Daily Adams

State Capitalism

The Party Ladles It Out 

The desperate suzerains of the Red Ponzi are incorrigible. There appears to be no insult to economic rationality that they will not attempt in order to perpetuate their power, privileges and rule.So now comes the most preposterous gambit yet. Namely, a veritable tsunami of state handouts to foster, yes, capitalist entrepreneurs!That’s right. As described by Bloomberg, Premier Li Keqiang  gave the word, and, presto, nearly $340 billion poured into an instantly confected army of purported venture capital funds run by local government officialdom all over the land.

Via The World Economy Wreckers Of Beijing @ David Stockman’s Contra Corner.

Party-minded

Chinese state-owned acquirers often seem motivated by non-commercial impulses, which complicates matters. By carrying out directives to “go out and buy” businesses that fit with Beijing’s industrial policy, state-owned companies and even a few of their private counterparts win kudos in the Communist party hierarchy. That helps them tap into official largesse, such as approval […]

Via The biases in Chinese SOEs @ Marginal REVOLUTION.

Bender

Rhetorically, at least, President Xi Jinping acknowledges the exact dilemma that spooks the rest of the world. If China falls back on excessive stimulus, he was quoted recently as saying in the Communist Party’s flagship journal, Qiushi, it will “create new contradictions and problems.”

Yet he seems to ignore his own advice. Two years ago, in a much-heralded effort to address the problem of bad debt in the banking system, financial authorities introduced a program to swap the bank borrowing of local government-controlled entities—much of it linked to the slumping real-estate sector—for municipal bonds. The arrangement should have reduced the overall volume of bank loans. Instead, banks simply filled the slack with new lending. In effect, the government had created a whole new stream of credit.

Via China’s Party Isn’t Over—That’s the Problem @ WSJ.

Chinese Kleptocracy

OK, Politico did not use the exact term, but Charles Davidson and Jeffrey Gedmin make a pretty bold statement in today’s edition. China is a kleptocracy and this encourages instability in the country and in the global economy.

We have argued this pretty much since the founding of this website. A broad system of crony capitalism like the one in China creates distortions in the economy, prices are obfuscated, the connected become wealthy, dishonesty is compounded, until the facade eventually crumbles when the lies become apparent. To some degree that is what we are seeing now with the Chinese downturn.

Via Politico calls out China as the world’s Ultimate Crony Capitalist State @ Against Crony Capitalism.

Official Chinese Growth Numbers a Lie 

The Party is founded on lies – 

For starters, Citi thinks China’s true real GDP growth rate is more like 4%, or even lower, not the 7% or so that the Chinese government reports. Their “global recession” call suggests that growth will dip to just about 2.5% by the middle of 2016. China’s growth hasn’t been lower than that since 1976, when Chairman Mao was still alive.

Via Business Insider.

The Limits of China Under Communism

There is no historical example of a closed imperial economy facing large capital-driven, open states and sustainably competing over a long term. That is not to say that China isn’t an economic powerhouse and a remarkable site of energy and potential. It is certainly both. But we also know Chinese debt — as secret as the state likes to keep it — is enormous, and that its financial system is like any other bubble. It is predicated on inflated earnings reports and expectations. The great “Beijing Consensus,” China’s absolute commitment to showing 8% growth every year, is unsustainable, at least through legitimate means. And without it, China is beginning to look like an enormous totalitarian ponzi scheme — a phenomenon common enough in world history, but extremely dangerous be near in the long run.

Via China: The new Spanish Empire?   

Lies of State Capitalism

“What I’m struck by is how people have so much faith in this authoritarian type of regime that they can just push a button and get growth back up above 7% or 8%,” Jeff Gundlach, CEO of bond firm DoubleLine Capital, told a packed house at CNBCs Delivering Alpha conference on Wednesday.” Via Wall Street has stopped…

Paper Capitalists

“China, despite what you may have heard is NOT now a capitalist country. It is a crony capitalist country. The chief cronies are the members of the old Communist Party.” Via China tells workplaces they must have Communist Party units (Remember when the FCC wanted govt monitors in newsrooms last year?) @ AgainstCronyCapitalism.org.

Looking at Japan’s Past to See China’s Future

Over at the Financial Times Alphaville BlogJapan’s lessons for China, about state capitalist China’s systemic economic problems. (Those who write that China’s a perpetual juggernaut either don’t understand fundamental economics, don’t understand that fundamental theory applies universally, or most likely commit both errors). The post outlines China’s four principal economic problems (per Stephen Green, Standard…

Chinese State Capitalism: Perception Lags Reality

Economists and savvy journalists are coming to see that China’s debt-backed, investment-intensive state capitalism is doomed. See, as an example , When does a Chinese growth deceleration become a crisis? This was inevitable: the imbalance between domestic consumption and unproductive, debt-fueled investment cannot continue eternally. Popular perception is behind, however, and so when Pew polls…