Credit growth vs. investment growth

by on August 4, 2013 at 12:20 pm in Data Source, Economics | Permalink

That’s private non-financial credit growth, and the scatter plot of countries looks like this:

Chinacredit

China appears to be well past the danger territory of Japan from the late 1980s.  That is from Sober Look citing Credit Suisse.

Bill August 4, 2013 at 1:50 pm

Why do some countries have periods attached to them (eg, US) and others do not (eg Mexico).

If I get to choose my period of analysis for some countries, while taking a longer period for others, I can prove anything.

Or nothing.

crs August 4, 2013 at 2:24 pm

It appears that the blue diamonds are the non-China emerging market sample for 2008-12, the red diamond China in that same period. The yellow triangles are other countries in periods prior to credit crunches, as a kind of reference. I would agree that comparing late 80s Japan with current China is not an apples-to-apples comparison, but this type of chart makes one want to dig a little deeper, right?

Bill August 4, 2013 at 3:34 pm

Yeah, Dig deeper, if you are informed of the way the data is misrepresented. Most people aren’t diggers.

Bill August 4, 2013 at 3:41 pm

You will also note that the title of the graph is “Private non-financial credit growth v. investment growth 2008-2012″, yet the data for some countries–Korea, US, Japan and China–is not for this period, although China is red but no period assigned to it. Also not that the regression line excludes China, but China appears on the chart, so if you are eyeballing the regression line, remember that China is not included in the regression line so it may appear to be more of an outlier.

crs August 4, 2013 at 4:00 pm

China is a red diamond, I don’t think it’s a stretch to infer that it has the same period as the blue diamonds and the chart header 2008-2012. True, China is not in the regression, but it is an emerging market country, so it’s reasonable to use other EMEs as a one possible benchmark. And the point is that China’s an outlier, though exactly how (sustainably/unsustainably) is less clear. I agree the post (and the linked one) is a poor showing to have so few analytical details spelled out, like we are supposed to be bowled over by a “pretty” picture. I stare at (and help make) charts on economic relationships all the time and I can assure you there’s plenty of digging going on post-chart … these type of charts are a starting point, not a proof of anything.

Bill August 4, 2013 at 4:14 pm

crs, I don’t think one can possibly defend this chart. When one says “I don’t think it’s a stretch to infer”, or “True, China is not in the regression, but…”, or that it is “less clear” how much China is an outlier….as you point out…then I can agree with your conclusion…that it is…”not a proof of anything.”

crs August 4, 2013 at 4:59 pm

Bill, why do you read here, again? it’s a blog post not an I-bank report or a peer-reviwed top-tier journal article. filtering is part of the process … no one jumps from question to answer without a few intermediate pieces of analysis. it’s not proof, but it’s not garbage either.

crs August 4, 2013 at 5:35 pm

apologies on my question, Bill. It’s been a rough weekend of potty-training hence my grumpiness. I get frustrated at the half-cooked analysis here sometimes, but it’s still worth pondering.

prior probability August 4, 2013 at 2:27 pm

Although sobering in one respect, this data is encouraging in another, since credit markets require a strong rule of law (e.g. enforcement of contracts)

Mike August 4, 2013 at 4:55 pm

Not an expert on China, but my understanding is that there’s no independent judiciary and there’s never been the kind of systemic failure that would really test their commitment to enforcing contracts.

Crocodile Chuck August 4, 2013 at 8:33 pm

Encouraging?

There are no property rights in China.

Mark August 5, 2013 at 12:59 pm

What’s the per capita income in 2013 China with 1989 Japan?

What did credit growth look like in 1965 Japan would be more appropriate.

I’m a skeptical of china as the next guy but this chart does not show what TC thinks it shows.

Spencer August 5, 2013 at 4:04 pm

Why would you consider the years 2004-2008 normal for the US.

Gui August 6, 2013 at 11:44 am

Thats a good question.

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