NDRC: China has wasted $6.8 trillion

For those that doubt that iron ore can go lower, read this, from the FT:

“Ghost cities” lined with empty apartment blocks, abandoned highways and mothballed steel mills sprawl across China’s landscape – the outcome of government stimulus measures and hyperactive construction that have generated $6.8tn in wasted investment since 2009, according to a report by government researchers.

In 2009 and 2013 alone, “ineffective investment” came to nearly half the total invested in the Chinese economy in those years, according to research by Xu Ce of the National Development and Reform Commission, the state planning agency, and Wang Yuan from the Academy of Macroeconomic Research, a former arm of the NDRC.

…The bulk of wasted investment went directly into industries such as steel and automobile production that received the most support from the government following the 2008 global crisis, according to the report.

…Misallocation of capital and poor investment decisions are not the only explanation for the enormous waste in China’s economy. A significant portion of China’s post-crisis stimulus binge was simply stolen by Communist Party officials with direct responsibility for boosting growth through investment, according to separate estimates by Chinese and overseas economists.

The NDCR is China’s most important economic planning agency. It is illustrating a shift in attitude that will determine the future.

Listening to it would be prudent.

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Comments

  1. Holy smoke Batman. Are they US dollars ?

    Please no.

    I think that call regarding Ministry of State Security (MMS) made several months ago is looking more and more likely to be a lot more severe than at first thought.

    I know the Chinese have put out calls similar to Australia in order to secure corrupt funds to Canada, USA, New Zealand and many other places.

      • The Traveling Wilbur

        True-ish. Actually, it’s just like speeding tickets – a totally voluntary contribution. The cargo freighters of trinkets only keep arriving ’cause we keep buying. We always have the option of buying things that weren’t shipped here on a cargo freighter (for most things, for the moment).

  2. Oh well. Keynesian spirits kept China alive (and so too commodity suppliers around the world)!

    Build a road and they will come; build a bridge and they will cross.

    Xi has unleashed a selective anti corruption drive that has genuinely spooked officials, NDRC has a plan for the next round of development infrastructure – more carefully targeted but supportive where required with less temptation for paws in the honey pot.

      • You mean, you have to admire the audacity of 3d in trying to blame Lord Keynes for corruption in the Peoples’ Republic.

        From memory, I don’t think Keynes ever had a gig on the Central Committee….or on the board of any Australian mining company.

      • Actually my faith in human nature has me waiting for some form of stimulus from China to do the whole thing again with a slightly different angle, perhaps more targeted. Why are we assuming the Chinese are any less adept at can kicking than the West?

      • @briefly. Keynes said: “I always regard a visit [to the US] as in the nature of a serious illness to be followed by convalescence.” China would have been too far.

      • “Why are we assuming the Chinese are any less adept at can kicking than the West?”

        One reason – they’re not a democracy and the ruling class has no financial existential threat …

        But there is always however, the belief that the Chinese authorities fear unrest and that is one reason to kick the can ..

      • I’m always a bit fascinated about how we sit smugly in our glass house and pontificateand throw stones about how stupid these orientals are. Yet, rationally, we waste a very large part of our investments. All the investments in non-productive assets like Sydney and Melbourne should, by the same rationale, be written off as waste.
        There seems to me to be only two main differences
        1. We import the people to fill the damned places then they sit there and do nothing PRODUCTIVE
        2. We can’t afford the waste as we borrow from offshore and SELL PRODUCTIVE assets to finance the said waste.

        So somebody tell me why we are so smug?

      • Tell me flawse if a loved one needs specialist medical attention where do they go? Sydney/Melbourne or Karratha/Mt Isa?

      • They go to Sydney or Melbourne – if they can afford to fly from Blackall,Hungerford, or Quilie – if they can’t well they just bloody die where they are and people like you don’t give a shit!!

        Again, if this economy was run in a balanced way, instead of based on asset sales to foreigners in order to magnify the Sydney melbourne axis and drain the rest of the country in the process, larger regional cities, in which specialists would have found a place, would have grown decades ago.

        Again you just take some extreme example of YOUR own version of ‘social justice’ to justify an ignorant macroeconomic stance.

      • As opposed to your extreme generalisation? How many times do I have to tell you those under 30 aren’t part of the “we” you keep banging on about!

      • “All the investments in non-productive assets like Sydney and Melbourne should, by the same rationale, be written off as waste.”

        Here’s something to stir you Flawse. (Note that I’m not saying I agree with the article…)

        http://www.smh.com.au/business/the-economy/booming-sydney-carries-struggling-national-economy-20141127-11v4k5.html

        Sydney contributed 37.9 per cent of Australia’s GDP growth in 2013-14, more than the contributions of Melbourne, Brisbane, Perth, Adelaide and Hobart combined. The minerals-rich regional Western Australia contributed 29 per cent.

        Mr Rawnsley said it was encouraging that Sydney’s growth was so broad based.

      • – I am surprised to see China didn’t collapse yet. Because China going “down he drain” will torpedo the economies that have benefited from the chinese credit expanson as well.
        – Yes, the articles are wrong in the sense that those countries didn’t collapse. But the articles being wrong doesn’t mean a collapse in those countries won’t happen.

  3. “A significant portion of China’s post-crisis stimulus binge was simply stolen by Communist Party officials with direct responsibility for boosting growth through investment, according to separate estimates by Chinese and overseas economists.”

    To be invested in US, UK, Canada, Oz and NZ RE.

    • That is the sum of it……

      And that is what is being carefully choreographed around.

      Immense sums of money have been sent abroad to nest with family (mainly) friends (sometimes) and generally quite valid (visa wise) inhabitants of new homelands in the US Canada and Australia (as well as NZ and parts of Europe). Australia certainly isnt the only nation being asked to help the fox hunt.

      • Again…China has Trillions saved in Foreign reserves that it needs to get rid of. Ummmm how much does Australia have?????

      • Flawse – all our reserves are in the ground and we unload them as quickly as we can. Then we’re spent…

      • I agree with that flawse.

        China needs to spend it or lose it, and the chickens of a generation of piling current account surplusses into USD (one way or another) and trying to sanitise this to keep the Rmb low enough to continue being competitive, are coming home to roost.

        Yes it is in Australia’s interest to get the funds given a parlous CAD performance over that same generation.

        But I dont think the reconciliation of the two imperatives will be as straightforward as an accounting entry.

        But above and beyond anything else Australia needs to develop an economic narrative which can use the funds coming here and the people, and provide somehting for those people, the people already here. Sort of like Hawke Keating era of economic restructuring (starting from about the same degree of pathetic base) all over again…..

      • WTF are you talking about????????????????? You really are a dill. – You don’t read! You don’t think.You just want to throw off your stupid one-liners acting as if you actually know something, indeed know more than anyone else, when you don’t.

        The point is the Chinese have trillions of reserves in paper they need to turn into other stuff. We HAD all teh real stuff but we’ve chosen to sell pretty much all of it just to fund our liffestyles – which includes sitting around on your arse doing nothing in an air-conditioned office in Sydney and melbourne.

      • “But I dont think the reconciliation of the two imperatives will be as straightforward as an accounting entry”

        Oh Gunna – if I ever gave the impression it would be a simple matter I’m sorry. It’s going to be devastation one form or another at some time or another.

        Sometimes I pose te halternative – more as a question – e.g. everyone wants to stop selling houses to foreigners but that is only one side of the story – if we stop gathering foreign exchange selling houses to foreigners how else aarwe going to get it? Are we prepared to take the hit to our living standards.

        There’s a lot of sloganeering in here without thinking of consequences – just my view.

      • GunnamattaMEMBER

        @flawse

        sorry mate. I never in my wildest dreams thought that you thought it would be straightforward.

        I’m just reconciled to the fact that we (as a nation) are going to birth an economic cactus at some point soon. At the end opf the day we are just choosing between what types of pricks we want to experience.

      • If I don’t read you don’t comprehend! They sold labour for paper, we sold rocks for paper. Guess which exchange I’d rather make? Genius! The problem is baby boomers want to have a free ride of a retirement and blame everyone else for not funding it!!!,

      • Sometimes talking about aggregates does not help clarity.

        Australians do not sit around deciding that they are going to live off asset sales.

        It is not as though a city decides they want some cheap TV’s and decide to trade the weekly output of a coal mine or the Speedo brand.

        The transactions are independent and very little to do with each other except for one thing – the exchange rate.

        When someone sells an asset off shore or land or a claim on future income that increase the exchange rate.

        That means the exchange rate is higher than what it would be as a result of trade alone.

        The higher exchange rate provides excellent reasons for an Australian to buy an imported good.

        What is driving the lotus eating are the asset sales as them make us feel richer due to a higher exchange rate.

        It is quite wrong to say that the purchase of the goods comes first and THEN we sell the assets to fund them.

        It is the sale of the ASSET that allows the growth of imports.

        Restrict the asset sales and the exchange will restrict the lotus eating.

        Now of course stopping all the assets sales at the same time would be unhelpful as the exchange rate would plummet to the grubby depths that our hopeless trade performance warrants, that is why they must be wound down over time.

        This can be down by winding down off shore mortgage borrowing and sale of govt bonds off shore.

        But if that is not enough we can work through the list of unproductive capital inflows that induce a dozey state of mind.

        No one has ever asked Australians whether they want the exchange rate pumped on asset sales, so I think it is a bit unfair to accuse them of driving it.

        Nor has anyone, Flawse and a few other excepted, tried to explain that low mortgage interest rates produced by off shore borrowing are in effect produced by asset sales – the sale of IOUs.

        The real villains are those asset owners who insist they be allowed to sell their assets to whoever they want on the planet.

        In fact that is exactly what Mr Abbott endorsed the other week.

        AND those who constantly ignore the importance of the capital account and allowing the exchange rate to be bloated with unproductive capital inflows.

        That the Greens and the ALP and the Nationals don’t get it is depressing. I don’t expect much from the Liberals – they have never been particularly interested in the national interest other than wrapping themselves in the flag for electoral advantage.

      • Pfh007, That’s very true. If asset markets are open slather, the highest bidder will be the person with the lowest cost of capital – which will usually be a crook.

      • AND those who constantly ignore the importance of the capital account and allowing the exchange rate to be bloated with unproductive capital inflows.

        That was all very well said phf but try telling flawse a mining boom is precisely the above stated scenario!

      • I think Flawse point is that when it comes to asset sales it is best to start with the most unproductive asset sales (and the associated capital inflows) first.

        Mining is fairly productive – just ask all the Chinese using that shiny new FAI.

        Certainly, its wings may need to be trimmed but it should be down the To Do List.

        Start with the bone dumb financial assets that are being flogged off shore.

        Govt guaranteed mortgage IOUs

        Govt Bonds

        Tax Farming opportunities.

        Existing residential property

        ….

        …..

        Then trim mining – mainly to ensure we don’t exhaust our reserves before boomer bed time.

        The problem with starting with mining is that it will place more pressure on other asset sales and make it less likely that a polly will take action to restrict them.


      • Sometimes I pose te halternative – more as a question – e.g. everyone wants to stop selling houses to foreigners but that is only one side of the story – if we stop gathering foreign exchange selling houses to foreigners how else aarwe going to get it? Are we prepared to take the hit to our living standards.

        It might have been better if we kicked our habit before we pawned all our stuff and maxed out all our credit cards, but that’s in the past, and we should definitely kick before we move onto burgs and street walking, and even if we already have, before the next burg or the next John.

      • Pfh mining isn’t productive for the local economy because we don’t do sh#t with it. We ship it off and bring it back as something useful — couple that with a boom that drive billions of dollars into ditches and rail-lines to nowhere and as soon the boom unbooms all that [email protected] is useless. IF we actually smelted and processed the stuff here, sure, make it a focal industry. But look at South America or Africa if you want to see how well it works out to be quarry in the long run… It was literally little more than a hundred years ago when these were colonies floated by London…

      • Mig,

        “….IF we actually smelted and processed the stuff here, sure, make it a focal industry…”

        Absoloodle!

        That type of value added processing (aka manufacturing) is exactly what gets the boot when the exchange rate is cranked up with asset sales.

        Excessive mining is like methadone treatment – necessary while getting off the hard drugs of mindless capital inflows but not really a way of life either.

        It is worth keeping mind that even with a historic mining boom we have struggled to turn a trade surplus.

    • We should be confiscating properties en masse…

      If they continue to let the foreigners binge on our property illegally then I see no reason why I cannot go and take one back for myself!

      • Now, when we confiscate all the properties etc how do we then finance our outrageous consumption?
        Or are we prepared to take the hit to our living standards?

        One can just imagine the outcry against ‘The Guvmnt’ (of whatever colour) as it organnied such an event.

      • It will be interesting to see if the recommendations from the senate inquiry are implemented if FIRB can be bothered to perform a retroactive analysis of past housing transactions.
        I suspect not. It will be hard enough just to get them doing their job going forward.

      • Or are we prepared to take the hit to our living standards?

        Gladly…. As long as I get to run the camps that hold all the FIRE sector scum…. 😈

      • Well little guy my generation certainly started this mess going. Unfortunatley future generations seem only to want to refine, not reform, our methods 🙁

        N.B. Schaden frames the problem well – it isn’t boomers as such. It’s non-productive that ios the problem.

    • What also needs to be estimated is the bubble (illusory) “wealth” in the Chinese housing market. The Median Multiple is a useful guide. Normal housing markets do not exceed about 3.0 times annual household incomes (or about 1.2 times GDP) …

      2014 10th Annual Demographia International Housing Affordability Survey

      http://www.demographia.com/dhi.pdf

      Apartments, because of their much smaller size ,should come in well below 3.0 times incomes. Note the latest HOUSTON ASSOCIATION OF REALTORS MARKET REPORT …

      http://www.har.com/mls/dispPressRelease.cfm

      I covered the issue with respect to New Zealand recently … NEW ZEALAND’S BUBBLE ECONOMY IS VULNERABLE …

      http://www.scoop.co.nz/stories/HL1404/S00166/new-zealands-bubble-economy-is-vulnerable-hugh-pavletich.htm

      The Irish Median Multiple crashed from 4.7 to 2.8, wiping out a quarter trillion euro, putting the Banks down, with residential construction going from 90k a year to 8k in short order. Spain’s went from 750k units a year to 30k.

      There is in excess of $A2.5 trn to wipe out of Aussie housing … some $NZ400 billion out of New Zealands … and China is somewhere in the next galaxy.

  4. LEARNING FROM HISTORY … THE HARD WAY …

    No doubt there are many doing some fast “homework” on the realities of command economies and bureaucratic behaviour and the obsession with “image” … where perception is reality.

    Ludwig von Mises had all this figured out over 60 years ago …

    Planned Chaos: Ludwig von Mises: 9781933550602: Amazon.com: Books

    http://www.amazon.com/Planned-Chaos-Ludwig-von-Mises/dp/1933550600

    Planned Chaos – Ludwig Von Mises – Google Books

    http://books.google.co.nz/books/about/Planned_Chaos.html?id=1Tp2Fm-8RnYC&redir_esc=y

    Ludwig von Mises – Wikipedia, the free encyclopedia

    http://en.wikipedia.org/wiki/Ludwig_von_Mises

    • Thanks Hugh

      I always chase your links re China and it always makes me think of old John Denver when he laments about ‘ that’ China(Deng); before their epic and magnificent range of ‘accomplishments’ pushed through the earth’s crust.

      Will they last?.It’s been awhile since we’ve seen/felt a depression on the scale of the great depression and I think we might guess where the next one will originate.

      From the Project Syndicate

      Dengism’s greatest intellectual failure is its inability to account for the potential of unchecked power to nurture greed and corruption among ruling elites. Its greatest political failure is its resistance to the democratic reforms needed to constrain that power.

      Read more at http://www.project-syndicate.org/commentary/minxin-pei-urges-china-s-leaders-to-emulate-deng-xiaoping–but-not-his-authoritarian-development-model#T8DLw4ijGkLUI2x4.99

      ‘I’m sorry for the way things are in China
      I’m sorry, things ain’t what they used to be……”

      • Hugh PavletichMEMBER

        SoMPLSBoy

        I have enormous respect for the late great Premier Deng and really do hope the Xi regime can make the required reforms … from the foundation of Dengs leadershop following Mao’s madness.

        The command economies don’t have the “vested interest” problem on their own of course !

        As the eminent economist Dr Thomas Sowell has said “We have spent the past few decades replacing what works with what feels good.”

        Within this interview Sowell describes the 07/08 bursting housing bubble / Global Financial Crisis …

        Thomas Sowell on the Housing Boom and Bust – YouTube

        https://www.youtube.com/watch?v=5GoAGuTIbVY

        It hit the fan big time in California, Nevada, Arizona and Florida in particular. Strangling land supply was the trigger … finance (in all its forms) was simply the fuel.

        The major responsibility lies with urban planners. Their “philosophical cousins” the Chinese Communists panicked in ’09 with massive stimulus … and they are now faced with the costs and consequences.

        So it is fair enough for the Chinese Communists to blame the urban planners (with their “vested interests” props on the Left and Right) in the West, for the pickle the former are currently in !

        No wonder Xi and Li have such respect for open and competitive markets !

        Too many of our pansy politicians in the West are proving slow learners in this regard.

      • As the eminent economist Dr Thomas Sowell has said “We have spent the past few decades replacing what works with what feels good.”

        That’s some weapons-grade irony, right there.

  5. The Economist questions the Chinese research … without providing alternative approaches …

    Wasted investment: China’s $6.8-trillion hole? | The Economist

    http://www.economist.com/blogs/freeexchange/2014/11/wasted-investment

    HAS CHINA really blown $6.8 trillion on worthless investments over the past five years? This is the startling claim made by two Chinese government researchers that has, understandably, caused quite a stir. If true, it would mean that fully 37% of Chinese investment since 2009 was wasted on building bridges to nowhere and homes with no one in them. There is, without question, plenty of worrying evidence that Chinese investment has become less efficient in recent years. But a closer look at how the researchers produced the $6.8 trillion figure badly damages their claim. Calling it a back-of-the-envelope estimate would be undeserved praise. … read more via hyperlink above …