Platt Perspective on Business and Technology

China and its transition imperatives 1: at one year plus, after Xi Jinping’s ascension to power

Posted in macroeconomics by Timothy Platt on February 8, 2014

I have written explicitly about China over 50 times in this blog, but my most recent series on that country: Thoughts of China for After its 2012 Power Transitions, ended with a Part 6 installment that went live on November 16, 2012. That was just before the opening of their 18th National Congress of the Communist Party of China. And that was when China’s still unfolding transition in its most senior Party and governmental leadership formally began taking place. (You can find that series at Macroeconomics and Business as postings 122 and following, and you can also find earlier China-related postings and series in that directory and at Ubiquitous Computing and Communications – everywhere all the time.)

My initial intent was to wait on the order of 11 months to a full year before continuing that discussion so I could offer a deeper perspective on this process and its outcomes, than simply noting a series of here-and-now news details that would of necessity be incomplete and disconnected. I knew that the initial news coming out of this transition process would primarily be of short-term interest and consequence, barring unexpectedly disruptive events that would force the hand of this new leadership in making long term consequential decisions before it was ready to back them with full political support. I actually find myself writing this posting on the last day of 2013, with it scheduled to go live in early February, 2014. So I have in fact waited a little longer than that initially planned one year mark.

I offer this posting as a first installment in a new China series. And I do, in fact, expect to make explicit note of a number of the news details in this series, some individually minor in significance that have come out of China over the past year and more. A larger picture of where China is and how it has gotten there, and of where it is headed can only be constructed out of those smaller pieces. But I begin this series here with some big issues that China and its leadership cannot ignore and that they cannot address either, at least through anything like Chinese Communist Party business as usual policy or practices as have prevailed up to now.

I begin with some details that I have already discussed in earlier postings:

• Since early 2012, the national government of the People’s Republic of China has consistently held some $4.2 trillion dollars’ worth of foreign currency in their reserves with just over $2 trillion of that in US dollars and $1.2 trillion of it in Euros with those numbers slowly rising as a basic ongoing trend (see China and Our Increasingly Interconnected Global Economy – 1.)
• At the same time, credit driven spending at local government levels has accumulated an overall debt that the Chinese government itself pegs at approximately 17.8 trillion Renminbi, or US $3 trillion. And when local and provincial level debt is more fully taken into account those numbers are quite probably low-side estimates.
• In a centrally controlled and managed system such as you find in China, ultimately any local or provincial governmental debt is in fact a national debt, and I add a ruling Communist Party debt. And as just noted, evidence would suggest that publically stated combined local and provincial debt in fact underestimates total amounts owed that those lower level government offices cannot in any way cover. So at the very least, their national cash reserves can be thought of as more of a bookkeeping trick than anything else, with positive cash assets listed in one part of their books, and at least closely matching debits-due listed in another.

And what has driven this massive accumulation of local and provincial debt? What has been done with this money, and what issues and challenges that are arguably of pressing societal importance have been overlooked in this rush to spend? I am going to delve into those questions and at least begin to formulate answers to them in my next series installment. And as a foretaste of that, I note that I will be picking up again on my discussion of environmental challenges in China that I began writing of in my earlier series as noted above, that have if anything, have become more severe and intense over the past year. Meanwhile, you can find this and related postings at Macroeconomics and Business.

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