China, China, China
I first heard of the China Belt and Road Initiative when I
was in Xi’an, China in 2015, where the old silk road started, and where this
BRI is starting. The following link
looks at what China is doing in considerable detail.
This is China’s effort to achieve hegemony in much of the
world over the next decade. One quote –
“Morgan Stanley has predicted China’s overall expenses over the life of the BRI
could reach $1.2–1.3 trillion by 2027.”
China is bound and determined to be the predominant economic
force in the world in this century. Xi
Jinping and the Chinese leaders are engineers, economists and businessmen. They are not revolutionaries, nor are they
thugs and oligarchs like the Russian leadership. We really need to stop our unbalanced concern
with Russia, who have a GDP the size of Texas, and concentrate on competing
with China, who are truly the 800 pound economic gorilla in the world.
Trump’s trade and tariff discussions with China are aimed at
rectifying the current trade advantages that China has had with the U.S. One can only hope that results are
substantive, rather than just sound bites for the media masses.
When I was in China a couple of years ago, several things were readily apparent
- people, people, people; and technology, technology, technology. The great masses of people had great numbers
of cell phones, tablets and other trappings of the digital age. Technological advancement was readily
apparent. LED’s lit the cities and even
the backwaters. Internet and WiFi
connectivity was ubiquitous, fast and controlled. One needed a VPN to defeat the “golden wall”
and access western services, but the hegemony of technology was evident
everywhere. And the people in the
streets seemed happy and well adjusted, not dour and malcontent. It was evident that their system worked for
them, and they were quite content and happy with it.
I’ve commented several times that our true long term rival
for world leadership is not Russia or the EU.
It is China, for many reasons, but primarily because they have such
tremendous people potential coupled with an economy controlled by economists
and engineers, and no longer by wild-eyed revolutionaries. What about Russia,
many ask? In terms of GDP, Russia is the
size of Mexico and not growing very fast.
Mexico with nukes, but still the size of Mexico. China’s GDP is $23 trillion, and is the
largest in the world. Ours is $19.5
trillion.
David Brooks discusses just how China “is an existential
threat for the 21st century”.
This is the CIA World Factbook write-up on China’s economy.
China Economy - overview:
This entry briefly describes the type of economy, including
the degree of market orientation, the level of economic development, the most
important natural resources, and the unique areas of specialization. It also
characterizes major economic events and policy changes in the most recent 12
months and may include a statement about one or two key future macroeconomic
trends.
Since the late 1970s, China has moved from a closed,
centrally planned system to a more market-oriented one that plays a major global
role. China has implemented reforms in a gradualist fashion, resulting in
efficiency gains that have contributed to a more than tenfold increase in GDP
since 1978. Reforms began with the phaseout of collectivized agriculture, and
expanded to include the gradual liberalization of prices, fiscal
decentralization, increased autonomy for state enterprises, growth of the
private sector, development of stock markets and a modern banking system, and
opening to foreign trade and investment. China continues to pursue an
industrial policy, state support of key sectors, and a restrictive investment
regime. From 2013 to 2017, China had one of the fastest growing economies in
the world, averaging slightly more than 7% real growth per year. Measured on a
purchasing power parity (PPP) basis that adjusts for price differences, China
in 2017 stood as the largest economy in the world, surpassing the US in 2014
for the first time in modern history. China became the world's largest exporter
in 2010, and the largest trading nation in 2013. Still, China's per capita
income is below the world average.
In July 2005 moved to an exchange rate system that
references a basket of currencies. From mid-2005 to late 2008, the renminbi
(RMB) appreciated more than 20% against the US dollar, but the exchange rate
remained virtually pegged to the dollar from the onset of the global financial
crisis until June 2010, when Beijing announced it would resume a gradual
appreciation. From 2013 until early 2015, the renminbi held steady against the dollar,
but it depreciated 13% from mid-2015 until end-2016 amid strong capital
outflows; in 2017 the RMB resumed appreciating against the dollar – roughly 7%
from end-of-2016 to end-of-2017. In 2015, the People’s Bank of China announced
it would continue to carefully push for full convertibility of the renminbi,
after the currency was accepted as part of the IMF’s special drawing rights
basket. However, since late 2015 the Chinese Government has strengthened
capital controls and oversight of overseas investments to better manage the
exchange rate and maintain financial stability.
The Chinese Government faces numerous economic challenges
including: (a) reducing its high domestic savings rate and correspondingly low
domestic household consumption; (b) managing its high corporate debt burden to
maintain financial stability; (c) controlling off-balance sheet local
government debt used to finance infrastructure stimulus; (d) facilitating
higher-wage job opportunities for the aspiring middle class, including rural migrants
and college graduates, while maintaining competitiveness; (e) dampening
speculative investment in the real estate sector without sharply slowing the
economy; (f) reducing industrial overcapacity; and (g) raising productivity
growth rates through the more efficient allocation of capital and state-support
for innovation. Economic development has progressed further in coastal
provinces than in the interior, and by 2016 more than 169.3 million migrant
workers and their dependents had relocated to urban areas to find work. One
consequence of China’s population control policy known as the "one-child
policy" - which was relaxed in 2016 to permit all families to have two
children - is that China is now one of the most rapidly aging countries in the
world. Deterioration in the environment - notably air pollution, soil erosion,
and the steady fall of the water table, especially in the North - is another
long-term problem. China continues to lose arable land because of erosion and
urbanization. The Chinese Government is seeking to add energy production
capacity from sources other than coal and oil, focusing on natural gas,
nuclear, and clean energy development. In 2016, China ratified the Paris
Agreement, a multilateral agreement to combat climate change, and committed to
peak its carbon dioxide emissions between 2025 and 2030.
The government's 13th Five-Year Plan, unveiled in March
2016, emphasizes the need to increase innovation and boost domestic consumption
to make the economy less dependent on government investment, exports, and heavy
industry. However, China has made more progress on subsidizing innovation than
rebalancing the economy. Beijing has committed to giving the market a more
decisive role in allocating resources, but the Chinese Government’s policies
continue to favor state-owned enterprises and emphasize stability. Chinese
leaders in 2010 pledged to double China’s GDP by 2020, and the 13th Five Year
Plan includes annual economic growth targets of at least 6.5% through 2020 to
achieve that goal. In recent years, China has renewed its support for
state-owned enterprises in sectors considered important to "economic
security," explicitly looking to foster globally competitive industries.
Chinese leaders also have undermined some market-oriented reforms by
reaffirming the "dominant" role of the state in the economy, a stance
that threatens to discourage private initiative and make the economy less
efficient over time. The slight acceleration in economic growth in 2017—the
first such uptick since 2010—gives Beijing more latitude to pursue its economic
reforms, focusing on financial sector deleveraging and its Supply-Side
Structural Reform agenda, first announced in late 2015.
Ray Gruszecki
March/April, 2019
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