Good news from China?

I’m no China expert, but this seems like exactly what the Chinese government should be doing:

SHANGHAI, Aug 5 (Reuters) – Beijing’s Commission of Reform and Development, the city’s economic planner, will invite foreign investors to bid on 126 urban infrastructure projects collectively seeking 338 billion yuan ($55 billion) in financing, the China Daily said on Monday.

The projects include rail transport, roads, rail transit complexes, drainage treatment facilities, waste disposal and heat supply.

The report said private bids will be treated on an equal footing with bids from state-owned firms, and predicted an internal return rate of 8 percent.

“The Beijing government will take measures to ensure investors get a reasonable return,” the report quoted Yang Xihui, commissioner of the economic planning agency, as saying.

Policymakers in China are struggling with a quandary; they want to increase infrastructure spending to prop up economic growth rates which have been sagging this year, but they don’t want to put more high-risk debt on the books of Chinese banks, which are still struggling to digest the bad loans made during the last infrastructure binge in 2009-2010.

Regulators are signalling increasing openness to foreign money, taking a series of steps to make it easier for money to get into the country through a variety of channels, including both portfolio investment and direct investment.

PS.  One reason that I’ve expected China to keep growing fast is that the interior of China is still quite poor, and there are no obvious cultural differences between the interior and coastal areas that would prevent eventual convergence.  Yichuan Wang has an excellent new article that makes this point much more effectively, with lots of data.  Here’s an excerpt:

So when Paul Krugman boldly declares that China will suffer from a sudden drop in growth, the first question that should be asked is “which China?” Because economic conditions differ so widely across provinces, to speak of a unified level of Chinese development obscures the underlying regional patterns of growth. These patterns lead to a different understanding of the economic data and a much brighter outlook for the Chinese economy. Even if growth in developing countries must eventually slow down, a look inland shows that the mini-countries we call Chinese provinces still have a long way to go.




13 Responses to “Good news from China?”

  1. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    10. August 2013 at 15:46

    For a good explanation of some things that China has done right these past three decades;

    Coase has begun his second hundred years of scholarship!

  2. Gravatar of MichaelM MichaelM
    10. August 2013 at 16:44

    There’s nothing mini about Chinese provinces-as-countries.

  3. Gravatar of Saturos Saturos
    10. August 2013 at 17:20

    Congratulations to Yichuan on his new gig at Quartz!

  4. Gravatar of Saturos Saturos
    10. August 2013 at 17:20

    Merle Hazard is concerned about the Fed’s exit strategy (he also has some sharp words for IOR):

  5. Gravatar of TallDave TallDave
    10. August 2013 at 19:58

    I’m not sure how to take this. On the one hand this is exactly the inflection point we should be watching for: oligarchs by definition don’t suffer competition. On the other hand, this article says the state is doing this because it’s still holding so much bad debt from last time. It will be interesting to see if investors are interested.

  6. Gravatar of Mikio Mikio
    10. August 2013 at 21:47

    “The Beijing government will take measures to ensure investors get a reasonable return,” it says there.

    The government allocates profits? How? Will they subsidize the investments?

    I agree that there are a lot useful investments that need to be done in China but I’m not that sure if the government can ensure profitability.

  7. Gravatar of Benjamin Cole Benjamin Cole
    11. August 2013 at 00:35

    As Casey Stengel said (not Yogi Berra, btw), “Making predictions is hard, especially about the future.”

    I have been puzzling a smaller country, Thailand, for many years now. I do not understand Thailand. People who have lived in Thailand 30 years say they do not understand Thailand.

    Thailand now has almost no unemployment. Inflation about 2 percent. Why? No one knows. The central bank more or less pegs the baht to the US dollar, so maybe they are being stimulative.

    In my rural region of Thailand, people are building better houses and buying pick-up trucks. I would guess if rural Louisiana had some good years, it would be roughly the same in living standards to Nakhon Ratchasima province, where I now live.

    Why I am telling anyone this? Only a few years back,people thought Thailand would be crushed by China on the low-end, and Korea-Japan-Taiwan on the high-end.

    You want to predict China?

    Really? And would you make a prediction for where the USA will be in 10 years? Will the USA do a Japan, or somehow escape that fate?

    And Japan? Will they escape being Japan?

    Like Casey Stengel said….

  8. Gravatar of ssumner ssumner
    11. August 2013 at 06:12

    Patrick, Yes, that’s an excellent book.

    Michael, Good point.

    Saturos, Good song.

    Mikio, I wondered about this too.

    Ben, I wonder if Thailand is now being helped by fast rising Chinese wages.

  9. Gravatar of Tom Tom
    11. August 2013 at 11:20

    It’s great that Yichuan is writing there, following his co-author Miles Kimball.

    China and its gov’t are making many huge mistakes, also many smart investments. Plus, as the Central Party becomes more crony-capitalistic / market capitalistic, they are more likely to accept market punishment (bankruptcy) for failures. My guess is that getting foreign money involved will reduce the likelihood of too-much corruption.

    The key point about inland China being like many new med-large sized (>100 mill people) countries is excellent.

    I wish the Chinese people good luck, and good policy.

  10. Gravatar of Geoff Geoff
    11. August 2013 at 15:51

    The Chinese government’s central banks inflates like crazy.

    The Chinese government tries to contain bubbles by coercing banks into reducing risk of loans.

    Banks get around this by repackaging risky loans into lower risk structured products.

    High risk money continues to be lent.

    Money is deposited back into banks.

    Banks continue to issue risky loans.

    Nothing could go wrong here.

  11. Gravatar of Benjamin Cole Benjamin Cole
    12. August 2013 at 05:44

    Scott Sumner-

    Yes, China has fast-rising costs, and Thailand remains less developed and cheaper. Also, due to cultural schisms, Japan is using Thailand as its manufacturing platform, not China. In general, I think a lot of manufacturing will migrate to Thailand in the next 10 years, while retains its ag business. Tourism will stay strong.

    But there is some literature out there, and people puzzling the ultra-low unemployment rate in Thailand, and that it is even lower than nations that do not have unemployment insurance, such as indonesia. Some of it has to do with Cambodians and Burmese going home, as opportunities open up in their homelands.

  12. Gravatar of Robert Robert
    12. August 2013 at 10:25

    Also, the minimum target for GDP growth was interesting. Its expressed in real terms, not nominal. But perhaps a trip to Beijing is in order in the near future to press your case…..?

  13. Gravatar of ssumner ssumner
    12. August 2013 at 10:25

    Tom, I agree.

    Ben, Very good points. All I’d add is that the term “remains” is misplaced. Thailand was much richer than China in the 1990s. So rather than saying it remains poorer, you should say it is becoming poorer. But it’s still doing fairly well!

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