[経済学] China's Economy in 2015: Sovereign Debt is NOT the Problem
29 July 2015 [link youtube]
China has some remarkable economic problems, but rapidly rising public spending isn't their root cause. This video shows how a single statistic in isolation can be very misleading, and how some opinion-makers may be trying to mislead us with factoids of this kind.
Stefan Molyneux is a charlatan at the best of times, but he recently made an exceptionally absurd pronouncement under the title, "The Fall of China. There Will Be No Economic Recovery." It's easy to imagine that he'd have some interesting facts to present under that title, but no: he is lazily supposing that the economic crisis in Greece somehow resembles the crisis in China… and he's wrong. China has many serious economic problems, but a sovereign debt crisis isn't one of them.
Meanwhile, BTW, there are profound problems in the Chinese economy that are outside of the expertise of most journalists; to hear about a few of them (from someone who knows the horror of what they look like firsthand), try CSIS: https://youtu.be/C2SStFt-k_A?t=3m5s
Youtube Automatic Transcription
hi this video is about a specific
question of the fate of the Chinese economy but it also engages with the broader problem of economic illiteracy and the fact that so many of my fellow Canadians who are products of the same education that I escaped from perhaps the same system I'm still trapped in are so easily manipulated by the presentation of economic factoids in isolation the fellow you see on the screen right now has presented this scary-lookin chart to insinuate that the government of China is on the edge of an economic collapse and that it's on the edge of a collapse broadly similar to what you have lately heard about in the news as the collapse of the Greek economy so that would be a sovereign debt crisis so the scary red line shows you how much money the government of China is spending and were simply left to imagine that the increase in this red line shown in isolation with no context with no comparison to Greece or Italy or any other country that this alone indicates that china is on the edge of an economic collapse that it can never recover from if you're someone who cares sincerely about economics you'll see right away several problems with that chart not to mention the argument that's pinned onto it the unit of currency is simply billions not adjusted for inflation that's why that curve is so smooth and why it increases so rapidly in any given year if the Chinese government increased its budget by ten percent but inflation was five percent then we would only describe the increase in China's budget as five percent not ten percent now year after year inflation in China during a 20-year period has been very very significant and that's also why when you look at this scary red line you don't see many sudden disruptions in the smooth flow of the line for specific historical events which you would expect to see you'd expect to see some kind of twist or bump related to economic crises 2007-2008 and so on right so when we look at this chart instead this is a chart generated by google but using data from the IMF here we have the same statistic total government expenditure for China as a blue line but because this is measured as a percentage of GDP and therefore we're removing inflation from the equation we're looking at a very different curve and we have specific discontinuities in the line that are related to economic events that we may or may not remember from history obviously there's a sharp turn in this line in 2007-2008 that's what we'd expect to see and that's we do see here we have a much more meaningful curve and indeed the line is not going up as sharply or as rapidly or alarmingly as the red line we looked at in the earlier chart but we still aren't looking at it in context is this a problem oh well here we've added a second line of the chart there's China and there's Thailand now Thailand is an interesting comparison it's what you might call a moderately wealthy nation or a moderately poor nation certainly compared to many other nations in Asia its wealthy but it's poor compared to Western European countries so putting China and Thailand in the same chart puts things in perspective now suddenly the level of spending by the Chinese government does not seem shocking just because we have one example to compare it to now Thailand is not on the edge of sovereign debt crisis and neither is China so suddenly these numbers seem reasonable rather than shocking or horrendous as they did in the first place when they were presented with a Oda justment for inflation and with absolutely no context to compare it to now we've added a third line to the chart so there's Canada's level of expenditure now whether or not Canada's government is spending too much money is certainly a topic that is constantly debated in our political system during this period of time 1994 to 2014 you can see that the Canadian government has been struggling to keep our level of spending down to about forty percent of GDP rather than fifty percent but during this period during these 20 years Canada has not been growing the way China has been growing this is a period of time when China was building railroads that connected cities that had never been connected by rail road before this is a period when China was extending electricity both electrical production and electrical connectivity to areas of the country that never had electricity before along with telephones running water access to health care China created a brand new system of social insurance or health care payments so both the Chinese economy has developed during this time but also China's government services and infrastructure have fundamentally developing this time so it's not surprising that Canada is sort of in a struggle to keep its government expenses reasonable whereas China is actually expanding the scope of what the government pays for and so what these lines mean in the real world is more significant then you know it's not just an abstract figure this corresponds to real political changes and real social changes so again now China's the what used to seem to be a terrifying a red line suddenly moving up here we see China as a blue line and it seems quite moderate the initial supposition was that China was on the edge of a crisis that the government was going to collapse because of its levels of debt if instead we asked the question well can China sustain the same level of day as tile and the answer is yes easily it's not a problem can China sustain the same level of debt as Canada yes probably if the blue line in the middle of the chart here in the next couple of years if it continues up to match we're canada's at right now that also would not be a crisis it wouldn't put the country on the edge of collapse so far we have only looked at how much money the government of China is spending if we sincerely believed in the thesis that china is on the edge of a sovereign debt crisis then we would look at the statistic for how much money the government of China is spending to repay its debts or to maintain its debt and in English the verb we use for this these days is service we talk about a country servicing its debts so in the Greek crisis when they talk about servicing the debt normally because Greece can't really repay the debt that has to do with them just paying interest and managing their debt so that's the slightly vague term we use and there is a handy statistic for this here is the blue line this blue line does not show that china is struggling to repay its debts on the contrary it's getting easier and easier for China to service its debts back in 1994 it was relatively expensive for China to maintain its debt load and at the end of this chart which is 2012 it's the most recent data we have you can see that it has gotten easier and easier and cheaper and cheaper for China to maintain and expanding a line of credit now the reason why so many people ignore statistics of this kind is that they feel there should be a kind of morality to debt that as the Chinese government spends more money there ought to be more danger more of a sort of threat of punishment of doom it's not the case not the case for China in the year 2015 why is the Chinese government spending more money partly because they can it is getting easier for them to spend more money so this is the percentage of gross national income that china is spending to service its debt now again as impressive as this blue line maybe we need to see it in context here the blue line is still China the red line is Cambodia and the yellow line is Laos the lao people's democratic republic well if we actually thought China were struggling to manage its debts we would at least expect to see a line like Cambodia's line there Cambodia the red line is going up and you can see cambodia is spending more and more as a percentage of gross national income they are increasingly preoccupied with paying back their debts with servicing their debts now that still doesn't mean it's a crisis I don't think if you look it up you're going to hear that the Cambodian government has a sovereign debt crisis and here again you can see it in context well compared to Laos Laos doesn't have the same kind of trend but Laos is at a much higher level of expenditure by this measure in servicing its debt so China even though its debt is large its debt is cheap it's manageable and not only is it remain manageable it's actually gotten easier and easier for them to manage here we have the comparison to India and Sri Lanka now although Sri Lanka is not in the news headlines the way that Greece currently is Sri Lanka is an example of a country that really is in danger of a sovereign debt crisis and it has been for many years Greece also was at risk of a debt crisis for many years before it became an open fact that everyone couldn't deny that a crisis was underway so in terms of understanding China situation China right now is in a better situation than India for borrowing money and spending money and it's in a dramatically better situation than Sri Lanka Sri Lanka is itself in a better situation than Greece but Sri Lanka really is in trouble and of course this is in my opinion only if you google around it's not difficult to find articles that are proclaiming that Sri Lanka may be on the edge of a sovereign debt crisis probably not this year next year but soon and if you're an optimist of course you know the government could avoid it human ingenuity is what it is and of course than the other hand there are professional ratings agencies that evaluate China's debt they're dead outlook and China is consistently getting very high marks which simply means that China will continue to have the ability to borrow money and spend money in an advantageous way if you're wondering what Sri Lanka's rating is by the fitch agencies definition they rate Sri Lankan bonds as junk bonds so for the Sri Lankan government it is very expensive and very difficult to get new loans to raise new money and spend new money and for China it's easy I think that statistics of this kind unpopular because they remind us of the ways in which life is unfair Sri Lanka maybe a small country that has suffered through a long civil war and we may not like to imagine that they're unfairly burdened with a terrible government debt and China may be a huge country with huge levels of government spending and we may want to believe that for moral reasons that should burden the government of China that the government China should be struggling to repay its debt okay but when we look at economic facts we're not looking at moral feelings if China really were on the edge of a sovereign debt crisis then when you look at this chart the line for China should be a lot more like the line for Sri Lanka both in terms of how high it is in the chart and you'd probably expect to see a sort of jagged line as the country struggles to service its debts you know the Chinese economy does have very serious problems but this isn't one of them the Chinese economies problem is not a sovereign debt crisis I think that one of the main misconceptions is simply China's overall level of wealth China is a poor country and it continues to be a poor country the chart on screen shows you way down at the bottom the gross national product per person so per capita we like to say adjusted for purchasing power parity so for China this is unbelievably lower than Japan Japan really is and continues to be a much wealthier nation than China ever has me and China is not catching up to Japan you can see in terms of the line Japan you know the rich get richer and the poor by and large stay poor so even though China has had such tremendous economic growth over such a long period of time it's very humbling to compare that red line at the bottom to poor countries like Gabon and chile china is nowhere remotely close to catching up with japan gross domestic product per capita at purchasing power parity is a very useful statistic for conceptualising wealth and poverty here you see Malaysia Thailand and Laos as three lines on a chart Thailand is wealthier than Laos Malaysia is wealthier than Thailand and we do not mean the wealth of the government we do not mean how much money is concentrated in the hands of the government but this is reflecting levels of income and expenditure for ordinary people for the average of all people in the country so there are no surprises here but ask yourself before we go on to the next slide where do you think China will be in this chart I think that most people who watch the news or exposed to sort of mainstream casual economic thinking imagine that china is a towering giant economically and that it's much more powerful and important than any of these countries and therefore that it is wealthier here's the sobering reality the red line on this chart shows China China remains a very poor country and if you compare the lines of China and Thailand China is still today a poorer country then Thailand the Chinese people are poorer than the Thai people but moreover the economic growth in china between 2004 and 2014 has only been sufficient for people in china to catch up with what thailand had already accomplished back in about two thousand four 2005 okay so China is a country with serious economic problems many of them stemming from poverty it's also a country with tremendously serious political problems that I've just happened not to be discussing in this short video however among those problems a sovereign debt crisis is not one of them increasing government spending in China is not one of them
question of the fate of the Chinese economy but it also engages with the broader problem of economic illiteracy and the fact that so many of my fellow Canadians who are products of the same education that I escaped from perhaps the same system I'm still trapped in are so easily manipulated by the presentation of economic factoids in isolation the fellow you see on the screen right now has presented this scary-lookin chart to insinuate that the government of China is on the edge of an economic collapse and that it's on the edge of a collapse broadly similar to what you have lately heard about in the news as the collapse of the Greek economy so that would be a sovereign debt crisis so the scary red line shows you how much money the government of China is spending and were simply left to imagine that the increase in this red line shown in isolation with no context with no comparison to Greece or Italy or any other country that this alone indicates that china is on the edge of an economic collapse that it can never recover from if you're someone who cares sincerely about economics you'll see right away several problems with that chart not to mention the argument that's pinned onto it the unit of currency is simply billions not adjusted for inflation that's why that curve is so smooth and why it increases so rapidly in any given year if the Chinese government increased its budget by ten percent but inflation was five percent then we would only describe the increase in China's budget as five percent not ten percent now year after year inflation in China during a 20-year period has been very very significant and that's also why when you look at this scary red line you don't see many sudden disruptions in the smooth flow of the line for specific historical events which you would expect to see you'd expect to see some kind of twist or bump related to economic crises 2007-2008 and so on right so when we look at this chart instead this is a chart generated by google but using data from the IMF here we have the same statistic total government expenditure for China as a blue line but because this is measured as a percentage of GDP and therefore we're removing inflation from the equation we're looking at a very different curve and we have specific discontinuities in the line that are related to economic events that we may or may not remember from history obviously there's a sharp turn in this line in 2007-2008 that's what we'd expect to see and that's we do see here we have a much more meaningful curve and indeed the line is not going up as sharply or as rapidly or alarmingly as the red line we looked at in the earlier chart but we still aren't looking at it in context is this a problem oh well here we've added a second line of the chart there's China and there's Thailand now Thailand is an interesting comparison it's what you might call a moderately wealthy nation or a moderately poor nation certainly compared to many other nations in Asia its wealthy but it's poor compared to Western European countries so putting China and Thailand in the same chart puts things in perspective now suddenly the level of spending by the Chinese government does not seem shocking just because we have one example to compare it to now Thailand is not on the edge of sovereign debt crisis and neither is China so suddenly these numbers seem reasonable rather than shocking or horrendous as they did in the first place when they were presented with a Oda justment for inflation and with absolutely no context to compare it to now we've added a third line to the chart so there's Canada's level of expenditure now whether or not Canada's government is spending too much money is certainly a topic that is constantly debated in our political system during this period of time 1994 to 2014 you can see that the Canadian government has been struggling to keep our level of spending down to about forty percent of GDP rather than fifty percent but during this period during these 20 years Canada has not been growing the way China has been growing this is a period of time when China was building railroads that connected cities that had never been connected by rail road before this is a period when China was extending electricity both electrical production and electrical connectivity to areas of the country that never had electricity before along with telephones running water access to health care China created a brand new system of social insurance or health care payments so both the Chinese economy has developed during this time but also China's government services and infrastructure have fundamentally developing this time so it's not surprising that Canada is sort of in a struggle to keep its government expenses reasonable whereas China is actually expanding the scope of what the government pays for and so what these lines mean in the real world is more significant then you know it's not just an abstract figure this corresponds to real political changes and real social changes so again now China's the what used to seem to be a terrifying a red line suddenly moving up here we see China as a blue line and it seems quite moderate the initial supposition was that China was on the edge of a crisis that the government was going to collapse because of its levels of debt if instead we asked the question well can China sustain the same level of day as tile and the answer is yes easily it's not a problem can China sustain the same level of debt as Canada yes probably if the blue line in the middle of the chart here in the next couple of years if it continues up to match we're canada's at right now that also would not be a crisis it wouldn't put the country on the edge of collapse so far we have only looked at how much money the government of China is spending if we sincerely believed in the thesis that china is on the edge of a sovereign debt crisis then we would look at the statistic for how much money the government of China is spending to repay its debts or to maintain its debt and in English the verb we use for this these days is service we talk about a country servicing its debts so in the Greek crisis when they talk about servicing the debt normally because Greece can't really repay the debt that has to do with them just paying interest and managing their debt so that's the slightly vague term we use and there is a handy statistic for this here is the blue line this blue line does not show that china is struggling to repay its debts on the contrary it's getting easier and easier for China to service its debts back in 1994 it was relatively expensive for China to maintain its debt load and at the end of this chart which is 2012 it's the most recent data we have you can see that it has gotten easier and easier and cheaper and cheaper for China to maintain and expanding a line of credit now the reason why so many people ignore statistics of this kind is that they feel there should be a kind of morality to debt that as the Chinese government spends more money there ought to be more danger more of a sort of threat of punishment of doom it's not the case not the case for China in the year 2015 why is the Chinese government spending more money partly because they can it is getting easier for them to spend more money so this is the percentage of gross national income that china is spending to service its debt now again as impressive as this blue line maybe we need to see it in context here the blue line is still China the red line is Cambodia and the yellow line is Laos the lao people's democratic republic well if we actually thought China were struggling to manage its debts we would at least expect to see a line like Cambodia's line there Cambodia the red line is going up and you can see cambodia is spending more and more as a percentage of gross national income they are increasingly preoccupied with paying back their debts with servicing their debts now that still doesn't mean it's a crisis I don't think if you look it up you're going to hear that the Cambodian government has a sovereign debt crisis and here again you can see it in context well compared to Laos Laos doesn't have the same kind of trend but Laos is at a much higher level of expenditure by this measure in servicing its debt so China even though its debt is large its debt is cheap it's manageable and not only is it remain manageable it's actually gotten easier and easier for them to manage here we have the comparison to India and Sri Lanka now although Sri Lanka is not in the news headlines the way that Greece currently is Sri Lanka is an example of a country that really is in danger of a sovereign debt crisis and it has been for many years Greece also was at risk of a debt crisis for many years before it became an open fact that everyone couldn't deny that a crisis was underway so in terms of understanding China situation China right now is in a better situation than India for borrowing money and spending money and it's in a dramatically better situation than Sri Lanka Sri Lanka is itself in a better situation than Greece but Sri Lanka really is in trouble and of course this is in my opinion only if you google around it's not difficult to find articles that are proclaiming that Sri Lanka may be on the edge of a sovereign debt crisis probably not this year next year but soon and if you're an optimist of course you know the government could avoid it human ingenuity is what it is and of course than the other hand there are professional ratings agencies that evaluate China's debt they're dead outlook and China is consistently getting very high marks which simply means that China will continue to have the ability to borrow money and spend money in an advantageous way if you're wondering what Sri Lanka's rating is by the fitch agencies definition they rate Sri Lankan bonds as junk bonds so for the Sri Lankan government it is very expensive and very difficult to get new loans to raise new money and spend new money and for China it's easy I think that statistics of this kind unpopular because they remind us of the ways in which life is unfair Sri Lanka maybe a small country that has suffered through a long civil war and we may not like to imagine that they're unfairly burdened with a terrible government debt and China may be a huge country with huge levels of government spending and we may want to believe that for moral reasons that should burden the government of China that the government China should be struggling to repay its debt okay but when we look at economic facts we're not looking at moral feelings if China really were on the edge of a sovereign debt crisis then when you look at this chart the line for China should be a lot more like the line for Sri Lanka both in terms of how high it is in the chart and you'd probably expect to see a sort of jagged line as the country struggles to service its debts you know the Chinese economy does have very serious problems but this isn't one of them the Chinese economies problem is not a sovereign debt crisis I think that one of the main misconceptions is simply China's overall level of wealth China is a poor country and it continues to be a poor country the chart on screen shows you way down at the bottom the gross national product per person so per capita we like to say adjusted for purchasing power parity so for China this is unbelievably lower than Japan Japan really is and continues to be a much wealthier nation than China ever has me and China is not catching up to Japan you can see in terms of the line Japan you know the rich get richer and the poor by and large stay poor so even though China has had such tremendous economic growth over such a long period of time it's very humbling to compare that red line at the bottom to poor countries like Gabon and chile china is nowhere remotely close to catching up with japan gross domestic product per capita at purchasing power parity is a very useful statistic for conceptualising wealth and poverty here you see Malaysia Thailand and Laos as three lines on a chart Thailand is wealthier than Laos Malaysia is wealthier than Thailand and we do not mean the wealth of the government we do not mean how much money is concentrated in the hands of the government but this is reflecting levels of income and expenditure for ordinary people for the average of all people in the country so there are no surprises here but ask yourself before we go on to the next slide where do you think China will be in this chart I think that most people who watch the news or exposed to sort of mainstream casual economic thinking imagine that china is a towering giant economically and that it's much more powerful and important than any of these countries and therefore that it is wealthier here's the sobering reality the red line on this chart shows China China remains a very poor country and if you compare the lines of China and Thailand China is still today a poorer country then Thailand the Chinese people are poorer than the Thai people but moreover the economic growth in china between 2004 and 2014 has only been sufficient for people in china to catch up with what thailand had already accomplished back in about two thousand four 2005 okay so China is a country with serious economic problems many of them stemming from poverty it's also a country with tremendously serious political problems that I've just happened not to be discussing in this short video however among those problems a sovereign debt crisis is not one of them increasing government spending in China is not one of them