What is the biggest problem facing China according to you people?

[Shotgunner51]

The holiday is killing me, especially the traffic jam!

Back to topic, the challenge IMO would be low consumption (relative to high production, high savings).

 

[Bussard Ramjet]

The holiday is killing me, especially the traffic jam!

Back to topic, the challenge IMO would be low consumption (relative to high production, high savings).

What about the stock meltdown and capital outflows?

@Edison Chen Can you also contribute?

I am hearing there is insane amount of capital outflow out of China right now.

Among some of the challenges that I see are:

1. Consumption Levels
2. Debt Overload, especially in the corporate and SOE dominated sectors
3. Demographics, rapidly aging population, too low fertility rates.
4. Lack of Rule of Law, and Independent Judiciary
5. Corruption
6. Loss of legitimacy of Party
7. Lack of institutions that can hold on to power, if party looses legitimacy, there is no pressure valve
8. Distrust in capital markets
9. Fleeing of talent from Government
10. Lack of immigrant culture
11. Lack of Civil Society

 

[Martian2]

When should China make the switch to a purely market-based economy?

The most efficient economic allocation system is a purely market-based economy. The problem is that it takes decades to build the institutions (e.g. futures markets, deep bond markets, individual bank-determined interest rates on deposits, etc.).

For a catch-up economy like China, a beneficent autocratic government is the most efficient. The downside is the risk of a self-serving (ie. corrupt) autocratic government that can undo decades of progress in a short period of time.

This is a fundamental tension.

A governmental or economic system that relies on more checks-and-balances is less efficient, because it takes more time to make a decision. This will increase the catch-up time to reach the US level of development.

However, an unrestrained autocratic government and economic system always run the risk of retrogression. The CCP seems to be an exception, because the entire 80-million person party has a good track record of selecting beneficent technocrats.

To lock-in China's gains permanently, China has to move to a purely market-based economic system. The big question is "When?" Is it now or should they wait another twenty years?

A purely market-based economic system includes guaranteed property rights. Every Chinese farmer should own their own land. Assets will move out of state hands and into the hands of individuals. This transition must occur at some point in time. The invisible hand of the free market cannot function without private property.

When will the Chinese government feel sufficiently confident to transfer government-owned property into the hands of Chinese citizens? Taiwan made the leap with its land reforms between 1950-1953. Obviously, China is a continental-size country and the risk is much larger. Nevertheless, China must take the leap at some point. It would energize the private market and stimulate private demand.

 

[Edison Chen]

What about the stock meltdown and capital outflows?

@Edison Chen Can you also contribute?

I am hearing there is insane amount of capital outflow out of China right now.

Among some of the challenges that I see are:

1. Consumption Levels
2. Debt Overload, especially in the corporate and SOE dominated sectors
3. Demographics, rapidly aging population, too low fertility rates.
4. Lack of Rule of Law, and Independent Judiciary
5. Corruption
6. Loss of legitimacy of Party
7. Lack of institutions that can hold on to power, if party looses legitimacy, there is no pressure valve
8. Distrust in capital markets
9. Fleeing of talent from Government
10. Lack of immigrant culture
11. Lack of Civil Society

There are too many analysis about the reduction of Forex, you can google it. It's true China has lower Forex reserves than we did, the drop is estimated to be $300 billion U.S. Dollars, in fact, capital outflow is only one reason, not the main reason. Also they are not real outflows.

First, value of assessment. the exchange rate. USD has appreciated by more than 20% since the last year, this results to the USD denominated scale value of Euros and other Non-USD assets to decrease when converting to USD, they are not real capital outflows but a purely number game.

Second, forex proceeds deposit of China companies and individuals increase while forex liabilities decrease. More clients (companies) buy forex to repay loans from abroad, they signed forwards to buy USD in the future, this amount is bigger than the scale of forex settlement, so we banks increase our forex holdings. So more forex assets are used for abroad operating activities, this is one of reasons that our forex decrease, it also reflects that more Chinese companies are doing business overseas. For individuals, they buy forex mainly for travel, this is also a huge amount of money.

So you can't say the insane capital outflow leads to the decrease of China's Forex. There is multiple reasons like value of assessment and structure adjustment of assets and liabilities. And personally, I do agree there is capital outflow according to my personal experiences and different sources, it's natural market variation, but they are not the reason of forex reduction.

stock meltdown

Don't ask me any stock related topics, I don't want to answer it.

 

[Martian2]

Let's assume worst case scenario: China has zero foreign exchange reserves

People forget that China has two economic engines.

The obvious one is the Chinese economy.

However, the Taiwanese presence is still very important. Currently, Taiwan is responsible for 60% of Chinese high-tech exports. I'll guess China is responsible for 30% (e.g. Huawei, ZTE, SMIC, Lenovo, TCL, etc.). Western countries probably represent 5% and South Korea (especially Samsung) represent another 5%.

For example, Taiwan has 80 to 90% worldwide market share of the notebook computer market. All of the production had been transferred from Taiwan to mainland China about a decade ago.

Taiwan has $426 billion in foreign exchange reserves. Taiwan is also highly profitable with a merchandise trade surplus around $50 billion this year.

Even if China runs out of gas, Taiwan will keep powering the mainland Chinese economy. Hence, China's foreign exchange reserves is not that important.

 

[hexagonsnow]

What about the stock meltdown and capital outflows?

@Edison Chen Can you also contribute?

I am hearing there is insane amount of capital outflow out of China right now.

Among some of the challenges that I see are:

1. Consumption Levels
2. Debt Overload, especially in the corporate and SOE dominated sectors
3. Demographics, rapidly aging population, too low fertility rates.
4. Lack of Rule of Law, and Independent Judiciary
5. Corruption
6. Loss of legitimacy of Party
7. Lack of institutions that can hold on to power, if party looses legitimacy, there is no pressure valve
8. Distrust in capital markets
9. Fleeing of talent from Government
10. Lack of immigrant culture
11. Lack of Civil Society

Well,same tone over,over again.I know that Indian have the feature you list.Enjoy it.

 

[Rasengan]

It's useless to discuss rationally with you, since u have no first-hand experience and all u get is from quora.
You are like a few liberal Chinese who work for western propaganda, promoting the so-called universal value including the ominpotent market.
Ok, u can believe it, so comes an abysmal country.

Now I'm more convinced your "charismatic" leaders are just craps.

This guy is delusional and must make an appointment with a doctor. Originally he has asked Chinese members to give their opinions on the biggest problems faced by China. He starts criticizing you for having a different viewpoint, even though he probably has never visited China before and is no expert on the subject. Seriously these Indians are very insecure in nature. Instead of discussion China, they should be more concerned why a four year old was beheaded for a Hindu ritual and why a old man was killed by a mob for apparently eating beef.

 

[terranMarine]

Let's assume worst case scenario: China has zero foreign exchange reserves

People forget that China has two economic engines.

The obvious one is the Chinese economy.

However, the Taiwanese presence is still very important. Currently, Taiwan is responsible for 60% of Chinese high-tech exports. I'll guess China is responsible for 30% (e.g. Huawei, ZTE, SMIC, Lenovo, TCL, etc.). Western countries probably represent 5% and South Korea (especially Samsung) represent another 5%.

Taiwan has $426 billion in foreign exchange reserves. Taiwan is also highly profitable with a merchandise trade surplus around $50 billion this year.

Even if China runs out of gas, Taiwan will keep powering the mainland Chinese economy. Hence, China's foreign exchange reserves is not that important.

That's why India can never recreate another China because we have Taiwan as the tech powerhouse, HK the financial hub of Asia and Macau the Las Vegas of the East.

 

[Hamartia Antidote]

China's biggest problems are English teachers and NGOs operating in China.

If you mean morons as English teachers then I may agree with you. If you mean spies I'll laugh.

I know a 25 year old know-nothing who was recruited to teach English in China. He basically was useless and had a menial secretary type job. Somebody offers him a teaching job on the other side of the planet and he takes it. I would assume that would be the typical recruitment scenario.

 

[hexagonsnow]

1.The whole economy is depending on the basic infrastruction construction,the steel and cement is over capacity, not good for industry transfer.
2.The social security of the civils is still imcomplete.
3.National conflict.
4.Politicreforming.Of course,would have to like western style.Reforming basic election system for the person with administration ability.
5.Enviroment pollution.It needs to keep the pace with the industry reform.
6.Financial reform.
They are what I am concerns mostly.but in the fact ,I can post more.

 

[Shotgunner51]

What about the stock meltdown and capital outflows?

@Edison Chen Can you also contribute?

I am hearing there is insane amount of capital outflow out of China right now.

Among some of the challenges that I see are:

1. Consumption Levels
2. Debt Overload, especially in the corporate and SOE dominated sectors
3. Demographics, rapidly aging population, too low fertility rates.
4. Lack of Rule of Law, and Independent Judiciary
5. Corruption
6. Loss of legitimacy of Party
7. Lack of institutions that can hold on to power, if party looses legitimacy, there is no pressure valve
8. Distrust in capital markets
9. Fleeing of talent from Government
10. Lack of immigrant culture
11. Lack of Civil Society

Silent Rise of Chinese SWF's: Replacing Forex

Countries rich in natural resources (e.g. oil, gas, uranium) or rich in trade surpluses (e.g. high value-add industrial merchandise, high value-add services) may accumulate large amount of Forex Reserves. However while managing Forex Reserves is usually "defensive", assets separated from balance sheets of Central Banks (e.g. People's Bank of China; PBOC) can be managed in a more balanced manner, here we go the Sovereign Welfare Funds (SWF's).

Forex Reserves By Country

China has been experiencing record level trade surpluses over the years, however the Forex Reserves is currently maintained at the level of US$ 3.77 trillion (Mainland only; Excluding Hong Kong, Taiwan, Macau):

Sovereign Welfare Funds By Country

Relative to a steady level of Forex Reserves, China has been building SWF's progressively. It's believed much studies have been done on Singaporean model i.e. GIC, Temasek. By now there are a few Chinese SWF's at the moment e.g. CIC, SAFE, total assets exceeds US$ 1.53 trillion. Hong Kong SAR has its own SWF, asset value now at around US$ 400 billion (0.4 trillion).

Sovereign Welfare Funds Ranking

For details of individual SWF in China and across the world, please check the following link:

Sovereign Wealth Fund Rankings | Sovereign Wealth Fund Institute

Comparison & Trends:

• Note that in cases of financial powers like Hong Kong SAR, Singapore, their SWFs are larger than FX Reserves

• In Singapore's case the ratio is more than 2 times ($537 billion vs $250 billion). For Norway, UAE, almost entire assets are on SWF.

• China's SWF are expected to be fast growing while FX Reserves will maintain at current level, and become one primary vehicle for international investment.

Source: Chinese Economy News & Updates | Page 378

 

[Bussard Ramjet]

Silent Rise of Chinese SWF's: Replacing Forex

Countries rich in natural resources (e.g. oil, gas, uranium) or rich in trade surpluses (e.g. high value-add industrial merchandise, high value-add services) may accumulate large amount of Forex Reserves. However while managing Forex Reserves is usually "defensive", assets separated from balance sheets of Central Banks (e.g. People's Bank of China; PBOC) can be managed in a more balanced manner, here we go the Sovereign Welfare Funds (SWF's).

Forex Reserves By Country

China has been experiencing record level trade surpluses over the years, however the Forex Reserves is currently maintained at the level of US$ 3.77 trillion (Mainland only; Excluding Hong Kong, Taiwan, Macau):

Sovereign Welfare Funds By Country

Relative to a steady level of Forex Reserves, China has been building SWF's progressively. It's believed much studies have been done on Singaporean model i.e. GIC, Temasek. By now there are a few Chinese SWF's at the moment e.g. CIC, SAFE, total assets exceeds US$ 1.53 trillion. Hong Kong SAR has its own SWF, asset value now at around US$ 400 billion (0.4 trillion).

Sovereign Welfare Funds Ranking

For details of individual SWF in China and across the world, please check the following link:

Sovereign Wealth Fund Rankings | Sovereign Wealth Fund Institute

Comparison & Trends:

• Note that in cases of financial powers like Hong Kong SAR, Singapore, their SWFs are larger than FX Reserves

• In Singapore's case the ratio is more than 2 times ($537 billion vs $250 billion). For Norway, UAE, almost entire assets are on SWF.

• China's SWF are expected to be fast growing while FX Reserves will maintain at current level, and become one primary vehicle for international investment.

Source: Chinese Economy News & Updates | Page 378

So SWF are not included in the calculation of Foreign Reserves?

 

[Shotgunner51]

So SWF are not included in the calculation of Foreign Reserves?

Correct.

China is a late comer in SWF construction.

Singapore's model is very successful in managing a huge asset (FX $250 billion + SWF $538 billion = $788 billion), something China has studied for years. Their professionals like Miss Ho Ching (CEO of Temasek), Mr. Lim Siong Guan (Chairman of GIC) as well as many senior executives of GIC have given valuable advices to China government in constructing SWF's.

Now China just mainland alone has a tremendous asset (FX $3,771 billion + SWF $1,535 billion = $5,306 billion) to manage, let alone Greater China (Hong Kong, Taiwan & Macau) combined (over $6,480 billion). China will continue to build SWF's, while doing so let's continue to deepen collaboration with Singaporean Chinese and other professionals in the Greater China region.

Hope China mainland's (and that of HK, which has FX of ~$340B and SWF of ~$400B) experience can also be shared with Taiwan, South Korea, when they are ready to construct SWF!

Source: Chinese Economy News & Updates | Page 378

 

[Bussard Ramjet]

Correct.

China is a late comer in SWF construction.

Singapore's model is very successful in managing a huge asset (FX $250 billion + SWF $538 billion = $788 billion), something China has studied for years. Their professionals like Miss Ho Ching (CEO of Temasek), Mr. Lim Siong Guan (Chairman of GIC) as well as many senior executives of GIC have given valuable advices to China government in constructing SWF's.

Now China just mainland alone has a tremendous asset (FX $3,771 billion + SWF $1,535 billion = $5,306 billion) to manage, let alone Greater China (Hong Kong, Taiwan & Macau) combined (over $6,480 billion). China will continue to build SWF's, while doing so let's continue to deepen collaboration with Singaporean Chinese and other professionals in the Greater China region.

Hope China mainland's (and that of HK, which has FX of ~$340B and SWF of ~$400B) experience can also be shared with Taiwan, South Korea, when they are ready to construct SWF!

Source: Chinese Economy News & Updates | Page 378

But I know about CIC, all of its funds are not denominated in dollars. So my question is that the SWF funds that are denominated in dollars or foreign currency are also not included in Foreign Reserves?

 

[Shotgunner51]

So my question is that the SWF funds that are denominated in dollars or foreign currency are also not included in Foreign Reserves?

Answer: SWF's are not included in Forex Reserves, or vice versa, they are two different things.

Some countries (& economies) have higher SWF than Forex Reserves, check Norway, Kuwait, UAE, Singapore, China Hong Kong SAR.

P.S.: Many other reserves are not to be mixed with Forex Reserves, e.g. forest reserves, gold reserves not on central banks' balance sheet, petroleum reserves (e.g. SPR), etc.