“China’s Naked Emperors”: Listen Up Jeb, China’s Rulers Have No Idea What They’re Doing
Politicians who preside over economic booms often develop delusions of competence. You can see this domestically: Jeb Bush imagines that he knows the secrets of economic growth because he happened to be governor when Florida was experiencing a giant housing bubble, and he had the good luck to leave office just before it burst. We’ve seen it in many countries: I still remember the omniscience and omnipotence ascribed to Japanese bureaucrats in the 1980s, before the long stagnation set in.
This is the context in which you need to understand the strange goings-on in China’s stock market. In and of itself, the price of Chinese equities shouldn’t matter all that much. But the authorities have chosen to put their credibility on the line by trying to control that market — and are in the process of demonstrating that, China’s remarkable success over the past 25 years notwithstanding, the nation’s rulers have no idea what they’re doing.
Start with the fundamentals. China is at the end of an era — the era of superfast growth, made possible in large part by a vast migration of underemployed peasants from the countryside to coastal cities. This reserve of surplus labor is now dwindling, which means that growth must slow.
But China’s economic structure is built around the presumption of very rapid growth. Enterprises, many of them state-owned, hoard their earnings rather than return them to the public, which has stunted family incomes; at the same time, individual savings are high, in part because the social safety net is weak, so families accumulate cash just in case. As a result, Chinese spending is lopsided, with very high rates of investment but a very low share of consumer demand in gross domestic product.
This structure was workable as long as torrid economic growth offered sufficient investment opportunities. But now investment is running into rapidly decreasing returns. The result is a nasty transition problem: What happens if investment drops off but consumption doesn’t rise fast enough to fill the gap?
What China needs are reforms that spread the purchasing power — and it has, to be fair, been making efforts in that direction. But by all accounts these efforts have fallen short. For example, it has introduced what is supposed to be a national health care system, but in practice many workers fall through the cracks.
Meanwhile, China’s leaders appear to be terrified — probably for political reasons — by the prospect of even a brief recession. So they’ve been pumping up demand by, in effect, force-feeding the system with credit, including fostering a stock market boom. Such measures can work for a while, and all might have been well if the big reforms were moving fast enough. But they aren’t, and the result is a bubble that wants to burst.
China’s response has been an all-out effort to prop up stock prices. Large shareholders have been blocked from selling; state-run institutions have been told to buy shares; many companies with falling prices have been allowed to suspend trading. These are things you might do for a couple of days to contain an obviously unjustified panic, but they’re being applied on a sustained basis to a market that is still far above its level not long ago.
What do Chinese authorities think they’re doing?
In part, they may be worried about financial fallout. It seems that a number of players in China borrowed large sums with stocks as security, so that the market’s plunge could lead to defaults. This is especially troubling because China has a huge “shadow banking” sector that is essentially unregulated and could easily experience a wave of bank runs. But it also looks as if the Chinese government, having encouraged citizens to buy stocks, now feels that it must defend stock prices to preserve its reputation. And what it’s ending up doing, of course, is shredding that reputation at record speed.
Indeed, every time you think the authorities have done everything possible to destroy their credibility, they top themselves. Lately state-run media have been assigning blame for the stock plunge to, you guessed it, a foreign conspiracy against China, which is even less plausible than you may think: China has long maintained controls that effectively shut foreigners out of its stock market, and it’s hard to sell off assets you were never allowed to own in the first place.
So what have we just learned? China’s incredible growth wasn’t a mirage, and its economy remains a productive powerhouse. The problems of transition to lower growth are obviously major, but we’ve known that for a while. The big news here isn’t about the Chinese economy; it’s about China’s leaders. Forget everything you’ve heard about their brilliance and foresightedness. Judging by their current flailing, they have no clue what they’re doing.
By: Paul Krugman, Op-Ed Columnist, The New York Times, July 31, 2015
“Wrong Once Again”: Republicans Are Furious About Obama’s Climate Breakthrough With China
Republicans are furious that President Barack Obama has cut a historic deal with China to lower both countries’ greenhouse gas emissions. Senate Minority Leader Mitch McConnell just spent his reelection campaign claiming that China would never curb its emissions, so the U.S. shouldn’t either. Many other Republicans have argued the same. And yet China just proved Republicans wrong by committing to reach a peak level of carbon pollution by 2030—the first time the world’s largest polluter has set a deadline for lowering emissions.
Republicans won’t admit they were wrong, of course. They’ve already moved on to their next talking point. Remarkably, the party that’s become synonymous with climate-change denial has avoided any mention of it this time. A statement from McConnell’s office stressed only that Environmental Protection Agency regulations hurt coal jobs:
Our economy can’t take the President’s ideological War on Coal that will increase the squeeze on middle-class families and struggling miners. This unrealistic plan, that the President would dump on his successor, would ensure higher utility rates and far fewer jobs. Easing the burden already created by EPA regulations will continue to be a priority for me in the new Congress.
House Speaker John Boehner stated:
This announcement is yet another sign that the president intends to double down on his job-crushing policies no matter how devastating the impact for America’s heartland and the country as a whole. And it is the latest example of the president’s crusade against affordable, reliable energy that is already hurting jobs and squeezing middle-class families. Republicans have consistently passed legislation to rein in the EPA and stop these harmful policies from taking effect, and we will continue to make this a priority in the new Congress.
Even Senator James Inhofe—Congress’ most vigilant climate-change denier—neglected to mention what he really thinks of global warming. He emphasized that this deal lets China get away with not making any real cuts, while the U.S. will have to cut up to 28 percent of its emissions by 2025:
In the President’s climate change deal, the United States will be required to more steeply reduce our carbon emissions while China won’t have to reduce anything. It’s hollow and not believable for China to claim it will shift 20 percent of its energy to non-fossil fuels by 2030, and a promise to peak its carbon emissions only allows the world’s largest economy to buy time. China builds a coal-fired power plant every 10 days, is the largest importer of coal in the world, and has no known reserves of natural gas. This deal is a non-binding charade. The American people spoke against the President’s climate policies in this last election. They want affordable energy and more economic opportunity, both which are being diminished by overbearing EPA mandates. As we enter a new Congress, I will do everything in my power to rein in and shed light on the EPA’s unchecked regulations.
That’s not true. This climate accord marks the first time that China has publicly committed to any limit on carbon, at all. As a developing and rapidly growing economy that bears little responsibility historically for climate change, China can rightly argue it won’t act unless the U.S. does. To discredit this deal as a “non-binding charade” is simply misleading; these commitments may be formalized next year at an international meeting in Paris. The announcement now is meant to build momentum for these talks, and convince other countries to put forward their own ambitious targets.
The hardest part—how to move both countries’ giant economies away from fossil fuel dependence—comes next. Republican opposition will be firm, even if their excuses shift away from climate-change denial.
By: Rebecca Leber, The New Republic, November 12, 2014
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