Yu Yongding — How Trump Is Helping China

China's leaders have long known that the economy has outgrown the world market, and is desperately in need of rebalancing. But, thanks to Donald Trump’s trade war, they are now pursuing that goal with a new sense of urgency, suggesting that US pressure may well end up being a blessing in disguise for China.

Project Syndicate
How Trump Is Helping China
Yu Yongding | formerly president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, member the Monetary Policy Committee of the People’s Bank of China from 2004 to 2006 and member of the Advisory Committee of National Planning of the Commission of National Development and Reform of the PRC

Michael Pettis — Why market liberalisation now may hurt China more

In the end, while standard macroeconomic reforms may work in theory -- albeit under an unrealistic set of assumptions -- they’ve never worked in practice. Rather than eliminating the controls that protect China from a financial crisis, leaders should confront their debt problem head-on and begin deleveraging.

For that to happen, it would help if the decision-making process were more, not less centralised. Only forceful action from the top can overcome the tremendously powerful vested interests that are blocking the redistribution of local-government wealth.

A more liberal China may be desirable in the abstract -- but not until a more controlled China gets a handle on its debt problems.

Today
Why market liberalisation now may hurt China more

Michael Pettis | Professor of Finance at the Guanghua School of Management at Peking University in Beijing

See also

While China's government debt remains contained, at 46.9 percent of GDP as per latest figures from the Bank for International Settlements, top policymakers have recently raised concerns about a sharp build-up in household debt.

Outstanding household consumer loans have surged close to 30 percent since the middle of last year and reached 30.2 trillion yuan as of October.

Outstanding yuan-denominated property loans amount to 31.1 trillion yuan and individual mortgage loans totals to 21.1 trillion yuan as of the third quarter of 2017, data from the People's Bank of China showed.

Yet, at the same time, China's economy is said to be held back by the traditionally high level of household saving, which is supposedly holding back restructuring from an investment-based economy to a consumption-based one.

CNBC
China's debt is growing at a faster pace despite years of efforts to contain it

Reuters

Timothy Taylor — China Flexes Toward Consumption?

Rebalancing away from an export-led model of growth as China seeks to avoid the middle income trap.  

China has done much better than most other emerging nations in lifting people out of poverty. Now it seeks to join Japan and South Korea in joining the high income countries. 

To do this seamlessly,  China needs to innovate and streamline, increasing productivity and expanding the middle class. This is a task set in the current 5-year plan.

Convertible Economist
China Flexes Toward Consumption?
Timothy Taylor | Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota

Zhang Jun — China’s Painful Structural Transformation

China's economy has slowed as it shifts from exports and investment toward domestic consumer demand. But rapid growth could return if urbanization accelerates and the authorities implement the structural reforms needed to enable emerging service sectors to thrive.

Urbanization is the key to growth and development of an economically strong "middle class" of domestic consumers.

Project Syndicate
China’s Painful Structural Transformation
Zhang Jun | Professor of Economics and Director of the China Center for Economic Studies at Fudan University, Shanghai

East Asia Forum — China's Changing Economy...it will Take a While

Cutting through the hype about China being adrift economically and financially. They have a plan for rebalancing away from investment for export to domestic consumption and expansion of the service sector —  and they are working the plan.

A lot of the nonsense about the Chinese economy coming from the West is based on the same neoclassical economics that is hobbling growth in the West owing to "expansionary fiscal austerity" to bolster confidence. China is not buying into that nonsense. Apparently, morons are not in charge there.

Economy Watch

China's Changing Economy...it will Take a While
East Asia Forum

Global Times — 'Satisfactory' consumption fuels growth in China

Domestic demand has transformed economic growth: trade minister 

China maintained rapid growth in consumption and international investment and relatively lesser declines in foreign trade in 2015, which made a "satisfactory" contribution to domestic and global economic growth, Commerce Minister Gao Hucheng said Tuesday.

The Chinese economy still enjoys a comparative advantage over other economies in terms of consumption, trade and investment, but challenges still exist amid a slowdown in the economy, analysts noted.

Consumption reached 30.1 trillion yuan ($4.61 trillion) in 2015, rising 10.7 percent from a year earlier, and accounted for 66.4 percent of China's GDP growth, up 15.4 percentage points from 2014, Gao told a briefing in Beijing.

"In other words, China has successfully transformed economic growth, from being mainly driven by investment and foreign trade to being driven by domestic demand," the minister said.

The rapid growth in consumption was largely induced by a burgeoning e-commerce sector, which saw a 31.6 percent growth in online retail sales from the previous year, according to Gao. The trend will spill over this year, he noted.

But consumption hasn't become the economy's main engine of growth, said Tian Yun, director of the Research Center of the China Society of Macroeconomics.
"Consumption is certainly a highlight of the Chinese economy, but I don't believe that China has fully made the transformation," Tian told the Global Times on Tuesday.

The current slowdown in the Chinese economy shows that consumption failed to support growth like exports and investments had done in the past, Tian said.
He added that whether consumption will maintain its rapid pace remains to be seen, because supply-side reforms, including a reduction in overcapacity, could result in some layoffs, which could have an impact on consumption.…

ECNS
'Satisfactory' consumption fuels growth 

Global Times — Editor: Li Yan

Robert Johnson — The China Delusion

Another American economist telling China how to organized capitalism with Chinese characteristics. He's better than the "leave everything to market forces" bunch, but it is still a US-based solution that assumes the whole world is like the America and is hopelessly out of paradigm with MMT — the Chinese government needs to get financing from the bond market. In other words, clueless.

Robert Johnson is affiliated with the INET (George Soros) and Roosevelt Institute (Pete Peterson).

INET
The China Delusion

Robert Johnson, President, INET, and Senior Fellow and Director, Franklin and Eleanor Roosevelt Institute

Dan Steinbock — Guangdong: The Epicenter of China’s Rebalancing

China’s southern province, Guangdong, is emerging as a globally important innovation zone and consumer market. It moves into the future as it builds a post-industrial society.

The forces that once boosted Guangdong’s dramatic economic boom – industrialization, booming world trade, cheap labor and low-cost manufacturing – are fading. With the slowest growth pace in 25 years, economic anxiety is said to be spreading. That standard narrative is part of the story, but not the full story.

Today, Guangdong’s economy is a dual story about the demise of industrialization and the rise of the post-industrial society. If the focus is on the former, the story is about decline. If it’s on the latter, the story is about rejuvenation. The real narrative has two sides.…

Good article. It seems to me that Western analysis of China makes two egregious mistakes. The first is judging non-Western countries to conform to Western ideology. Secondly, they also fail to take into account that China is consciously and intentionally going through a social, political and economic transition as China approaches "the Lewis turning point." This is a crucial phase in development and China no doubt has a plan to address it — a plan with "Chinese characteristics."

Moreover, owing to the size of its population, China plays a unique role on the global stage along with India, the only other country of comparable size. China is acutely aware of its historical role and organizing for it, while India is just waking up to it and lacks organizational structure to deal with it.

BTW, for those who do not remember it, Guangdong was the test case for China's planned transition to market socialism. The experiment was wildly successful and now the push is on to bring that model to the rest of China. One of the areas the Chinese leadership realizes that China lags is in quality of eduction and higher education in particular. So the push is also on to compete with the developed world in this regard, since education is the foundation for innovation.
Economonitor
Guangdong: The Epicenter of China’s Rebalancing

Dan Steinbock

Sputnik — China Needs Fiscal Stimulus Should Growth Target Slip - IMF

Say what? 

Oh right, China needs to "rebalance" and not "restructure."

Sputnik
China Needs Fiscal Stimulus Should Growth Target Slip - IMF

Economy Watch — Australia The Biggest Loser from A Slowing China, IMF

The International Monetary Fund (IMF) recently released a report regarding which nations will suffer the most loss resulting from China's slowing investment growth. According to the IMF, Australia will be the worst hit advanced economy, with only developing economies Iran, Kazakhstan, Saudi Arabia, Zambia, and Chile suffering a bigger loss.

I am not bearish on this, although China's rebalancing away from an investment-export driven economy to a consumer-services economy will result in a ripple effect around the world. But in the end the demand created by more prosperous Chinese consumers and a growing urban middle class will be a huge boost to global demand that just about everyone will profit from.

Before very long, the US will not longer be the world's market place and the US consumer, king of the roost. This will be good for everyone since the world needs rebalancing, not just China, and it is happening now, albeit not without fits and starts. Just don't listen too much to Western-trained economists, who have the wrong model.

EconMatters
Australia The Biggest Loser from A Slowing China, IMF

Economy Watch

John C. Williams — China, Rates, and the Outlook: May the (Economic) Force Be with You

It’s important to see the situation not through the filters of our own paradigms, but from the perspective of China’s unique position. China is not the U.S. Or the U.K. Or Japan. Its goals, structure, government, and place on its growth trajectory are very different, and looking to impose foreign expectations on China’s markets or actions can lead one astray. 

Growth versus reform

In a nutshell, China is facing a tradeoff between its short-term growth goals and its longer-term reform agenda.…

Of course, that very disposition for intervention is the source of much hue and cry on this side of the globe. China has made important incremental steps on the road to liberalization, and from the perspective of a fully open, free-market, Western-oriented paradigm or advocacy, the recent stock market interventions seem anathema to that goal. But that’s a view through a narrow lens that may obscure the bigger picture.

For all its moves towards liberalization, China’s markets are not the same as ours. Yes, they have a reform agenda, but it’s a mistake to think that in the foreseeable future China will have fully open capital and financial markets in the way that we in the U.S. and other countries think about them. 

FRBSF
China, Rates, and the Outlook: May the (Economic) Force Be with You
John C. Williams | President and CEO, Federal Reserve Bank of San Francisco

ht Mark Thoma at Economists View

Zhang Monan — The Next Chinese Economy

Rebalancing, adding breath and depth to the domestic economy and becoming less export-dependent. 

Owing to its sheer size — China's economy became the world's largest on a PPP basis in 2014 — China seems headed toward global economic dominance. How soon this happens depends on how they handle this transition. China is still an emerging nation.

Project Syndicate
The Next Chinese Economy
Zhang Monan

In the unforeseeable future, India and China will vie for first place owing to their size and resources, both geographically and demographically. However, they could be overshadowed by Europe if the EU, or EZ federalizes. The US will almost certainly have to compete by joining forces with Canada and Latin America in some kind of economic zone, unless the US is able to retain global hegemony.

Yao Yang — In Praise of China’s New Normal

China’s economy is, at long last, undergoing a rebalancing, with growth rates having declined from more than 10% before 2008 to roughly 7.5% today. If this is China’s "new normal," it would still be the envy of the rest of the world.

China no longer playing catch-up?

Project Syndicate
In Praise of China’s New Normal
Yao Yang | Dean of the National School of Development and Director of the China Center for Economic Research at Peking University

Ambrose Evans-Pritchard — China's leaders refuse to blink as economy slows drastically

Premier Li Keqiang is determined to drive through deep reforms and wean the economy off exorbitant levels of debt before the damage becomes irreversible

Rebalancing. 

The Telegraph
China's leaders refuse to blink as economy slows drastically
Ambrose Evans-Pritchard

IHS — China to become world's largest economy in 2024

China will become the world's largest economy in 2024, as the country's consumer spending is expected to almost quadruple from 2013 to 2024, said IHS Inc., a global industrial data and analysis company, Friday in London. 

IHS forecast in a press release that in 2024, with anticipated nominal gross domestic product (GDP) of 28.25 trillion U.S. dollars, China will overtake the United States' 27.31 trillion U.S. dollars, becoming the biggest economy in the world.

China's share of world GDP is forecast to rise from around 12 percent in 2013 to 20 percent in 2025, said the Colorado, US-based company.
"Over the next 10 years, China's economy is expected to re-balance towards more rapid growth in consumption, which will help the structure of the domestic economy as well as growth for the Asia Pacific as a region," said Rajiv Biswas, chief Asia economist at IHS.

In the ten years to 2024, Chinese consumer spending is expected to grow at an annual average rate of 7.7 percent per year in real terms, becoming a key engine of global consumer demand and world growth, said IHS. In another word, the total Chinese consumer spending will grow from the current three trillion dollars to 11 trillion dollars by 2024.

China is poised to overtake the US more quickly when figured in terms of purchasing power parity.

China.org.en
China to become world's largest economy in 2024

Xinhua

Stephen Roach on China and the US

The Fed’s mistake was to extrapolate – that is, to believe that shock therapy could not only save the patient but also foster sustained recovery. Two further rounds of QE expanded the Fed’s balance sheet by another $2.1 trillion between late 2009 and today, but yielded little in terms of jump-starting the real economy.

This becomes clear when the Fed’s liquidity injections are compared with increases in nominal GDP. From late 2008 to May 2014, the Fed’s balance sheet increased by a total of $3.4 trillion, well in excess of the $2.6 trillion increase in nominal GDP over the same period. This is hardly “Mission accomplished,” as QE supporters claim. Every dollar of QE generated only 76 cents of nominal GDP.

Unlike the United States, which relied largely on its central bank’s efforts to cushion the crisis and foster recovery, China deployed a CN¥4 trillion fiscal stimulus (about 12% of its 2008 GDP) to jump-start its sagging economy in the depths of the crisis. Whereas the US fiscal stimulus of $787 billion (5.5% of its 2009 GDP) gained limited traction, at best, on the real economy, the Chinese effort produced an immediate and sharp increase in “shovel-ready” infrastructure projects that boosted the fixed-investment share of GDP from 44% in 2008 to 47% in 2009.

To be sure, China also eased monetary policy. But such efforts fell well short of those of the Fed, with no zero-interest-rate or quantitative-easing gambits – only standard reductions in policy rates (five cuts in late 2008) and reserve requirements (four adjustments).

The most important thing to note is that there was no extrapolation mania in Beijing. Chinese officials viewed their actions in 2008-2009 as one-off measures, and they have been much quicker than their US counterparts to face up to the perils of policies initiated in the depths of the crisis. In America, denial runs deep....

It is often said that a crisis should never be wasted: Politicians, policymakers, and regulators should embrace the moment of deep distress and take on the heavy burden of structural repair. China seems to be doing that; America is not. Codependency points to an unavoidable conclusion: The US is about to become trapped in the perils of linear thinking.

Jewish Business News
Former Chairman Of Morgan Stanley Asia Stephen Roach : China Sets America’s Mental Trap
Stephen S. Roach | senior fellow at Jackson Institute for Global Affairs and a senior lecturer at Yale School of Management, and former Chairman of Morgan Stanley Asia 

Michael Pettis — Revisiting my 2011 predictions

Since the beginning of the global crisis in 2007-08 I have argued that the crisis was a consequence primarily of global trade imbalances generated by structural features that led to significant saving imbalances in China, the US, and within Europe. I describe this model in more detail in my recent book, The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy (Princeton University Press).

In that sense the current crisis shares a lot of characteristics with nearly every other global crisis of the past 200 years, as I point out in my book, and is likely to be resolved in similar ways: with a series of sovereign defaults or debt restructurings including, but not limited to, a number of European countries. None of the “globalization” cycles of the last 200 years has ended without widespread sovereign defaults except the one that ended in the First World War, and in that case the war caused soaring commodity prices and sharp constraints in Europe’s manufacturing exports, both of which were a tremendous help to developing countries. This probably why this was the only “globalization” cycle that did not end in massive sovereign defaults.

China Financial Markets
Revisiting my 2011 predictions
Michael Pettis | Professor of Finance at Guanghua School of Management, Peking University

Michael Pettis — How much investment is optimal?

In the May 10 issue of my blog I referred to a very interesting IMF paper written by Il Houng Lee, Murtaza Syed, and Liu Xueyan. The study, “China’s Path to Consumer-Based Growth: Reorienting Investment and Enhancing Efficiency”, attempts among other things to evaluate the efficiency of investment in various provinces within China. I argued in the newsletter that the paper supported my contention that China has overinvested beyond its capacity to absorb capital.

This argument is in opposition to claims made by many analysts that China has not overinvested systematically, and that in fact, with much less capital stock per worker than advanced countries like the US or Japan, China has a long ways to go before it begins to bump up against the productive limits of investment.

China Financial Markets
How much investment is optimal?
Michael Pettis

Is it the amount of investment or the amount of investment in the export industry and FIRE ("extractive") rather than "rebalancing" by increasing domestic consumption ("inclusive")?

As an aside, what strikes me about the debate that Pettis is describing is the assumption that the factors taken into consideration by the models are exclusively determinative rather than simply some of many, others of which may be more significant to the overall situation — social and political, as well as economic. They are puzzled, for example, that a model fits one country and not another with different conditions. Doh.

Economists are unbelievably self-centered, totally disregarding other social sciences as well as practical considerations outside their narrow purview.

Green’s points are that there is a large difference between the richer and poorer provinces, and that the same set of policies that drove up income levels in the richer provinces can, presumably, be applied to the poorer provinces in the same way and for the same effect as their income levels converge with those of the richer provinces. This convergence alone will guarantee that China will grow by 7-8% for many more years.

Green may be right, but I think it is worth pointing out under what conditions he would be right and under what conditions he would be wrong. If the difference in wealth between the richer and poorer provinces is indeed caused mainly by the difference in capital stock per worker, and if otherwise there are no significant institutional differences between the two that prevent the poorer regions from catching up, then it is probably true that the policies that worked in the coastal regions can be successfully applied to the inland regions with much the same economic impact. Beijing can turn all of China into Guangdong and Zhejiang.

But if the poorer regions are poorer not because they lack investment but rather because they are institutionally more “backward” and so lack the ability to absorb investment efficiently, then it is not so clear that their income levels can converge with those of the richer regions within China except under conditions of significant social and political change.

Pettis goes on to add:

As an aside I am struck by the fact that the disparity between richer and poorer regions in China has existed in very much the same way for many centuries, and wonder if this isn’t due at least in part to dramatic differences in what I am calling social capital.

Exactly, and that we the choice of the extractive elites. The present regime knows that it has to be perceived as correctly that imbalance if it is to maintain credibility as a socialist government representing labor and not capital as the chief factor. For the leadership this is an existential choice. The Party is walking a fine line and they know it. They also realize that a widespread perception of crony capitalism and corruption will do them in.

I believe that in the past two to three years there has been a significant and welcome shift in Beijing’s attitude towards maintaining growth, and that this shift implicitly represents a shift from the capital frontier model of optimal investment levels to the social capital model. Keynes famously reminded us that “even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist,” and I would argue that in this sense models do matter. The economic model that we implicitly use to justify policy can result in hugely different policies with hugely different outcomes.

China needs to increase social spending to increase "social capital," especially in regions where social capital is lacking. But one area that immediately suggests itself is creating a social safety net that would encourage less domestic saving and more domestic consumption, which would drive investment in domestic enterprise. The other low hanging fruit lies in improving the legal system, reducing the corruption that has traditionally been endemic in China, and improving public education.

Stephen Roach — Long Live China’s Slowdown

Is China rebalancing by growing its consumer economy with service jobs?

Project Syndicate
Long Live China’s Slowdown
Stephen S. Roach | formerly Chairman of Morgan Stanley Asia and the firm's Chief Economist, and currently is a senior fellow at Yale University’s Jackson Institute of Global Affairs

Michael Stephens — Kregel on Financial Liberalization and Rebalancing in China

Multiplier Effect

Kregel on Financial Liberalization and Rebalancing in China
Michael Stephens