Andrew Sheng and Xiao Geng — China's accountability system unique

Not every decision will turn out to be the right one. But in China, when mistakes are made, adjustments follow. While this form of accountability is not perfect, it has produced a track record that is exceptional by any standard.

Interesting article coming from Andrew Sheng and Xiao Geng, who are not considered government mouthpieces and have often been critical of China's policies. Chinese people seem to understand Chinese behavior, whereas most Westerners transpose their own cultural bias on their analysis of the rest of the world.

China Daily
China's accountability system unique
Andrew Sheng, distinguished fellow at the Asia Global Institute, the University of Hong Kong, and a member of the UNEP Advisory Council on Sustainable Finance; and Xiao Geng, president of the Hong Kong Institution for International Finance, a professor at Peking University HSBC Business School and the University of Hong Kong's Faculty of Business and Economics

Andrew Sheng and Xiao Geng — When Will China Achieve Quality Growth?

"When will China achieve quality growth?" Loaded question. China has already achieved quality growth in comparison with pre-revolutionary days before Mao and in particular since the reforms of Deng. The question is really how quickly will China accelerate the rate of quality growth. There are tradeoffs to consider.

The challenge the Chinese leadership faces is improving both the economy and increasing the quality of life in China, while also maintaining government control of the commanding heights of the economy, which is necessary for socialism. 

Distribution and quality of life are central goals for socialism, while they are irrelevant for capitalism. Under capitalist regimes distribution has become seriously unequal and quality of life is declining owing to socialization of negative externality. 

The Chinese economy already suffers from both since liberalizing. Further liberalization is not necessarily the road to socialist success. The Chinese government must also maintain control of the commanding heights, although government control doesn't necessarily imply state ownership.

The author fall into the trap of saving causing investment, and if the Chinese leadership makes this mistake and buys into it, it's all over for Chinese socialism. In fact, one wonders if the saving causes investment fallacy is a capitalist ploy to ensure that the ownership class maintains control.

Project Syndicate
When Will China Achieve Quality Growth?

Andrew Sheng, Distinguished Fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance, former chairman of the Hong Kong Securities and Futures Commission, and currently an adjunct professor at Tsinghua University in Beijing. 

Xiao Geng, President of the Hong Kong Institution for International Finance, professor at Peking University HSBC Business School and at the University of Hong Kong's Faculty of Business and Economics

Michael Roberts — China’s ‘Keynesian’ policies

China’s policy in the Great Recession was not just ‘fiscal stimulus’ in the Keynesian sense, but outright government or state investment in the economy. It actually was ‘socialised investment’. Investment is the key here –as I have argued in many posts – not consumption or any form of spending by government.…

As John Ross said on his blog at the time, “China is evidently the mirror image of the US …If the Great Recession in the US was caused by a precipitate fall in fixed investment, China’s avoidance of recession, and its rapid economic growth, was driven by the rise in fixed investment. Given this contrast, the reason for the difference in performance between the US and Chinese economies during the financial crisis is evident.”...

I would argue that "Keynesianism" is not Keynes of the General Theory, the full tile of which is the The General Theory of Employment, Investment, and Money. Investment drives production, which produces not only goods but also employment, and investment in capital goods occurs owing to the flow of funding to firm investment in capital goods, both as fixed capital — plant and technology, and also human capital owing to augmented "labor power" as knowledge and skill though investment in training.

Regardless of economic system, real (firm) investment, in contrast to financial investment in saving vehicles, leads to real growth (a flow) and "real savings" (stocks of capital goods and quality of labor).

Keynes realized this and so-called paleo-Keyensianism was about public investment in addition to temporary stimulus to address economic contraction. Public investment is not only in infrastructure, R&D, and other economic factors that directly relate to firms, but also welfare investment that indirectly do so, in particular education and health services. Public investment need not be limited to addressing economic and financial crises, and should not be in a modern monetary production economies, where growth must keep pace with population growth and increased productivity is desirable.

The notion that Keynes was chiefly focus on welfare and stimulus is simplistic. He understood the primacy of investment in the production-distribution-consumption cycle and addressed it specifically, as shown in the title of his major work.

Addressing effective demand is key in addressing demand-leakage to saving is central for Keynes. Effective demand is important since without it, investment will fall. Moreover, when private investment slows, public investment needs to pick up the slack. Investment, both public and private, are key to economic performance and social wellbeing, which is the intended meaning of "welfare," rather than transfer payments as "welfare" has come to be interpreted.

China appears to understand this and increases the rate of public investment in addition to providing stimulus for welfare to address crises. This did not happen in the Western capitalist countries in the follow-up to the crisis and they suffered for it as a result.

While Michael Roberts is out of paradigm with MMT, he makes some points worth considering from the Marxian perspective, too.

Michael Roberts Blog
China’s ‘Keynesian’ policies
Michael Roberts

See also

Kaldor, the famous Hungarian economist of Cambridge University, claimed in 1978 that countries with the most dynamic economic growth tended to record the fastest growth in labor costs as well. The renown “Kaldor-paradox” may be confusing for policymakers influenced by the neoclassical mainstream. It tells us that keeping costs low may not lead to competitive advantages and faster economic growth. So let’s resurrect the Kaldorian ideas and see whether the relationship has changed at all (hint: it has not)....

Wages as dynamic investment.

Could the Kaldor-paradox imply that most of the examined countries are wage-led (or demand-led) economies?…

Economic Questions ± formerly The Minskys
There is no such thing as low-wage competitiveness
Daniel Olah, economics editor, writer and PhD student, and Viktor Varpalotaiis, Deputy Head of Macroeconomic Policy Department at Ministry for National Economy, Hungary

China Daily — Xi's bookshelf illustrates goal of developing AI powerhouse

Two books on President Xi Jinping's shelf drew public attention from both home and abroad immediately after they were seen in the video of Xi's New Year speech.

The two books were about artificial intelligence－The Master Algorithm: How the Quest for the Ultimate Learning Machine Will Remake Our World by Pedro Domingos and Brett King's Augmented: Life in the Smart Lane.

The Master Algorithm, published in 2015, describes how machine learning is remaking business, politics, science and war.

Augmented describes how society will be impacted by technologies that will change the world more in the next 20 years than it has been changed in the past 250 years....

Ecns

Xi's bookshelf illustrates goal of developing AI powerhouse

China Daily

Jayati Ghosh — How China is managing capital flows – and why

The global financial media are always on the lookout for signs of an impending financial crisis in China – and the dark prognostications about the future made by several external observers relate to both internal and external financial flows. But there are reasons to believe that both concerns may be overplayed, and that what is occurring especially with respect to cross-border flows is a much more complex process reflecting a medium-term plan of the Chinese state, in accordance with its much more assertive role in the global scene.

Jayati Ghosh is not blinded by neoliberal tendencies and Western economic and political ideology as those that have been predicting a Chinese meltdown for how long now?

Jayati Ghosh explains what is really going on. China is shifting its strategy to meet new conditions and exploit emerging opportunities of its own creation. Western analysts don't get it yet.

Real-World Economics Review Blog
How China is managing capital flows – and why
Jayati Ghosh | Professor of Economics at the Centre for Economic Studies and Planning, School of Social Sciences, at the Jawaharlal Nehru University, in New Delhi

Steve Wang — Leverage, zombies, unaffordable homes…

Chinese economic reform.

While much attention has been given to the curious coexistence in China of excess capacity with insufficient supply, this is just a superficial symptom of the challenges facing the economy. The root of the problem, Zhu said, is the failure to let market forces take their full effect. This enables all manner of twisted policies and bureaucratic arrangements to flourish, sending price signals haywire and blocking the free flow of basic elements in the system. In sum, it is this that created the misallocation of resources we see in China today....

The Chinese authorities are walking a tight rope on reform. Too much reform too quickly can lead to instability, while too little too slow can lead to stagnation, or worse if debt cannot be serviced.

Asia Times
Leverage, zombies, unaffordable homes…

Steve Wang

Pepe Escobar — Finally! China's Xi Is Launching a 'Painful Restructuring' of Insane Debt Levels

Power is completely centralized in one man - Xi, and he is finally addressing China's out-of-control leverage. It may be a bumpy ride.

This problem is coupled with endemic corruption and excessive bureaucracy. A lot of that debt was siphoned off. Now President Xi apparently feels that power is now consolidated enough in his hands to clean house. It ain't gonna be pretty, but China will come out a lot stronger and more streamlined if he is successful.

This is very difficult. It affects many countries. Russia is a good example. Putin was complaining of it when he first took office and he is still complaining about. The West attributed magical powers to Putin but that is not the case. This problem goes back to Tsarist Russia and even the Tsars could not get a handle on it. The same can be said for China.

China was actually doing fairly well after the revolution. It was the Nationalist government (Kuomintang or KMT) under Chang Kai-shek and his wife Madame Chang (Meiling Soong), known as the Dragon Lady, that was nororiously corrupt. In fact, some argue that this was the reason that Chang lost to Mao even though Chang's forces outnumbered Mao's.

There is just about nowhere that government is not corrupt to some degree. As Bill Black has documented, debt is a prime tool in criminal extraction in addition to rent extraction.

President Xi will have to rise to the level of Hercules cleaning out the Augean stables.

Russia Insider
Finally! China's Xi Is Launching a 'Painful Restructuring' of Insane Debt Levels

Pepe Escobar

Xinhua — Premier urges 'fertile soil' for innovation, entrepreneurship

Chinese Premier Li Keqiang has demanded "fertile soil" for innovation and entrepreneurship and called for more efforts to discover and support inventors.

He made the remarks in an instruction to the opening of the 7th national congress of the China Association of Inventions, praising the great inventions throughout Chinese history.

"Currently, China is pushing ahead with mass innovation and entrepreneurship under an innovation-fueled growth strategy, which is expected to unleash the great creativity of ordinary people," said Li.

Innovation can nurture new technologies, new industries and new business types to deliver sustained and healthy economic growth, said the premier.

Ecns.cn
Premier urges 'fertile soil' for innovation, entrepreneurship

Xinhua

Xinhua — China's new economy off to a good start

Recent figures have shown that the Chinese economy has generally seen stable growth with deepening supply-side structural reforms, an official from the National Bureau of Statistics said in an article published Monday in People's Daily.

Meanwhile, measures have been taken to expand total demand in the first four months of this year, contributing to economic indicators within expectations, Guo Tongxin said.First, the consumption and the services sector have served as the main engine for economic growth, said Guo.

"The April data is further evidence that the national economy since the start of this year has grown mainly on domestic demand led by consumption, and that industrial growth is mainly supported by the services sector," Guo said.

That is a positive development of structural adjustments to the economy and industrial upgrading, he said, highlighting progress in such sectors as IT, environment, housing, tourism, culture, health and sports.

Final consumption has contributed a staggering 84.7 percent to economic growth in the first quarter of this year, up 22 percentage points from the same period last year, he said.

The value added of the services sector expanded 7.6 percent in the first quarter, 1.8 percentage points faster than the secondary sector, accounting for 56.9 percent of gross domestic product (GDP), or 19.4 percentage points higher than the secondary sector. Its contribution to economic growth reached 63.5 percent, 29.3 percentage points higher than the secondary sector, according to the expert.

Second, streamlining government administration and the recent introduction of a value-added tax has stimulated market vitality, contributing to early signs of positive results from supply-side structural reforms, Guo said.

Newly registered firms exceeded 1.57 million from January to April, up 27.5 percent from the same period last year, with about 80 percent of them in the services sector.In addition, tax reductions since last year has lessened the tax burden on Chinese firms by more than 400 billion yuan, while the introduction of the value-added tax on May 1 is expected to cut another 500 billion yuan in tax this year.

Innovation is also playing a key role in China's new economy. New patent licensing has grown another 63 percent in the first four months of this year, following a 61.9 percent growth in 2015. Online retail sales have grown 25.6 percent, 15.3 percentage points faster than that of total retail sales of consumer goods.

On macroeconomic policies, Guo said the stability of macroeconomic policies despite downward pressure on the economy has ensured economic growth within a reasonable range. Higher fiscal expenditure coupled with tax reduction shows a more proactive fiscal policy, with government investment flowing more to public services and products, resources and environmental protection and new industries, he said.

Monetary policies have been moderate with M2 growth cooling down in April, he added, noting that in general, the growth of total money and credit supply and total social financing remains stable and normal.

Meanwhile, unemployment remains generally stable, the expert said.Although unemployment has risen in some regions due to the economic slowdown and a reduction in excess capacity, the growth of the services sector and entrepreneurship has kept the unemployment rate stable, he said.

Rural-to-urban migrant workers reached nearly 168 million, up 2.9 percent from the same period last year, while the registered unemployment rate saw a slight decline at 4.04 percent by March, he said.

Finally, Guo said the 13th Five-Year Plan approved in March has played an important role in stabilizing and lifting market expectations. The Purchasing Manager's Index (PMI) has entered an expansionary period in March and April for the first time since August, while the Producer Price Index (PPI) saw the first rise in years in March, a strong indicator of rising market confidence by firm managers.

The expert also cautioned that downward pressure would persist for the Chinese economy, given that the rise of the new economy cannot yet cover the decline in traditional sectors.

He suggested focusing on fixing structural supply-side problems in the economy, rather than seek short-term gains and losses. 

Ecns.cn
China's new economy off to a good start

Xinhua

Xinhua — China clarifies economic policies, reform agenda at G20 meeting

"No problem."

China.org.cn
China clarifies economic policies, reform agenda at G20 meeting

Xinhua