China Overtakes Japan as World’s Second-Biggest Stock Market (opens in new tab)

IDK, the original article talked about the stock market. On that exchange, market capitalization is measured and is a proxy for everything going on with public companies. What you are talking about in 1) and 2) is some non-existent market on which total equity and debt with vastly different characteristics is valued on one shot. What exchange do you have in mind here? The only time you fully measure all the effects to calculate the enterprise value is when you are buying the company outright. There are several practical reasons why you don’t measure and trade on the enterprise value of the listed companies. To list a few

1.On the equity side you only know the prices of outstanding shares, how will you value the non-traded shares and options? There is no simple measure to assign the control premium on a single company much less the entire stock market. This doesn’t include debt that might convert to equity on different schedules.

2.On the debt side, debt can be convertible to equity, have different seniority, payment schedule, liquidity and risk profiles. What does a consolidated number tell you? Not to mention off-balance sheet commitments and the fact that debt for some sectors like a financial company might not make any sense. What does the enterprise value of Bank of America even mean?

3.Even valuing cash has problems if you are like a US tech company with billions abroad that might be subject to myriad tax rules.

Finally with 3) you talked about private companies, at that point you probably need to look at SOE in China as well. Now you are looking at total wealth and not the stock market.

That's not true.

A company taking on more debt does not automatically alter its market cap. There is no automatic correlation for any given valuation metric, whether we're talking about how high a PE ratio should be, or how debt should be valued when deciding if a market cap is reasonable.

Your 1) item rests on the efficient market theory, which is false.

It is entirely up to investors - their reasoning and emotion - and it typically varies significantly from one industry to another, and from one company to another. For some companies, taking on debt will not alter the market cap what-so-ever. Apple for example, viewed as an extremely healthy company with massive earnings, can take on debt without it denting their market cap in a negative way.

All in current USD (2012).

How does it not? I guess companies can trade their stocks at foreign exchanges, but over time that should cease. Assuming that productivity per person becomes more than half what it is in the US and that Chinese companies will trade their stocks in a domestic exchange it does indeed seem inevitable. Those aren't very wild assumptions.

Given countries or reasonably similar per capita wealth it stands to reason that they stand reasonably close together.

As developing economies 'develop' their per-capita GDP approaches that of developed economies. Therefore, as this happens, the size of an economy becomes more proportional to the population size.

Therefore over the very long term that absolutely should happen.

It absolutely will happen. Maybe not in the immediate future, but almost certainly before the end of the century.[0]

http://www.bloombergview.com/articles/2014-10-30/china-is-ve...

[0] Barring some kind of technicality, i.e. stock markets merge such that in the future there is only one "stock market" or something.

India's stock market is 3Trillion (Not very far behind China's).

> But that is not going to happen.

That is not going to happen soon. It could happen in the future, for China at least. India is a poorer country, but both have histories of being industrious and productive, so it really shouldn't be surprising if they ascend again over time.

> you can in fact have heavy social control but small-government in terms of economics ala Singapore and have a country make rapid economic process.

Singapore's rapid economic progress is due to anything but small government. If you read Lee Kuan-yew's memoirs, you'll see the lengths to which the Singaporean government went to kowtow to Western (and later, Japanese) multinationals. They rolled out the red carpet over and over, for years, before any of those companies made significant investments in Singapore.

Also, there are several reasons why generalizing the Singaporean experience to Sinosphere countries doesn't work:

1. Although Singapore has a lot of ethnic Chinese, the country is inherently multicultural and has adopted many British cultural traditions and practices.

2. The country is very small, making social control much easier than in a country the size of China.

3. Lee Kuan-yew himself has said that the Chinese government won't be able to maintain social control as the Chinese population migrates to the cities[0]. The system will have to change, and that will be very difficult.

0: https://www.youtube.com/watch?v=TlkPuamwrlg#t=2m52s

Can you point to any other examples other than Singapore or Hong Kong?

Both of these to me take advantage of inefficient neighbouring countries (in a doing business sense) to offer a safe place for those with the resources to do business. I don't know if you can apply that example to somewhere like China.

I also cannot see them lessening their grip on business. Ultimately money is power and in the past the Communist party has always seemed to favour maintaining political control over economic consequences. I cannot see them allowing potentially competing power structures to develop outside of the Communist party structure.

Singapore is a pro-business, large government benevolent dictatorship with a small population and almost limitless supplies of cheap, non-citizen labour.

Their society is a miraculous achievement, but it isn't clear that model generalizes to larger countries.

It's also not really in the 'Sinosphere', unless you consider all ASEAN countries to be (which they would strongly disagree with!)

I agree with your points about China though.

In the earlier part of the Qing dynasty, China was the richest country in the world, not to mention it had this status for much of its history. It should be no surprise that China rises to that status again, temporary mishaps (later Qing to present) not withstanding.

Japan hasn't suffered any meaningful deflation in the last 25 years. In fact, they've suffered immense inflation, as have most major economies. That's why they have among the highest costs of living on earth, their consumer goods are expensive, and almost everything in Tokyo costs a fortune.

Run 2% deflation against 25 years, and tell me consumer goods in Japan should cost what they do.

The only thing Japan suffered, was the bursting of a real estate bubble. Following that, they accumulated insane sums of debt trying to fake continued prosperity and avoid the standard of living drop that was inevitable (and is now arriving anyway). Asset prices going down is not inherently deflation, in the case of Japan it was fake wealth that never should have existed in the first place.

> Japan's 'malaise' is all about demographics and a 20 year inept Government response to deflation.

Why do you think the demographic issue exists? Low birth rates are due to gender inequality and long working hours, both of which are endemic in the Sinosphere. And the government's failure (which goes far beyond not tackling deflation) is due to its cozy relationships with incumbent firms - a factor that makes it very difficult for creative destruction to occur.

They are all pretty Confucian, but China is a lot more heterogeneous (in culture at least) than Japan or Korea.