Tag Archives: China

Don’t be fooled by China’s grand plan to rule the world

By Gwynn Guilford – The “China is taking over the world” meme is a perennial one.

As usual, this argument overlooks what’s happening within China’s borders. That includes: a credit-driven growth model that has left debt growing faster than the economy, the continued dominance of inefficient state-owned enterprises (SOEs) at the expense of dynamic private firms, and a fiscal system that depends on a housing bubble to sustain it.

David Ignatius bemoans the rail line buildout connecting China to Europe and Eurasia while bypassing US-controlled sea lanes, but by exporting its short-term growth formula for wasteful investments abroad, Xi Jinping is compounding the already huge risk that befouls China’s financial system.

Thanks to China’s size, running even a slight surplus means foisting massive deficits on its trade partners, as well as the debt and unemployment that accompany those, as we’ve argued before. And as Xi’s goal of self-sufficiency and manufacturing-export dominance—articulated in the Made in China 2025 plan, which focuses on Chinese dominance of artificial intelligence, robotics, and other high-tech sectors—makes clear, it’s not just BRI (Belt and Road Initiative) countries that will be on the receiving end of Chinese mercantilism.

The core problem for China is: Power doesn’t guarantee competence. And Xi’s handling of the domestic economy in the past half-decade suggests a dearth of the latter. more>

If US trade with China is so unfair, why is GM the best-selling car there?

By Tim Fernholz – While the US taxes imported cars and cars parts at a maximum of 2.5%, China charges tariffs of between 21% and 30%. This gives foreign automakers who want to sell in China a big incentive to manufacture there to avoid the import charge. But China also requires foreign subsidiaries to operate as 50-50 joint ventures with Chinese companies. These, of course, then become classrooms for Chinese engineers to gain foreign know-how.

This isn’t exactly anyone’s definition of “fair” trade, but there is a logic to the situation. The system came into play in 2001, after China joined the World Trade Organization. At the time, Chinese industry was much further behind America’s. The idea was that future rounds of WTO negotiations would lower China’s trade barriers further, but global trade talks have stagnated completely.

Ironically enough, therefore, this “unfair” situation for America is a product of globalization’s stumbles, not the unyielding march forward that the Trump administration portrays it as.

And any attempts to convince China to drop its protections will now be coming from the most protectionist American administration in recent memory. more> https://goo.gl/7Supvh

China Sends Bubbles to North America

By Noah Smith – This time the People’s Bank of China has been selling foreign assets — it’s China’s citizens and companies that are sending their money overseas.

This probably indicates that rocky times are ahead for the Chinese economy. People have some reason for wanting to get their money out — either they’re worried about losing their investments in a China crash, or they’re betting on the depreciation of the yuan.

It’s possible to think of the world as containing a large pool of mobile speculative capital that sloshes around from country to country, chasing the next big thing.

It’s also possible to imagine that when those capital inflows raise asset prices enough in a certain market, extrapolative expectations take over — domestic and foreign investors alike conclude that the new rising price trend is a stable feature of the world, and they keep betting it will continue, pushing prices up until they inevitably get divorced from fundamentals and crash.

Canada is already in bubbly territory. Another bubble in the developed world might make the U.S. look good for a little while, but ultimately it wouldn’t end any better than the last two. more> http://goo.gl/fPkkic

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Why China’s economy is slowing and what it means for everything

By Matt Phillips – The fact remains that China is trying to do something pretty difficult.

If the economy of the People’s Republic is a freight train, Chinese economic policymakers are trying to pull off a large scale overhaul of the engine while the locomotive barrels down the tracks.

In fact, they’ve been working on the engine for a while.

China, an increasingly important engine of global economic growth, is slowing fast. more> http://goo.gl/52C7lo

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China and the World Economy in 2016: “Sell Everything”

By Daniel Morley – When and where growth has become unsound and overstepped the limits set by capitalism, we tend to see bubbles, distortions and imbalances in all kinds of strange places.

Prior to this boom and crash of the stock market, we had the enormous debt fueled property bubble, which also crashed. Both happened because investors lacked opportunities for profitable investment in manufacturing due to overproduction.

Enormous overproduction in the Chinese economy has been a reality since the world crisis in 2008, which meant that the vast industrial expansion of China now lacked a viable market. Key Chinese industries such as steel are grotesquely over-extended.

The Chinese economy has become clogged up with unproductive debts because the government-led debt stimulus could not be used sufficiently for productive investment.

Why take on debt to invest in new factories if the rest of the world economy is stagnant and demand is declining? Thus these new debts were used in short-sighted speculation instead. more> http://goo.gl/7183sV

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Be Scared of China’s Debt, Not Its Stocks

By Noah Smith – If a stock bubble and crash were China’s only problems, the danger might not be so great. Research shows that bubbles are less damaging to the real economy when they mostly involve equity rather than debt.

Debt crashes inflict harm on the financial system, creating major recessions that take years to repair.

Equity crashes, meanwhile, merely reduce paper wealth. A good example of an equity bubble that wasn’t very harmful was the late 1990s U.S. dot-com boom. When it ended, stock prices were devastated, but the crash led to only the mildest of recessions.

China probably also has a debt problem. more> http://goo.gl/tCn4xo

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The last 30 years of global economic history are about to go out the window

By Matt Phillips – Over the last 30 years, a near constant flow of cash has inundated China and other emerging markets. It has lifted those economies, pulled hundreds of millions of people out of poverty, and dictated corporate expansion plans worldwide.

That wave is now ebbing.

This year will see the first net outflow of capital from emerging markets in 27 years, according to the Institute of International Finance, a trade group representing international bankers.

The group expects more than $500 billion worth of cash previously invested in things like Chinese factories, Brazilian government bonds, and Nigerian stocks to cascade out of such markets this year. more> http://tinyurl.com/nmh8pfr

Everything you’ve heard about China’s stock market crash is wrong

By Gwynn Guilford – The devaluation probably had more to do with breaking the yuan’s tightly managed peg to the US dollar, an obligation that has been draining the economy of scarce liquidity as capital outflows swell.

Both moves—the government pulling back from its market bailout and the currency devaluation—stem from the same ominous problem: China’s leaders are scrambling to find the money to keep its economy running.

Growth is now slowing, making the $28 trillion in debt China racked up in the process even harder to pay off. more> http://tinyurl.com/oe5fxnw

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Using Cash and Pressure, China Builds Its Chip Industry

By Paul Mozur – China churns out many of the world’s electronic devices: smartphones, computers, complicated networking equipment.

Now the country is redoubling its efforts to design and produce the brains behind most of those electronics, the chip.

Analysts have indicated that the government, along with some Chinese companies, may be playing foreign rivals off one another to extract technology and other advantages. more> http://tinyurl.com/mdwpzhr

Is China’s Bubble the Next Financial Crisis?

By Mark Whitehouse – The Chinese credit boom has rapidly turned the country into one of the developing world’s most indebted, according to a new report (pdf) from London’s Centre for Economic Policy Research.

Such credit-fueled growth can’t be sustained for long without causing major distortions and setting the country up for a fall.

The stimulus is already running into diminishing returns. Over the five years through 2013, government and private debt grew by about 3 yuan for each added yuan of economic activity, a level of credit intensity that the U.S. exceeded only in the years leading up to the 2008 crisis. more> http://tinyurl.com/k5985du