FORUM Finance

Jan 17 2019

USA and China: ‘Today you, and tomorrow I?’

What could be better than watching how your two rivals clung to each other, forgetting about you? Nothing. Although, there is one thing: when they fight with each other for a very, very long time. And you solve your problems at this time.

The main event of last year is the beginning of the ‘economic’ confrontation between the USA and China. And in this battle I support both countries at the same time. I hope that they will fight each other for a long time, albeit with interruptions (small ones), but very long.

Despite the fact that the active phase of the confrontation between the two countries began just six months ago, many – including those who are called ‘authoritative experts’ and ‘authoritative economists’ – based on quarterly indicators of the US trade deficit with China, declare that Trump I lost to China, not even having time to start the fight.

Where does such an underestimation of the States come from? Of course, everyone has already heard about their debts, etc., but this is no reason, based on such one-sided information, to talk about an unequivocal future defeat of the Americans in the struggle with China. In order to look at what is happening more objectively, I suggest studying China’s financial and economic indicators a bit more closely. So, let’s begin.

1. China’s GDP growth year by year. Quarterly%. The corresponding quarter of the year is compared to the quarter of the previous year. The latest data is Q3 2018. Drop in growth.

2. The growth of industrial production in China year to year. Quarterly%. The corresponding quarter of the year is compared to the quarter of the previous year. The latest data is Q3 2018. Drop in growth.

3. The rise in consumer prices in China. Monthly in%. The corresponding month of the year to the month of the previous year is compared. The latest data is December 2018. While it is kept within the limits of the values ​​planned by the Chinese.

4. Rising producer prices in China. Monthly in%. The corresponding month of the year to the month of the previous year is compared. The latest data is December 2018.

Rising producer prices indicates a good state of affairs in the economy. I explain: if consumers are buying up goods at rising prices, it means that they have not only a necessity, but also an opportunity to buy it. In confirmation of the words, you can look at the graph of growth of Chinese exports (next) and ‘impose’ it on the graph of growth of producer prices. In 2016, there was a drop in exports and in the same year there was a steady drop in producer prices.

5. Growth in Chinese exports. Monthly in%. The corresponding month of the year to the month of the previous year is compared. The latest data is December 2018. It seems so far so good.

6. Growth in Chinese imports. Monthly in%. The corresponding month of the year to the month of the previous year is compared. The latest data is December 2018. The overall picture is not bad either.

7. Trade balance. Monthly in billions of US dollars. The latest data is December 2018. Just a sight for sore eyes.

8. Investments in fixed assets. Monthly in%. The corresponding month of the year to the month of the previous year is compared. The latest data is December 2018.

The fall in the growth of investment in fixed assets is extremely alarming news. These investments directly affect the growth of the economy in the future.

9. The growth of loans issued. Monthly in%. The corresponding month of the year to the month of the previous year is compared. The latest data is December 2018. Judging by the data, this is the dynamics of the total volume of loans issued to the population and organizations.

10. Monetary unit M2. Monthly in%. The corresponding month of the year to the month of the previous year is compared. The latest data is December 2018.

Throughout 2018, the growth of M2 money supply in China was around 8%. In Russia, the growth of this indicator was 11.9% (as of December 1, 2018 by December 1, 2017). And there was no GDP growth in our country like in China. And inflation in our country was not much higher. A very interesting point, given the fact that the relationship between GDP growth and M2 growth is taking place (the question is not in the primacy, but in the presence of a connection).

11. The volume of loans to the non-financial sector of China, trillion. dollars.

According to the results of the 2nd quarter of 2018 – 33.1 trillion. dollars (excluding Hong Kong).

The same schedule, but in RMB:

There are some “discrepancies” in the two charts: on the dollar chart, from the 2nd quarter of 2018, a decline in lending volumes begins, and on the graph in yuan only a slight slowdown. Apparently, the reason is the decline of the yuan against the dollar, which occurred just in the 2nd quarter of 2018. However, even a slowdown in the volume of loans issued (a graph in yuan) is not a very pleasant call for the Chinese economy. We are waiting for data in the following quarters.

12. The volume of loans to the non-financial sector of China in% of GDP. Following the results of the 2nd quarter of 2018 – 193.1% (excluding Hong Kong).

For comparison:

A. The volume of loans to the non-financial sector of the USA in the 2nd quarter of 2018 – 49.7 trillion. dollars.

B. The volume of loans to the non-financial sector of the United States in the 2nd quarter of 2018 in% of GDP – 157.6%. The peak of debt was in the 2nd quarter of 2011 – 167.3%.

It turns out that the US non-financial sector in terms of relative financial burden has a “margin” for growth compared with the Chinese non-financial sector. Suddenly.

13. The ratio of debt service private non-financial sector in China. According to the results of the 2nd quarter of 2018 – 19.5% (excluding Hong Kong).

In the United States, the same indicator for the 2nd quarter of 2018 is 14.7%. The debt service ratio is an indicator reflecting the ratio of income and payments for the use of borrowed funds, which is calculated using the formula:


Dj, t is total debt; 
Yj, t – quarterly income; 
ij, t is the average interest rate on the existing principal debt for the quarter; 
sj, t is the average remaining maturity in quarters.

Accordingly, this ratio can grow mainly due to the growth of payments or a drop in income. If you look at the charts above, you can see that the volume of lending is growing, so we can assume that the growth of this ratio in China is largely due to the growth of credit payments to non-financial enterprises. Another alarm bell.

By the way, it turns out that from the point of view of this ratio, the American non-financial sector again has a “margin” for growth compared to the Chinese non-financial sector. Another surprise.

14. The volume of loans to the population of China, trillion. dollars.

According to the results of the 2nd quarter of 2018 – 6.582 trillion. dollars (excluding Hong Kong).

The same data in RMB:

In% of GDP, Chinese household debt for the 2nd quarter of 2018 was approximately 50%. For comparison, in the US – 76.6% of GDP. Another rather non-standard news. We have long been accustomed to hearing about the high debt load of the American population, however, if we proceed from the above data, Chinese households are not much less indebted.

15. Retail sales in China. Monthly in%. The corresponding month of the year to the month of the previous year is compared. The latest data is December 2018.

As seen on schedule, retail sales growth in China is slowing, so the big question is how much China will be able to replace the “external” buyer with the “internal” one.

16. China’s budget deficit by year. In% of GDP.

To understand, in absolute terms, the budget deficit of China in 2018 is projected at around 380 billion dollars. (The US has 779 billion dollars). In 2019, China’s budget deficit is projected at 2.8% of GDP. In absolute numbers (very approximately), the budget deficit will exceed 400 billion dollars and may surpass the absolute anti-record of 413 billion dollars set by China in 2016

As a result, as we see, the budget of China over the past 8 years is chronically deficient.

And now the most interesting thing has come: public debts of China and the USA.

What numbers do we know?

US national debt – more than 21.5 trillion. dollars or roughly 106.1% of GDP in 2018 (the fiscal year in the United States ended in September 2018). However, if we “remove” such debts as “intragovernment” from the figures of this debt, which are quite loosely translated as “intragovernmental” (we will not explain what it is yet), then we’ll get ‘only’ 77.7% of GDP. And there is one interesting detail: this debt peaked in 2016, when it was 81.2%, and since we see it has fallen a little. In the same 2016, the “all” US national debt reached its peak and amounted to 106.8%. And by the end of 2018, too, slightly fell.

The national debt of China is approximately 6.3 trillion. dollars for the 2nd quarter of 2018. As a percentage of GDP, this is about 47.6%. (this debt also includes not all). Unlike the US national debt, it grows and is quite bright not only nominally, but also in relation to GDP. In 2017, it was still at the level of 44.2%. Moreover, such a growth in government debt is doubly unpleasant for China due to GDP growth: even the relatively high GDP growth rate (about 2 times higher than in the United States) does not ‘cover’ the growth of China’s government debt. Very alarming signal.

As you remember, in Russia in the period of economic growth before the crisis of 2008-2009. Not only did GDP grow, but the national debt also declined very quickly. And the total amount of external debt, despite its rapid growth, has also declined annually relative to Russia’s GDP, i.e. economic growth covered debts.

And as it should be graphics on the national debt of China.

Trillions of dollars:

In trillion yuan:

In% to GDP:

Thus, if we summarize all the above and all the above graphs, it turns out that the state of the Chinese economy, despite all its growth, is not just ‘not perfect’, but rather tense. Industrial growth is slowing, GDP growth is slowing, growth in retail sales is slowing, and all this against the background of credit growth and growth in government debt. Therefore, purely in my personal opinion, the United States has chosen a suitable enough time to launch an economic attack on China. Especially in the light of the slip from the latter, the project ‘Silk Road’. And not only in countries such as Pakistan and Malaysia, but also in Russia (if someone does not know, in our country the project slowed down largely because of China’s reluctance to localize a significant part of its production facilities ) for the construction and further maintenance of planned highways).

Therefore, in the ongoing confrontation, I continue to root for both sides of the conflict in the most active way. For right now, our country has every chance to increase its power, while no one touches us.

Written by admin


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