China Overtakes Japan as World’s Second-Biggest Stock Market(bloomberg.com) |
China Overtakes Japan as World’s Second-Biggest Stock Market(bloomberg.com) |
Year Value
1988 $3,910,000,000,000
1989 $4,390,000,000,000
1990 $2,920,000,000,000
1991 $3,130,000,000,000
1992 $2,400,000,000,000
1993 $2,999,760,000,000
1994 $3,719,910,000,000
1995 $3,667,290,000,000
1996 $3,088,850,000,000
1997 $2,216,700,000,000
1998 $2,495,760,000,000
1999 $4,546,940,000,000
2000 $3,157,220,000,000
2001 $2,251,810,000,000
2002 $2,126,080,000,000
2003 $3,040,660,000,000
2004 $3,678,260,000,000
2005 $4,736,510,000,000
2006 $4,726,270,000,000
2007 $4,453,470,000,000
2008 $3,220,490,000,000
2009 $3,377,890,000,000
2010 $4,099,590,000,000
2011 $3,540,680,000,000
2012 $3,680,980,000,0001) Market cap changes of the stock market doesn't tell much. If a company changes it's capital structure (more or less debt relative to stock, or Private Buyouts) the market cap changes.
2) A better metric would be "Total value of the equity and debt of all the companies" with an equity and debt breakout.
3) Even still, this would miss privately held companies. It also would just measure the asset values, and not ownership.
1.On the equity side you only know the prices of outstanding shares, how will you value the non-traded shares and options? There is no simple measure to assign the control premium on a single company much less the entire stock market. This doesn’t include debt that might convert to equity on different schedules.
2.On the debt side, debt can be convertible to equity, have different seniority, payment schedule, liquidity and risk profiles. What does a consolidated number tell you? Not to mention off-balance sheet commitments and the fact that debt for some sectors like a financial company might not make any sense. What does the enterprise value of Bank of America even mean?
3.Even valuing cash has problems if you are like a US tech company with billions abroad that might be subject to myriad tax rules.
Finally with 3) you talked about private companies, at that point you probably need to look at SOE in China as well. Now you are looking at total wealth and not the stock market.
A company taking on more debt does not automatically alter its market cap. There is no automatic correlation for any given valuation metric, whether we're talking about how high a PE ratio should be, or how debt should be valued when deciding if a market cap is reasonable.
Your 1) item rests on the efficient market theory, which is false.
It is entirely up to investors - their reasoning and emotion - and it typically varies significantly from one industry to another, and from one company to another. For some companies, taking on debt will not alter the market cap what-so-ever. Apple for example, viewed as an extremely healthy company with massive earnings, can take on debt without it denting their market cap in a negative way.
Source: https://www.wolframalpha.com/input/?i=china+population+%2F+j...
http://www.internetworldstats.com/stats8.htm
So, I don't see why you would think that's inevitable.
Therefore over the very long term that absolutely should happen.
http://www.bloombergview.com/articles/2014-10-30/china-is-ve...
[0] Barring some kind of technicality, i.e. stock markets merge such that in the future there is only one "stock market" or something.
That is not going to happen soon. It could happen in the future, for China at least. India is a poorer country, but both have histories of being industrious and productive, so it really shouldn't be surprising if they ascend again over time.
China's CRC can loosen their grip on business, or selectively ignore it often enough, while still maintaining heavy control of culture and social issues, while still maintaining high growth rates. As we've seen in the last few decades.
It didn't seem to stop them previously, why would they try now? Other than civilian revolt which is non-existent in China.
Singapore's rapid economic progress is due to anything but small government. If you read Lee Kuan-yew's memoirs, you'll see the lengths to which the Singaporean government went to kowtow to Western (and later, Japanese) multinationals. They rolled out the red carpet over and over, for years, before any of those companies made significant investments in Singapore.
Also, there are several reasons why generalizing the Singaporean experience to Sinosphere countries doesn't work:
1. Although Singapore has a lot of ethnic Chinese, the country is inherently multicultural and has adopted many British cultural traditions and practices.
2. The country is very small, making social control much easier than in a country the size of China.
3. Lee Kuan-yew himself has said that the Chinese government won't be able to maintain social control as the Chinese population migrates to the cities[0]. The system will have to change, and that will be very difficult.
Both of these to me take advantage of inefficient neighbouring countries (in a doing business sense) to offer a safe place for those with the resources to do business. I don't know if you can apply that example to somewhere like China.
I also cannot see them lessening their grip on business. Ultimately money is power and in the past the Communist party has always seemed to favour maintaining political control over economic consequences. I cannot see them allowing potentially competing power structures to develop outside of the Communist party structure.
Their society is a miraculous achievement, but it isn't clear that model generalizes to larger countries.
It's also not really in the 'Sinosphere', unless you consider all ASEAN countries to be (which they would strongly disagree with!)
I agree with your points about China though.
On the contrary, I'd argue that the evidence is that Chinese leadership has historically been able to embrace creative destruction better than most Western governments.
Run 2% deflation against 25 years, and tell me consumer goods in Japan should cost what they do.
The only thing Japan suffered, was the bursting of a real estate bubble. Following that, they accumulated insane sums of debt trying to fake continued prosperity and avoid the standard of living drop that was inevitable (and is now arriving anyway). Asset prices going down is not inherently deflation, in the case of Japan it was fake wealth that never should have existed in the first place.
Why do you think the demographic issue exists? Low birth rates are due to gender inequality and long working hours, both of which are endemic in the Sinosphere. And the government's failure (which goes far beyond not tackling deflation) is due to its cozy relationships with incumbent firms - a factor that makes it very difficult for creative destruction to occur.
It's very hard to come up with a lot of these numbers. In the US it's possible to look at the aggregate corporate debt market, but you would still miss some liabilities. It doesn't change the point, though, which is that aggregate "public equity only" analysis doesn't tell you much. (Just like looking only at a company's balance sheet equity doesn't tell you much)
Here's the point I'm making...
Let's take an oversimplified view of the world. 1) In 2008 a company has $1 billion in stock value, no debt and goes belly up. 2) In 2009 a new company starts with $2 billion in debt financing, and $100 million in equity financing.
According to a "Total stock market cap" there is a drop. But that drop doesn't mean anything. A larger company was created in it's place. It just gets missed because of the debt financing.
Similar things happen within a company. If a $1 billion company goes private in a leveraged buyout, there will be $1 billion less on the public equity side (in the total stock market capitalization) but you're not measuring the increase in privately held equity or debt side. The total value of equity may also change if companies issue or pay back debt, or issue or buy back equity.
The main point I'm arguing is that total capitalization of stock only doesn't tell you much, for the same reason that only looking at equity on a company's balance sheet is an incomplete picture.
Look at London for an example of a stock exchange largely full of international companies.
Set the start date to 1990. Inflation has never risen above 4%, and most of the time hovers around 2%, which is considered normal and hardly "immense". You even see deflation at a few points, which is almost unheard of in developed economies and always considered quite bad.
I've traveled to Japan a few times, and noticed that it is a bit cheaper to go now than before. Definitely not expensive outside of hotels and shinkansen tickets.
For example, Silicon Valley might have different issues with immigration than say Texas. But SV has to deal with Texas congressmen regarding policy.
a) the use of cellphones/internet spreads information
b) their ability to collectivize and locally share information in high-density cities
But have you read any recent books on China post-internet? They have largely succeeded in maintaining control of the peoples perceptions of vast amounts of issues. They might not be able to stop CNN/Tweets from getting out but they have an incredibly powerful propoganda machine that makes sure all the citizens distrust Western dissent.
So even with access people question it and
Second, the government employees a massive '50-cent army' to sway opinion all over the internet. Thousands of people who endless comment on websites in highly deceptive ways.
Third, the party co-opts popular influencial youth such as Han-han [0] and Zhou Xiaoping [1], and makes sure their message is anti-western and pro-state (with degrees of restraint to make it non-obvious).
Fourth, those cell phones have nothing but helped the Chinese party pick up and 'disappear' any dissidents.
So I disagree with Lee Kuan-yew that China can not maintain control. They have and are.
1 out of 3 people in China work for the party, how can they not maintain control?
[0] https://en.wikipedia.org/wiki/Han_Han
[1] http://www.foreignpolicy.com/articles/2014/10/21/is_this_the...
I would say rather that the CPC manages to hang on to public opinion because they are quite stable and the economy does well enough under their leadership. But all the stuff that they do to control the minds of the public (censorship, wumao's, controlling the bloggers) is pretty much a failure, they hang on despite this.
Births per 1,000 people
Japan: 8.07; Singapore: 8.10; Germany: 8.42; Slovenia: 8.54; Taiwan: 8.55; Austria: 8.76; Greece: 8.80; Italy: 8.84; Bulgaria: 8.92; Hungary: 9.26; Romania: 9.27; Hong Kong: 9.38; Portugal: 9.42; Poland: 9.77; Czech: 9.79; Spain 9.88
Taiwan, South Korea, and even Japan had or have governing structures that would be dubious by western standards, but still have succeeded well enough in reaching developed status (the former being dictatorships until recently, the latter being a reluctant democracy).
For all their faults, the Chinese leadership is rarely dumb.
A society needs on average a fertility rate of 2.1 children born per female.
My country (Austria) has a fertility rate of 1.44, Germany even has a fertility rate of 1.38. Without immigration the fertility rate would be at 0.9 - 1.1.
This would be equal to or lower than the worst fertility rates the Russians experienced after the fall of the Soviet Union (1.1), when even life expectancy fell by 10 years on average.
Today with much better socioeconomic conditions Russias fertility rate has risen again to 1.8. That should give a clear indication of how important socioeconomic conditions are for reproduction.