China: What’s at stake
I see many biased stories on China, so it’s nice to read something sensible. Here’s Alex Frew McMillan:
Write off China at your peril.
That’s the message coming out of Tuesday’s economic data, which were considerably stronger than expected. The data show that the second half of 2016 will produce growth similar to that of the first six months of the year.
Just as the sun is shining on China’s east coast today, the numbers dispel the gloom cast over China’s economy last year, when the most-pessimistic of pundits predicted a crash landing.
August industrial output rose 6.3% year on year, beating a 6.2% estimate and up from 6.0% the previous month. Retail sales were the real shock, rising to 10.6% from 10.2% the previous month, a number economists had anticipated would be repeated. Infrastructure investment was also strong, after a sharp drop in July.
People’s reactions to such numbers are all over the place. I just received a report in response to the figures from SocGen: “Concerns over bubbles, not growth.” Some people are just never happy!
Longer term, growth is slowing—which is appropriate:
Yes, China is growing at its slowest annual pace since 1990. But a $9 trillion economy is not going to continue producing double-digit gains, as it did from 2003 through 2010. The economy missed an 8% growth rate only twice between 1990 and 2012, but may never hit such a pace again.
China has grown up. Or it is at least in adolescence. The sunniest outcome of this set of figures is that it likely gives Beijing the boost necessary to pick up the pace in overhauling its overproducing, underperforming, bloated state-owned enterprises.
China’s economy grew 6.9% last year, and is on track to hit around 6.5% to 7% in 2016. That’s the figure Beijing “predicted” in March — and China’s leaders are rarely (let’s say never!) wrong when they can turn the stimulus tap at will. Failing that, they’ll “massage” the numbers anyway, as I explained in April.
CLSA says in response to the latest numbers that China is on pace for 6.7% this year. “Overall, China’s August activity data were reassuring for investors,” the brokerage said, one that I think has some of the most sensible research on Asia.
And a sober reminder that there is still a lot at stake:
But it is far from all roses in China’s garden. The vast divergence between China’s humming, and wealthy, east coast and the rest of the country was only reinforced by the recent tragic tale of a woman in rural northwestern China.
Yang Gailan, 28, had been farming wheat, peas and potatoes in Agu Shan Village in Gansu province, as outlined in this story from The New York Times. She supported her four children, all under 7, on the $500 per year that her husband sent home from his migrant job in a nearby town.
Since welfare benefits are only granted in China to people living on $350 per year, local officials removed her payments. One day, the young mother told relatives she was taking her children to go tend the family’s sheep. Then she poisoned them with pesticide, attacked them with an axe, killed them, and killed herself by drinking the pesticide. This month, her husband came back from work and killed himself with poison.
The Chuck Schumers and Donald Trumps of the world favor policies that would lead to more of these sad stories (which thank God are far less frequent than a few decades ago–due to economic growth.)
The story has gained prominence in China, and has rammed home the vast gap in wealth between China’s haves — the country’s GDP per capita is $6,471 while the United Nations defines poverty as living on less than $1 per day — and rural have-nots. Many families are ripped apart by economic forces that drive parents into migrant jobs where they lack the hukou residence permit that grants them rights as a local citizen. . . .
That’s in strong contrast to the young bucks and hinds foraging for tech jobs amid the gleaming office towers of Shenzhen, just across the border from me here in Hong Kong. It’s the city with the highest per-capita income in China. Although it is a former fishing village with one of China’s last stretches of mangroves, and it is Cantonese given its location in Guangdong province, you will struggle to find someone who understands the dialect. Mandarin-speaking, motivated youngsters head there for top-paying jobs from all around China. . . .
The estimate is that China needs to sustain growth above 5% to create enough jobs and wealth to avoid unrest and demonstrations. And if China can continue along that line, making the transition from an agrarian straight into a post-tech world, ripping through its industrial revolution at record pace, I will be happy.
So will 1.4 billion people.
All over the world, politics is becoming increasingly stupid. How much longer before these xenophobic trends impact rapid growth in Asia? Let’s hope that we can hold back the barbarians for a few more electoral cycles, until the poor in China don’t feel a need to kill the children that they cannot support.
PS. I have new posts at Econlog on Fed officials struggling with the concept of “struggle”, and another on our latest failed fiscal experiment.
Tags:
13. September 2016 at 17:25
Guess which state faces China? You guessed it, California. And this author says California is kicking everyone’s butt when it comes to GDP growth. I told you Scott, that California has more tech, more research, more cutting edge universities, and more intelligent people. It is a no brainer which state leads the nation: http://www.talkmarkets.com/content/economics–politics/why-overregulated-california-is-leading-the-way?post=106110&uid=4798
As for China, again, if it does not sign Basel accords Basel cannot impose mark to market or other hurtful games for fleecing people, and China will prosper.
I noticed that while many Chinese products are cheap and even toxic, Pottery Barn has high end products from China. Very nice merchandise!
13. September 2016 at 19:37
“The Chuck Schumers and Donald Trumps of the world favor policies that would lead to more of these sad stories”
-And Mitt Romneys, and Hillary Clintons, and Bernie Sanders, and Sherrod Browns, and…
“All over the world, politics is becoming increasingly stupid. How much longer before these xenophobic trends impact rapid growth in Asia?”
-Are they impacting Korea? China, like Germany back in the day, is a rising power. It will grow more militaristic over time. Hopefully, Duterte, Trump, and Abe will be willing to work out compromises.
“Let’s hope that we can hold back the barbarians for a few more electoral cycles”
-On paper, the candidates do not differ on these trade-related issues. So vote for the better candidate overall. Vote Trump. He promises to make “great trade deals”.
Sumner, thoughts on
http://sciencedebate.org/20answers
?
Gary, what’s with the California boosterism? I don’t get it.
Yes, the story on China is good.
13. September 2016 at 19:51
Good post…but should it not be President Xi and the prosperous Chinese people that help rural Chinese?
Xi appears far more interested in consolidating power and wiping out even faint wisps of dissent.
I am not xenophobic. But I think the elected leader of any particular nation must first represent the interests of her/his own people.
If China leadership would accept charity for rural Chinese, or embrace the democratic world and economic freedom, rural Chinese would arguably do better.
The story of rural suicide is real and horrifying. In rural India, many debt-ridden farmers every year commit suicide. In Japan of a generation ago, shamed debtors walked into the ocean with children in arms. These are horrifying stories.
The rural Thais, no mater how poor, never seem to commit suicide. There is something to be said for a lackadaisical approach to life. Yes, I am exaggerating to make a point.
13. September 2016 at 20:44
“Let’s hope that we can hold back the barbarians for a few more electoral cycles, until the poor in China don’t feel a need to kill the children that they cannot support.”
This, and what I really hope for is that Asia can soon sustain itself enough by trading internally so it doesn’t depend anymore on the vagaries of the West. The West then can vote itself into irrelevance if it wants to.
If and when Asia is able to do this is a big question, seeing recurring nationalist demons in India, nationalist rise in China, and what happens politically anywhere from the Philippines to Thailand. All of this can easily disrupt intra Asian stability.
14. September 2016 at 03:52
Trump now 5 points clear in Ohio, the state that has backed every winning candidate since 1964. Your electoral models are all wrong, just like they were in the UK, the world has changed. The race is now over unless she steps aside and the DNC put in Biden. If she makes it to the stage September 26 he will finish the job, most Americans are underexposed to Trump. Hypermind has him 42% even though the polls have him ahead. Hypermind had Brexit at 18 the morning of the vote even though the polls were very close (PS I’m in the top 25 on the leader board). Wake up and smell the coffee. It amazes me that every major media publication I read (FT, Economist, NYT, WSJ, excepting Newscorp rags) makes it out that Trump is a complete buffoon with no chance of winning. Even the Economist on the weekend ran a leader that didn’t address any policy implications but instead painted anyone who supported Trump as a conspiracy theorist or bigot. These people are seriously out of touch. You have spent too much time sheltered in liberal institutions. Meanwhile, the world is experiencing the most incredible period of monetary experimentation in history, and you use your blog to take anecdotal evidence from rural China to try and undermine your future President. Seriously.
14. September 2016 at 03:54
I guess when you’re the kind of libertarian who takes Fed and NATO propaganda at face value, it’s not much of a stretch to accept the propaganda of the Chinese communist party.
14. September 2016 at 04:37
If by barbarians, you are referring to Siri, Echo, and Cortana…yes they are at the gate. The export goods with high touch labor model of development is in jeopardy regardless of what the politicians do. The world is going to need a new development model for the 3rd world. The driver of this technology is not manufacturing productivity, since there is a near infinite supply of cheap labor in the world. The driver is replacing high cost service sector labor and improving quality and customization. Yes, California and neighboring states stand to benefit. BTW, Pottery Barn is garbage, we just bought a bedroom set from the Amish, nicest furniture I have ever owned.
14. September 2016 at 05:08
Ben, You said:
“Good post…but should it not be President Xi and the prosperous Chinese people that help rural Chinese?”
I think you missed the point. I said let’s refrain from hurting them. Is that so hard to do?
And are you enjoying Trump’s call for higher interest rates? Who is the blogger who told you that he can’t be trusted?
Geoff, That might be the stupidest comment of the year.
Oh wait, here’s Chuck in the very next comment:
“I guess when you’re the kind of libertarian who takes Fed and NATO propaganda at face value,”
Yes, my entire blog is devoted to taking Fed propaganda at face value. I never once have questioned the Fed.
14. September 2016 at 05:42
“And are you enjoying Trump’s call for higher interest rates? Who is the blogger who told you that he can’t be trusted?”–Scott Sumner.
Yes, as of this morning, Trump wants higher interest rates. He may change this afternoon.
But give credit where credit is due, Sumner is right. Trump evidently is a loose cannon on the deck of a rudderless ship.
Hillary said low rates caused the housing bust. At least before she fainted, but probably she hasn’t changed her mind.
Gadzooks. We are reaping the fruits of decades of mythology regarding statist fiat-money central banks, the perils of inflation, and cabals devoted to printing money to finance welfare by debauching the holdings of the rich.
Some years ago I told people to hold their noses and vote.
Then I said put on a gas mask and vote.
This year you will need full hazmat suits in the voting booth.
And even with that, you cannot vote for a sensible, pro-growth monetary policy.
14. September 2016 at 05:59
“China’s economy perks up in August, thanks to housing boom, gov’t spending | Reuters Industrial output grew the fastest in five months as demand for products from coal to cars rebounded, though analysts warned the outlook is clouded by weakness in manufacturing investment and a lack of spending by private firms. “It is very clear that the data is improving because of the property market. This is not sustainable,” Commerzbank economist Zhou Hao said.”
14. September 2016 at 06:04
A client note I sent out yesterday:
South Korea prepares for ‘worst case scenario’ with North Korea
http://www.cnn.com/2016/09/11/asia/south-korea-north-korea/index.html
The story is not as bad as the headline, but for CNN to post a headline like this is telling, I think.
******
Here’s why China refuses to block North Korea’s nuclear ambitions
http://www.latimes.com/world/asia/la-fg-china-north-korea-snap-story.html
The LA Times argues that China would intervene in North Korea, but it’s too weak. This is the standard narrative.
Now, let’s consider the plausibility of that view. This is the same President Xi threatening military action against Japan if a Japanese naval vessel transits from Yokohama to Singapore via the South China Sea, 500 miles from China’s shores. This is the same Xi commanding swarms of little green boats to challenge the Japanese at the Senkaku Islands. This is the same Xi who purged 700,000 bureaucrats and nearly 200 senior Communist Party officials. This is the same Xi who sends construction barges to Scarborough Shoal literally as he is meeting with Obama. That same guy, when faced with a North Korea otherwise completely isolated from the world and entirely dependent on China’s support, is completely impotent. Sorry, nothing Xi can do about it.
Please.
Here’s the reality. China is aggressively asserting territorial claims against Japan at the Senkaku Islands. It is looking for all sorts of pressure to put on Japan. And lo!, what’s a major source of pressure? North Korea. Indeed, North Korea’s nuclear and ballistic tests have significantly increased since Xi took power. And now, we see North Korea appearing to use Chinese JL-1 submarine launched ballistic missiles in their offshore tests. What part of this pattern is unclear?
I am continually amazed that people treat President Xi as some sort of sissy, unable to grasp the range of tools at his disposal to reach his military and political objectives. North Korea is a tool–a very forceful tool–to pressure Japan. We should have every expectation that Xi is using it.
14. September 2016 at 06:38
What makes economic miracles possible? In 1980, the population of Shenzhen, the Silicon Valley of China, was 30,000; today, the population is over 10 million. In 1980, the per capita GDP in Shenzhen was about $800; today, it’s over $25,000 (much higher according to official data). No place can go through that kind of transformation without the intentional actions of people, including government to construct the infrastructure that make it possible. What I find discouraging in America is the hostility to China and the blindness to what made the China miracle possible. America could learn a few things from China (as China has learned from America). America today would reject not only the transcontinental railroad and the interstate highway system, but the Louisiana Purchase! [Yes, the “actions of people” is an allusion to Paul Romer, the new chief economist at the World Bank.]
14. September 2016 at 07:01
Rayward –
I am personally a huge China fan, really quite the Sinophile.
This is not about China; it’s about President Xi. If you track events there on a daily basis, as I do, it’s pretty scary. We are on trend to enter into a military conflict with China within a year or so.
Back in January, I wrote a piece for CNBC entitled “Why China’s growth could be over”
http://www.cnbc.com/2016/01/05/why-chinas-growth-could-be-over-commentary.html
Subsequent events have only strengthened this feeling for me.
China can be a great power, with peace, honor and integrity. I lay out the path here (which corresponds to President Obama’s view): http://nationalinterest.org/feature/china-should-push-american-style-hegemony-17238
14. September 2016 at 07:28
All over the world, politics is becoming increasingly stupid….Again have you seen the household incomes since 1999? It is still below the 1999 figure despite the low oil price “Raise”
Looking at China, I still see the nation turning into Japan at some point. I originally thought ~2018 – 2019 but since the US is growing at a steady pace the next recession might not happen until ~2022. So this Japan reality will evidently happen.
14. September 2016 at 07:38
Most recent forecasts I have seen put the next recession in the H2 2017 – H2 2018 window.
14. September 2016 at 07:56
Kopits: I had lunch with executive mayor of a large city in Guangdong Province this summer, and I came away with a very positive impression. My view, which you likely would confirm, is that the China in the south, Guangdong, and the China in the north, Beijing, are two radically different places, the former the economic center and the latter the political center. Cities have two mayors, the political mayor and the executive mayor, reflecting the two Chinas. If we engage with the political part of China, Beijing, we make a big mistake. My view of the dispute in the South China Sea is that the political China wants to expand its influence in the region while protecting the economic center from encroachment by Vietnam and other places where America and other western companies are shifting their production in this emerging stage of globalization (in which China firms produce goods for China firms not western firms to compete with goods produced for western firms). Indeed, the TPP is intended to isolate China from other countries in the region that are part of the TPP. The artificial islands created by China in the Sea are meant to disrupt the sea lanes for ships traveling from those other countries up and around the Philippine and out into the Pacific. Who is being more threatening: China or us. The mayor described China and America as “partners”, which is how the vast majority of the people in Guangdong likely would describe the relationship. We would be making a huge mistake by confronting China and forcing the political China to assume the lead.
14. September 2016 at 08:10
China is far more threatening.
The US is not building bases in the South China Sea. China is, and China is militarizing bases Xi promised not to.
China has threatened to military attack–literally sink– Japanese naval vessels well into international waters transiting from, say, Japan to Singapore.
China has mustered 230 ‘little green vessels’ around the Senkaku Islands.
China is apparently providing nuclear-capable, submarine ballistic missiles to North Korea to lob in the direction of Japan and presenting a potentially existential threat to the US.
The domestic situation is China is sufficiently strained for the Wall Street Journal to propose a ‘Repression Index’.
Xi sent what appear to be construction vessels to Scarborough Shoal, 150 miles from Manila and 530 miles for Hainan literally, I mean literally, as he was meeting with Obama. And let’s not even mention The Snub.
And it’s not just foreigners who feel this way. Hong Kong just handed Xi his head with pro-democracy, and indeed, pro-independence votes at the recent LEGCO elections.
What part of this don’t you get?
14. September 2016 at 09:05
“Yes, China is growing at its slowest annual pace since 1990. But a $9 trillion economy is not going to continue producing double-digit gains, as it did from 2003 through 2010. The economy missed an 8% growth rate only twice between 1990 and 2012, but may never hit such a pace again.”
What does the total nominal size of the economy have to do with anything? Chinas GDP per capita is around $10,000 a year due to large chunks of the population still living in rural areas. Are these people ZMP workers? Is China’s massive infrastructure spending not going to pay off in the near term? Saying their slowdown is “appropriate” requires a vigorous model, not an off hand comment about the nominal size of the economy.
14. September 2016 at 09:48
What engineer says is true: lots of China manufacturing is junk. Back when inflation was a problem, they were a solution, but not so much now. Sumner is hugging the Giant Panda but he fails to realize China is greying fast (old people don’t do babies) and China is very nationalistic. They use foreigners like Sumner as a tool. Perhaps Sumner is biased since his wife is Chinese? Sumner is definitely wrong and biased about something, so that’s a safe bet.
As for the ‘secret fiscal stimulus’, it’s a good article by Sumner, I tend to agree, but it ignores that even with -600B deficits, the US deficit is still within the CBO projections found here: https://upload.wikimedia.org/wikipedia/commons/d/de/Deficit_or_Surplus_with_Alternative_Fiscal_Scenario.png that is, about -3-4% of GDP. Americans like Big Gov’t and that ain’t changing until there’s a another crisis. It would help if the US simply made Medicare/Social Security ‘means based’.
14. September 2016 at 09:49
Exactly, Bacon.
14. September 2016 at 15:05
Remember when Hillary claimed she communed with the ghost of Eleanor Roosevelt? Now, it’s Franklin;
https://www.amazon.com/FDRs-Deadly-Secret-Steven-Lomazow/dp/1586489062
‘When Franklin Delano Roosevelt died in 1945, his lifelong physician swore that the president had always been in perfect health. Twenty-five years later, his cardiologist admitted that the president suffered from hypertension, and that contrary to what the public was led to believe, his death was “a cataclysmic event waiting to happen.” ‘
14. September 2016 at 16:23
Sumner is a barbarian. A steals from B to pay C, C becomes dependent on the theft from B, and then when the theft is reduced, and C faces the full costs of raising children, we are not supposed to condemn the theft, but rather the removal of the theft.
This blog should be renamed the libertarian illusion.
14. September 2016 at 16:43
@Harding: “Gary, what’s with the California boosterism? I don’t get it.”
Well, I said California was stronger than Texas, economically. But Sumner is right, that Texas folks have more disposable income. Having said that, I am on a quest to prove, despite what some pundits say, that California is far more resilient than Texas when times become tough.
Scott Sumner and Art Deco dragged me through the mud for saying California was better, economically than Texas. So, every chance I get I show how California is more resilient.
Wait til oil goes to 25 dollars a barrel. Texas will want to be cradled by the central government. Truthfully, that is not likely as Russia, not Texas, will object and force prices to stabilize. Trump and Texas rely on Russia. Let’s face it.
Scott makes a good point about the strength of China, though. As long as China stays out of the clutches of Basel, it stands a fighting chance. People underestimate the power of Basel to screw things up. Japan and the US are prime examples.
14. September 2016 at 16:56
This article Scott mentioned is quite fascinating. Either spending is increasing by stealth, or revenue is decreasing: http://econlog.econlib.org/archives/2016/09/the_secret_stim.html#
I actually wrote about this, because, clearly there is a need for more treasury bonds. There is a massive need for more treasury bonds as collateral. I know Scott does not get into this subject, but Wall Street is happy that the deficit is increasing. I wrote this about the deficit and deficit spending. Keep in mind that Trump wants higher and lower interest rates. He touts neoFisherism and a NK at the same time. Also, keep in mind that Jamie Dimon said banks would make more money if interest rates were boosted. Pundits disagree. I tend to side with the guy who runs the biggest US bank even though I don’t like him or Trump.
Anyway, I wrote this:
“So, the idea Trump puts forward is sound, but getting the glut to flow into the real economy is a function of the Fed, not of fiscal spending. All fiscal government deficits will do is to increase the UST’s available to Wall Street, without helping the economy in a sustained way. Only the Fed can help the economy in a sustained way.
That isn’t to say spending on roads is a bad idea. It isn’t. It is a good idea. But big deficits are not needed, since the economy is not doing so well and the deficits may increase anyway, without any additional spending. Taxing the wealthy, many of whom readily want to be taxed, would help our pitiful and needy roads.”
http://www.talkmarkets.com/content/bonds/the-false-economy-r-star-estimates-bleak?post=105561&uid=4798
I had an uneasy feeling deficits were increasing. I posted my article on the 7th of September. Car sales are down, and banks are talking about layoffs. Manufacturing is not well. The millennials are frugal.
14. September 2016 at 18:54
@steven kopits
Can you provide a link for your claim that China threatened to attack Japanese naval vessels?
15. September 2016 at 04:14
“Beijing is thought to have threatened Japan that it would launch military action if Tokyo pressed ahead with its stance on the South China Sea dispute. Chinese officials are reported to have conveyed the warning to a top-ranking Japanese official in June.
“According to diplomatic sources, cited by Japan’s Kyodo news agency, China’s ambassador to Japan, Cheng Yonghua, told Japan that it would cross a “red line” if Japanese vessels took part in the so-called freedom of navigation operations launched by the US in the South China Sea. Cheng even went on to indicate that Beijing would not hesitate to take military action. This emerged only on Sunday, 21 August though the incident reportedly occurred in June.”
http://www.ibtimes.co.uk/beijing-hinted-military-action-against-japan-over-south-china-sea-dispute-1577231
This is not really a surprise. China has warned the US not to conduct FoN exercises in the SCS. As China is actively pressing claims against Japan at the Senkaku Islands, this is just a higher ratchet of the same tool.
Japan has also been regularly scrambling jets against incursions by Chinese fighters. If you track this stuff daily, it’s all part of the same picture.
http://www.reuters.com/article/us-china-japan-idUSKCN0ZL28B
*****
The far more controversial part of my claims above is that China is abetting, and possibly encouraging, North Korea’s missile launches towards Japan.
This is not the received wisdom, but I think the data points line up pretty well.
For example this, just yesterday, from a Reuters podcast entitled, “Why Nuclear War is Inevitable”
“Recent tests by North Korea and China’s lack of overt response has set U.S. teeth on edge.”
http://www.reuters.com/article/us-nuclear-war-podcast-idUSKCN11K23T
******
The use of JL-1 missiles is even more serious.
“The missiles launched by North Korea today could be proof that China is arming the rogue state and flouting international sanctions, a former US defence chief believes.”
http://www.dailymail.co.uk/news/article-3774721/Is-proof-China-arming-North-Korea-Missiles-launched-rogue-state-exactly-Chinese-weapons-says-ex-defence-chief.html#ixzz4KKEcUfqn
The article shows the launching of the North Korean submarine missiles. You can find a drawing of the JL-1 here on Wikipedia. https://en.wikipedia.org/wiki/JL-1
Compare for yourself.
Now, were China guiding, encouraging or abetting North Korea in any fashion with regard to North Korean missile launches on Japan — well into Japan’s EEZ — China would qualify as a belligerent of the first order, a truly dangerous rogue nation.
To me, that’s what the data suggests.
15. September 2016 at 04:25
http://www.ibtimes.co.uk/beijing-hinted-military-action-against-japan-over-south-china-sea-dispute-1577231
15. September 2016 at 04:48
@steven kopits
Hinted at military action? Your gut feelings that China is egging on NK? OK, so when you earlier asked what parts of your claims re. Chinese belligerence were not clear, basically the answer should be “all of them”?
15. September 2016 at 04:55
Compare Chinese “aggression” with a regular week for the US:
https://www.washingtonpost.com/world/national-security/a-reminder-of-the-permanent-wars-dozens-of-us-airstrikes-in-six-countries/2016/09/08/77cde914-7514-11e6-be4f-3f42f2e5a49e_story.html
15. September 2016 at 05:37
Let’s go through those airstrikes one by one:
Iraq, Afghanistan, Pakistan:
You’ll recall that terrorists took down the WTC in 2001. The US went to war in response, exactly as I would have expected China to do under similar circumstances. I did not support the war in Iraq, but when a country is attacked, it will lash out at perceived enemies. If the culpable aren’t’ sufficient, the demonstration list will be expanded to the near-culpable. You see this a lot in high profile murders, where innocents are rounded up and convicted, eg, the Central Park jogger case. The US, indeed, the Middle East, had had problems with Saddam for years. 9/11 provided a reason to go in a get him. Personally, I think it was a mistake, but I understand the sentiment.
It was as big a mistake not to sign a status of forces agreement with Iraq and put a US base into western Iraq. That would have prevented ISIS from metastasizing across into Syria.
Meanwhile, the US and western Europe is suffering with on-going terrorism. The US is striking back. I would note China is also active in Syria. In any event, were China seeing on-going terrorist attacks in, say, Shanghai, yes, I’d have every expectation of retaliation to the extent of China’s abilities.
Now, here’s the big difference between the US and China. The US is not pressing territorial claims. China says that virtually the entirety of the EEZ’s of the Philippines and Vietnam belong to China. Indeed, I have Chinese officialdom on my email list, and one pro-Beijing consultant expects China’s claims to be extended through the Strait of Malacca (Singapore) to “neutralize the Malacca threat.”
I think it will be difficult to prosecute these claims without triggering a war. And Xi is well aware of that, hence no attempt to deter or condemn North Korea’s launches toward Japan.
China is preparing for a ‘sudden, short and cruel war’. Want to parse those words for me? I’ve done it for my clients.
And once you’ve gone through the interpretation, you see headlines from all the major news sources about nuclear war:
From CNN:
South Korea prepares for ‘worst case scenario’ with North Korea
http://www.cnn.com/2016/09/11/asia/south-korea-north-korea/index.html
From Bloomberg:
To Launch a Nuclear Strike, Clinton or Trump Would Follow These Steps
http://www.bloomberg.com/politics/graphics/2016-nuclear-weapon-launch/
From Reuters:
Why Nuclear War is Inevitable
http://www.reuters.com/article/us-nuclear-war-podcast-idUSKCN11K23T
Let’s not kid ourselves. It’s becoming very dangerous out there in a very different way from limited US airstrikes in the Middle East.
15. September 2016 at 06:41
Those “limited air strikes” are in the context of US destabilization of the region, the destruction of functioning states, and the creation of an appalling humanitarian crisis. There was nothing like a global terrorist threat before US interventions, indeed, that’s the primary point. China (and Russia, for that matter) has not done anything even remotely similar to the suffering US actions have induced.
But yeah, go ahead and name-drop about your stupid email list.
15. September 2016 at 06:46
Ray, You said:
“What engineer says is true: lots of China manufacturing is junk. Back when inflation was a problem, they were a solution, but not so much now. Sumner is hugging the Giant Panda but he fails to realize China is greying fast (old people don’t do babies) and China is very nationalistic. They use foreigners like Sumner as a tool. Perhaps Sumner is biased since his wife is Chinese? Sumner is definitely wrong and biased about something, so that’s a safe bet.”
Ray, You write like a third grader. It’s kind of cute.
Everyone, Why are you wasting time commenting on Chinese foreign policy? NO ONE CARES. Comment on the post, or not at all.
15. September 2016 at 07:38
China’s foreign policy is arguably the most important driver of the global economy, at least on a contingent basis.
Rand has gone so far as to quantify it:
Thinking the Unthinkable
http://www.rand.org/content/dam/rand/pubs/research_reports/RR1100/RR1140/RAND_RR1140.pdf
Impact on US economy: -5 to -10% of GDP
Korea, Japan: -10 to – 15% of GDP
China -25 to -35% of GDP
You’d don’t think that’s material?
One missile, just one missile, is all it takes to see a major global impact. And Japanese fighters are lighting up the Chinese intruders like a Christmas tree.
The Chinese are showing signs of starting construction at Scarborough Shoal, which Obama highlighted specifically to Xi as a ‘Red Line’, with ‘very firm consequences’ if the Chinese proceed.
What do you think happens to global commodity or equity markets if Obama utters the words ‘tariffs’ or ‘sanctions’ on China?
Right now, you are assuming some nice outcome without any understanding of the geo-strategic dynamics. You’re hoping it all goes away because ‘we’re all reasonable people’.
I see collapsing ASEAN investment into China; I see the capital flight out of China associated with repressive regimes; I see Chinese exports really under-performing; I see weak PMIs and investment in China in the non-SOE sector; I see a Chinese economy propped up increasing amounts of debt with no commensurate bang for the GDP buck.
And I can see the impact of these sorts of governments on growth elsewhere. Indeed, I’ve written about it. See the counter-factual graphs on Russia and Hungary.
http://www.cnbc.com/2016/01/05/why-chinas-growth-could-be-over-commentary.html
You think a country can have increasingly oppressive polices and home and aggressive policies abroad and this doesn’t affect it’s GDP growth outlook?
Well, let me categorically disagree.
15. September 2016 at 09:37
“You think a country can have increasingly oppressive polices and home and aggressive policies abroad and this doesn’t affect it’s GDP growth outlook?”
Sorry, are we talking about the US here?
Anyway, I thought Sumner’s Russophobia was breathtaking in its stupidity, he clearly has nothing on you with your Sinophobia. Well done.
15. September 2016 at 17:25
@Steven Kopits,
– Foreign companies invest in China because they think they can make money, not because they like China’s domestic or foreign policies. For example, one would think that the event of June 4th 1989 would have severely impeded China’s development, yet that was not the case. China has passed the phase when foreign investments were critical for their development anyway. On the contrary, China’s outward investments overseas will play a greater role in the future, just look at their One Belt One Road (OBOR) initiative.
– China is not threatening Japan with war. They are just warning Japan not to get involved in the South China Sea. There is little incentive for China to fight a war in East or South China Sea. There are only 4 countries that are currently involved: China, Japan, Vietnam, and the Philippines. All four are rational players, for them, It’s far more cost-effective to settle the issues through bilateral negotiations. The Chinese are too smart to fight anyone for anything in the west Pacific, except over the issue of Taiwan independence. They would rather spend their treasure and blood on building the OROB and establishing the China-Pakistan Economic Corridor – so much for politics.
15. September 2016 at 21:14
I read that the amount of debt is rising much more rapidly than GDP? Is that a concern?
16. September 2016 at 14:29
‘When Franklin Delano Roosevelt died in 1945, his lifelong physician swore that the president had always been in perfect health.
Come again? The man was in a wheelchair for 25 years. Contrary to revisionist accounts you began to see ca. 1980, this was public knowledge at the time. (It was generally thought to have resulted from polio at the time. Retrospectively, medical detectives think perhaps Guillain-Barre syndrome).
When Roosevelt returned to the national stage in 1932, he was 50 years old. A man of 50 at that time had a life expectancy of about 21 years, so his life span was abbreviated, but not stunningly so. The year he died, life expectancy at birth was calculated at 63.6 years for men. He was 63.2 years of age at the
time of his death. Uncle Teddy had lived to be 60. Woodrow Wilson died at 67 and was a wretched invalid from age 61. Calvin Coolidge died at 60. Roosevelt consigliere Harry Hopkins died at 56. To shuffle off at age 63 of a stroke in 1945 was nothing out of the ordinary.
16. September 2016 at 16:55
Larry –
Debt is rising faster than GDP in China. Let me defer to Chris Balding in this matter.
http://www.baldingsworld.com/2016/09/16/follow-up-to-bloomberg-views-on-real-estate-asset-price-targeting/
16. September 2016 at 17:16
Chuck –
I have never been called a Sinophobe. I have spoken to a room at Columbia University filled with 200 Chinese students when I was the only white guy there. Have you ever done anything similar? I love China, love its people, but I will not tolerate from China behavior I would not tolerate from my own family. That simple. China is a Great Power. It needs to behave like one.
Foreign companies do indeed invest in China to make money. This investment is based on several assumptions:
1. large market
2. growing market
3. market access
4. profitable business
5. protection of investment and individual property rights
6. right to repatriate personnel and money
China is a large market, but it is growing more slowly. Market access is becoming more difficult, to wit, the closure there of iTunes and the Disney Channel.
Some businesses in China are profitable, to be sure.
The treatment of Uber, for example, calls into question protection of property rights. As do two rather strange IP cases against Apple.
To date, to my knowledge, China has not seized businesses from foreigners, but the Uber case is tending in that direction. China has been agitating against foreigners in recent times. Here’s an FT article on the matter: https://www.ft.com/content/27a0591e-5e2a-11e6-bb77-a121aa8abd95
Now, in the event of a conflict, or even the threat of tariffs or sanctions by the Obama administration, the protection of property rights, the safety of investments, and the ability to export goods all come into question.
To date, the Xi administration has acted as though political and economic events were separate of each other. Clearly, they are not beyond a certain point.
China has indeed threatened Japan with war. It’s in the public record. The JL-1s used by the North Koreans are a casus belli by themselves.
The countries involved in the SCS conflict: Japan, the Philippines, Vietnam, Brunei, Malaysia and Indonesia. China has made direct claims on the EEZs of all these countries. Indeed, China’s claims against Indonesia extend 1,000 miles south of Hainan Island. So extreme does Indonesia consider the threat, that it is considering renaming the SCS near its waters as the ‘Natuna Sea’. See Tyler Cowen: http://marginalrevolution.com/marginalrevolution/2016/08/saturday-assorted-links-74.html
China has not yet engaged in active hostilities. To do so would end the Deng Era permanently. But that indeed is what we are speaking of, a repudiation of the Deng Legacy. For some people, money is not the be-all-and-end-all. Xi is one of those people.
I have to say, today was the first day in a very long time that we did not hear dire news from East Asia. It was a welcome relief, even if it is unlikely to last.
16. September 2016 at 18:35
You were the only white guy in a room full of Chinese students? Wow, do you want a medal for that?
16. September 2016 at 18:37
BTW Kopits, you’re full of shit if you won’t speak out against US world-wide aggression while invoking the Chinese boogeyman.
17. September 2016 at 06:20
Steven, You said:
“Let me defer to Chris Balding in this matter.”
You do know this guys record, don’t you? He once claimed that 50% of Beijing houses were empty.
As far as China foreign policy, if the US goes to war over an uninhabited atoll in the South CHINA Sea, then we are even stupider than I imagined.
Larry, Yes it is, but mostly because of the mortal hazard issue, not the quantity of debt per se.
17. September 2016 at 07:25
News flash: the US is not going to go to war over some rocks in the South China Sea because China is not a small, weak country that can be bullied and bombed into submission.
17. September 2016 at 12:48
You do know this guys record, don’t you? He once claimed that 50% of Beijing houses were empty.
The utility of trading in disaster scenarios is that if something happens, you said it first (or you said something vaguely resemblant first). If nothing much happens, people forget that you talk rot. The public career of Nassim Taleb is an illustration of this.
19. September 2016 at 06:41
“As far as China foreign policy, if the US goes to war over an uninhabited atoll in the South CHINA Sea, then we are even stupider than I imagined.”
That’s what you think this is about?