China's Economy, The Hidden Truths: China's Economy Seen in the Undercurrent of Organized Unaccountability

Aaron Ken Lee

Mar 2015 · Global Era Public Interest Info Network

About this ebook

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 

Ratings and reviews

In the midst of plentiful books on China, viewing its economy with rose-colored glasses, this book importantly pinpoints many structural factors now hinter China’s rebalancing its economy. This book is a wakeup call to those who are deluded by the various superficial representations about China’s economy. I was intrigued by the book’s timely elucidation on how the IMF’s 2014 China GDP estimate being fundamentally flawed. This is an in-depth account on the issue that you do not get to see elsewhere. I found the book to be an insightful profiling of China’s economy, relating to and ultimately affecting world economic prospects. The author points out the many pitfalls of China’s economic straw-man constructs, and warns westerners of the dangers of relying on China’s manipulative moves, purposefully for putting forward an image of prosperity. The author goes into great details about the underlying untoward features of China’s GDP-boosting gimmicks in the recent past, and explains their origins. He points out the fallacy in taking at face value China’s reported GDP figures, and further, that many westerners’ buying into such GDP phenomenon are doing so based on inherently faulty assumpt

This book has help clarified a lot of things that baffled me about China for some years. It is a highly valuable source of information for what are in store for China’s economic future. Many of them were entirely unreported among major business media like the Wall Street Journal (perhaps owing to their being too sensitive). We need more people to write books like this one, exposing things that are unreported by major media.

As the world has been looking to China for its fast-paced development, there is an increasing number of books being published on China's economy. However, as we have got a slew of overly credulous westerners thinking China to be the next miraculous economic development in ways similar to that of Japan and south Korea, this book points out the many fundamental differences in China’s settings and why the hitherto growth pattern in China will face enormous challenge. Most of the books about China in the English-speaking world rely on data being made available in English. This book not only uses said data sources but it also interprets and analyzes data only available in the Chinese language. This gives many vantage viewpoints about China not being explored previously to such extent that this book provides. This is a valuable book, for anyone interested in the Chinese economy and its repercussions on markets around the world.

About the author

 Aaron Ken Lee received his graduate and undergraduate education in a rare combination of the fields of study in economics, accounting, and commercial law in the 1980s. For over 25 years he worked in the areas of international business and finance relating to Asia, and China specifically. He also taught economics, financial accounting and inferential statistical modeling at tertiary education institutions.

He holds that lessons from the Enron and Subprime debacles can be fully understood only with the relevant knowledge in the three fields of economics, accounting, and business law. And, such insight into the Enron and Subprime lessons can now help us to shine through the haze and decode things that are characteristic of China, in most meaningful ways. In this book, the author integrated a perspective from what’s known as the new institutional economics founded by Douglas North (1993 Nobel Prize economics laureate) with the aforesaid angles from accounting and business law, to give new insights into China’s economic future.

He first visited China in 1985, and has since the early 90s lived in Hong Kong, Singapore, and China, until recently, for over 20 years. He considers both English and Chinese his native languages.