The Conceptual Penis As A Social Construct

THE CONCEPTUAL PENIS AS A SOCIAL CONSTRUCT
Mocking gender studies

By Mattt Ridley

Published on: Thursday, 25 May, 2017

A hoax shows how easy it is to fool peer review

The latest university prank is embarrassing to academia and hilarious for the rest of us. Philosophy professor Peter Boghossian and mathematician Dr James Lindsay made up a learned paper on the “conceptual penis” as a “gender-performative, highly fluid social construct” that is “the conceptual driver behind much of climate change”, stuffed it full of random jargon and fake references and then got it through peer review into an academic journal.

True, it was a low-grade, pay-to-publish journal of the kind that has proliferated recently as a money-making venture, but the authors were recommended to try that journal by a serious journal, and the peer review was genuine. As the authors have written of their own work: “We don’t understand it either. Nobody does. This problem should have rendered it unpublishable in all peer-reviewed, academic journals.”

This happened last year, too, when Professor Mark Carey published an even more absurd paper arguing that “a critical but overlooked aspect of the human dimensions of glaciers and global change research is the relationship between gender and glaciers” and introducing “feminist glaciology”. In that case, however, the professor continues to insist, against all evidence, that he was serious. Science magazine gave him a lengthy, softball interview to justify his work after it was laughed at on the internet. I still think he’s a joker in deep cover.

Neither paper would have been published if it had not fitted the prejudices of much of academia: leftist, postmodern, relativist, feminist and moralising. “The academy is overrun by left-wing zealots preaching dangerous nonsense,” says Boghossian. “They’ve taught students to turn off their rational minds and become moral crusaders.”

As a system of ensuring quality in research, peer review is in deep trouble. It allows established academics to defend their pet ideas and reward their chums. Its one-sided anonymity, in which the referee retains his anonymity but the author does not, could hardly be better designed to ensure cronyism.

Worse, as a recent report by Donna Laframboise, a Canadian investigative journalist, concluded: “A journal’s decision to publish a paper provides no assurance that its conclusions are sound . . . Fraudulent research makes it past gatekeepers at even the most prestigious journals. While science is supposed to be self-correcting, the process by which this occurs is haphazard and byzantine.”

Peer review’s flaws now allow people with an axe to grind to dismiss even the most rigorous and careful of science along with the nonsense. It’s time for science, and the softer social sciences in particular, to get their house in order.

Judical Stop Trump–Forget What The Supreme Court Has Already Said

by DAVID FRENCH May 25, 2017 6:18 PM National Review Website

Call it ‘Trumplaw.’

A strange madness is gripping the federal judiciary.

It is in the process of crafting a new standard of judicial review, one that does violence to existing precedent, good sense, and even national security for the sake of defeating Donald Trump.

We’ll call this new jurisprudence “Trumplaw,” and its latest victim is once again the so-called Trump travel ban. The perpetrator is the Fourth Circuit Court of Appeals.

This afternoon, the Fourth Circuit upheld a nationwide injunction on Trump’s temporary halt on immigration from six majority-Muslim countries — each of which is either a state sponsor of terrorism (Sudan and Iran) or overrun with terrorist violence, with entire regions under jihadist control (Libya, Yemen, Syria, and Somalia).

Indeed, some of these countries no longer have a recognizably functional government.

Here is the essence of the court’s ruling: Trump’s campaign statements were so grotesque that they not only (1) hurt the feelings of a Muslim resident so much that he was granted standing to challenge an executive order that did not apply to him, but also (2) rendered an otherwise lawful executive order so damaging that the harm to the plaintiff’s feelings (and his wife’s possibly delayed entry into the United States) outweigh the government’s asserted national-security interest in pausing to reexamine foreign entry from hostile and war-torn countries.

Since Trumplaw is such a novel form of jurisprudence, it’s exceedingly hard to square with existing precedent. So, when existing precedent either doesn’t apply or cuts against the overriding demand to stop Trump, then it’s up to the court to yank that law out of context, misinterpret it, and then functionally rewrite it to reach the “right” result.

Take, for example, the Fourth Circuit’s reading of a Supreme Court case called Kleindienst v. Mandel.

In Mandel, a collection of scholars demanded that the U.S. grant a non-immigrant visa to Belgian Marxist journalist. The government had denied him entry under provisions of American law excluding those who advocated or published “the economic, international, and governmental doctrines of world communism.”

Make no mistake, the First Amendment protects the right to advocate or publish Marxist doctrines every bit as much as it protects the free exercise of the Islamic faith.

Yet the Supreme Court still ruled against the Belgian journalist:

We hold that, when the Executive exercises [its] power negatively on the basis of a facially legitimate and bona fide reason, the courts will neither look behind the exercise of that discretion, nor test it by balancing its justification against the First Amendment interests of those who seek personal communication with the applicant.

The meaning is clear. If the order is supported by legitimate and bona fide reasons on its face, you simply don’t go beyond the document. By that standard, the executive order is easily and clearly lawful.

On its face, the order asserts a legitimate and bona fide national-security justification.

On its face, the order isn’t remotely a Muslim ban.

On its face it doesn’t target the Muslim faith in any way, shape, or form.

On its face it describes exactly why each nation is included.

The Fourth Circuit, however, interpreted Mandel to argue that the Court looked only at the face of the document to determine whether its supporting reasons were legitimate, not whether they were “bona fide.” It could go “behind” the document to determine “good faith.”

Yet, as the dissent notes, this approach would have altered the outcome not only in Mandel itself, but also in other key Supreme Court cases.

Indeed, in those cases the Court expressly declined to look behind notices and documents to explore the subjective motivations of relevant government officials.

Judge Paul Niemeyer’s dissent is stinging, and correct:

In looking behind the face of the government’s action for facts to show the alleged bad faith, rather than looking for bad faith on the face of the executive action itself, the majority grants itself the power to conduct an extratextual search for evidence suggesting bad faith, which is exactly what three Supreme Court opinions have prohibited. Mandel, Fiallo, and Din have for decades been entirely clear that courts are not free to look behind these sorts of exercises of executive discretion in search of circumstantial evidence of alleged bad faith. The majority, now for the first time, rejects these holdings in favor of its politically desired outcome.

Trump can even change his mind — as he so plainly did — and not even his changed mind can be cleansed of its original sin.

Thus, we are left with a majority holding that a document that unquestionably does not exclude Muslims from the United States is the means of, you guessed it, excluding Muslims from the United States.

We are left with a majority holding that cements the idea that an otherwise lawful order is unlawful only because Donald Trump issued it.

We are further left with a majority holding that a court may — in its sole discretion — determine when campaign statements (or any other political statements, really) can affect the constitutionality of a government action and trump even the text of the document itself.

All this adds up to Trumplaw, the assertion by the federal judiciary of the legal authority to stop Trump.

But don’t think Trumplaw will end when Trump himself leaves office.

The principle is now established: When a judge doesn’t like a politician’s campaign statements, those statements can taint even actions that clearly contradict those statements.

In other words, Trump can even change his mind — as he so plainly did — and not even his changed mind can be cleansed of its original sin.

The sad reality is that this takes place in the aftermath of an event — the Manchester bombing — that demonstrates that one of the countries on the list, Libya, is in fact a hotbed of terrorist activity. The bomber traveled to Libya and allegedly had help there. He was a British citizen and not subject to the travel pause, but his journey illustrates the very real dangers of lawless regions gripped by jihad.

Is it unconstitutional to pause entry from that nation to make sure that we can properly vet and screen for ISIS sympathizers?

The Supreme Court has always said no. Today, the Fourth Circuit says yes.

Today, the Fourth Circuit has chosen to distort the law and risk our national security to stop Donald Trump. —

David French is a senior writer for National Review, a senior fellow at the National Review Institute, an attorney, and a veteran of Operation Iraqi Freedom.

Lone Wolf —Really?

American Center for Law and Justice Website

JIHAD

The Entire Concept of a Lone Wolf Terrorist is Fake News

Matthew Clark wrote yesterday

Each and every time another dastardly jihadist terrorist attack is inflicted on the world, headlines emerge that the savagery was carried out by a “lone wolf” terrorist.

As a lawyer who deals in facts, the absurdity of this concept is beyond the pale. The mountain of evidence that has been amassed in the wake of dozens upon dozens of radical Islamic terrorist attacks points to one and only one conclusion – there is nothing lone about jihadist terrorism.

To be sure, there have been instances of lone wolf attacks – singular individuals who are carrying out their own deranged mass murder. The Unabomber and the Oklahoma City bombings (though even that was two individuals) come to mind. These were one-off acts of terror.

As I have written before, radical Islamic terrorism on the other hand is anything but.

Sometimes we get lost in the details of each attack. Did this particular terrorist go to a terrorist training camp and receive instructions from an Osama bin Laden-type leader of a specific named terrorist group to carry out a specified attack on a delineated target at an agreed upon time?

This is a pre-9/11 mentality that plagues our media, much of our government, and our collective understanding of the threat we face.

Sometimes the simplest facts are the ones that get overlooked the most. For example, Dabiq and Inspire magazines. Would a lone wolf terrorist have international magazines? Think about it. There are actual magazines put out by radical Islamic terrorist groups that call for precisely the kinds of attacks that we have witnessed: soft targets, large vehicles mowing people down, military targets, etc.

Would a lone wolf terrorist have an intricate network of social media platforms? Do lone wolf terrorists recruit new members? Do lone wolf terrorists have a caliphate?

The questions border on absurd. Of course not.

Further, jihadists are not “self-radicalized.” They are indoctrinated, inculcated, and brainwashed by radical Islam – many times on social media, by online magazines, or in many of the worst cases by terrorist leaders like Anwar al-Awlaki (even long after he was dispatched from this Earth). Reading Inspire magazine, being indoctrinated by the teachings of al-Awlaki, and pledging allegiance to ISIS or al Qaeda are not signs of self-radicalization. They are not the creation of lone wolfs.

Likewise, “ISIS inspired” is a deadly distraction from reality. It ignores the scores of direct calls upon followers of ISIS and adherents to radical Islam to take up the sword, to carry out very specific types of attacks on enumerated categories of targets. Each and every one of the recent attacks – Manchester, Paris, Nice, Orlando, San Bernardino, and on and on – were not merely inspired; they were ISIS directed.

Describing the post-9/11, asymmetrical, jihadist threat we face as individual lone wolfs is not just oversimplification; it’s obfuscation. It’s not true. It doesn’t match the facts. It isn’t reality. It’s fake news and should be treated as such.

It’s time for America to come to terms with the reality that radical Islamic terrorism – jihad – is a coordinated global cancer that must be rooted out.

Obama Intel Agency Secretly Conducted Illegal Searches. Can We Now Have a Special Prosecutor ?

Now will there be a similiar frenzy about this in the Washington /New York Media and democratic circles?

Circa News Website

Obama intel agency secretly conducted illegal searches on Americans for years
by John Solomon and Sara Carter

May 24, 2017

The National Security Agency under former President Barack Obama routinely violated American privacy protections while scouring through overseas intercepts and failed to disclose the extent of the problems until the final days before Donald Trump was elected president last fall, according to once top-secret documents that chronicle some of the most serious constitutional abuses to date by the U.S. intelligence community.

More than 5 percent, or one out of every 20 searches seeking upstream Internet data on Americans inside the NSA’s so-called Section 702 database violated the safeguards Obama and his intelligence chiefs vowed to follow in 2011, according to one classified internal report reviewed by Circa.

The Obama administration self-disclosed the problems at a closed-door hearing Oct. 26 before the Foreign Intelligence Surveillance Court that set off alarm. Trump was elected less than two weeks later.

The normally supportive court censured administration officials, saying the failure to disclose the extent of the violations earlier amounted to an “institutional lack of candor” and that the improper searches constituted a “very serious Fourth Amendment issue,” according to a recently unsealed court document dated April 26, 2017.

The admitted violations undercut one of the primary defenses that the intelligence community and Obama officials have used in recent weeks to justify their snooping into incidental NSA intercepts about Americans.

Full Article at Circa News Website

‘Dangerous Woman ‘ Meets Dangerous Man –Mark Steyn

“Dangerous Woman” Meets Dangerous Man
by Mark Steyn
Steyn on Britain
May 23, 2017

The pop star Ariana Grande has canceled the remaining dates of her “Dangerous Woman” tour following the murder of 22 fans (at the time of writing) and the injury of dozens more at her concert in Manchester. The Manchester Royal Infirmary reports that half the victims brought to the hospital overnight are children. The killer was a suicide bomber. Theresa May says the police believe they know his identity. The usual, predictable details will follow. [UPDATE: He’s Salman Abedi, the Manchester-born son of Libyan refugees and another “known wolf”.]

As The Independent’s headline has it:

There’s only one way Britain should respond to attacks such as Manchester. That is by carrying on exactly as before.

That’s not actually the “only” way Britain could respond, but it seems the way to bet, judging from the responses of the political class. “Carry on” is a very British expression. One thinks of the famous scene in one of the most famous of the Carry On comedies, Carry On Up The Khyber, surely the most insightful film ever made about Afghanistan: as you’ll recall, the revolting Khasi of Khalabar grows ever more enraged at the British Governor’s refusal to let the shelling and destruction of Government House disrupt his dinner party. Even when the Khasi has the main course replaced with the head of a decapitated fakir, Her Majesty’s viceroy declines to let his eye be caught by these vulgar attention-seeking jihadists. The film received unenthusiastic reviews from London critics in 1968. One would not have predicted that half-a-century later it would be official British policy on the home front.

Easier said than done, alas. A couple of hours ago, as I write, the Arndale shopping center in Manchester was evacuated, somewhat chaotically, with hundreds of customers stampeding for the exits lest they be the cause of The Independent’s next carry-on editorial. The Arndale was the scene of the city’s last big terror attack – in 1996, when the IRA totaled it. Two hundred people were injured, but nobody died, and you don’t have to be a terror apologist like Jeremy Corbyn to find the bad old days of Irish republicanism almost quaint by comparison. A few weeks ago the BBC reported that “approximately 850 people” from the United Kingdom have gone to Syria and Iraq to fight for Isis and the like. That’s more volunteers than the IRA were able to recruit in thirty years of the “Troubles”, when MI5 estimated that they never had more than a hundred active terrorists out in the field. This time maybe it’s the exotic appeal of foreign travel, as opposed to a month holed up in a barn in Newry.

Carrying on in Germany, Angela Merkel pronounced the attack “incomprehensible”. But she can’t be that uncomprehending, can she? Our declared enemies are perfectly straightforward in their stated goals, and their actions are consistent with their words. They select their targets with some care. For a while, it was Europe’s Jews, at a Brussels museum and a Toulouse school and a Copenhagen synagogue and a Paris kosher supermarket. But Continentals are, except for political photo-ops on Holocaust Memorial Day, relatively heartless about dead Jews, and wrote off such incidents as something to do with “Israeli settlements” and “occupation” and of no broader significance.

So they moved on to slaughter 49 gays in a nightclub in Orlando – the biggest mound of gay corpses ever piled up in American history and the worst terror attack on American soil since 9/11. But all the usual noisy LGBTQWERTY activists fell suddenly silent, as if they’d all gone back in the closet and curled up in the fetal position. And those Democrats who felt obliged to weigh in thought it was something to do with the need for gun control…

So they targeted provocative expressions of the infidel’s abominable false religion, decapitating a French priest at Mass and mowing down pedestrians at a Berlin Christmas market. But post-Christian Europe takes Christianity less seriously than its enemies do, and so that too merited little more than a shrug and a pledge to carry on.

So they selected symbols of nationhood, like France’s Bastille Day, Canada’s Cenotaph, and the Mother of Parliaments in London. But taking seriously assaults on your own nation’s symbols would require you to take your nation seriously, and most western citizens are disinclined to do so. As the great universal talismanic anthem of the age has it, “Imagine there’s no countries/It’s easy if you try…”

So the new Caliphate’s believers figured out that what their enemy really likes is consumerism and pop music. Hence the attacks on the Champs-Élysées and the flagship Åhléns department store in Stockholm, and the bloodbath at the Eagles of Death Metal concert in Paris and now at Ariana Grande’s “Dangerous Woman” tour.

In the decade since the Canadian Islamic Congress launched their “flagrant Islamophobia’ lawsuits over my book, various comrades such as Ezra Levant and Douglas Murray have noted, correctly, that a principled commitment to free speech has always been a minority concern – and an even smaller minority with respect to free speech about Islam. As the most learned imam John Kerry put it with respect to the Charlie Hebdo massacre, there was “a sort of particularised focus and perhaps even a legitimacy – not a legitimacy, but a rationale…” Those cartoonists, they were all wearing short skirts and asking for it.

Conversely, most other western citizens believe that, to invert Trotsky, if you’re not interested in Islam, Islam won’t be interested in you. Ariana Grande was eight at the time of 9/11, and most of her fans even younger. They have passed their entire sentient lives in the age of Islamic terror, yet somehow assume it’s something compartmentalized and sealed off from them. “Dangerous Woman” is meant to be an attitude, nothing more – an edgy pose in a pop culture that lost any edge long ago; a great T-shirt, like the ones last night scavenged from the merchandising stands and used to bandage the wounded. It must come as a shock to realize there are those who take your ersatz provocations as the real thing, and are genuinely provoked by them.

“Carrying on exactly as before”, as The Independent advises, will not be possible. A few months ago, I was in Toulouse, where Jewish life has vanished from public visibility and is conducted only behind the prison-like walls of a fortress schoolhouse and a centralized synagogue that requires 24/7 protection by French soldiers; I went to Amsterdam, which is markedly less gay than it used to be; I walked through Molenbeek after dark, where unaccompanied women dare not go. You can carry on, you can stagger on, but life is not exactly as it was before. Inch by inch, it’s smaller and more constrained.

And so it will prove for cafe life, and shopping malls, and pop concerts. Maybe Ariana Grande will be back in the UK – or maybe she will decide that discretion is the better part of a Dangerous Woman’s valor. But there will be fewer young girls in the audience – because no mum or dad wants to live for the rest of their lives with the great gaping hole in your heart opening up for dozens of English parents this grim morning. And one day the jihad will get lucky and the bomb will take with it one of these filthy infidel “shameless” pop whores cavorting on stage in her underwear. You can carry on exactly as before, but in a decade or two, just as there are fewer gay bars in Amsterdam and no more Jewish shops on the Chaussée de Gand, there will be less music in the air in western cities. Even the buskers, like the one in Manchester’s Piccadilly Gardens today serenading a shattered city with “All You Need Is Love”, will have moved on, having learned that it’s a bit more complicated than that.

I am currently reading Douglas Murray’s fine book, The Strange Death of Europe, which lays out, unsparingly, the central illusion of the last half-century – that you could demographically transform the composition of hitherto more or less homogeneous nation states on a scale no stable society has ever attempted, and that there would be no consequences except a more vibrant range of local restaurants. Mrs May declared this morning on the steps of Downing Street that she had held a top-level security meeting, or what they call in Britain a “COBRA”, which sounds like something scary enough to do battle with SPECTRE; in that sense, it’s a very butch acronym for a bit of bureaucratic furniture labeling (Cabinet Office Briefing Room A). But I’ll bet the mood around the table was one of fatalism and resignation, outside a few micro-adjustments to the budget of counter-terrorism agencies and the number of CCTV cameras and the amount of security checks at “sensitive” “high-value” targets like department stores, and theatres, and restaurants and football grounds and pubs and chip shops and…

But the arithmetic is not difficult: Poland and Hungary and Slovakia do not have Islamic terrorism because they have very little Islam. France and Germany and Belgium admit more and more Islam, and thus more and more terrorism. Yet the subject of immigration has been all but entirely absent from the current UK election campaign. Thirty years ago, in the interests of stopping IRA terrorism, the British state was not above preventing the internal movement within its borders of unconvicted, uncharged, unarrested Republican sympathizers seeking to take a ferry from Belfast to Liverpool. Today it declares it can do nothing to prevent the movement of large numbers of the Muslim world from thousands of miles away to the heart of the United Kingdom. It’s just a fact of life – like being blown up when you go to a pop concert.

All of us have gotten things wrong since 9/11. But few of us have gotten things as disastrously wrong as May and Merkel and Hollande and an entire generation of European political leaders who insist that remorseless incremental Islamization is both unstoppable and manageable. It is neither – and, for the sake of the dead of last night’s carnage and for those of the next one, it is necessary to face that honestly. Theresa May’s statement in Downing Street is said by my old friends at The Spectator to be “defiant”, but what she is defying is not terrorism but reality. So too for all the exhausted accessories of defiance chic: candles, teddy bears, hashtags, the pitiful passive rote gestures that acknowledge atrocity without addressing it – like the Eloi in H G Wells’ Time Machine, too evolved to resist the Morlocks.

As I asked around Europe all last year: What’s the happy ending here? In a decade it will be worse, and in two decades worse still, and then in three decades people will barely recall how it used to be, when all that warmth and vibrancy of urban life that Owen Jones hymns in today’s Guardian is but a memory, and the music has died away, and Manchester is as dull and listless as today’s Alexandria. If Mrs May or Frau Merkel has a happier ending, I’d be interested to hear it. If not, it is necessary not to carry on, but to change, and soon – before it’s too late.

Dishonest CBC News . I WILL LISTEN NO MORE !

I will not listen to CBC News anymore. This time it was a sort of an accident. I was in my car early this morning and the CBC radio station came on as I was flipping the dial. So I listened to the 9 AM news.

Well, one of the lead stories was our PM, our Princeling, Trudeau Junior, going to the NATO Summit. Of course, the story was presented that Prsident Trump was there and he would be seeking for the members of NATO to spend more to support NATO , to spend 2% of their GDP on defence , and right now Canada was far from that.

NO CBC , IT IS NOT THE USA ASKING OR DEMANDING CANADA TO SPEND THE 2% . IT IS FOR CANADA TO LIVE UP TO THE AGREENENT THAT ALL MEMBERS MADE TO SPEND THAT AMOUNT AND THAT CANADA , THEREFORE , IS NOT KEEPING ITS WORD . IT IS SPENDING LESS THAN HALF OF WHAT IT HAD AGREED TO SPEND. THE AMERICANS ARE KEEPING THEIR WORD AND CONTRIBUTING THEIR 2% . AS A MATTER OF FACT THEY EVEN SPEND MORE THAN WAS AGREED, 3.6%.

BOY, OH, BOY . CBC CAN’T EVEN GET A SIMPLE THING LIKE THIS RIGHT ?

OH, YES THEY CAN . BUT IT IS NOT NEARLY AS GOOD FOR HOME CONSUMTION YOU SHOW THAT THE AMERICANS ARE KEEPING THEIR WORD AND CANADIANS ARE NOT, NOW IS IT? ESPECIALLY TO SHOW THAT TRUMP MAY HAVE A VALID POINT. HE MUST BE REVILED AND DENIGRATED AT EVERY TURN.

WHY NOT COMPLAIN TO THE CBC OMBUDSMAN?

YOU JOKING ? I DID THAT SEVERAL YEARS AGO AND I AM STILL WAITING FOR A RESPONSE.

China Downgrade

Rating Action: Moody’s downgrades China’s rating to A1 from Aa3 and changes outlook to stable from negative The document has been translated in other languages

Global Credit Research – 24 May 2017

Singapore, May 24, 2017 — Moody’s Investors Service has today downgraded China’s long-term local currency and foreign currency issuer ratings to A1 from Aa3 and changed the outlook to stable from negative.

The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows. While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government.

The stable outlook reflects our assessment that, at the A1 rating level, risks are balanced. The erosion in China’s credit profile will be gradual and, we expect, eventually contained as reforms deepen. The strengths of its credit profile will allow the sovereign to remain resilient to negative shocks, with GDP growth likely to stay strong compared to other sovereigns, still considerable scope for policy to adapt to support the economy, and a largely closed capital account.

China’s local currency and foreign currency senior unsecured debt ratings are downgraded to A1 from Aa3. The senior unsecured foreign currency shelf rating is also downgraded to (P)A1 from (P)Aa3.

China’s local currency bond and deposit ceilings remain at Aa3. The foreign currency bond ceiling remains at Aa3. The foreign currency deposit ceiling is lowered to A1 from Aa3. China’s short-term foreign currency bond and bank deposit ceilings remain Prime-1 (P-1).

RATINGS RATIONALE

RATIONALE FOR THE RATING DOWNGRADE TO A1

Moody’s expects that economy-wide leverage will increase further over the coming years. The planned reform program is likely to slow, but not prevent, the rise in leverage. The importance the authorities attach to maintaining robust growth will result in sustained policy stimulus, given the growing structural impediments to achieving current growth targets. Such stimulus will contribute to rising debt across the economy as a whole.

RISING DEBT WILL ERODE CHINA’S CREDIT METRICS, WITH ROBUST GROWTH INCREASINGLY RELIANT ON POLICY STIMULUS

While China’s GDP will remain very large, and growth will remain high compared to other sovereigns, potential growth is likely to fall in the coming years. The importance the Chinese authorities attach to growth suggests that the corresponding fall in official growth targets is likely to be more gradual, rendering the economy increasingly reliant on policy stimulus. At least over the near term, with monetary policy limited by the risk of fuelling renewed capital outflows, the burden of supporting growth will fall largely on fiscal policy, with spending by government and government-related entities — including policy banks and state-owned enterprises (SOEs) — rising.

GDP growth has decelerated in recent years from a peak of 10.6% in 2010 to 6.7% in 2016. This slowdown largely reflects a structural adjustment that we expect to continue. Looking ahead, we expect China’s growth potential to decline to close to 5% over the next five years, for three reasons. First, capital stock formation will slow as investment accounts for a diminishing share of total expenditure. Second, the fall in the working age population that started in 2014 will accelerate. Third, we do not expect a reversal in the productivity slowdown that has taken place in the last few years, despite additional investment and higher skills.

Official GDP growth targets have also adjusted downwards gradually and the authorities’ emphasis is progressively shifting towards the quality rather than the quantity of growth. However, the adjustment in official targets is unlikely to be as fast as the slowdown in potential growth as robust economic growth is essential to fulfilment of the current Five Year Plan and appears to be considered by the authorities as important for the maintenance of economic and social stability.

As a consequence, notwithstanding the moderate general government budget deficit in 2016 of around 3% of GDP, we expect the government’s direct debt burden to rise gradually towards 40% of GDP by 2018 and closer to 45% by the end of the decade, in line with the 2016 debt burden for the median of A-rated sovereigns (40.7%) and higher than the median of Aa-rated sovereigns (36.7%).

We also expect indirect and contingent liabilities to increase. We estimate that in 2016 the outstanding amount of policy bank loans and of bonds issued by Local Government Financing Vehicles (LGFVs) increased by a combined 6.2% of 2015 GDP, after 5.5% the previous year. In addition to investment by LGFVs, investment by other SOEs increased markedly. Similar increases in financing and spending by the broader public sector are likely to continue in the next few years in order to maintain GDP growth around the official targets.

More broadly, we forecast that economy-wide debt of the government, households and non-financial corporates will continue to rise, from 256% of GDP at the end of last year according to the Institute of International Finance. This is consistent with the gradual approach to deleveraging being taken by the Chinese authorities and will happen because economic activity is largely financed by debt in the absence of a sizeable equity market and sufficiently large surpluses in the corporate and government sectors. While such debt levels are not uncommon in highly-rated countries, they tend to be seen in countries which have much higher per capita incomes, deeper financial markets and stronger institutions than China’s, features which enhance debt-servicing capacity and reduce the risk of contagion in the event of a negative shock.

Taken together, we expect direct government, indirect and economy-wide debt to continue to rise, signalling an erosion of China’s credit profile which is best reflected now in an A1 rating.

REFORMS WILL NOT FULLY OFFSET THE RISE IN ECONOMIC AND FINANCIAL RISK

The authorities are part of the way through a reform program intended to sustain and enhance the quality of growth over the longer term, as well as to reduce the risks to the economy and the financial system posed by high corporate and, in particular, SOE debt. One related objective is to contain, and ultimately reduce, SOE leverage.

The authorities’ commitment to reform is clear. It is quite likely that their efforts will, over time, improve the allocation of capital in the economy. Over the nearer term, the authorities have taken steps to contain the rise in SOE debt and to discourage some SOEs from further domestic and external investment, particularly in over capacity sectors.

However, we do not think that the reform effort will have sufficient impact, sufficiently quickly, to contain the erosion of credit strength associated with the combination of rising economy-wide leverage and slower growth. In particular, in our view, the key measures introduced to date will have a limited impact on productivity and the efficiency with which capital is allocated over the foreseeable future.

For example, one key set of reforms is the program of debt-equity swaps which aims to lower leverage in parts of the SOE sector, transferring the associated risks to the banking sector. At present, we estimate that the value of swaps announced is a very small fraction — around 1% — of SOE liabilities. Moreover, there is very little transparency about the terms of these transactions or their likely impact on SOEs’ and banks’ creditworthiness.

Other measures intended to improve investment allocation include negative lists on investment in excess capacity sectors and the introduction of mixed ownership. The former will likely reduce the major losses on investments of the past. However, excess capacity sectors only account for a small proportion of total investment. Only limited improvement in the allocation of capital would result from such measures. Meanwhile, mixed ownership is at a very preliminary stage, having been introduced in only a few dozen SOEs, and on too small a scale for now to have any impact on productivity in the economy as a whole.

Looking beyond the corporate sector, the financial sector remains under-developed, notwithstanding reforms introduced to improve the provision of credit; pricing of risk remains incomplete, with the cost of debt still partly determined by assumptions of government support to public sector or other entities perceived to be strategic. And with increased scrutiny of capital outflows, the capital account remains largely closed. While that insulates the economy and financial system from global volatility, it also constrains the development of domestic capital markets by limiting the flow of inward and outbound capital.

Overall, we believe that the authorities’ reform efforts are likely, over time, to achieve some measure of economic rebalancing and improvement in the allocation of capital. But we think that progress will be too slow to arrest the rise in economy-wide leverage.