Joe Zhang: China’s Coming Wave of Privatization

Joe Zhang, China banking expert, shared his insights on China’s coming wave of privatization in his recent article for The New York Times.


Some estimates put local government debts at more than 12 trillion yuan ($2 trillion) as of the end of 2012. That’s equivalent to about 25 percent of China’s 2012 G.D.P. Some economists fear the day of reckoning will come in 2014, when most debts will come due. That will spark a crisis of confidence, they say, and a collapse of the economy.

I dismiss such alarmist predictions.

First, there is no such thing as local government debt. China does not have a federal system; all tiers of local government are branches of the central government. At the end of the day, the central government stands behind all levels of government. It determines the tax-revenue sharing formula with each local government, makes all political appointments, and says if a local government is allowed to sell bonds or not. In many cases, the central government even sells bonds “on behalf of local governments.” So, there will never be a Chinese equivalent of Detroit, a metropolis that goes bankrupt while the rest of the country looks on.

Second, even as the economy has been liberalized over the past 35 years, the government has substantially increased its slice of the G.D.P. pie, leading to more income and a healthier balance sheet. The ratio of total fiscal revenue to G.D.P. reached 22.6 percent in 2012 on the back of new taxes, higher tax rates and better collection methods.

While much fiscal revenue has been squandered, at least some has been reinvested each year to grow government assets. Today, the government owns controlling stakes in a huge number of banks, telecom operators, ports, roads, railroads, real estate holdings and industrial companies. Not to mention its over $3 trillion in foreign government bonds.

Read the entire article here…

Joe Zhang

Joe Zhang is the Chairman of Slow Bull Capital based in Hong Kong, and also author of “Inside China’s Shadow Banking:  The Next Subprime Crisis” and 避開股市的地雷。Zhang was Chairman of Wansui Micro Credit Company in Guangzhou, China, from 2011 to 2012, . He was named “Microcredit Person of the Year” in January 2012 by the Microcredit Association of China.

He started Slow Bull Capital in 2012. Before starting his own business, Zhang worked at investment banks.  He was Deputy Head of China Investment Banking at UBS between 2008-11. From 1999 to  2006, Joe was co-head and head of China Research at UBS Securities Asia Limited. Prior to this, Mr. Zhang worked at the People’s Bank of China between 1986 and 1989. Zhang was chief operating officer of Shenzhen Investment (604 HK), a company listed on the Hong Kong Stock Exchange, between 2006-08.

Contact us today to engage Joe Zhang to share his insights at your next conference.

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