message at 05:40 on May 11, 2014 |
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May 11, 2014 05:36
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Just to be clear, there is no real chance of political liberalization regardless of what happens, right? Like the scenario required for the Chinese government to actually change here would be basically apocalyptic, correct?
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May 11, 2014 06:16
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icantfindaname posted:Just to be clear, there is no real chance of political liberalization regardless of what happens, right? Like the scenario required for the Chinese government to actually change here would be basically apocalyptic, correct? If by liberalization you mean "multi party system" then yes.
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May 11, 2014 06:16
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Economic crisis-wise, Indonesia did liberalize following 97. Singapore liberalized following 85. Middle-class protest - Taiwan in 1990, South Korea in 1988. Of course these did not then become Western liberal countries, but this is a matter of degree, surely. Singapore in particular represents an ideological precedent for consciously controlled non-multiparty liberalization under the flag of an allegedly unique Asian interpretation of democracy.
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May 11, 2014 08:51
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Is there any credibility to this "Rice Theory" or is it just racism?
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May 11, 2014 12:50
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Femur posted:Is there any credibility to this "Rice Theory" or is it just racism? They determined these true facts by asking people to draw where they are in relation to their neighbors. Apparently people in the south drew them a few millimeters closer on average than people in the north so therefore rice = communal culture
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May 11, 2014 12:58
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Femur posted:Is there any credibility to this "Rice Theory" or is it just racism? It greatly magnifies cultural differences then comes up with a  explanation for it with no real supporting evidence beyond 'it sounds logical', all to make conservative investor types feel tingly about how freedom loving and individualistic they are.So I don't know if it's racist or not, but it's certainly idiotic yes.
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May 11, 2014 13:29
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Rice Theory posted:Talhelm developed his rice theory after living in China for four years. He first went to the country in 2007 as a high school English teacher in Guangzhou, in the rice-growing south. Probably one of the least racist theories I've heard come out of a former China ESL teacher. These types of claims are always problematic and I can easily see this being one of those instances where data is skewed to meet up with preconceptions. The culture of areas to the immediate North and South of the Yellow River for instance aren't that great. I know this first hand from my own experiences as an ESL/history teacher. The openness to foreigners thing could also be that there were probably more foreigners in Beijing in 2008 than in Guangzhou and people were more used to opening up. People outside of Beijing and Shanghai tend to be shy about actually talking* to foreigners due to lack of exposure. *This does not include yelling "HELLO" at people as they point and laugh. EDIT: I just realized, 2008 was the Olympics so of course people were more open to foreigners. RocknRollaAyatollah fucked around with this message at 17:17 on May 11, 2014 |
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May 11, 2014 16:55
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Article: Beijing to the US by train: China outlines plans to connect world by high speed rail network From: Times of India quote:China has outlined its plan to connect the world by high-speed rail, including an underwater link to the US, running 13,000km. This seemed pretty interesting. I've repeatedly come across the idea that how mountainous and desertified China's west is results in the east being kind of like an island. With that in mind, should I assume it's a safe bet we'll see a lot of wonderful infrastructure projects coming out of China to mitigate that geographic challenge? And while this is being presented as a serious proposal, should it be taken seriously? Accretionist fucked around with this message at 22:21 on May 11, 2014 |
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May 11, 2014 22:17
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Accretionist posted:Article: Beijing to the US by train: China outlines plans to connect world by high speed rail network They need huge infrastructure projects to keep their GDP flying high, and this would be a hell of a lot more useful to them economically and politically than another empty city.
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May 11, 2014 22:33
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