TSE Pods
TSE Pods
Economics To The Rescue ep 3: Anticipating the Impending Asian Financial Market Crisis: A Comparative Analysis with the West
In this episode, we embark on an in-depth exploration of Asian financial market stability and associated challenges, featuring insights from our distinguished Dean, Dr. Chao-Hi Huang. Our discussion encompasses an array of pertinent topics including the prospective recessionary trends in China, the prevailing deflationary pressures within the Chinese economic landscape, and the intricacies of the Japanese financial system. Furthermore, we endeavor to juxtapose the resilience and dynamics of the Taiwanese banking system against its Western counterparts, while also elucidating the salient lessons that Asian economies can glean from the Western financial paradigm. Through a scholarly lens, we aim to foster a comprehensive understanding of the multifaceted issues shaping the contemporary Asian financial milieu, thereby facilitating informed discourse and strategic insights into future trajectories.
Stephanie
Hi, everyone. Welcome back to TSC pods and the third episode of our series ECON to the rescue. In this episode, we will continue our discussion about the 2023 U.S. banking crisis with Doctor Chao Shi Huang and will expand it to Japanese public debt problem. The current recession in China and the impact on Asia as a whole. How do you think this crisis compares to the 2008 financial crisis?
Dr. Huang
I think the reason is just finished in the US because there was no big bubble. In the US economy, it was not like the in the financial tsunami of the 2007 and eight because at that time there was a huge bubble in the real estate market, OK. And the real estate is related to. Almost all the banks, OK, all the banks, they're asset has. Huge part or great part of loans or the so-called the mortgage-backed securities holding those kind of assets which are related to the real estate. So when there's a bust. In the real estate market, then, it will affect almost all the commercial banks. So that's a very serious crisis at that time. Yeah, but this time we don't observe. Any this kind of kind of bubble like related to similar to those we observed in the financial tsunami episode? Yeah, but in China? Is similar. To the 2000. 7 to 8 right now. Oh, right, right now, because the China's facing the problem of the busting of the real estate sector. So what you mentioned those banks? The failure of those banks are related to real estate.
Quentin
This sense could a comparative study be drawn between this SVG type of scenario to say that's?
Dr. Huang
Uh-huh. Uh-huh.
Quentin
Could be a mini tech bubble that was burst.
Dr. Huang
Yeah, yeah.
Quentin
Whereas in China the localized issue was a real estate bubble that was burst. Yeah. And it's not the first time we've seen this over the globe.
Dr. Huang
Yeah. MHM.
Quentin
But the cause and effect seem to be smaller and smaller. And I wouldn't. I'd hate to say this, but the rich are being distributed.
Dr. Huang
Uh-huh.
Quentin
In a good way, because they should be educated at that good high risk, high return and this is the risk side of things. Is it fair to make that kind of analogy and?
Dr. Huang
Uh. Yeah, people learn from past mistake, but people tend to forgot. Those mistake. If the. There's 10 or 20 years past, then they just forgot everything. But right now I think the US, they still remember those mistake in China. I'm not so optimistic. About the China?
Don't have experience.
Dr. Huang
Because the economy is lacking some so-called self correcting mechanism, that's my opinion, because in the in the western economy, the free market economy.
Quentin
1.
Dr. Huang
When? When you are not successful, your company lose a lot of money. Then you face the bankruptcy. You just wipe out and you will be replaced by some other companies, more competitive ones replacing the less competitive. Companies. But in China, all those company are owned by the government is a is a. The government, the enterprise, OK, so. They won't get bankrupt whenever they lose money. Government will support it. So. So they don't. Have to face. The the consequences? Yeah, that's the difference. So. I'm thinking that kind of system so-called the self correcting mechanism is much weaker. Than the Western the free market. Society. Yeah, that's. That's my opinion so. I'm thinking in China, you may it may face. Long period of recessions, maybe something close to what happened in in Japan in the 1990s, yeah.
Stephanie
Japan does not have its own banking crisis, but it does have its own public debt problem. Do you think there will be a disturbance in the Japanese financial market?
Dr. Huang
One thing is that the the saving rate of Japanese people Japanese are quite high, so those public debt. Are mostly owned by their citizens, OK? On the is not the what happened in Greece? Because in Greece, most of. Their public that are owned by foreigners. So there's a there's a huge difference there. So in Japan. Even though the public that grows, but people also. Tend to purchase those newly issued. Public debt. So in that case, there's a no immediate crisis in Japan, yeah. Also, I guess there's no immediate crisis in the US, even though the deficit government deficit is quite huge and that they have to keep on adjusting the ceiling of those federal debt ceiling ones. Wire.
Stephanie
Can the recession in China impact other countries?
Dr. Huang
Chinas recession surely will affect the the peripheral countries, which has a huge trade with China. OK, so. I think like the Southeast Asian countries and Taiwan, South Korea, Japan, all. Affected by Chinas recession. OK. So these days we observed that the export sector of Taiwan. Is not good. The is the declining of the. Export exporting sectors of Taiwan manufacturing sector of Taiwan, yeah.
Quentin
I also noticed that. General prices for the goods that are exported out of China have dropped significantly.
Dr. Huang
OK.
Quentin
If I'm going to take a stab at it, the clearing inventory because of the downturn, so does this have in your view have an effect on the the economy moving forward between China and its partners?
Dr. Huang
Uh-huh. I think there's a so-called deflationary pressure. In China right now, that's what I observe. What? Happened in Japan during the 1990s. Actually, the Japan faced the deflation continuous decline of. General price level over 1020, even 30 years. So in China I'm thinking. They were here, at least the medium term deflation price keep. Declining for quite the quite a few years. So what you're saying is that when there's a deflation, people tend to spend less because they expect the price will be cheaper later than right now. So we just. Keep on waiting. OK, let's postpone our consumption. So that is not good for the economy because we need the consumption to boost. The macro economy, so the deflation pressure is one reason that the Japanese economy was. Growing very, very slow or even declining over a very long period of time. So I hope that will happen. In China. Because it will drag down other countries with with it, yeah.
Quentin
In that sense. It will be a great time for international diplomacy in terms of working with China to strike a good.
Dr. Huang
Uh-huh. Uh-huh.
Quentin
Balance to help them. But at the same time, benefit from that extraction.
Dr. Huang
Uh.
Quentin
And help them not go into the realm of.
Dr. Huang
Uh.
Quentin
Deflationary prep.
Dr. Huang
How to do that? I mean you have some suggestions.
Quentin
So like you say, if we have some kind of confidence for SMEs or large businesses to purchase, maybe not the full capacity that they're used to, but say, 20%, forty percent, 60%, according to the deflationary. Pressures.
Dr. Huang
And then you've been purchased part of the firm in China?
Quentin
No, no, no. Purchase purchase their outputs so their inventory doesn't keep going.
Dr. Huang
Oh, purchase the inventory. You you tend to accumulate some inventory because of the cheap price. Yeah. Uh-huh.
Quentin
Yes, yes, but not because you said that we'll be waiting for, say, a 10% price tag, right? But what if we strike a diplomatic balance with China to say, OK, we'll buy it at 20%, which is what you're going to get anyways at 10%, two times what you're going to get so.
Dr. Huang
Uh. Uh.
Quentin
So to not. So to help China not to go into deflationary. Zones like Japan and overall, maybe this can be say like a five year or ten year plan which beats Japan in terms of 30 years of deflationary economy. Do you think that might be something that our diplomats or or partners?
Dr. Huang
OK. Hmm.
Quentin
Of China could consider which I think with Biden and Xi Jinping meeting in San Francisco, could be some of the things that they're talking about.
Dr. Huang
I don't know because. What you say is the the the companies in the US will purchase. Some inventory from China. When it gets cheap. Cheaper but. The US government has no saying on that because the the decision by the those are private firms. Are for their own profit. OK, so. They will be coordinating with the US government and say we just. Purchase something as a group from China to make it grow. That's that's the hard part. I don't. I don't think it's the US government has any authority to to to order those firms to do that. But they can do some exchange with China. Government, for example, during the past five or even longer period, I don't see. Chinese. L liners order any L plan from the Boeing company. They just purchased from the mailbox. I think it's due to the political reason. So right now, maybe the Biden administration can strike some deal with Xinping say you have to purchase some airplane from Boeing. And I will give you some benefit of out of that. What benefit? I don't know. One thing is that the. China also construct. Airplane called the C99 or something like that and it needs some technologies from the US. Also the engines those type of things. So maybe there's some kind of exchange you purchase Boeing, the airplane that I support some equipment for you. The 919, those kind of deal, I think by the administration can do, yeah. But for the other thing, I think maybe, maybe not, yeah.
Quentin
To compare.
Dr. Huang
Uh-huh.
Quentin
I think Taiwan has a good mix of private and government.
Dr. Huang
Uh.
Quentin
Banks we know as.
Dr. Huang
Yeah, yeah.
Quentin
In. And obviously the regulations and the officers are there because I think one major complaint of FPV SVG was that the compliance officer.
Dr. Huang
Uh.
Quentin
Overseeing where the deposit and whether there's a stable risk on bonds versus loans.
Dr. Huang
Uh. Well, but.
Quentin
Was nonexistent. That officer was just not there. The bank shouldn't be allowed to run at all without a dedicated officer. Yet the regulators and the bank put this off.
演講者
Hmm.
Dr. Huang
Uh. OK.
Quentin
So as a comparison, I I tend to want to believe that time 1:00 because of its peculiar position is very conscious of bank runs and therefore is.
Dr. Huang
Uh-huh.
Quentin
On the side of caution, especially for the government owned partially owned banks, do you see this as a movement?
Dr. Huang
Uh-huh.
Quentin
Or.
Dr. Huang
Something that we can show the world how to have stable bankings in the economy to look after the people because using because we have so-called the government on the bank. So our system is more stable is that. Your.
Quentin
I think the mandate gives them more confidence.
Dr. Huang
Yeah. Uh.
Quentin
So as as I said before, the risk to reward ratio is obviously lower. So you don't get more reward banking with these banks. But people are confident that.
Dr. Huang
Uh-huh.
Quentin
The money is more or less secure, more than.
Dr. Huang
Hmm.
Quentin
Secure in in these government banks.
Dr. Huang
Hmm.
Quentin
Whereas in America, even Citibank, like at one stage was partially owned by the government, have gone bust or have it's drawn in its market share because of regulators and banks.
Dr. Huang
Yeah. Yeah. Uh-huh. Yeah. Ohh.
Quentin
And the government not participating, not having an institutional intervention in the daily running of the bank.
Dr. Huang
Uh.
Quentin
Yeah, which sees, you know, one of the greatest banking.
Dr. Huang
Yeah.
Quentin
Entity dwindle, I think. Yes, I think to some stage Japanese banks do this quite well too. As you said, there's a lot of citizens buying government bonds and that's a sign of confidence and.
Dr. Huang
Ah. Hmm. Uh-huh. Yeah, yeah. Yeah, yeah.
Quentin
Most speculative versus non speculative issues come from whether or not there is confidence. Yeah. So yeah, I mean the point where I want to make is whether or not this kind of banking system can be your model to replicate elsewhere in the world.
Dr. Huang
Mm-hmm. Yeah.
Quentin
Create a more stable baseline for each of the individual economy.
Dr. Huang
Can be a model OK? Stayed on the bank. Is more stable for sure. OK, but the at the other extreme. Like in China? All the banks, almost all the banks, are they owned. And. And I don't think that's a good thing. OK. Because like I said, one day. Lose money. They don't get bankrupt. And the taxpayer will. Pay to save those banks. OK, so they are lacking some kind of self correcting mechanism, so they tend to make the same mistake mistake over and over again. And in the. Free market society all the banks are privately owned. They tend to run more efficiently. But maybe more risky also, but those bad bank will be wiped out. And you have good bank to replace. Their position. OK, so oh. Stability may be in Taiwan is more stable than the western economy, but. One good thing we did in the year 1990 or 91 is we the government opened the door for the private sector to. Got the license to run banks OK they issue. Like 15 or 16. New license. For those private banks before that, all the banks are owned by the states. So I think that's a very good thing because the financial market become much more competitive after that. And that's very good for people to get. Loans bank loans with lower cost and get more access to those funds. And that's good for the. Economic growth. Afterwards so. I still believe that the private owned banks should be the major part of the. Economy and in Taiwan, we did have those. Some banking crisis before, like the year 2000, 2001, we have some. Bankrupt bankruptcy cases for those private banks? Yeah. One or two private banks. Bankrupt. The issues that they are to concentrate on certain customers also the similar problem as the SDV, yeah.
Stephanie
Thank you for listening to this episode of TSC Pods. If you liked it, be sure to check out some of our other episodes and subscribe to get the notification when our next episode drops. This is the official podcast of the Taipei School of Economics and Political Science where we share our take on international relations, age, and political economics, global economic development. And more. See you next time.
