Ten Years After Lehman (4): Chinese Imports

by Edward Chancellor*

Interest rates in China may never have turned negative, as they did in neighbouring Japan. Yet China’s economy has also become distorted by the decade of easy money since the 2008 financial crisis. As in the West, low interest rates in China are responsible for inflating asset prices, misallocating capital, aggravating inequality and undermining financial stability.

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China’s Great Wall of Debt, Dinny McMahon, Houghton Mifflin Harcourt, 288 pp.

by Edward Chancellor*

China’s economy has long defied the doom-mongers. In place of their ominous critique, a more constructive view of economic management in the People’s Republic has surfaced. Beijing, we are told, has found the right balance between state and market forces, and is best positioned to exploit exciting new technologies, such as big data and artificial intelligence. Politically fractured and economically sclerotic Western nations can only look on in envy.

Dinny McMahon, a former financial journalist and mandarin speaker who spent many years reporting on the Middle Kingdom, doesn’t buy this line. In his view, China’s economy has spent years locked in continuous stimulus mode, accumulating bad debts and generating great economic imbalances along the way. This is not an original thesis. But it’s a welcome reality check on the current China hype. Of the many books that have observed the fragility and contradictions of China’s economic model, “China’s Great Wall of Debt” is the best. McMahon writes well, has a fine eye for detail and finds original stories to illustrate his argument.

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Protests and Reason

by Chidem Kurdas

In the past week mass protests erupted in different parts of the world. The reasons were diverse. In the Middle East, demonstrations spread across the region following the killing of American diplomats in Libya over an anti-Muslim film. In China, crowds attacked Japanese shops and offices, over the two countries’ competing claims on some small islands in the East China Sea. In Russia, anti-government protestors called for the removal of President Vladimir Putin.

One can sympathize or not with any given protest—I happen to feel for the Russians opposing a corrupt and oppressive regime. But it may be more useful to pose two cool-headed questions. One, why are the organizers doing this? Two, why are the ground-level participants there? Continue reading

China Catch-Up and Two Freedoms

by Chidem Kurdas

China is expected to produce more than Japan this year, thereby becoming the world’s second largest economy after the US.   Chinese annual output is only $5 trillion compared to American $15 trillion and per person income is only a fraction of the US, but it is clear that China is catching up.

We’re witnesses to a gigantic experiment in political economy. Here is an authoritarian government that apparently recognizes the superiority of free markets, private property and individual enterprise in organizing an economy. It has lifted the shackles off industry and commerce, to an extent, so as to benefit from these powerful forces. Thus China is growing at phenomenal rates.

But freedom of expression and political dissent remains suppressed even as economic freedom expands. In the ever-resonant words of Milton Friedman, “Economic freedom is an essential requisite for political freedom. By enabling people to cooperate with one another without coercion or central direction, it reduces the area over which political power is exercised.” Continue reading

The US is “Taking on China”

by Andreas Hoffmann and Gunther Schnabl*

In a recent New York Times column Paul Krugman is “Taking on China” again. He argues that the Chinese dollar peg contributes to global imbalances, depressing US and world growth perspectives. Bashing China’s fixed exchange rate is also fashionable in academics. Bernanke blames China’s dollar peg for contributing to a “savings glut” that contributed to the US pre-crisis excesses. Dooley argues that China and other East Asian economies engage in mercantilist trade strategies. Bergsten wants to label China a “currency manipulator.”

We find these arguments unbalanced. Continue reading

Thomas Friedman Is Wrong

by Roger Koppl

Thomas Friedman defends “one-party autocracy” as represented by China. Presumably, his defense is a sardonic. He is trying to smack down the Republican Party in the US for “standing, arms folded and saying ‘no.’” Sardonic tone notwithstanding, he says something revealing. “It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power. China’s leaders understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. Beijing wants to make sure that it owns that industry and is ordering the policies to do that, including boosting gasoline prices, from the top down.” Continue reading

What China Legitimately Fears

 

by Mario Rizzo

 

The U.S. Treasury, the State Department, and Larry Summers are all keen to convince the Chinese government that all they have to fear is fear itself when it comes to their investments in Treasury securities. After all, the U.S. will honor its obligations.

 

Frankly, I am amazed at the U.S. response. Yes, I realize that there is little else they could say. The default risk of holding U.S. securities is indeed quite low. But you don’t have to be very smart to realize that this is not the relevant risk. Continue reading