Skip to main content

The Globe and Mail

Top Links: China’s $2-trillion ‘black hole’

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

I support the federal government's infrastructure spending initiatives for the record, but I'm concerned about recent history showing ample reason to doubt that various levels of government can spend the taxpayer dollars efficiently.

Megan McArdle, from Bloomberg Views, recently discussed these issues from a U.S. perspective with an interview with a prominent infrastructure expert that happens to be her father (his impressive resume is included in the report),

Story continues below advertisement

"Infrastructure zealots talk about spending money on infrastructure the way monetary policy zealots talk about helicopter money. It will cure all ills - and it will do windows! But that is talk by zealots, not talk by professionals.

"We've seen in the 2009 stimulus the problems inherent in spending money on infrastructure, particularly through the federal government. The federal government has layers of reviews and approvals that are great employment generators for environmental consultants, but add an average four years to the timeline of a project, all in the project development stage. They waste resources on project review, not on project execution. Very few people on either the right or the left really understand this. Most on the left think that the work on the infrastructure is done by deserving poor people, more of whom could be employed if only we added money. That is far from the case. Most of the workforce is highly skilled."

"What If Infrastructure Were Actually Planned?" – McArdle(s), Bloomberg View

=====

Web traffic statistics here at the Report on Business strongly suggest readers have little-to-no interest in economic news from China, and this remains inexplicable to me. China remains the second-largest national economy on the planet and the biggest source of demand for every commodity imaginable.

I believe Canadian investors should take note of a recent report by Fitch Rating Service uncovering what they believe is a $2-trillion (U.S.) financial 'black hole' in the country's bank balance sheets,

"Bad debts in the Chinese banking system are ten times higher than officially admitted, and rescue costs could reach a third of GDP within two years if the authorities let the crisis fester, Fitch Ratings has warned.

Story continues below advertisement

"The agency said the rate of non-performing loans (NPLs) has reached between 15pc and 21pc and is rising fast as the country delays serious reform, relying instead on a fresh burst of credit to put off the day of reckoning.

"It would cost up to $2.1 trillion to clean up this toxic legacy even if the state acted today, and much of this would inevitably land in the lap of the government."

"Fitch reveals the $2trillion black hole in China's economy that heralds a lost decade" – Telegraph U.K.
"China to crack down on fake overseas M&A deals to curb money flight" – Reuters

=====

In a video interview with BNN, TD chief economist Beata Caranci notes that while third-quarter domestic growth should be strong as the economy rebounds from the Alberta wildfires, it is likely to flag thereafter.

"Q3 growth will be a barn-burner, but isn't sustainable: TD" – (video) BNN

Story continues below advertisement

=====

Tweet of the Day: "@voxdotcom More Americans died of drug overdoses in 2014 than any other year on record. Here's why. bit.ly/2bTsDeY " – Twitter

Diversion: "Most of us misunderstand metabolism. Here are 9 facts to clear that up." – Vox

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.