Economist Online

While the rest of the world is going through a deleveraging process, China has been leveraging up. Its economy is getting bubbly.

According to research by Standard Chartered Bank, China’s overall leverage ratio (the sum of the leverage of government, corporate and household) now reached 210% of GDP, rising from a rather high level 150% of GDP in early 2000s.

Dividing the overall leverage ratio in into three sub-components, we see the biggest increase came from the corporate sector: the ratio in that sector has increased from 80% of GDP at the beginning of the Great Recession to around 130% of GDP today.

Most of the leveraged-up corporations are SOEs.  They are the natural candidates to respond quickly to government’s  call for stimulus spending in the aftermath of the financial crisis during 2007-2009.

Besides SOEs, local governments also created all sorts of firms outside of government’s (and bank’s) balance sheet, the so-called local-government-investment-vehicles, or LGIVs.   This is Chinese version of shadow banking system. My sense is that they have contributed a great deal to China’s housing bubble.

’60 minutes’ investigates the recent development of Chinese housing bubble in the following video.

Following my previous posts (here, here, here, here and here) on China’s housing bubble, I am now re-organizing my thoughts, and starting to work out a formal economic analysis on China’s housing bubble.

Specifically, I will address the question if the current housing price in China can be justified by the story of China’s fast economic growth coupled with her fast industrialization and urbanization. My initial analysis clearly says no. I call this a ‘fools-and-greater-fools’ theory.  In history, great bubbles always came with even greater stories.  China is no exception.

Will keep you guys posted.

In the following video, Andrew Nathan talks about his new article (with the same subject title), which is about to appear on the next issue of Foreign Affairs.

According to Data Mine, the U.S. share of global manufacturing value has been on a fairly steady decline since 2000 as Chinese manufacturing has shot up, surpassing Germany in 1999 and Japan in 2007.

The decline of US manufacturing is relative.  US manufacturing, on an absolute basis, is still growing.  However, this is not the case for the manufacturing employment.  More than one-third of American million manufacturing jobs disappeared between 1970 and 2010, while the Chinese now enjoy a total labor force five times that in the U.S.

Combining the two facts above, one can conclude that the growth of US manufacturing has relied on shedding domestic labor (incl. shifting manufacturing to China), and increasing productivity.

An interesting debate.

Debater: Orville Schell, Peter Schiff vs. Ian Bremmer, Minxin Pei.