Why obsessing over GDP is no longer in China’s best interests

[Lil Mathew]

China’s leadership has always seen gross domestic product (GDP) numbers as the most important indicator of their ability of govern; thus their whole apparatus does whatever it can, in terms of policies, to make sure a politically acceptable growth rate is achieved.

With a persistent slowdown, the government has to adjust its target to a maximised but achievable goal. Between 2010 and 2015, the world’s second-largest economy witnessed a steady slowdown, with annual percentage growth rates of 10.5, 9.5, 7.9, 7.8, 7.3 and 6.9, respectively. Averaged annual GDP growth rates between 1989 and 2009 were around 10 per cent.

People buy vegetables on a market in Beijing. Last year, the government set a range of 6.5 per cent to 7 per cent as a growth target, the slowest in decades. Photo: AFP

Last year, the government set a range of 6.5 per cent to 7 per cent as a growth target, the lowest in decades. As expected, China is on track to meet that 2016 goal after three straight quarters of 6.7 per cent expansion.

However, such growth was achieved with an expansive fiscal policy, higher government spending, a housing rally, ultra-loose monetary conditions and record bank lending, which have also led to an explosive increase in debt.

Government spending from January to September 2016 was 12.5 per cent up on the same period a year earlier, while revenues increased by 5.9 per cent. Of the 8.2 per cent overall growth in fixed-asset investment in the period, state firms jumped by 21.1 per cent and private firms rose 2.5 per cent.

In the previous year, state firms registered a much more moderate 10.9 per cent in fixed-asset investment, year on year, while private investment went up by 10.1 per cent.

Recent growth has been achieved with the help of record bank lending, which is on pace to top 2015’s record 11.71 trillion yuan (HK$12.2 trillion). Last year, the central bank injected a net 1.5 trillion yuan into money markets through open market operations, many multiples of its net 10 billion yuan injection in 2015.

A woman jumps for a photo near an LED ceiling displaying images of gold and jewellery in Beijing. State-fuelled spending maintained growth rates in 2016, but also helped China’s debt reach 260 per cent of GDP. Photo: AP

The eased monetary policy helped stoke a housing boom that saw prices rise to a historic 12.6 per cent year on year in November and made houses in Chinese cities among the least affordable in the world.

The state investment-fuelled growth led to alarming combined public and private debt of 260 per cent of GDP by the end of last year, the highest debt-to-GDP ratio in the world. The Bank for International Settlements (BIS) recently warned this was excessive and dangerous. In the first six months of last year, China’s domestic debt ratio rose by an astonishing 28 per cent of GDP.

China says a target of 6.5 per cent annual growth until 2020 will help it build a “moderately prosperous society”. Photo: EPA

Last year the party set a target of 6.5 per cent annual growth for five years through to 2020, in its 13th five-year plan, just to meet the leadership’s promise of doubling the country’s economic size and per capita income from 2010 to 2020, a political symbol of building a “moderately prosperous society”.

To support such short-term growth, the government had to delay, stall or even hold back some sorely needed reform measures which will help regain long-term growth momentum.

Realising the challenge of taming asset bubbles, solving rising bad debt and checking unbalanced growth, the leadership recently pledged to shift its focus away from growth towards dealing with risks this year.

China is trying to transition from a manufacturing-centred to consumer-oriented economic model. Photo: EPA

If the leadership makes good on what they claimed – giving market forces a decisive role in the distribution of resources – they should abandon arbitrary growth targets, a remnant a Stalinist command economy.

China’s economy is going through a critical transition, from manufacturing-oriented and state investment-fuelled expansion to service-centred and consumption-driven growth. What the government should do is push forward reforms that remove the obstacles to such transitions. ■

Cary Huang, a senior writer with the South China Morning Post, has been a China affairs columnist since the 1990s

http://m.scmp.com/week-asia/opinion...sing-over-gdp-no-longer-chinas-best-interests

 

[Khafee]

@Chinese-Dragon @grey boy 2 and other Chinese members ?

 

[tranquilium]

China’s leadership has always seen gross domestic product (GDP) numbers as the most important indicator of their ability of govern

Let me stop you right there. GDP is the most important indicator for your average internet forumer who does not have the knowledge or access to other more detailed indicators of the nation. (Okay, it is important for Indian leaders, because GDP number affects their voter and they need to it to hold office, in theory)

Actual leadership care about infrastructure investment, capital flow, demographic distribution, education standards, foreign relation, safety and security and a whole truck load of others. That's why they are the leaders and it is a specialist job that require individual with vast amount of experience and expertise.

 

[The Accountant]

China’s leadership has always seen gross domestic product (GDP) numbers as the most important indicator of their ability of govern; thus their whole apparatus does whatever it can, in terms of policies, to make sure a politically acceptable growth rate is achieved.

With a persistent slowdown, the government has to adjust its target to a maximised but achievable goal. Between 2010 and 2015, the world’s second-largest economy witnessed a steady slowdown, with annual percentage growth rates of 10.5, 9.5, 7.9, 7.8, 7.3 and 6.9, respectively. Averaged annual GDP growth rates between 1989 and 2009 were around 10 per cent.

People buy vegetables on a market in Beijing. Last year, the government set a range of 6.5 per cent to 7 per cent as a growth target, the slowest in decades. Photo: AFP

Last year, the government set a range of 6.5 per cent to 7 per cent as a growth target, the lowest in decades. As expected, China is on track to meet that 2016 goal after three straight quarters of 6.7 per cent expansion.

However, such growth was achieved with an expansive fiscal policy, higher government spending, a housing rally, ultra-loose monetary conditions and record bank lending, which have also led to an explosive increase in debt.

Government spending from January to September 2016 was 12.5 per cent up on the same period a year earlier, while revenues increased by 5.9 per cent. Of the 8.2 per cent overall growth in fixed-asset investment in the period, state firms jumped by 21.1 per cent and private firms rose 2.5 per cent.

In the previous year, state firms registered a much more moderate 10.9 per cent in fixed-asset investment, year on year, while private investment went up by 10.1 per cent.

Recent growth has been achieved with the help of record bank lending, which is on pace to top 2015’s record 11.71 trillion yuan (HK$12.2 trillion). Last year, the central bank injected a net 1.5 trillion yuan into money markets through open market operations, many multiples of its net 10 billion yuan injection in 2015.

A woman jumps for a photo near an LED ceiling displaying images of gold and jewellery in Beijing. State-fuelled spending maintained growth rates in 2016, but also helped China’s debt reach 260 per cent of GDP. Photo: AP

The eased monetary policy helped stoke a housing boom that saw prices rise to a historic 12.6 per cent year on year in November and made houses in Chinese cities among the least affordable in the world.

The state investment-fuelled growth led to alarming combined public and private debt of 260 per cent of GDP by the end of last year, the highest debt-to-GDP ratio in the world. The Bank for International Settlements (BIS) recently warned this was excessive and dangerous. In the first six months of last year, China’s domestic debt ratio rose by an astonishing 28 per cent of GDP.

China says a target of 6.5 per cent annual growth until 2020 will help it build a “moderately prosperous society”. Photo: EPA

Last year the party set a target of 6.5 per cent annual growth for five years through to 2020, in its 13th five-year plan, just to meet the leadership’s promise of doubling the country’s economic size and per capita income from 2010 to 2020, a political symbol of building a “moderately prosperous society”.

To support such short-term growth, the government had to delay, stall or even hold back some sorely needed reform measures which will help regain long-term growth momentum.

Realising the challenge of taming asset bubbles, solving rising bad debt and checking unbalanced growth, the leadership recently pledged to shift its focus away from growth towards dealing with risks this year.

China is trying to transition from a manufacturing-centred to consumer-oriented economic model. Photo: EPA

If the leadership makes good on what they claimed – giving market forces a decisive role in the distribution of resources – they should abandon arbitrary growth targets, a remnant a Stalinist command economy.

China’s economy is going through a critical transition, from manufacturing-oriented and state investment-fuelled expansion to service-centred and consumption-driven growth. What the government should do is push forward reforms that remove the obstacles to such transitions. ■

Cary Huang, a senior writer with the South China Morning Post, has been a China affairs columnist since the 1990s

http://m.scmp.com/week-asia/opinion...sing-over-gdp-no-longer-chinas-best-interests

@Khafee

Sir Calm down ... Article is very biased ,, rather its a shitty article and miss-leading for non-finance back ground people ... there are blunders in article is ,, definition of debt to gdp ratio is incorrect ...

Debt to GDP ratio is ratio between government debt to GDP ,,, till 2015 Debt to GDP ratio of China was 43% ... OP has used total debt rather than gov debt ...

Furthermore, debt to GDP is only onw of many indicators ,,, if you compare China's foreign currency and gold reserves and its other foreign assets that real picture is much more glossy for China's economy ... On the other hand Debt to GDP ratio of USA is above 100% whereas with growth n GDP howering around 1% with continous increase is finding it much hard to keep the ratio same whereas USA loosing its world influence it has much of pressure to increase government expenses whereas growth in revenues are much lower hence increased demand for borrowing by USA ...

So those western analyst who are writing these BS articles should ask USA that why USA and Japan are keeping near "0" interest whereas till last few months USA was injectin USD 80billion per month in economy at "0" interest rates in order to boost domestic demand ... it was like distributing currency notes to general public to purchase goods whereas Japan is using negative interest rates ... i.e. people having money in banks will be charges interest from bank ... So we should worry about economy of USA, Japan and EU rather than China which is in much better form ...

 

[Khafee]

@Khafee

Sir Calm down ... Article is very biased ,, rather its a shitty article and miss-leading for non-finance back ground people ... there are blunders in article is ,, definition of debt to gdp ratio is incorrect ...

Debt to GDP ratio is ratio between government debt to GDP ,,, till 2015 Debt to GDP ratio of China was 43% ... OP has used total debt rather than gov debt ...
View attachment 366661

Furthermore, debt to GDP is only onw of many indicators ,,, if you compare China's foreign currency and gold reserves and its other foreign assets that real picture is much more glossy for China's economy ... On the other hand Debt to GDP ratio of USA is above 100% whereas with growth n GDP howering around 1% with continous increase is finding it much hard to keep the ratio same whereas USA loosing its world influence it has much of pressure to increase government expenses whereas growth in revenues are much lower hence increased demand for borrowing by USA ...

So those western analyst who are writing these BS articles should ask USA that why USA and Japan are keeping near "0" interest whereas till last few months USA was injectin USD 80billion per month in economy at "0" interest rates in order to boost domestic demand ... it was like distributing currency notes to general public to purchase goods whereas Japan is using negative interest rates ... i.e. people having money in banks will be charges interest from bank ... So we should worry about economy of USA, Japan and EU rather than China which is in much better form ...

Calm Down? I didn't say anything. I just wanted some sane input, and thank you for providing that. Appreciate it.

 

[tranquilium]

@Khafee

Sir Calm down ... Article is very biased ,, rather its a shitty article and miss-leading for non-finance back ground people ... there are blunders in article is ,, definition of debt to gdp ratio is incorrect ...

Debt to GDP ratio is ratio between government debt to GDP ,,, till 2015 Debt to GDP ratio of China was 43% ... OP has used total debt rather than gov debt ...
View attachment 366661

Furthermore, debt to GDP is only onw of many indicators ,,, if you compare China's foreign currency and gold reserves and its other foreign assets that real picture is much more glossy for China's economy ... On the other hand Debt to GDP ratio of USA is above 100% whereas with growth n GDP howering around 1% with continous increase is finding it much hard to keep the ratio same whereas USA loosing its world influence it has much of pressure to increase government expenses whereas growth in revenues are much lower hence increased demand for borrowing by USA ...

So those western analyst who are writing these BS articles should ask USA that why USA and Japan are keeping near "0" interest whereas till last few months USA was injectin USD 80billion per month in economy at "0" interest rates in order to boost domestic demand ... it was like distributing currency notes to general public to purchase goods whereas Japan is using negative interest rates ... i.e. people having money in banks will be charges interest from bank ... So we should worry about economy of USA, Japan and EU rather than China which is in much better form ...

Didn't we already explained the difference between total debt and government debt in this forum? For many times and repeated if I remember correctly. I thought the BS finally died down in 2016, but within the first week of 2017, it came right back up.

Edit: BTW, just copying this directly from google:

"Total US debt at the end of the first quarter of 2014, on March 31 totaled almost $59.4 trillion - up nearly $500 billion from the end of the fourth quarter of 2013, according to the data. Total debt (the combination of government, business, mortgage, and consumer debt) was $2.2 trillion 40 years ago."

 

[The Accountant]

Calm Down? I didn't say anything. I just wanted some sane input, and thank you for providing that. Appreciate it.

Calm down was for first post ... not for you sir .... actually I should have quoted your name in the end as I just want you to give a little more detail ...

Didn't we already explained the difference between total debt and government debt in this forum? For many times and repeated if I remember correctly. I thought the BS finally died down in 2016, but within the first week of 2017, it came right back up.

Yes I did it myself as well but few people try to keep on finding anti China and anti Pakistan articles to be posted on PDF ...

 

[Lil Mathew]

@Khafee

Sir Calm down ... Article is very biased ,, rather its a shitty article and miss-leading for non-finance back ground people ... there are blunders in article is ,, definition of debt to gdp ratio is incorrect ...

Debt to GDP ratio is ratio between government debt to GDP ,,, till 2015 Debt to GDP ratio of China was 43% ... OP has used total debt rather than gov debt ...
View attachment 366661

Furthermore, debt to GDP is only onw of many indicators ,,, if you compare China's foreign currency and gold reserves and its other foreign assets that real picture is much more glossy for China's economy ... On the other hand Debt to GDP ratio of USA is above 100% whereas with growth n GDP howering around 1% with continous increase is finding it much hard to keep the ratio same whereas USA loosing its world influence it has much of pressure to increase government expenses whereas growth in revenues are much lower hence increased demand for borrowing by USA ...

So those western analyst who are writing these BS articles should ask USA that why USA and Japan are keeping near "0" interest whereas till last few months USA was injectin USD 80billion per month in economy at "0" interest rates in order to boost domestic demand ... it was like distributing currency notes to general public to purchase goods whereas Japan is using negative interest rates ... i.e. people having money in banks will be charges interest from bank ... So we should worry about economy of USA, Japan and EU rather than China which is in much better form ...

Your answer lies in below articles..
http://www.forbes.com/sites/douglasbulloch/2016/04/26/why-chinas-debt-matters/#7d13b21bf88c

China's Certain Debt And Why It Matters


Since the great economic crisis in 2008, debt has taken centre stage. In the West, debt shaped the still ongoing debate between 'austerity' and 'stimulus,' the difference turning on how much overall debt an economy can sustain. It was, and still is,argued that beyond a certain level, debt has an increasingly negative impact on growth, meaning that an economy risks a doom loop where growth cannot keep up with the accumulating debt servicing costs.

Before 2008 it was common to speak only of government debt as a percentage of GDP on the assumption that the private sector was its own concern. But the banking crisis, and the wave of bailouts that followed shattered this complacency as the 'too big to fail' problem meant just that, leaving governments on the hook for liabilities originating in the private sector.

The UK economy was exemplary in this respect. Government debt to GDP ratio was just 43.5% before the crisis, regarded as well within acceptable limits. Focussing only on government debt however, as opposed to overall debt, contributed to the hubristic mood that famously inspired the former Chancellor of the Exchequer Gordon Brown to herald the end of 'boom and bust.' When the bust came, and long lines formed outside a regional bank called Northern Rock, the government was obliged to step in as underwriter of last resort. Now, of course, government debt to GDP is more than double what it was.

FILE - In this Feb. 16, 2016 file photo, a woman speaks on her phone near a display highlighting the new Chinese bank notes at a bank in Beijing, China. The Chinese economy is littered with companies that can’t pay their bills and survive only with financial help from the government. These companies and their debts pose another threat to an economy squeezed by five years of slowing growth, a free-fall in its currency and a stock market that’s sunk 20 percent this year.(AP Photo/Ng Han Guan)


greater increase than any other G7 country by some margin. For this reason, the UK's decision to adopt 'austerity' was an attempt to avoid the doom loop.

China's response to the economic crisis was radically different to the UK's. As growth turned down they opened the spigots on credit fuelled growth, boosting headline growth rates and keeping the whole world afloat at a time when there was not much good economic news to go around. China's government debt to GDP ratio was about 41% when the crisis struck and they became the standard bearer for those economists favouring 'stimulus', not 'austerity,' in search of growth. Today the Chinese government continues to refer to its relatively low government debt to GDP ratio - of around 60% - particularly when considering further stimulus, another round of which is underway.


The total debt picture, however, is rather more disturbing. Forecasters have for some time been estimating China's overall debt burden, but given the reliability of Chinese statistics, this is not easy. The Financial Times recently estimated China's debt at 249% of GDP, which is more than the UK's overall debt position (245% at September 2015). There are other guesses for China, but they tend to be larger, not smaller, and the reason this matters is that this level of debt is worse only in countries with acknowledged and serious problems, Italy, Greece, and - notably - Japan, notwithstanding that the overall Eurozone figure is comparable.

Looking at debt in the wider context, a McKinsey report - in February 2015 - estimated that global debt had risen by $57 trillion between the years 2007 and 2014. Fully $21 trillion of which can be accounted for by China quadrupling their overall debt. The largest share of China's debt is so-called 'corporate' debt i.e. soft loans to SOEs from government owned banks, which rather suggests that focussing just on the government debt to GDP ratio is just plain misleading to begin with as SOEs and state owned banks can't really be considered entirely distinct from the government. But the most important insights are twofold. First of all, China's debt position is now much worse than other developing economies - which average at around 175% - and secondly that it brings the spotlight back onto that perennial solution to all economic problems; growth.

The UK economy, through pursuing austerity, after an expected initial downturn ended up achieving higher growth rates than forecast - and higher than the rest of the G7 - by about 2013. This perceived success was eventually thought to have helped the governing party to achieve reelection in 2015 even though the UK economy was, and remains, by no means out of the woods yet. Certainly overall levels of debt remain a problem and a drag on overall economic performance. China, on the other hand has had to adjust growth expectations downwards, and is now confronting the headwinds of market doubts, capital flight, and outright warnings from the IMF about their overall debt position, which just keeps getting worse all the time.

One remaining advantage China has is that its official growth rate remains comparatively robust. But the FT analysis also shows thatdebt growth has outstripped economic growth consistently and significantly since the 2009 stimulus programme was launched. Add to this increasing doubts about the accuracy of China's reported growth rates, and what's left is a high-wire act.

If economists who argue for austerity are right, and the UK economy provides at least some evidence for that, then they may also be right that negative debt dynamics can eventually metastasise into a doom loop of rising debt and falling growth. While China was widely praised for its prompt stimulus efforts in the wake of the 2008 economic crisis, it is becoming clearer that the bill for that welcome expansion has yet to be paid. Given China's debt load at the time, stimulus was justifiable, but with China overtaking the UK in debt league tables, it is now much harder to argue that is still - or indeed ever was - the case.

@The Accountant ..
https://thewire.in/88239/china-economic-mirace-debt/

The Other Side of the Chinese Economic Miracle

David Graeber, an economic anthropologist, in his book Debt: The First 5000 years says, “One has to pay for one’s debts”. But there is one taboo of economics that the government is hiding from the public, Graeber argues – the fact that if the government balances its books, it becomes impossible for the private sector to do the same. This inevitable debt, he claims, often lands on those least able to repay it in a society.

Graeber’s fascinating historical account explains how the creation of debt remains vitally linked with the demand and creation of money (from barter to paper in all its forms). To understand debt, one needs to understand the history and creation of different mediums of exchange within the economy as an important tool to explain how swelling levels of debt emerge. Perhaps China, with its recent history of accumulating a ‘great wall’ of debt, may learn a lesson or two from Graeber’s own work.

Since 2000, China’s debt in terms of debt to GDP ratio has grown up to 280-290% (approximately), which exceeds the debt levels of highly-indebted developed countries, including the US (269%) and Germany (258%), and emerging countries like Brazil (160%) and India (135%). Over the last three decades, under China’s infrastructure-led public investment boom, the total aggregate debt has grown from $2.1 trillion to $28.2 trillion, which is greater than the combined GDP of the US, Germany and Japan over the same period.

While mainstream macroeconomics literature tends to largely focus on the government proportion of total debt, it is also important to note that other constituents like corporate debt, financial debt and household debt (in the Chinese context) tend to matter more in gauging a country’s overall indebtedness. In the Chinese case, government debt (marked at 55% of the GDP) remains low as compared to the other three constituents. Corporate debt and financial debt levels are marked at 125% and 65% of China’s GDP. But which economic factor has elicited such a vast volume of debt in China?

In a recent analysis on China’s public infrastructure-led investment model by some Oxford-based economists, it is shown how lower-quality, high cost ridden public infrastructure investments across China triggered a massive volume of overall debt, bringing the Chinese economy to the cliff of a national debt crisis.

On observing the investment and debt figures closely, one finds that the growth in China’s absolute debt is almost in equal proportion with the total capital investment; which between 2000 and 2014 was cumulatively $29.1 trillion. Scholars Steven Barnett and Ray Brooks support this further through their study, highlighting that the majority of investments China has made since 2000 remain debt-fuelled.

China’s Gross Fixed Capital Formation (blue bars) vs China’s government debt-GDP level (dotted line). Source: Trading Economics Database

China’s growing debt pile (debt-to-GDP, %). Source: McKinsey

The biggest increase in the accumulation of debt came in from the corporate and financial sector (dominated by the big four state-owned banks in China). Most of these companies (including the non-state owned private enterprises) borrowed extensively from financial markets to finance large scale infrastructure projects.

The infrastructure investment-led bubble

The traditional wisdom in macroeconomics on the utility of infrastructure investment, in recent times is built from studies by Paul Krugman (1991), David Aschauer (1989,1993) who provided econometric evidence for the case of large-scale infrastructure projects (such as rail, roadways) that in lowering transport costs led to increasing returns (i.e. through greater output, more private investment, employment growth).

While the econometric evidence cited in these studies does present a strong policy case in pushing for greater large-scale public infrastructure investment, in the Chinese case there is scant bottom-up evidence in this regard. The actual outcomes of specific investment projects present massive costs incurred in the building process of these mega projects, particularly in emerging economies like China.

The study by Ansar, Flyvbjerg, Buzier and Lunn reports results on “95 road and rail transport infrastructure projects built in China from 1984 to 2008 and comparative results with a dataset of 806 transport projects built in ‘rich democracies’”. The economic value of a given infrastructural project is tested by the benefits to cost ratio level (BCR) which needs to be either equal to or greater than one (BCR > 1.0).

Average Schedule Overrun of Chinese Projects (in %). Source: Study by Ansar, Flyvbjerg, Buzier, Lunn

In their results, 75% of the 95 transport projects in China suffer a cost overrun (in local currency terms), while the actual costs incurred on these projects remain 30.6% higher than the original, estimated cost.

The figure above helps in giving an approximate idea on the average schedule overrun (in %). As projected by the analysts, the actual average construction time taken to complete infrastructure projects (4.3 years) remained less than the average time used by the richer democracies (6.9 years). At the same time, there aren’t any schedule overruns (only one in every two projects encountered a schedule delay in China, compared to seven out of ten in richer democracies). The problem, however, remained with the costs incurred and the quality and safety attached with actual outcomes delivered in the infrastructure projects completed.

In building infrastructure at an impressive speed, the Chinese corporate enterprises (state and non-state owned), financial markets traded off with quality, safety and the estimated cost of these projects. The combined effect of benefit shortfalls and cost overruns pushed the BMR below one.

While conventional macroeconomic theory may typically treat all infrastructure as part of an exogenous cost-reducing technological input into the economy, to drive growth, it is increasingly becoming evident that most models arguing for such investment, intuitively assume that more and better infrastructure reduces the cost of transporting goods and services.

The evidence cited from China lucidly suggests that poor project-level outcomes translate into “substantial macroeconomic risks”, like accumulating debt, higher percentage of non-performing assets, distortionary monetary expansion from central banks (involving printing of more local currency to finance high cost infrastructure investment) and so on.

Such a pattern clearly signals a warning sign for most emerging economies that seek to embark on a China-style public investment model in the quest of achieving higher economic growth. China’s case offers significant macroeconomic policy lessons where emphasis on deep institutional reforms along with the development of quality, sustainable physical infrastructure needs greater emphasis (both from the government and the private sector).

Countries like India, which are currently in process of homogenising large scale infrastructure projects across the country, need to be wary of the costs-returns attached with such projects. Robust project designing frameworks, periodic monitoring tools and better outcome-based impact assessment models are critical in the process of achieving consistent developmental growth.

 

[tranquilium]

Your answer lies in below articles..
http://www.forbes.com/sites/douglasbulloch/2016/04/26/why-chinas-debt-matters/#7d13b21bf88c

China's Certain Debt And Why It Matters


Since the great economic crisis in 2008, debt has taken centre stage. In the West, debt shaped the still ongoing debate between 'austerity' and 'stimulus,' the difference turning on how much overall debt an economy can sustain. It was, and still is,argued that beyond a certain level, debt has an increasingly negative impact on growth, meaning that an economy risks a doom loop where growth cannot keep up with the accumulating debt servicing costs.

Before 2008 it was common to speak only of government debt as a percentage of GDP on the assumption that the private sector was its own concern. But the banking crisis, and the wave of bailouts that followed shattered this complacency as the 'too big to fail' problem meant just that, leaving governments on the hook for liabilities originating in the private sector.

The UK economy was exemplary in this respect. Government debt to GDP ratio was just 43.5% before the crisis, regarded as well within acceptable limits. Focussing only on government debt however, as opposed to overall debt, contributed to the hubristic mood that famously inspired the former Chancellor of the Exchequer Gordon Brown to herald the end of 'boom and bust.' When the bust came, and long lines formed outside a regional bank called Northern Rock, the government was obliged to step in as underwriter of last resort. Now, of course, government debt to GDP is more than double what it was.

FILE - In this Feb. 16, 2016 file photo, a woman speaks on her phone near a display highlighting the new Chinese bank notes at a bank in Beijing, China. The Chinese economy is littered with companies that can’t pay their bills and survive only with financial help from the government. These companies and their debts pose another threat to an economy squeezed by five years of slowing growth, a free-fall in its currency and a stock market that’s sunk 20 percent this year.(AP Photo/Ng Han Guan)


greater increase than any other G7 country by some margin. For this reason, the UK's decision to adopt 'austerity' was an attempt to avoid the doom loop.

China's response to the economic crisis was radically different to the UK's. As growth turned down they opened the spigots on credit fuelled growth, boosting headline growth rates and keeping the whole world afloat at a time when there was not much good economic news to go around. China's government debt to GDP ratio was about 41% when the crisis struck and they became the standard bearer for those economists favouring 'stimulus', not 'austerity,' in search of growth. Today the Chinese government continues to refer to its relatively low government debt to GDP ratio - of around 60% - particularly when considering further stimulus, another round of which is underway.


The total debt picture, however, is rather more disturbing. Forecasters have for some time been estimating China's overall debt burden, but given the reliability of Chinese statistics, this is not easy. The Financial Times recently estimated China's debt at 249% of GDP, which is more than the UK's overall debt position (245% at September 2015). There are other guesses for China, but they tend to be larger, not smaller, and the reason this matters is that this level of debt is worse only in countries with acknowledged and serious problems, Italy, Greece, and - notably - Japan, notwithstanding that the overall Eurozone figure is comparable.

Looking at debt in the wider context, a McKinsey report - in February 2015 - estimated that global debt had risen by $57 trillion between the years 2007 and 2014. Fully $21 trillion of which can be accounted for by China quadrupling their overall debt. The largest share of China's debt is so-called 'corporate' debt i.e. soft loans to SOEs from government owned banks, which rather suggests that focussing just on the government debt to GDP ratio is just plain misleading to begin with as SOEs and state owned banks can't really be considered entirely distinct from the government. But the most important insights are twofold. First of all, China's debt position is now much worse than other developing economies - which average at around 175% - and secondly that it brings the spotlight back onto that perennial solution to all economic problems; growth.

The UK economy, through pursuing austerity, after an expected initial downturn ended up achieving higher growth rates than forecast - and higher than the rest of the G7 - by about 2013. This perceived success was eventually thought to have helped the governing party to achieve reelection in 2015 even though the UK economy was, and remains, by no means out of the woods yet. Certainly overall levels of debt remain a problem and a drag on overall economic performance. China, on the other hand has had to adjust growth expectations downwards, and is now confronting the headwinds of market doubts, capital flight, and outright warnings from the IMF about their overall debt position, which just keeps getting worse all the time.

One remaining advantage China has is that its official growth rate remains comparatively robust. But the FT analysis also shows thatdebt growth has outstripped economic growth consistently and significantly since the 2009 stimulus programme was launched. Add to this increasing doubts about the accuracy of China's reported growth rates, and what's left is a high-wire act.

If economists who argue for austerity are right, and the UK economy provides at least some evidence for that, then they may also be right that negative debt dynamics can eventually metastasise into a doom loop of rising debt and falling growth. While China was widely praised for its prompt stimulus efforts in the wake of the 2008 economic crisis, it is becoming clearer that the bill for that welcome expansion has yet to be paid. Given China's debt load at the time, stimulus was justifiable, but with China overtaking the UK in debt league tables, it is now much harder to argue that is still - or indeed ever was - the case.

@The Accountant ..
https://thewire.in/88239/china-economic-mirace-debt/

The Other Side of the Chinese Economic Miracle

David Graeber, an economic anthropologist, in his book Debt: The First 5000 years says, “One has to pay for one’s debts”. But there is one taboo of economics that the government is hiding from the public, Graeber argues – the fact that if the government balances its books, it becomes impossible for the private sector to do the same. This inevitable debt, he claims, often lands on those least able to repay it in a society.

Graeber’s fascinating historical account explains how the creation of debt remains vitally linked with the demand and creation of money (from barter to paper in all its forms). To understand debt, one needs to understand the history and creation of different mediums of exchange within the economy as an important tool to explain how swelling levels of debt emerge. Perhaps China, with its recent history of accumulating a ‘great wall’ of debt, may learn a lesson or two from Graeber’s own work.

Since 2000, China’s debt in terms of debt to GDP ratio has grown up to 280-290% (approximately), which exceeds the debt levels of highly-indebted developed countries, including the US (269%) and Germany (258%), and emerging countries like Brazil (160%) and India (135%). Over the last three decades, under China’s infrastructure-led public investment boom, the total aggregate debt has grown from $2.1 trillion to $28.2 trillion, which is greater than the combined GDP of the US, Germany and Japan over the same period.

While mainstream macroeconomics literature tends to largely focus on the government proportion of total debt, it is also important to note that other constituents like corporate debt, financial debt and household debt (in the Chinese context) tend to matter more in gauging a country’s overall indebtedness. In the Chinese case, government debt (marked at 55% of the GDP) remains low as compared to the other three constituents. Corporate debt and financial debt levels are marked at 125% and 65% of China’s GDP. But which economic factor has elicited such a vast volume of debt in China?

In a recent analysis on China’s public infrastructure-led investment model by some Oxford-based economists, it is shown how lower-quality, high cost ridden public infrastructure investments across China triggered a massive volume of overall debt, bringing the Chinese economy to the cliff of a national debt crisis.

On observing the investment and debt figures closely, one finds that the growth in China’s absolute debt is almost in equal proportion with the total capital investment; which between 2000 and 2014 was cumulatively $29.1 trillion. Scholars Steven Barnett and Ray Brooks support this further through their study, highlighting that the majority of investments China has made since 2000 remain debt-fuelled.

China’s Gross Fixed Capital Formation (blue bars) vs China’s government debt-GDP level (dotted line). Source: Trading Economics Database

China’s growing debt pile (debt-to-GDP, %). Source: McKinsey

The biggest increase in the accumulation of debt came in from the corporate and financial sector (dominated by the big four state-owned banks in China). Most of these companies (including the non-state owned private enterprises) borrowed extensively from financial markets to finance large scale infrastructure projects.

The infrastructure investment-led bubble

The traditional wisdom in macroeconomics on the utility of infrastructure investment, in recent times is built from studies by Paul Krugman (1991), David Aschauer (1989,1993) who provided econometric evidence for the case of large-scale infrastructure projects (such as rail, roadways) that in lowering transport costs led to increasing returns (i.e. through greater output, more private investment, employment growth).

While the econometric evidence cited in these studies does present a strong policy case in pushing for greater large-scale public infrastructure investment, in the Chinese case there is scant bottom-up evidence in this regard. The actual outcomes of specific investment projects present massive costs incurred in the building process of these mega projects, particularly in emerging economies like China.

The study by Ansar, Flyvbjerg, Buzier and Lunn reports results on “95 road and rail transport infrastructure projects built in China from 1984 to 2008 and comparative results with a dataset of 806 transport projects built in ‘rich democracies’”. The economic value of a given infrastructural project is tested by the benefits to cost ratio level (BCR) which needs to be either equal to or greater than one (BCR > 1.0).

Average Schedule Overrun of Chinese Projects (in %). Source: Study by Ansar, Flyvbjerg, Buzier, Lunn

In their results, 75% of the 95 transport projects in China suffer a cost overrun (in local currency terms), while the actual costs incurred on these projects remain 30.6% higher than the original, estimated cost.

The figure above helps in giving an approximate idea on the average schedule overrun (in %). As projected by the analysts, the actual average construction time taken to complete infrastructure projects (4.3 years) remained less than the average time used by the richer democracies (6.9 years). At the same time, there aren’t any schedule overruns (only one in every two projects encountered a schedule delay in China, compared to seven out of ten in richer democracies). The problem, however, remained with the costs incurred and the quality and safety attached with actual outcomes delivered in the infrastructure projects completed.

In building infrastructure at an impressive speed, the Chinese corporate enterprises (state and non-state owned), financial markets traded off with quality, safety and the estimated cost of these projects. The combined effect of benefit shortfalls and cost overruns pushed the BMR below one.

While conventional macroeconomic theory may typically treat all infrastructure as part of an exogenous cost-reducing technological input into the economy, to drive growth, it is increasingly becoming evident that most models arguing for such investment, intuitively assume that more and better infrastructure reduces the cost of transporting goods and services.

The evidence cited from China lucidly suggests that poor project-level outcomes translate into “substantial macroeconomic risks”, like accumulating debt, higher percentage of non-performing assets, distortionary monetary expansion from central banks (involving printing of more local currency to finance high cost infrastructure investment) and so on.

Such a pattern clearly signals a warning sign for most emerging economies that seek to embark on a China-style public investment model in the quest of achieving higher economic growth. China’s case offers significant macroeconomic policy lessons where emphasis on deep institutional reforms along with the development of quality, sustainable physical infrastructure needs greater emphasis (both from the government and the private sector).

Countries like India, which are currently in process of homogenising large scale infrastructure projects across the country, need to be wary of the costs-returns attached with such projects. Robust project designing frameworks, periodic monitoring tools and better outcome-based impact assessment models are critical in the process of achieving consistent developmental growth.

Right...so according to this joker, developing nations should "beware" of long term investment such as investment into domestic infrastructure and instead concentrate on "project level return", aka, short-term returns. It did not mention the little fact that EU's overall economic problem is:
1. A general decline resulted from shrunk territory and population pool that has been happening since a few decades ago.
2. A result of backlash from US financial crisis which is triggered precisely because too much concentration on short term returns and practices such as taking loans by using subjects that are still paying loans on as guarantee.

And it has the gall to say that "there are scant evidence" on infrastructure investment improving both the economy productivity, competitiveness and quality of life of the developing nation. Yeah, that evidence is called China, please stop ignoring the elephant in the room.

Basically, this articles is saying, "hey, you developing countries, stop investing in your infrastructure and put your money into our stock market and real estate". Did the author take the rest of the world as idiots?

 

[AndrewJin]

China is still adding 2 trillion dollars every 3 years.

 

[Lil Mathew]

China is still adding 2 trillion dollars every 3 years.

How much China adds this year?? I know you only concern about GDP nominal.. Chinese Renminbi devalued almost 7% in 2016.. Your economy growth was 6.7%.. So how much your GDP nominal increased??
For making this $2trillion increase , how much debt China was spending??

Right...so according this joker, developing nations should "beaware" of long term investment such as investment into domestic infrastructure and instead of concentrate on "project level return", aka, short-term returns. It did not mention the little fact that EU's overall economic problem is
1. A general decline resulted from shrunk terriotory and population pool that has been happening since a few decades ago
2. A result of backlash from US financial crisis which is triggered precisely because too much concentration on short term returns and practices such as taking loans by using subject they are still paying loans on as guarantee.

And it has the gall to say that "there are scant evidence" on infrastructure investment improving both the economy productivity, competitivity and quality of life of the developing nation. Yeah, that evidence is called China, please stop ignoring the elephant in the room.

Basically, this articles is saying, "hey, you developing countries, stop invest in your infrastructure and put your money into our stock market and real estate". Did the author take the rest of the world as idiots?

He is saying bad investments may harm an economy.. If you spend $2billion for $1billion return, it is a bad investment.. Overcapacity, non profitable infra development etc are all bad investments.. It will boost your GDP temporary..

 

[AndrewJin]

I think Indian RSSers are more obsessed with China's GDP and everything about China. But thanks to them, China's electronic supply chain is booming and stronger than ever.

 

[tranquilium]

How much China adds this year?? I know you only concern about GDP nominal.. Chinese Renminbi devalued almost 7% in 2016.. Your economy growth was 6.7%.. So how much your GDP nominal increased??
For making this $2trillion increase , how much debt China was spending??


He is saying bad investments may harm an economy.. If you spend $2billion for $1billion return, it is a bad investment.. Overcapacity, non profitable infra development etc are all bad investments.. It will boost your GDP temporary..

GDP calculation is a summation of the cash flow, itself is a temporary figure. Investment, particularly long investment, is judged by its overall effect rather than its cash return. For example, highway system is the artery of a nation's economic activity, but if you only look at it from current year GDP, highway system is actual a sink and incurs much debt. This is why it is BS to say infrastructure investment are bad just because it doesn't return immediately. Are the cargo flow and flourishing business going to be counted as cash gain from highways? Of course not. Are the highways bad investments then? Of course not.

Currently, the problem with much of the developing world is that a lot of these countries are simply too small, too unstable, too short-sighted to establish a long-term plan and build long lasting infrastructure that let them truly prosper. Of course "economists" in developed nation would like you take GDP and short-term return as the important indicator, that means less of your money and resource are going into advancing the nation and you will not be a threat to them. This is also why they like to harp on "total debt" of China. The central government debt is important because it hampers the central government's ability to make large scale, long term investment. (In this sector, government is the typically the main driving force in any country). Corporate debt, on the other hand, is a matter of government's ability to reign in private capital. It is different country by country. The infrastructure debt in the article is plain ridiculous, because it is simply long term investment.

 

[The Accountant]

Your answer lies in below articles..
http://www.forbes.com/sites/douglasbulloch/2016/04/26/why-chinas-debt-matters/#7d13b21bf88c

China's Certain Debt And Why It Matters


Since the great economic crisis in 2008, debt has taken centre stage. In the West, debt shaped the still ongoing debate between 'austerity' and 'stimulus,' the difference turning on how much overall debt an economy can sustain. It was, and still is,argued that beyond a certain level, debt has an increasingly negative impact on growth, meaning that an economy risks a doom loop where growth cannot keep up with the accumulating debt servicing costs.

Before 2008 it was common to speak only of government debt as a percentage of GDP on the assumption that the private sector was its own concern. But the banking crisis, and the wave of bailouts that followed shattered this complacency as the 'too big to fail' problem meant just that, leaving governments on the hook for liabilities originating in the private sector.

The UK economy was exemplary in this respect. Government debt to GDP ratio was just 43.5% before the crisis, regarded as well within acceptable limits. Focussing only on government debt however, as opposed to overall debt, contributed to the hubristic mood that famously inspired the former Chancellor of the Exchequer Gordon Brown to herald the end of 'boom and bust.' When the bust came, and long lines formed outside a regional bank called Northern Rock, the government was obliged to step in as underwriter of last resort. Now, of course, government debt to GDP is more than double what it was.

FILE - In this Feb. 16, 2016 file photo, a woman speaks on her phone near a display highlighting the new Chinese bank notes at a bank in Beijing, China. The Chinese economy is littered with companies that can’t pay their bills and survive only with financial help from the government. These companies and their debts pose another threat to an economy squeezed by five years of slowing growth, a free-fall in its currency and a stock market that’s sunk 20 percent this year.(AP Photo/Ng Han Guan)


greater increase than any other G7 country by some margin. For this reason, the UK's decision to adopt 'austerity' was an attempt to avoid the doom loop.

China's response to the economic crisis was radically different to the UK's. As growth turned down they opened the spigots on credit fuelled growth, boosting headline growth rates and keeping the whole world afloat at a time when there was not much good economic news to go around. China's government debt to GDP ratio was about 41% when the crisis struck and they became the standard bearer for those economists favouring 'stimulus', not 'austerity,' in search of growth. Today the Chinese government continues to refer to its relatively low government debt to GDP ratio - of around 60% - particularly when considering further stimulus, another round of which is underway.


The total debt picture, however, is rather more disturbing. Forecasters have for some time been estimating China's overall debt burden, but given the reliability of Chinese statistics, this is not easy. The Financial Times recently estimated China's debt at 249% of GDP, which is more than the UK's overall debt position (245% at September 2015). There are other guesses for China, but they tend to be larger, not smaller, and the reason this matters is that this level of debt is worse only in countries with acknowledged and serious problems, Italy, Greece, and - notably - Japan, notwithstanding that the overall Eurozone figure is comparable.

Looking at debt in the wider context, a McKinsey report - in February 2015 - estimated that global debt had risen by $57 trillion between the years 2007 and 2014. Fully $21 trillion of which can be accounted for by China quadrupling their overall debt. The largest share of China's debt is so-called 'corporate' debt i.e. soft loans to SOEs from government owned banks, which rather suggests that focussing just on the government debt to GDP ratio is just plain misleading to begin with as SOEs and state owned banks can't really be considered entirely distinct from the government. But the most important insights are twofold. First of all, China's debt position is now much worse than other developing economies - which average at around 175% - and secondly that it brings the spotlight back onto that perennial solution to all economic problems; growth.

The UK economy, through pursuing austerity, after an expected initial downturn ended up achieving higher growth rates than forecast - and higher than the rest of the G7 - by about 2013. This perceived success was eventually thought to have helped the governing party to achieve reelection in 2015 even though the UK economy was, and remains, by no means out of the woods yet. Certainly overall levels of debt remain a problem and a drag on overall economic performance. China, on the other hand has had to adjust growth expectations downwards, and is now confronting the headwinds of market doubts, capital flight, and outright warnings from the IMF about their overall debt position, which just keeps getting worse all the time.

One remaining advantage China has is that its official growth rate remains comparatively robust. But the FT analysis also shows thatdebt growth has outstripped economic growth consistently and significantly since the 2009 stimulus programme was launched. Add to this increasing doubts about the accuracy of China's reported growth rates, and what's left is a high-wire act.

If economists who argue for austerity are right, and the UK economy provides at least some evidence for that, then they may also be right that negative debt dynamics can eventually metastasise into a doom loop of rising debt and falling growth. While China was widely praised for its prompt stimulus efforts in the wake of the 2008 economic crisis, it is becoming clearer that the bill for that welcome expansion has yet to be paid. Given China's debt load at the time, stimulus was justifiable, but with China overtaking the UK in debt league tables, it is now much harder to argue that is still - or indeed ever was - the case.

@The Accountant ..
https://thewire.in/88239/china-economic-mirace-debt/

The Other Side of the Chinese Economic Miracle

David Graeber, an economic anthropologist, in his book Debt: The First 5000 years says, “One has to pay for one’s debts”. But there is one taboo of economics that the government is hiding from the public, Graeber argues – the fact that if the government balances its books, it becomes impossible for the private sector to do the same. This inevitable debt, he claims, often lands on those least able to repay it in a society.

Graeber’s fascinating historical account explains how the creation of debt remains vitally linked with the demand and creation of money (from barter to paper in all its forms). To understand debt, one needs to understand the history and creation of different mediums of exchange within the economy as an important tool to explain how swelling levels of debt emerge. Perhaps China, with its recent history of accumulating a ‘great wall’ of debt, may learn a lesson or two from Graeber’s own work.

Since 2000, China’s debt in terms of debt to GDP ratio has grown up to 280-290% (approximately), which exceeds the debt levels of highly-indebted developed countries, including the US (269%) and Germany (258%), and emerging countries like Brazil (160%) and India (135%). Over the last three decades, under China’s infrastructure-led public investment boom, the total aggregate debt has grown from $2.1 trillion to $28.2 trillion, which is greater than the combined GDP of the US, Germany and Japan over the same period.

While mainstream macroeconomics literature tends to largely focus on the government proportion of total debt, it is also important to note that other constituents like corporate debt, financial debt and household debt (in the Chinese context) tend to matter more in gauging a country’s overall indebtedness. In the Chinese case, government debt (marked at 55% of the GDP) remains low as compared to the other three constituents. Corporate debt and financial debt levels are marked at 125% and 65% of China’s GDP. But which economic factor has elicited such a vast volume of debt in China?

In a recent analysis on China’s public infrastructure-led investment model by some Oxford-based economists, it is shown how lower-quality, high cost ridden public infrastructure investments across China triggered a massive volume of overall debt, bringing the Chinese economy to the cliff of a national debt crisis.

On observing the investment and debt figures closely, one finds that the growth in China’s absolute debt is almost in equal proportion with the total capital investment; which between 2000 and 2014 was cumulatively $29.1 trillion. Scholars Steven Barnett and Ray Brooks support this further through their study, highlighting that the majority of investments China has made since 2000 remain debt-fuelled.

China’s Gross Fixed Capital Formation (blue bars) vs China’s government debt-GDP level (dotted line). Source: Trading Economics Database

China’s growing debt pile (debt-to-GDP, %). Source: McKinsey

The biggest increase in the accumulation of debt came in from the corporate and financial sector (dominated by the big four state-owned banks in China). Most of these companies (including the non-state owned private enterprises) borrowed extensively from financial markets to finance large scale infrastructure projects.

The infrastructure investment-led bubble

The traditional wisdom in macroeconomics on the utility of infrastructure investment, in recent times is built from studies by Paul Krugman (1991), David Aschauer (1989,1993) who provided econometric evidence for the case of large-scale infrastructure projects (such as rail, roadways) that in lowering transport costs led to increasing returns (i.e. through greater output, more private investment, employment growth).

While the econometric evidence cited in these studies does present a strong policy case in pushing for greater large-scale public infrastructure investment, in the Chinese case there is scant bottom-up evidence in this regard. The actual outcomes of specific investment projects present massive costs incurred in the building process of these mega projects, particularly in emerging economies like China.

The study by Ansar, Flyvbjerg, Buzier and Lunn reports results on “95 road and rail transport infrastructure projects built in China from 1984 to 2008 and comparative results with a dataset of 806 transport projects built in ‘rich democracies’”. The economic value of a given infrastructural project is tested by the benefits to cost ratio level (BCR) which needs to be either equal to or greater than one (BCR > 1.0).

Average Schedule Overrun of Chinese Projects (in %). Source: Study by Ansar, Flyvbjerg, Buzier, Lunn

In their results, 75% of the 95 transport projects in China suffer a cost overrun (in local currency terms), while the actual costs incurred on these projects remain 30.6% higher than the original, estimated cost.

The figure above helps in giving an approximate idea on the average schedule overrun (in %). As projected by the analysts, the actual average construction time taken to complete infrastructure projects (4.3 years) remained less than the average time used by the richer democracies (6.9 years). At the same time, there aren’t any schedule overruns (only one in every two projects encountered a schedule delay in China, compared to seven out of ten in richer democracies). The problem, however, remained with the costs incurred and the quality and safety attached with actual outcomes delivered in the infrastructure projects completed.

In building infrastructure at an impressive speed, the Chinese corporate enterprises (state and non-state owned), financial markets traded off with quality, safety and the estimated cost of these projects. The combined effect of benefit shortfalls and cost overruns pushed the BMR below one.

While conventional macroeconomic theory may typically treat all infrastructure as part of an exogenous cost-reducing technological input into the economy, to drive growth, it is increasingly becoming evident that most models arguing for such investment, intuitively assume that more and better infrastructure reduces the cost of transporting goods and services.

The evidence cited from China lucidly suggests that poor project-level outcomes translate into “substantial macroeconomic risks”, like accumulating debt, higher percentage of non-performing assets, distortionary monetary expansion from central banks (involving printing of more local currency to finance high cost infrastructure investment) and so on.

Such a pattern clearly signals a warning sign for most emerging economies that seek to embark on a China-style public investment model in the quest of achieving higher economic growth. China’s case offers significant macroeconomic policy lessons where emphasis on deep institutional reforms along with the development of quality, sustainable physical infrastructure needs greater emphasis (both from the government and the private sector).

Countries like India, which are currently in process of homogenising large scale infrastructure projects across the country, need to be wary of the costs-returns attached with such projects. Robust project designing frameworks, periodic monitoring tools and better outcome-based impact assessment models are critical in the process of achieving consistent developmental growth.

Too much hushh hushh, so much analysis just on one ratio ... Can you please compare China's debt with China's investments and capital assets ... You are assuming without any basis that investments are bad investments and will not give appropriate return ... that's bull shit ... If you take all of the China's debt kindly do take all of China's asset as well ...

Furthermore, a nation's total debt is an arbitrary figure ... there is no confirm source of it as the data is not reliable ...

 

[BuddhaPalm]

Growth is unbalanced and the raw GDP growth number fails to indicate any improvement in general standard of living. A green GDP combined with Gini index may be an improvement.