I do hope Greg Mankiw is overly concerned. I strongly suspect he is correct.
Archive for the 'China' Category
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John Mauldin just republished in his newsletter one of George Friedman’s bulletins (i.e., Stratfor). The PDF is available here. We know that real estate investment has been a large and growing part of Chinese GDP. In some of the hot cities like Shanghai it has been over 50% of GDP and near 18% for the nation. The Stratfor view is that the bubble is mostly in residential, but that commercial may soon be headed into bubble territory.
The summary:
The real estate market in China, particularly the residential side, is a burgeoning bubble that is growing bigger and more breakable by the day. Land and housing prices were already rising steadily when Beijing’s stimulus package hit the sector in early 2009. Now prices are surging, with developers, bureaucrats and investors cashing in while urban Chinese – once encouraged to invest in home ownership by the central government – become less and less able to buy.
Recommended. Note that you can sign up for Stratfor’s free newletter here.
In the FT, fascinating article on how patronage actually works in China. Excerpt:
To glean a sense of the dimensions of the organisation department’s job, conjure up a parallel body in Washington. The imaginary department would oversee the appointments of US state governors and their deputies; the mayors of big cities; heads of federal regulatory agencies; the chief executives of General Electric, ExxonMobil, Walmart and 50-odd of the remaining largest companies; justices on the Supreme Court; the editors of The New York Times, The Wall Street Journal and The Washington Post, the bosses of the television networks and cable stations, the presidents of Yale and Harvard and other big universities and the heads of think-tanks such as the Brookings Institution and the Heritage Foundation.
All equivalent positions in China are filled by people appointed by the party through the organisation department. With a few largely symbolic exceptions, the people who fill these jobs are also party members. Not only that, the vetting process takes place behind closed doors and appointments are announced without any explanation about why they have been made. When the department knocks back candidates for promotion, it does so in secret as well.
China is the “world leader on emissions reductions”? Yes, according to licensed journalists. But it was obvious that the breathless claims of a breakthrough in energy intensity were false. Roger Pileke, Jr. examines the facts:
(…)
A few things stand out. One is that China’s energy intensity in 2008 is about the same as it was in 2001. Any claim that China’s energy intensity has improved by 20% over the past five years is incorrect. The second is that energy intensity has improved by only about 7.4% since 2005, meaning that it has a long way to go to reach a 20% target by 2010 (i.e., 0.80 on this graph). Can it happen? Sure. But to say that China is “well on its way” does not square with the data. It would be “ironic” indeed if China has figured out how to grow its economy at 9% per year while increasing energy use by only 3% and decarbonizing its economy at an even lower amount. If this were true, then China would have discovered the holy grail of emissions reductions and we can all forget about the challenges of climate policy.With all of the talk of China now being the “world leader” on emissions reductions, is this story just another myth of climate policy? It sure looks that way.
There is some unreported good news regarding China’s energy policy. First, the jump in energy intensity in 2002-2004 was related to the abandonment by Bejing of their intensity improvement goals, including a dismantling of the bureaucracy that had been available to advise industry on technology to improve intensity. That policy was reversed in 2005, and now China seems to be back on track to improve intensity while growing rapidly at the same time. That is atypical of developing economies.
For an informed discussion, I highly recommend the Stanford Center for Social Innovation podcast interview with Mark Levine: “Dispelling China’s Environmental Myths“. Dr. Levine is group leader of the China Energy Group at Lawrence Berkeley National Laboratory (LBNL)
China has long had a reputation for being an extremely energy inefficient country. However, the United States holds certain mistaken views on China’s energy and environmental policies, says Mark Levine in this talk hosted by the Center for Social Innovation at the Stanford Graduate School of Business.
While China is plagued by severe pollution, it is, in fact, trying to get a grip on its energy challenges in ways that would surprise the average American. Levine discusses China’s progressive efforts to establish and enforce new energy policies and emissions standards with a group of MBA students about to leave for a service learning trip to China. He clarifies issues such as the country’s approach to pricing; subsidizing of energy industries, such as electricity; and energy-intensive industries, such as steel production. Levine’s talk is sponsored by the Stanford Center for Social Innovation.
David Goldman, aka “Spengler” on Obama’s foreign policy
From conversations with friends and acquaintances in Hong Kong, the damage the Obama administration has done to American interests in the Far East may be far worse than meets the eye. The Bush administration, whatever its other failings, achieved something that no previous US administration had done, namely to reassure China that the United States was committed to preserving its territorial integrity, among other things by defusing the Taiwan issue.
<snip>
Relations with Islam occupy the top spot on Obama’s international agenda, and Obama announced this policy in Turkey, the supposed showcase for moderate Islam– except that this “moderate Islam†wants to destabilize China, which is not a smart thing to do. The Chinese are trying to understand why America is going out of its way to placate a bunch of losers and sacrificing key relationships in order to do so.
Add to this the very well publicized lack of confidence in an economic policy which keep shoving American debt down the throat of the world market, and I would say China is very worried indeed.
[From Obama worries China]
And in his recent post on Gold and American Power
But the Obama administration is so destructive of American influence that the world has to own gold as a hedge against the collapse of America’s international position. I own a bit myself, not as an investment but as an insurance policy.
Will the Chinese get rich before they get old? This doesn’t look encouraging…
Great chart reinforcing a point I made here some time ago about the implications of China’s looming senility bubble, with the population set to age faster than any country in modern memory. Check where we are in China’s trending dependency ratio:
[via The Economist]
The supertanker first has to be built. But with some vision on the part of political leaders, there could be a global economic recovery a few years down the road, instead of a lost decade. — David Goldman
It is possible that China will shame the US and Europe by more rapidly moving to clean, green, renewable nuclear power. China doesn’t have to fight the Sierra Club at every step — or the hundreds of other rich-Western, know-nothing, anti-nuclear activist groups. The increases in China’s nuclear program described below are encouraging, but unless much bigger new-nuke actions are initiated, China’s accelerating rate of new dirty-coal electrical generation will still be the dominant theme.
Different people look for different signs of recovery. Blips in consumer spending don’t impress me, because the negative-wealth-effect-driven retrenchment of household outlays will continue until housing prices turn around, and that won’t happen until a 40% surplus of large-lot single family houses is absorbed.
But there is a real, live, honest-to-goodness piece of good news out there this morning, forwarded to me by my friend Francesco Sisci, La Stampa’s Asian Editor and an occasional contributor to Asia TImes Online. China has a crash program to build nuclear power plants and they are buying the technology from Westinghouse. China Daily reports:
China will start constructing five nuclear power plants (NPPs) this year, part of an effort to dramatically expand its nuclear power capacity by 2020, officials said Monday.
The five NPPs will be located in Sanmen in Zhejiang province, Haiyang and Rongcheng in Shandong province, Taishan in Guangdong province, and Changjiang in Hainan province, Sun Qin, vice-minister of the National Energy Administration, said, without revealing the total costs.
“The first unit of Sanmen NPP started construction on Sunday and signaled China’s nuclear power industry has sped up,†Sun said.The Sanmen and Haiyang NPPs use Generation III AP-1000 technologies imported from American firm Westinghouse, which is safer than the previous generation reactors, Sun said.
The five plants will add to the 11 nuclear power units in operation, producing 2 percent of China’s electricity and the 24 units under construction.
“China has the largest number of NPPs under construction,†Wang Yiren, secretary-general of China Atomic Energy Authority, said.
The International Atomic Energy Agency (IAEA) Director-General Mohamed ElBaradei said six of the 10 nuclear power reactors that started construction last year were in China.
<snip>
Brad Setser argues that China’s economy has not yet turned.dd
The Wall Street Journal puts a positive gloss on China’s March trade data than I would. To me the overarching story is simple: the data paint a story of deep distress in both the Chinese and global economy.
<snip most of the excellent analysis>
I found the most compelling data to be the following on the China’s import growth. Yes, China could have turned the corner in March – that would be concealed by the 3 month averaging.
Here is one way of checking: compare the y/y rate of growth in US and Chinese imports. If China was doing better than the US, one would expect its imports to hold up better than US imports, setting aside differences in the composition of the two countries imports.*
Call me crazy, but judging from the trade data alone, I would say China experienced a recession in q4 2008 and q1 2009.
* There are three reasons why Chinese and US exports could be correlated:
– some Chinese imports are an echo of US demand, as China imports components for reexport to the US. This though was more important in 2000 than it is now, as the share of China’s exports going to the US has fallen.
– The US and China both import commodities like oil, and thus both show the effect of changes in the price of oil. This is becoming more important over time, as China’s oil imports are growing.
– The US and Chinese economic cycle is correlated.It wasn’t an accident for example that Chinese imports grew faster than US imports in 2002 and 2003. China recovered much more strongly from the 2001 downturn than the US. Indeed, China’s policy makers slammed on the brakes in 2004 (leading import growth to slow) because of concerns that the economy was overheating. That was when China first started to show a large trade surplus.
[From Big changes, but not much adjustment: China’s March trade data]
Do not miss Brad’s It is hard to put lipstick on a pig (or even an ox) for some scary perspective on how China is going to contribute to the global recovery (NOT):
The sharp fall in China’s exports (down 17.5% y/y) and imports (down 43% y/y) shouldn’t have been a complete surprise. Korean and Taiwanese exports are down far more than China’s exports, in large part because of sharp falls in their exports to China. And, given the intra-Asian supply chain, that has long augered bad news for China.
To appreciate the analysis, RTWT.
Americans who worry that China might overtake the United States are worrying about the wrong thing. They should instead be concerned that Beijing may not make key reforms or that it will face significant economic difficulties down the road. Serious troubles in China’s economy could threaten the stability of the U.S. and global economies.
Secretary of Treasury Henry Paulson in Foreign Affairs Sep/Oct 2008 — on the challenges ahead for China. Excerpt:
…Economic nationalism, for one thing, has been a growing concern in the United States in recent years. Low-cost imports, particularly from China, sometimes have a negative image among the American public, even though they have helped the United States contain inflation and both maximized the choice of products available to Americans and minimized their costs. Foreign investment into the United States, especially by sovereign wealth funds and state-owned enterprises, is also increasingly viewed with suspicion by some U.S. companies, various members of the national security community, and the American public at large, despite regulations by the Committee on Foreign Investment in the United States that provide sufficient protections in sensitive sectors.
These concerns are misplaced. Like many countries accumulating large foreign exchange reserves, China is simply looking for profitable places to invest them over the long term. China invests its reserves in U.S. securities, including U.S. Treasuries, but there is little Chinese direct investment in the United States. This is largely because Chinese companies are just beginning to invest in their export markets and are unsure whether they are welcome. In any event, the United States would do well to encourage such investment from anywhere in the world — including China — because it represents a vote of confidence in the U.S. economy and it promotes growth, jobs, and productivity in the United States.
The size of the bilateral trade imbalance — $256.2 billion in 2007 — has also been a bone of contention. It is a source of anxiety in both the United States and China. Beijing believes that the trade deficit could be reduced if Washington dropped export controls and allowed sensitive technologies that may also have military applications to reach Chinese markets. In fact, U.S. export controls have only a marginal effect on the bilateral trade imbalance: in 2007, export license applications were required for $9.7 billion worth of U.S. goods destined for China, and just 0.7 percent of these applications were denied — a drop in the bucket. Removing all export controls in 2007 would have affected only 0.0265 percent of the U.S.-Chinese trade deficit.
A real issue is the inadequate protection of intellectual property rights in China, which has been an obstacle to increased U.S. trade with and investment in China and has prevented a reduction in the bilateral trade imbalance. This and the theft or pirating of goods are big problems for many U.S. companies operating in China and a reason others are reluctant to do business there. To protect themselves, some U.S. companies purposefully introduce older products into the Chinese market, releasing the newer goods only once the older ones have been copied.
But these and other strategies are merely stopgap measures. As China pursues its quest to develop a modern economy focused on technology, the Chinese government and Chinese companies will increasingly recognize the need to reward the creativity of their own firms and entrepreneurs by strengthening and enforcing intellectual property laws and regulations. It is by improving and enforcing its intellectual property laws that China will accelerate the development and competitiveness of its economy and also open up new market opportunities in China for companies around the world.
Recommended.
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