中国和明斯基时刻China and Minsky Moment

在过去30年中，中国的经济增长异常，主要是基于投资、出口和廉价劳动力。近年来，中国正朝着更加注重国内消费、高科技产品和熟练劳动力的新模式转变。这可能会将其转变为世界上最大的经济体，但增长受到债务扩张和潜在的“明斯基时刻”的威胁。本课题着眼于这一威胁背后的证据以及明斯基理论对当代中国的适用性。

China has recorded exceptional economic growth over the last thirty years based largely on investment, exports and cheap labour. Recently it has been shifting towards a new model with more emphasis on domestic consumption, high technology products and skilled labour. This may transform it into the world's largest economy, but growth is threatened by the expansion of debt and potentially a "Minsky moment".  This topic looks at the evidence underlying this threat and the applicability of Minsky's theory to contemporary China.

本章首先介绍了“明斯基时刻”的内容，然后分析了中国经济是否已达到“明斯基时刻”，最后根据相关文献预测中国经济是否会达到“明斯基时刻”及其对世界经济的影响。我的。

“明斯基时刻”是指市场繁荣与衰退之间的转折点（Dimand和Koehn，2008年）。当经济繁荣时，投资者敢于冒险，他们借钱，增加杠杆和扩张，使信贷急剧上升（Arestis和Glickman，2002年）。经济繁荣的时间越长，杠杆作用越高，积累的风险就越多，风险投资者也越高，从而导致过度投资和过度风险（Whalen，2008年）。一步一步地，投资者将达到一个临界点，他们的资产产生的现金不再足以支付他们用来获得资产的债务（Dimand和Koehn，2008年）。整个社会的期望开始逆转。在全社会“还债”的压力下，资产发生集体清算，资产价格暴跌，资产泡沫破灭。投机资产的损失促使贷款人收回贷款，导致资产价值的崩溃。明斯基认为，随着市场投机信贷的增加，信贷环境正在恶化，违约继续出现，金融系统出于对冲目的收紧信贷（Whalen，2008年）。当经济体系提供的贷款不足以满足流动性需求时，将出现“明斯基时刻”，即金融泡沫、资产泡沫崩溃的临界点（Arestis和Glickman，2002年）。
This chapter first introduces the content of “Minsky moment”, then it analyzes whether China's economy has reached “Minsky moment”, and finally it is based on relevant literatures to anticipate what will happen if China's economy meets  “Minsky moment”  and its impact on the world economy.

 “Minsky moment” refers to is the turning point between market prosperity and recession (Dimand and Koehn, 2008). When economy is prosperous, investors dare to take risks, they borrow money, increase leverage and expand, making credit rise sharply (Arestis and Glickman, 2002). The longer the economy is booming, the higher the leverage is, the more risks are accumulated and the more risky investors are, leading to excessive investment, excessive risk (Whalen, 2008). Step by step, investors will reach a critical point, the cash generated by their assets is no longer sufficient to meet the debt they use to obtain the assets (Dimand and Koehn, 2008). Expectation of the whole society begins to reverse. Under the pressure of "repaying debts" in the whole society, a collective liquidation of assets occurs, asset prices plummet, the asset bubble bursts. The loss of speculative assets prompts lenders to recover their loans, leading to the collapse of asset value. Minsky argued that with the increase of speculative credit in the market, the credit environment is deteriorating, defaults continue to emerge, and the financial system tightens credit for hedging purposes (Whalen, 2008). When the loans provided by the economic system have been insufficient to support liquidity needs, there will be "Minsky moment", that is the critical point of the collapse of the financial bubble, the asset bubble (Arestis and Glickman, 2002).

Morgan Stanley believed that with the 2008 Chinese financial crisis, the Chinese government has invested huge amounts of money to stimulate the economy to grow (Yu et al., 2017). Now it has become the second largest economy in the world. However, since the rapid credit growth in 2008, a large number of wrong and unreturnable investments are wasted. If the investment is backed by debt and the returns are not rewarded, then the rate of borrowing can not keep up with the rate of debt repayment (Gulf Times, 2017). The snowball of debt will surely get bigger and bigger and expand, debt crises often occur. In today's China, a large amount of debts are about to expire, borrowers' capital is tight, economic growth slows, monetary policy tightens, market interest rates begin to rise, borrowing costs rise, and credit is drying up. All this implies that it is getting closer to China's “Minsky moment”. China's economy has entered the stage dominated by investment credit and Ponzi scheme.

At a macro level, the debt of few economies grows as wildly as China has done in the past five years. According to estimates by the International Institute of Finance (IIF) at the end of 2016, China's debt-to-GDP ratio has reached 300% (Cuestas and Regis, 2018). And it is still growing 30% -40% annually, moreover, there is evidence that debt growth is excessive and it does not enter the productive sectors (Lim, Wang and Zeng, 2018). Around 2005, every 1 yuan increase in debt can drive 1 yuan of GDP, and now every 4 yuan increase in debt can drive 1 yuan of GDP (Cuestas and Regis, 2018). More than 50% of China's local government financing platform is not enough to repay interest or principal, which is characteristic of Minsky’s Ponzi finance period (Yu et al., 2017). Data showed that the balance of central and local government debt stood at 27.33 trillion yuan by the end of 2016 (Gulf Times, 2017). Moreover, it is estimated that a third of new loans are used to repay old debt. The interest of debt paid reaches 1.4 times of the incremental GDP, which is almost double that of the United States before the 2007 financial crisis (Cuestas and Regis, 2018). China's economy is now in a stage of speculative credit and Ponzi finance. “Minsky moment” arrives at a time when investors engaged in speculative credit and Ponzi finance no longer got enough money from the market. Minsky argued that this moment usually arises when the central bank tightens monetary policy. China is now at this juncture. In 2017, the People's Bank of China took a series of measures to tighten credit. Financing costs in the bank market are on the rise, the lending rate of banks in Shanghai rose 220 basis points (Yu et al., 2017).

All in all, in the current China, a large amount of debt is about to expire, borrowers’ funds are tight, economic growth slows, monetary policy tightens, market interest rates begin to rise, and borrowing costs rise. All of this implies that China's “Minsky moment” is getting closer and closer.

With the arrival of “Minsky moment” in China, liquidity of investors will soon be exhausted, a series of defaults or approaching defaults can not be avoided. Market interest rates of all assets excluding government bonds and central bank bills will continue to rise as the market fears defaults; once the borrowers sell assets in order to maintain liquidity, asset prices may also begin to devalue. As a result, bad loans of banks and other financial institutions further increase, which leads to a tightening of credit. One day, excepting the safest borrowers, the credit tightening will kill all other borrowers in the market.

Default, bad debts, tightening of credit will most likely occur in areas that are highly dependent on debt, such as local government financing institutions and other sectors with overcapacity. Investment in fixed assets will be the most affected sectors, in particular, infrastructure construction, real estate and related industries (cement, steel, machinery manufacturing, etc.).

Over time, slowing economic growth and rising defaults will trigger government intervention. Loose monetary policy of the Central Bank and the government's fiscal stimulus will be parallel. But the government intervention does not solve the problem, it just delays.

After the arrival of “Minsky moment”, China's economy will slow down to 5% and make global corporate earnings decline. Many analysts thought that for every 1% drop in China's GDP growth, global economic growth will slow down by 0.6% (Cuestas and Regis, 2018).  On the basis of 7.4% of China's economic growth, the global economic growth will be around 3% from 2014 to 2015 (Yu et al., 2017). If China's economic growth slows by 2% to 5.4% (the global economic growth will drop to 1.8%, which will have a significant impact on global stock markets and at least a 2.5% global GDP growth should be ensured to ensure global corporate profit growth (Cuestas and Regis, 2018). If GDP slows to 1.8%, global corporate profits will drop by about 13%, which is much lower than the current forecast growth of 11% (Lim, Wang and Zeng, 2018).

All in all, China is the second-largest economy in the world. As the most powerful engine for world economic development in the past 10 years, the time of China's economic development in “Minsk moment” is largely unavoidable. This will greatly affect the world's economic development. Governments and enterprises s of all countries should pay attention to this and take measures to deal with it.

 

References

Arestis, P., and M. Glickman. (2002). Financial crisis in southeast Asia: dispelling illusion the Minskyan way. Cambridge Journal of Economics, 26(2), 237–260.#p#分页标题#e#

Cuestas, J. C. and Regis, P. J. (2018). On the dynamics of Sovereign debt in China: sustainability and structural change. Economic Modelling, 68(1), 356-359.

Dimand, R. W. and Koehn, R. H. (2008). Central Bankers in the Minsky Moment: how different central banks have responded to the threat of debt-deflation. The Journal of Economic Asymmetries, 5(1), 139-148.

Gulf Times. (2017). PBoC warns of ‘Minsky moment’ as economy powers ahead. Available from: http://amp.gulf-times.com/story/568021/PBoC-warns-of-Minsky-moment-as-economy-powers-ahea (accessed on January 12, 2018). 

Lim, C. Y. and Zeng, J. W. C. (2018). China's “mercantilist” government subsidies, the cost of debt and firm performance. Journal of Banking & Finance, 86, 37-52.

Whalen, C.J. (2008). The credit crunch: a Minsky moment.  Studi e Note di Economia XIII (1), 3–21.

Yu, H. et al. (2017). Risk contribution of the Chinese stock market to developed markets in the post-crisis period. Emerging Markets Review, 1(12), 205-221.