How much wealth does China have? | He Jiangbing
Can real figures be biased? Of course. The most common scenario is, when some people do not like a certain company or country, they will deliberately look for the negative comments and data and ignore the achievements; if they like the country or company, they will pick the positive comments and favorable data and avoid the problems. The same goes for China. Many people have not liked China for a long time and often publish the debt situation of the Chinese government and state-run businesses; whereas the Chinese officials publish only their assets. How do we work out the real wealth of the Chinese government, enterprises, and residents? According to the basic accounting principles, assets = liabilities + owner’s equity, and net assets = assets – liabilities. We can only see the whole picture if both assets and liabilities are listed.
The National Institution for Finance and Development (NIFD) under the Chinese Academy of Social Sciences (CASS) published the “China National Balance Sheet 2020” at the end of February, which has compiled 20 years of China’s national balance sheet data from 2000 to 2019. The data shows that China’s total social assets increased from nearly 1,400 trillion yuan (US$215 trillion) in 2017 to 1,655.6 trillion yuan (US$255 trillion) in 2019. Its total social debt reached 980.1 trillion yuan (US$151 trillion) in 2019, meaning net social assets of 675.5 trillion yuan (US$104 trillion). Among them, the residential sector has taken 76% with 512.6 trillion yuan (US$79 trillion), and the per capita wealth of residents is about 366,000 yuan (US$56,287). The remaining 24%, which is 162.8 trillion yuan (US$25 trillion), belongs to the government’s wealth. The proportion of real estate assets in the total assets of residents has dropped from a maximum of over 60% to 48.8% at the end of 2019. Its role in forming the residents’ wealth has reduced.
Li Yang, former Vice President of the CASS, former President of Institute of Finance and Banking (IFB) of the CASS, and the current Chairman of NIFD, introduced at the press conference that the government’s wealth of China has exceeded the U.S. Is that correct? I think so. The lands in China are state-owned, so the local government can increase assets by selling lands and constructing buildings. Also, monopoly industries such as oil, telecommunications, power, and banking are mostly state-owned. In the U.S., most lands belong to the people, and the U.S. federal government only has a few non-profitable state-owned enterprises such as the post. The U.S. government can only collect tax, and there are no arbitrary charges; China’s total tax rate is higher than that of the U.S. and has numerous different fees.
Li Yang also said this balance sheet release has a slight adjustment compared with the past, as the enterprises’ assets and liabilities have merged into government and residential sectors. He believes it is meaningless to talk about only liabilities, to which I agree. To talk about liabilities, we need to see the assets. If the assets cannot cover the liabilities, then we have a problem. Equally, I do not agree with the state-run media talking only about assets and mentioning nothing about liabilities. If you have assets of one billion, but liabilities of two billion, then this “billionaire” actually has less net assets than an ordinary, debt-free person and has nothing to brag. At a press conference on May 24, 2020, Ning Jizhe, Vice Chairman of the National Development and Reform Commission, said the latest balance sheet indicated that the national total assets have gone over 1,300 trillion yuan (US$200 trillion). As he did not mention the liabilities, soon people said that the assets per capita are 930,000 yuan (US$143,025) and netizens felt they have been dragged down by the country. The National Bureau of Statistics of China had to clarify that, according to the research of the CASS, the total assets in 2016 was 1,211 trillion yuan (US$186 trillion), and the liabilities were 773 trillion yuan (US$119 trillion). It means the net assets were 437 trillion yuan (US$67 trillion). The total assets and liabilities of the residential sector were 358 trillion yuan (US$55 trillion) and 39 trillion yuan (US$6 trillion) respectively, which came to net assets of 319 trillion yuan (US$49 trillion).
Only publishing the figures of assets or liabilities is one-sided and misleading, sometimes even causes embarrassment.
China’s economy has gone through 20 years of development and has been growing rapidly, especially since it joined WTO in 2001. Its GDP went from 10 trillion yuan (US$1.5 trillion) in 2000 up to nearly 100 trillion yuan (US$15 trillion) in 2019, and its wealth from 39 trillion yuan (US$6 trillion)in 2000 up to 675.5 trillion yuan (US$104 trillion) in 2019. The compound annual growth rate of China’s nominal GDP from 2000 to 2019 is 12.8%, and that of its net social assets is 16.2%. So the wealth growth is faster than the GDP growth. The general government’s net assets increased from 8 trillion yuan (US$1.2 trillion) in 2000 to 162.8 trillion yuan (US$25 trillion) in 2019, and that of the residential sector has grown from 30.6 trillion yuan (US$4.7 trillion) to 512.6 trillion yuan (US$79 trillion). So the government’s net assets grow faster than the residential sector.
Do the Chinese government and the private sectors really have so much wealth? Sorry to disappoint, but these figures are calculated according to Renminbi and the market value of houses. While there is a positive correlation between China’s house prices and currency, both exist in huge bubbles. Chinese broad money M2 has already exceeded that of the U.S., Japan, and Eurozone all add together in March 2018 and continues to expand. According to the IFB, which has the most conservative data, the total market value of house prices in China is US$65 trillion, US$5 trillion more than the sum of that of the U.S., Japan, and EU (including the UK). In addition, Renminbi is over-estimated against major currencies, so China’s wealth is indeed over-estimated. When the bubble of real estate bursts, the wealth will shrink drastically. The main reason for China’s wealth growth in these 20 years is because the house prices inflated. The orderly internationalization of the Renminbi is also conducive to squeezing the real estate bubble.
(He Jiangbing, Chinese economist)
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