Archive for August 2019


What’s fueling the rise in anti-Chinese hysteria?

How do Americans form their views of China? I see two possibilities:

1. They look at Chinese behavior, and form their views on that basis.

2. They take their cue from American politicians and pundits, who try to whip up anti-Chinese hysteria.

There’s actually an easy way to distinguish between these views. Chinese behavior has not changed significantly in the last year or two, but anti-Chinese propaganda has increased dramatically. So if we look at the attitudes of Americans toward China over time, we should be able to figure out how those views are formed. The following graph is from an excellent Greg Ip article in the WSJ:

The graph speaks for itself.

Ip’s article is still a tad too Ameri-centric for my taste, but it’s probably the best one could expect from a reporter who didn’t want to get drawn and quartered by the thought police. Well worth reading.

This is a key paragraph:

There’s good reason for the hawkish turn. Advocates of engagement have been dismayed by China’s mistreatment of foreign companies—such as forced transfer of their technology—its more bellicose behavior toward its neighbors and President Xi Jinping ’s tightening grip over domestic dissent.

The authoritarianism in China is a completely valid issue. We should speak out. Ironically, I’m far more opposed to authoritarianism in China than is the anti-Chinese Trump administration, which actually prefers authoritarian governments around the world (Saudi Arabia, Russia, Philippines, etc.) to our democratic allies like Germany and Canada. Trump often lavishes effusive praise on Xi Jinping.

Technology transfer is none of our business. China shouldn’t force technology transfer, but that’s an internal policy decision of the Chinese government. Nobody’s forcing our companies to invest in China.

As far as “bellicose behavior”, the US government routinely invades nearby countries, overthrows their government, and replaces them with governments more to our liking. China does not.

China’s not perfect, and indeed their bases on tiny uninhabited islands in the South China Sea are a needless source of friction in Southeast Asia. But for the US to criticize Chinese aggression borders on the absurd. Those islands are a trivial issue.

The Democrats are particularly disappointing in this area. What credibility do they have in criticizing Trump’s nationalism if they are going to engage in the same mindless fear-mongering?

Why aren’t the economic policies of other countries our business? After all, bad policies reduce our exports. OK, in 2018 we exported less than $26 billion to India and almost $130 billion to China. Both countries have a bit under 1.4 billion people. The difference is explained by the fact that China has economic policies that are more favorable to our exporters. You say it’s because India is much poorer? Well, why the heck do you think India is much poorer? So why aren’t you demanding a trade war with India? Why shouldn’t we demand that India adopt Canada’s economic model? After all, we export $282 billion to Canada, which has only about 36 million people. Should we demand that India “shape up”, so that our multinationals can get even richer? This whole trade war is ridiculous.

PS. There are a lot of predictions of a Brexit disaster and a US recession. This plays into the hands of Johnson and Trump, both of whom are likely to be elected (or re-elected) when the more dire predictions don’t come true. Remember Y2K? Actually, a Johnson win doesn’t bother me, given the main alternative. (Maybe UK voters should consider the Liberal Democrats.) Look for the Dems to play into Trump’s hands by selecting someone like Warren. Given the choice between a real nationalist and a fake nationalist, Americans will choose the real nationalist every time.

PPS. I have a new piece at The Hill.

Rococo revival in Tianjin

Ten years after my previous trip to Tianjin, I returned for a second time. This time my primary goal was to visit the Binhai ghost town, one of the two most famous ghost towns of China (the other being Ordos.)  

Tianjin is almost a poster child for the sort of reckless Chinese malinvestment that people like Michael Pettis often point to. In the Binhai section of town (about 25 miles from downtown Tianjin) there’s a huge forest of mostly empty skyscrapers on both sides of a big river.  This was supposed to become the Manhattan of China, but it turns out that very few people want to work there.  Maybe they thought the geographic similarity to Canary Wharf would work wonders.  Here’s the FT, from January 2018:

Tianjin, one of the big ports that services northern China, could also see a revision. Its Binhai financial district, which offers tax and foreign exchange incentives to registered businesses, swelled to comprise roughly half of Tianjin’s reported GDP last year.

Binhai included in GDP the commercial activity of companies that were only registered there for tax purposes, according to revelations last week. That could result in a 20 per cent drop in reported GDP for Tianjin in 2017, according to FT calculations. Binhai’s high debt levels and access to domestic and international financing make its phantom results a concern for broader markets.

I decided to visit in the hope of finding the conventional view was wrong and that the place was making progress. The only person we spoke with in Binhai insisted that things were fine, and that business was great. Alas, he was obviously lying—it really is a ghost town.  You feel like you are in a huge American suburban office park on Sunday morning, not in urban China.  (Technically, it’s a ghost neighborhood, or ghost central business district, as Binhai itself has roughly 3 million of Tianjin’s 16 million residents.)

We went to Tianjin using China’s high speed rail system.  This system seems to have an increasingly severe “last mile problem”.  The trains themselves are first rate, but the service on either end has deteriorated over the past decade.  The Beijing South train station is far bigger, but not as nice.  The security is overdone to an almost laughable extent. There are now three layers of control before reaching the tracks. You need a passport.  The trains are often sold out. The stations are a bit too far from city centers.

Upon returning, to Beijing, we were told there was an hour’s wait for a taxi, which is quite common.  (Fortunately, there’s also a subway.)  Yes, it’s only 30 minutes from Beijing to Tianjin by HSR, but the Chinese need to learn the fine points of customer service from the Japanese, where the total experience of train travel is far more pleasant.

Don’t get me wrong, once on the train the ride is great.  And the stations are still light years ahead of Penn Station in NYC.  What’s so frustrating is that the Chinese have gotten the hardest part (the hardware) right, but fallen down on the easier steps.  There’s a lot of that in China.  

Tianjin loves to borrow styles from other times and places.  Downtown has a bunch of imitation 19th century European buildings all along the river, and bridges that look like Paris.

The library in Binhai looks like something that French architects such as Ledoux or Boullee might have come up with (and I mean that as a compliment.)


The roof of the grand entryway to the Tianjin train station has a giant (60 ft?) rococo mural that will make your jaw drop:

Closer up, it looks like a Tiepolo imitation done by an American art nouveau painter, circa 1905:

I love the fact that at least one country is still optimistic about the future.

In a brand new Binhai park, we saw a midcentury modern pavilion:

The huge, underground, and mostly empty Binhai train station roof looks like a Santiago Calatrava:

Nearby in Binhai you’ll find a pair of giant buildings (government?) in the Mussolini style. They are bigger than they appear in this picture:

And since “this is China” (the favorite phrase of my daughter and I) they had to include a building in this remote suburban district that is taller than anything in the western hemisphere:

Saturn V meets Freud. And no, I don’t count that stupid spike on the top of the supposedly 1776-foot “Freedom tower”.

And this isn’t even the biggest building in Tianjin, an even taller skyscraper stands 90% completed, but on hold, in another ghost neighborhood on the fringes of Tianjin:

Speaking of Freud, I assume that Tianjin’s former mayor had an edifice complex. Sorry.

BTW, he’s now in prison, sentenced for corruption.

With 1.4 billion people and lots of tall buildings, you’d assume that urban China is dense. Actually, it’s nowhere near as dense as it should be (except for Hong Kong.) There are way too many random clusters of high rise buildings that are far from the urban core. And even within cities like Beijing, there are vast spaces that are not pedestrian friendly.

PS. I’ve been in Beijing 13 days, and it’s been blue sky almost all the time—by far the best air quality of my 8 trips to China, starting in 1994. But it’s now getting a bit worse and the US embassy forecast for next week looks horrible—96 degrees (36C) and lousy air quality.

PPS. This link is the SOM masterplan for Binhai, and here’s the reality, first Yujiapu:

And then across the river in Xiangluowan:

PPPS. We usually travel second class, which is quite nice. But after walking all day in the hot sun, we splurged on business class, which is nearly triple the price and double the price of first class tickets. The seats recline all the way flat, and the nice stewardess brought us a bag of 6 types of snacks and a beverage. We occupied 3 of the 5 total seats in the cabin. It was probably the most luxurious 30 minutes of my life. Yes, the tickets cost 176 yuan each, but hey, that’s only 25 bucks. China is still cheap.

The FT on Boris

If you thought things were bad in the US, consider the UK. Here’s the FT:

If Mr Johnson’s prorogation ploy succeeds, Britain will forfeit any right to lecture other countries on their democratic shortcomings. The UK’s constitutional arrangements have long relied on conventions. The danger existed that an unscrupulous leader could trample on such conventions. That has not happened, in the modern era, until now.

Parliamentarians must seize their opportunity next week to assert the will of the Commons against that of the prime minister. . . .

Mr Johnson might seek to ignore such a vote and try to hang on until after Brexit. This would be an even greater constitutional affront than his actions this week. It would confirm that Britain has a despot in Downing Street.

Two days ago, I said this about the US:

We like to believe that American presidents are not dictators, which may be true.  But that’s not because they lack dictatorial powers, rather it’s because they were too embarrassed to fully exercise those powers.  Over time, that reluctance has been gradually breaking down.  

Dudley’s really bad advice

This advice from former NY Fed President Bill Dudley is really bad:

“I understand and support Fed officials’ desire to remain apolitical. But Trump’s ongoing attacks on Powell and on the institution have made that untenable,” Dudley wrote, referring to Fed Chair Jerome Powell. “Central bank officials face a choice: enable the Trump administration to continue down a disastrous path of trade war escalation, or send a clear signal that if the administration does so, the president, not the Fed, will bear the risks — including the risk of losing the next election.”

This is how the Fed loses its independence. Ironically, at the moment the Fed has more independence than at any time in its history. It knows that Congress is totally gridlocked, and that the Democratic House would fully support the Fed in any battle with Trump, over any issue. Congress is not about to rein in their power. But as much as I’d like to see Trump lose the next election, this is a lousy idea.

Instead, the Fed should be asking Congress to give them more power to prevent the next recession. Call it a “pro-growth monetary policy”. Both the Dems and the GOP would lap that up right now. I’ve provided numerous suggestions in other posts.

BTW, this Dudley comment tends to confirm my view that Trump’s pressure is likely to have either no effect or lead to tighter money. Why would Trump do this, knowing how a prickly independent institution would react to his pressure tactics? This is why I continue to insist Trump’s not a master dealmaker. Since taking office he’s failed at every single attempt to twist arms to get his way. Remember when he needed McCain’s vote to repeal Obamacare, and he insulted McCain by mocking the fact that he was captured and tortured by the North Vietnamese. How dumb can you get? In contrast, LBJ knew how to persuade people—that’s what a master manipulator actually looks like.

Here’s the NYT:

It is unclear whether Mr. Trump has the legal authority to demote Mr. Powell, who was confirmed by the Senate to a four-year term as chair. Mr. Powell’s term as a governor does not expire until 2028.

If Mr. Trump did try to strip Mr. Powell of his title, the currently 10-member Federal Open Market Committee — which sets interest rates and selects its own chair — might elect him as its leader, one Fed official said on background.

That would create an unprecedented power divide, with Mr. Trump’s new nominee serving as chair of the Board of Governors, assuming that person was confirmed by the Senate, and Mr. Powell heading the policy-setting committee.

Should the Fed adopt this “nuclear option”? I’d say only if it was needed to fulfill their congressional mandate. The Fed needs to be like the computer HAL in the film 2001—focused like a laser on achieving its goal. (I hope it will have better judgment than HAL.) The Fed should only do this end run around the newly appointed chair if that person threatens to push the Fed off course. And I don’t expect that to happen—I doubt the Senate would approve a candidate who is that whacky, and I doubt the other Fed policymakers would vote with him or her if they did.

BTW, I see that respectable people are coming around to my longstanding claim that America is now the world’s rogue nation:

“We are in a system in which things are getting worse day by day, and it’s not a service to anybody, at least privately, to not focus on what the key problems are — and they would be the behavior of the United States, unfortunately,” Stanley Fischer, a former Federal Reserve vice chairman appointed by Mr. Obama, said at the event.

The NYT did not mention the fact that technically it is the Board of Governors that sets IOR, not the FOMC. That’s one reason why I believe the current IOR program is illegal. As implemented, the IOR is often set at a rate above short-term market rates, even though Congress instructed them not to do so. (The Fed relies on a technicality for violating the clear meaning of the law.)

This is important, as Congress clearly did not intend this sort of floor system, where the regional Fed presidents would be disenfranchised. The point of IOR was to make the opportunity cost of holding reserves lower, not to create a dramatically different monetary regime, where monetary policy would be implemented via changes in the demand for base money, not the supply of base money (as prior to 2008.) I defy anyone to find any evidence that Congress intended such a radical policy shift when this change was rushed through in early October 2008.

When asked if they would ever do such a thing, have the Board take over policymaking from the FOMC, Fed officials tend to recoil in horror. “Of course we’d never defy the clear intent of Congress.”

You can’t say Fed officials don’t have sense of humor.

A Democrat with dictatorial powers

Imagine a Democratic president with dictatorial powers. What would a President Sanders or Warren do if there were no restraints on their power?

What if they could launch wars without involving Congress? What if they could set tariff rates? What if they could spend money that Congress had refused to appropriate? What if they could declare global warming to be a national emergency, and order US companies to divest from polluting countries?  What if homelessness was declared a national emergency?

You might argue that the GOP would never stand for this. But the GOP has forfeited all credibility, as it is refusing to oppose Trump’s claims that he can declare various “national emergencies” and do whatever he wants.  Here’s the NYT, discussing Trump’s recent claim that he can force companies to leave China:

“In the 20 years I’ve been doing this, I have not seen anything where there was not a national security threat,” said Mr. Smith, who until last year was director of the Treasury Department’s Office of Foreign Assets Control, which enforces the emergency powers law. “This is a completely different use of a well-utilized tool in going after what appears to be a purely economic dispute.”

But even if an unprecedented stretch of the law, some international trade lawyers said it was written broadly enough that Mr. Trump could prevail.

“The statute gives the president the right to do just about anything if he or she first declares that here’s a national security threat to the United States,” said Judith Alison Lee, a lawyer at Gibson Dunn in Washington. “It would be hugely disruptive but, technically speaking, I think the statute gives him that authority.” . . .

[C]ongressional Republicans, who consider free-market principles a defining tenet and jealously guard their jurisdiction over trade, have balked in the past at Mr. Trump’s threats to intervene in the economy.

At the same time, given years of dealing with the president’s whipsawing declarations, particularly on trade, many Republicans have concluded that there is no upside to publicly breaking with Mr. Trump, preferring instead to try to influence him privately.

We like to believe that American presidents are not dictators, which may be true.  But that’s not because they lack dictatorial powers, rather it’s because they were too embarrassed to fully exercise those powers.  Over time, that reluctance has been gradually breaking down.  The GOP criticized Obama for overstepping his authority, and Trump has gone even further.  Trump is less easily embarrassed than any previous president.

Admittedly, Trump’s not so much the problem, as the manifestation of a problem that’s gradually been growing over time.  In 1974, Congress reined back presidential authority after Watergate.  I don’t expect that to occur this time, as politics is now too polarized.

Look for the next Democratic president to enact a wide array of socialist policies using emergency executive authority.  She may try to pack the Supreme Court.  Republicans who got hysterical over Clinton and Obama will then long for the “good old days” of constitutionally restrained Democratic presidents.