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麻省理工学院经济学博士

个性介绍: 1960年出生于上海,1983年毕业于上海同济大学路桥系,1987年获麻省理工学院土木工程学硕士,1990年获麻省理工学院经济学博士。同年加入世界银行,担任经济分析员。在世行的五年时间,谢国忠所参与的项目涉及拉美、南亚及东亚地区,并负责处理该银行于印尼的工商业发展项目,以及其他亚太地区国家的电讯及电力发展项目。1995年,加入新加坡的Macquarie Bank,担任企业财务部的联席董事。1997年加入摩根士丹利,任亚太区经济学家,2006年9月辞去该职务。

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谢国忠:日本尚未复苏  

2009-09-16 11:57:36|  分类: 言论 |  标签: |举报 |字号 订阅

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还未回升的日本


2009-09-14
 

Japan has been in an equilibrium of strong currency, stagnation,large fiscal deficit and deflation for two decades. The reason is tominimize interest burden of the huge debt load for the corporatesector. Even though the public debt has skyrocketed, the corporate debthas not fallen much. The reason is that real interest rate isn't so lowin a deflationary environment. The low interest payment in nominalterms serves an accounting purpuse but doesn't actually decreaseprivate debt burden. As long as Japan runs current account surplus,this equilibrium can continue, as Japan can control its interest rate.However, as global trade is stuck in a slow lane for the foreseeablefuture, Japan's surplus may vanish. As some point, Japan will losecontrol over its interest rate. When it happens, Japan will shift fromstrong yen, low interest rate to weak yen, high interest rate. Theswitch will be sudden.

 

Andy

 

Japan: not rising

-----------------------------------------------------

Japanhad a political earthquake last week: the Liberal Democratic Party(‘LDP’) that ruled Japan since the end of the World War II lost most ofits seats. The Democratic Party of Japan (‘DPJ’) won 308 out of 480seats in the lower house. It already has a majority in the upper house.The DPJ is in a strong position to undertake structural reforms. When acountry has stagnated for so long like Japan, a change in politicalregime brings hope. However, the DPJ is unlikely to turn around Japan’seconomy anytime soon. The LDP, in the name of Keynesian stimulus, hasspent all the money that Japan could on wasteful investment. The DPJdoesn’t have resources to undertake reforms. I am afraid that the DPJhas an impossible situation in its hand. Japan’s economic woes aheadwill soon bring it down.

 

 

Anyone whodoesn’t believe in the harms of financial bubble and believes in themagic of Keynesian stimulus should visit Japan. After its stock marketbubble burst in 1989 and land market in 1992, its government under theLDP leadership has run up nearly 200% of GDP in debt to revive theeconomy. Nevertheless, its economy has stagnated. When the globalcredit bubble burst in 2008, it brought down Japan’s export machine-itsonly hope. Among all the OECD economies Japan’s looks most like indepression. Its nominal GDP declined by 8% in the first quarter of 2009from one year ago. Even though its economy rebounded a bit in thesecond quarter, the nominal GDP for the whole of 2009 would stilldecline substantially and would likely be lower than the level in 1993.All the money that Japan has spent in a decade and an half has beenwasted.

 

 

Many analysts blame Japan’sproblems on the inefficiencies of its corporate sector. This ispartially true. Japan has had a hyper-competitive export sector. Thedomestic demand-oriented industries are not efficient due to labormarket practices. More importantly, the sectors that became massivelylevered during the bubble have been walking dead or zombies for twodecades, weighing down the overall efficiency of the economy. Japan'sinefficiencies are largely a consequence of Japan's choice to prop upthese industries.

 

 

The return on asset(‘RoA’) in the US was twice as high as in Japan. But, with the benefitof the hindsight, the US's higher RoA was mostly a bubble phenomenon.Much of the US corporate profitability was due to financialengineering. In one aspect-export performance Japan’s corporate sectorhas done very well, much better than its US counterpart. Japan’sexports doubled in yen terms between 1993-2008 and their share in GDPnearly doubled to 16% from 9%, even though yen remained strong duringthe period. The performance of Japan's export sector shows that itsinefficiencies elsewhere are largely due to system shortcomings.

 

 

Japan’sstagnation is mainly due to how the government has handled the debtoverhang in the corporate sector, mainly in real estate, construction,and retail sectors, from the bubble era. In the 1980s, especially afterthe Plaza Accord, Japan’s corporate sector accumulated a massive amountof debt for financial speculation. The total corporate debt more thandoubled to about yen 900 trillion, or 200% of GDP, between 1984-1992.After the land and stock prices collapsed, the net value of thecorporate sector's financial assets switched from about 30% of GDPpositive to 50% of GDP negative. If the change in the land holdings'value is included, the corporate sector's net worth may have dived by200% of GDP. As corporate profit is about 10% of GDP in a developedeconomy, it would take two decades for Japan's corporate sector to earnits way back.

 

 

The Japanese government didchoose to let the corporate sector to earn its way back by (1)preventing bankruptcies and (2) stimulating demand. To achieve thefirst goal, the government kept interest rate near zero and Japanesebanks didn't pursue mark-to-market accounting in assessing theirborrowers' solvency. With a big chunk of the corporate sectorzombie-like, the economy, of course, was always under downwardpressure. The government had to run large fiscal deficits to prop upthe economy. After the bubble Japan's economic equilibrium wasstagnation and large fiscal deficit.

 

 

Thisstrategy is flawed in three aspects. First, even as the corporatesector earns profit to pay down its debt, the government's debt isrising. At best, it is shifting corporate debt to government debt. Inreality, the government's debt has been rising more than the reductionin private sector debt. For example, between 1999-2008 the corporatedebt declined to yen 900 trillion from 1,090, the household debt to 380from 420, but the government debt rose to 950 from 630. The totalnon-financial sector debt increased from yen 2,160 to 2,250 trillionduring the period.

 

 

Second, the economicefficiencies don't increase in such an equilibrium. The existingresources in the zombie sector are essentially unproductive.Bankruptcies improve efficiency by shifting resources from failing tosucceeding companies. When rules are changed to stop bankruptcies, theefficiencies are sacrificed. Worse, incremental resources are sucked upby fiscal deficits that are used for propping up the zombie industries.Japan has been trapped in a low productivity equilibrium.

 

 

Third,long period of stagnation could cause irreversible social changes forthe worse. Collapsing birth rate, for example, is one consequence thatis wreaking havoc on the Japanese economy. Japan's policy after thebubble was to let property price decline gradually. Hence, the livingcost was also declining gradually. On the other hand, the economystopped growing. It caused income expectation to adjust downwardsquickly. The combination of high property price and low income growthpushed down Japan's birthrate rapidly. As a consequence, Japan'spopulation is declining two decades after the bubble. Rising burden forcaring the old will decrease Japan's ability to pay for anything else.

 

 

Aftertwo decades, Japan hasn't achieved its main policy goal of letting itscorporate sector to work its debt down. The total non-financialcorporate debt is about the same as two decades ago. At 180% of GDPJapan's corporate indebtedness remains one of the highest in the world.Japan's household sector has indeed de-levered. Its debt at 69% of GDPis one of the lowest among developed economies. But, the governmentdebt has increased massively during the past two decades. Its currentdebt level at 194% is the highest in the world. Only super low interestrate is hiding the burden of its debt.

 

 

TheDPJ is handed over a poisoned chalice. It wouldn't have the resourcesto do serious restructuring of the economy. Its twin goals are (1) toincrease support for the household sector and (2) to shiftdecision-making power from bureaucracy to politicians. The government'sdebt burden makes it impossible for meaningful increase in supportingthe household sector. The LDP has wasted all the money. The DPJ hasn'tgot any room to pay for either new social programs or economicrestructuring. To show progress, the DPJ is likely to stage highprofile confrontation with the bureaucracy. While it may be good forpolitics, it wouldn't do much to improve the economy.

 

 

Thetotal indebtedness of Japan's non-financial sector is 443%. It isprobably the highest in the world. The US's is 240%. The difference isthat the US owes a big chunk of its debt to foreigners, while Japan'sis all to its own citizens. Most analysts think that high governmentdebt is bearable as long as there are enough domestic savings to fundit. Japan's situation has been so. The future may be different. Japan'sdeclining labor force is decreasing its ability to export. At somepoint it may begin to run trade and current account deficits. When ithappens, Japan's interest rate may rise substantially, which wouldcause a fiscal crisis. Such a crisis may occur under the DPJ's rule. Itcould be blamed for a crisis that the LDP has built up for two decades.

 

 

Wecan learn much from Japan's experience. The global economy, mainly theAnglo-Saxon economies, is facing the aftermath of a massive creditbubble. The remedies that most governments have embraced are to keepinterest rate low and fiscal deficit high. These are the same policiesthat Japan pursued after its bubble burst nearly two decades ago. Thereare shocking similarities in how today's bubble economies treatbankruptcies and bad debts to Japan's. The US and others have suspendedmark-to-market accounting rule to allow banks to stay afloat despitelarge amounts of toxic assets. It is the same 'letting them earn theirway back' strategy that Japan pursued. The strategy fails to work as itkeeps economy weak, which limits the earnings power of the financialinstitutions.

 

 

As the global economyshowing growth again in the third quarter of 2009, most governments arecelebrating the effectiveness of their policies. Japan's experiencemakes us pause. Its economy experienced many such growth bounces in thepast two decades but wasn't able to sustain any. The problem was thatit used only stimulus, not restructuring to cope with the bursting ofits bubble. After a big bubble there are serious structural problemsthat would hamper economic growth. Stimulus can only provide short-termsupport that makes structural reforms possible. When policymakerscelebrate the short-term impact of stimulus and forget structuralreforms, the economies will slump again. I think that the Anglo-Saxoneconomies will dip again next year.

 

 

Chinacan learn a lot from Japan's experience also. Its bubble formed whenits companies began to focus on financial investment rather than theircore businesses. They borrowed money and pumped it into asset markets.They essentially provided leverage to the asset markets. When theleverage was rising, asset inflation happened, which allowed thecompanies to book profits multiple times their operating profits fromtheir core businesses. That gave them more incentives to pursue assetappreciation rather than operating profitability. The corporate sectorbecame a shadow banking system for financing asset speculation.

 

 

China'scorporate sector is now behaving similar to Japan's two decades ago.China's businesses increasingly focus on asset investment rather thantheir core businesses. As I travel across China, it is rare to hear abusiness that is enthusiastic about its core business. But everyoneseems excited about financial activities. In particular, property seemsto become the main source of profit for most big businesses. Thelending boom in the first half of 2009 seems to have been channeledmostly into asset markets by the corporate sector.

 

 

Whenan asset bubble boosts corporate profits, it seems benign at first.Nobody sees the harm. However, when businesses earn profits from theinvestments in each other rather than their corporate businesses, theiroperating profitability deteriorates, because they don't invest intheir core businesses anymore. The accounting profitability is just abubble. For example, property development has become the most importantsource of profit for China's corporate sector. If a manufacturingbusiness is buoyant, the odds are that it is earning profit fromproperty development. The banking sector reports high profitability dueto its lending directly or indirectly to property development. Propertydevelopment profit is actually from land appreciation. If propertydevelopment profitability is measured according to the land price atthe selling time, the development itself wouldn't be profitable.China's corporate sector derives a significant chunk, probably most ofits profit from land appreciation. China's corporate borrowing one wayor another goes into the land market.

 

 

Abubble happens because there is excessive money supply. Is theexcessive monetary growth due to demand or supply? We can argueforever. When Greenspan said that a central bank couldn't stop abubble, he meant that the money demand would rise regardless ofinterest rate. I disagree with this view. If a central bank targetsmonetary growth in line with nominal GDP growth, a big bubble couldn'thappen. Aside from central banking failure, the most important microelement in a bubble is the 'shadow banking system'.

 

 

Regulatorslimit what banks can do by imposing a capital requirement on them. Theinternational standard is 8% of total asset. There are accountingtricks for banks to minimize capital requirement. When a loophole incapital accounting is large, it could cause a disaster. For example,the loose restrictions on off-balance sheet holdings was a major factorfor the global credit bubble. Most regulators are tightening up theaccounting rules on capital requirement.

 

 

Aless noticed and more important factor in causing bubbles is theso-called shadow banking system. Most analysts equate it to the hedgefund industry. It was providing leverage to financial speculation withlittle capital. The shadow banking system is much more than hedgefunds. Industrial firms that engage in financial activities are moreimportant. Entities like GE Capital, GMC, etc., provided massiveleverage to asset markets with little capital. In the 1980s Japan'scorporate sector tapped into the corporate bond market and raisedmassive amounts of capital for asset purchases. A shadow banking systemis essential to a big bubble.

 

 

China'scorporate sector increasingly looks like a shadow banking system. Itraises funds from banks, commercial bills or corporate bond market andchannels the funds into the land market. The resulting land inflationunderwrites the corporate profitability and improves theircreditworthiness in the short term. To limit the expansion of China'sland bubble it must limit monetary growth to that of nominal GDPgrowth. Faster monetary growth is to accommodate and support thebubble. To understand the consequences, we only need to look at Japantoday.


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