I would suspect at many levels one must regard Chinese accounting as fiction. We have a history of governments, not just the communist which have cooked numbers to their convenience. These have been intertwined in private interests, probably now as much or more than under the KMT.
Having dealt with a small number of first generation Chinese my suspicion that ideas of wealth and accounting have a very different conceptual basis than that slowly disciplined on us by accountants, government, the whole logic we've used to develop our complex system.
Transparency is not an idfeal, it's pragmatic value to establishing the integrity of the system is not naturally intuitive to anyone even westerners, like our Constitutional rights this is a discipline mantained by an educated minority. Paper records serve their purpose, but much is informal, obligations owed in inexact amounts, often only in the brains, levels of detail and fact with the outer levels designed to decieve investors or tax collectors or whatever.
Business decisions can be both brilliant or incredibly stupid. And sometimes we are in a poor position to judge them. A well known example was the Japanese propensity not to worry about short term profits and to cultivate relationships. In the eighties it appeared superior to us, now we are patronizingly superior, but Japan does retain a very effective manufacturing base bringing in considerable profit while significant parts of ours stagnate. It would not surprise me if in the next decade if this doesn't appear to be a valuable economic quality.
Given my experience of how Chinese seem to think it is difficult for me to predict their foreign investment choices in the future. On the one hand they tend to hold to long term values. For example there is an inclination to hold land or jewelry no matter how much it fluctuates in price. It is considered to retain value. Holdings of US dollars or other assets is a form of diversification away from the uncertainties of the Chinese economy. They may fall significantly in the short or medium term, but they are still something.
On the other hand there are string speculatuve and gambling forces and a sense that profits or at least business sense is to go where everyone goes. So declines in the dollar or the US economy could fuel a "run."
I suspectv that various pressures on the Chinese system will lead to crisis and possibly collapse in some key sectors. However as indicated before I am not sure how much these will effect the development dynamic because there are shadow systems under shadow systems. A "surface" collapses, but the wealth has flowed elsewhere and the players who directed previous flows are still in power. It will be western investors and the more ordinary Chinese who eat these losses.
We have here a system with a history of instability we can not imagine, the convulions before the commuist takeover were decades of massive flipping and after that
A old professor of mine (Maurice Meisner) wrote a book claiming that since China's free market economic reforms were instituted by the Communist Party, many of the people who have benefitted from the reforms were people who were politically connected - factory managers, party fnctionaries and the like. As such, the have nots - the workers who are losing their jobs in outmoded Soviet style factories, the peasants whose savings are being appropriated to fund all that investment, etc - will eventually rebel against a system that has entrenched corruption and no poltical freedoms. But here's the clever part of his argument: Any reform movement in China will be simultaneously anti-communist AND anti-capitalist. I don't know if I agree with his thesis, but it is interesting.
i'm a big bond bull. i figure we're in a deflationary spiral... "but"...a dollar crisis will probably spike rates. that leads me to a scenario, and a question.
if global growth slows, and banks in foreign country start having trouble at the same time the dollar is depreciating, won't this cause a sell off of dollar denominated debts? my thoughts are that this is pretty viable scenario. a diminishing dollar value would strangle a central bank's capacity to lend its FX reserves to delinquent banks, staving off bank runs and deflation.
to avoid a crisis, central banks would diversify reservous out of the dollar, driving the dollar down further and spiking rates, but ironically intensifying the original problem.
this bond spike scenario seems pretty viable. any historical precedents? any thoughts?
Chinese accounting is a surprisingly interesting topic.....
Anyway, my guess as why government savings is increasing despite a deficit has to do with different levels of government. The central government is the only level of government in the Chinese system that can effectively borrow money. I suspect that the savings you are seeing are happening at the provincial level.
Commenting by HaloScan
