This article says that online education companies have invested $15 billion last year, but only had revenue of a few billion dollars and no profits. They cite an analyst as saying "If you don’t raise money when everyone else is, you’ll fall behind".
I think we've seen this movie before. Three years ago one of my former students told me he was leaving a very successful career in PE to start an online education company. There were so many PE firms in China trying to invest so much money, he told me, that there was a...
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shortage of good companies to buy, and any company with a good Powerpoint presentation could raise huge amounts of PE money. It was better to sell companies than buy them, he concluded, and suggested that online learning would be a very hot business for PE financing.
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Clearly he was right, but competition in the sector has become so tough and profits so hard to obtain that PE firms may well be setting off in the online education sector a repeat of what they did in the bike rental sector. Everyone is spending vast amounts to acquire...
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market share in an industry with huge marketing costs, no profits, and apparently very little customer loyalty.
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The latest IMF report on China was released yesterday and provides a lot of good information and intelligent insight on the Chinese economy. The IMF’s measure of China’s adjusted fiscal deficit (including estimated off-budget investment...
spending) is projected to rise to 18.2% of GDP in 2020 from 12.6% in 2019. The authors correctly note the worrying surge in debt and warn that Beijing must continue to try to contain financial stability risks, but I notice that they are projecting average GDP...
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growth of just over 6% between 2012 and 2025, including a downward revision of their 2021 forecast from 8.2% to 7.9% (which I still think is a little high).
As I’ve long argued, it will be impossible for China both to control the surge in debt and to achieve growth...
I disagree. I don't think American democracy was trashed. It was certainly bruised, but democracy is a messy process, and it is especially messy during times when political institutions must adjust to great underlying changes. But that is also its great strength: however...
One thing we can say about recent events in Washington is that they should make the urgency of adjustment all the more clear to Republican and Democrat policymakers. The direction should also be pretty clear. Throughout American...
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history a long period of soaring wealth for the elite and economic stagnation for the masses has always led first to deep resentment, and then to political chaos and conflict which at times even seemed a challenge to democracy, but always ended up strengthening it.
Five provincial government have raised RMB 51 billion in the past month to recapitalize 29 banks and rural credit cooperatives. We are going to see a lot more of this in 2021 as the regulators try to repair a very insolvent banking system, but it...
is important to understand that this does not "resolve" the problem so much as shift it onto the balance sheets of local and provincial governments, which at some point will also have to be repaired. Already something like 60% of their debt-servicing costs cannot be...
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repaid out of an increase in real economic capacity and so must be rolled over.
This is an old story. Every time the regulators resolve excess debt in one sector of the economy, they do so by exacerbating excess debt in another. This is inevitable given the country's...
I totally agree. Financial repression in China constrains the growth in household income and so forces up the domestic savings rate. In the 1990s, when China was hugely underinvested, higher savings and low interest rates resulted in massive amounts of productive...
investment, and this investment powered rapid increases in the wealth-generating capacity of the Chinese economy.
At some point in the early 2000s, however, when China had closed the gap between its actual and optimal investment levels, much of the new investment was...
allocated into non-productive projects. Because demand was so unbalanced and consumption so low, China had no choice but to keep investment levels high if it wanted growth in economic activity also to remain high. During the first decade financial repression actually...
Chinese exporters are getting squeezed because by the time they receive payments for their deliveries, the rising RMB has wiped out any potential profit and has even in some cases turned the sales into losses. One solution for the exporters...
might be to make it easier for them to hedge the currency risk in the forward market, but besides requiring a significant liberalization of capital controls, the immediate impact would be either to cause the spot exchange to soar even further, to force the PBoC to lower...
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domestic interest rates, or to require Chinese banks to take on even larger short positions in RMB, in which they are already running substantial negative carry.
Just as in Japan in the 1980s and in China before the 2008-09 crisis, as long as Beijing tries to control...
Beijing Municipality distributed coupons to Beijing households that were associated with RMB 13 billion of consumer purchases in 2020. Although this is as good a way as any to shift income towards ordinary households, which China must do if...
it is to rebalance demand, it is worth noting how little a program like this accomplishes even though it is one of the biggest in China. Local government are obviously constrained by their high debt levels, but even if the coupons accounted for 100% of the price of the...
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items purchased, they would still only amount to just over one-third of Beijing's GDP – at a time when household income dropped by many times that amount.