Author: Aaron Ken Lee

Publisher: Global Era Public Interest Info Network

Published: 2015-03-24

Total Pages: 385

ISBN-13: 1511414588

FREE BOOK: 62 pages of "China's Faustian Bargains" as Part I of this book (Click Preview this book) What happens in China is increasingly having repercussions impacting economies around the world. This book reveals a multitude of information hidden in the layers of China’s economy, drawing a wealth of information from materials published only in the Chinese language, in-print and on Chinese-language websites, and previously not accessible to the English-speaking world. Anyone who holds a mutual fund/pension fund may, nowadays, have a portfolio that is subject to repercussions originating from what is going on in China. The story of how Caterpillar fell victim, in 2013, to Enron-like accounting fraud in China, and incurred a loss of a startling US$ 580 million, is by no means an isolated event, but a thing that ordinary investors in the western world need to know about. Nowadays, an ordinary Joe’s investment might be impacted by things that are taking shape in China. Could some Chinese companies, listed on the New York Stock Exchange, possibly become the next Enron-like development? An American professor of financial accounting points out how a peculiar corporate structure used by certain companies originated from China may be a worrisome untoward design. This book enables readers to gain insights into the above noted, as well as many other, important events. This book illustrates how the 135% corporate debt to GDP ratio (the highest among the world’s major economies), vast overcapacity, gigantic property glut, together with the country’s pro-cyclical fiscal structure, may bring China’s GDP annual growth to below 4%, sooner than you can imagine. China has, in 2014, overtaken the United States, not in its size of GDP, but in its size of total corporate debt, and also in the ratio of total corporate debt to GDP, which is 135% as of July 2014. This ratio way exceeds the threshold of 80% that the OECD considers as the maximum safe level for a nation’s corporate-debt-to-GDP ratio. China’s corporate-debt-to-GDP ratio is now a whopping 81% larger than that of the US (which is 75%). This book illustrates how China’s economy is now prone to destabilization from the above, and other factors, such as China’s ongoing bad debt trap, and China’s uniquely pro-cyclical fiscal structure. And, such ominously destabilizing setting is now made worse by China’s already extremely high debt-to-GDP ratio, of 282%. Said pro-cyclical fiscal structure is a key issue almost entirely overlooked hitherto, in studies on China in the English-speaking world. China has an income tax base that is constituted by only less than 2% of the country’s population. Consequently, such fiscal structure is overly reliant on sales taxes and corporate taxes, and this makes China’s economy so much more prone to destabilization than any other major economies in the world. As, in macroeconomics, income tax being counter-cyclical (and hence is congenial to stabilizing the economy) and sales tax/corporate tax being pro-cyclical, effecting a feedback loop that further destabilizes the economy. Such structurally predicated menace is now more debilitating, given China’s extremely high debt-to-GDP ratio. This book elucidates on how, in the decade prior to 2008, causes of China’s double-digit economic growth can be identified as being the initial stage of development, in the nature of a Faustian Bargain. There has been an array of expediencies practiced by Beijing, in the past, that significantly boosted China’s GDP in the short run, but these were at the expense of the economy's long-run sustainable growth. This author identifies said expediencies as China’s Faustian Bargains at work, in the forms of monetized state landlordism, over-leveraging to pursue profligate investments funded by financial repression of household savers, and the decades of perilous expensing-out of the nation’s environmental endowments. All these said expedient GDP boosters bear Faustian consequences, and this book shows how they are now increasingly surfacing, and making the aforesaid significant lowering of GDP growth highly probable. This book illustrates: how China's sub-standard accounting/auditing practices, and the country’s grossly ineffective legal system, may have repercussions, unbeknownst to you, for your investments. How China’s economy fares will have important repercussions for the world. In this era of globalization, China is becoming “everybody’s