China under pressure, a debate | Financial Times - 0 views
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china situation analysis history crisis policy politics economics
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Despite the $300bn mega-bankruptcy of Evergrande, the risk of an immediate 2008-style crisis in China is slight.
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let us linger over the significance of this point. What China is doing is, after all, staggering. By means of its “three red lines” credit policy, it is stopping in its tracks a gigantic real estate boom. China’s real estate sector, created from scratch since the reforms of 1998, is currently valued at $55tn. That is the most rapid accumulation of wealth in history. It is the financial reflection of the surge in China’s urban population by more than 480mn in a matter of decades.
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Throughout the history of modern capitalism real estate booms have been associated with credit creation and, as the work of Òscar Jordà, Moritz Schularick and Alan M. Taylor has shown, with major financial crises.
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if we are agreed that Beijing looks set to stop the largest property boom in history without unleashing a systemic financial crisis, it is doing something truly remarkable. It is setting a new standard in economic policy.
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Is this perhaps what policy looks like if it actually takes financial stability seriously? And if we look in the mirror, why aren’t we applauding more loudly?
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Add to real estate the other domestic factor roiling the Chinese financial markets: Beijing’s remarkable humbling of China’s platform businesses, the second-largest cluster of big tech in the world. That too is without equivalent anywhere else.
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Beijing’s aim is to ensure that gambling on big tech no longer produces monopolistic rents. Again, as a long-term policy aim, can one really disagree with that?
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we have two dramatic and deliberate policy-induced shocks of the type for which there is no precedent in the West. Both inflict short-term pain with a view to longer-term social, economic and financial stability.
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Ultimately political economy determines the conditions for long-run growth. So if you had to bet on a regime, which might actually have what it takes to break a political economy impasse, to humble vested interests and make a “big play” on structural change, which would it be? The United States, the EU or Xi’s China?
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Beijing’s challenge right now is to manage the fall out from the two most dramatic development policies the world has ever seen, the one-child policy and China’s urbanisation, plus the historic challenge of big tech — less a problem specific to China than the local manifestation of what Shoshana Zuboff calls “surveillance capitalism”.
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no, Xi’s regime has not yet presented a fully convincing substitute plan. But, as Michael Pettis has forcefully argued, China has options. There is an entire range of policies that Beijing could put in place to substitute for the debt-fuelled infrastructure and housing boom.
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demography is normally treated as a natural parameter for economic activity. But in China’s case the astonishing fact is that the sudden ageing of its workforce is also a policy-induced challenge. It is a legacy of the one-child policy — the most gigantic and coercive intervention in human reproduction ever undertaken.
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China needs to spend heavily on renewable energy and power distribution to break its dependence on coal. If it needs more housing, it should be affordable. All of this would generate more balanced growth. 5 per cent? Perhaps not, but certainly healthier and more sustainable.
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If it has not so far pursued an alternative growth model in a more determined fashion, some of the blame no doubt falls on the prejudices of the Beijing policy elite. But even more significant are surely the entrenched interests of the infrastructure-construction-local government-credit machine, in other words the kind of political economy factors that generally inhibit the implementation of good policy.
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The problem is only too familiar in the West. In Europe and the US too, such interest group combinations hobble the search for new growth models. In the United States they put in doubt the possibility of the energy transition, the possibility of providing a healthcare system that is fit for purpose and any initiative on trade policy that involves widening market access.
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On balance, if you want to be part of history-making economic transformation, China is still the place to be. But it is undeniably shifting gear. And thanks to developments both inside and outside the country, investors will have to reckon with a much more complex picture of opportunity and risk. You are going to need to pick smart and follow the politics and geopolitics closely.
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If on the other hand you want to invest in the green energy transition — the one big vision of economic development that the world has come up with right now — you simply have to have exposure to China, whether directly or indirectly by way of suppliers to China’s green energy sector. China is where the grand battle over the future of the climate is going to be fought. It will be a huge driver of innovation, capital accumulation and profit, the influence of which will be felt around the world.
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it is one key area that both the Biden administration and the EU would like to “silo off” from other areas of conflict with China.
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I worry that we may be too focused on the medium-term. Given the news out of Hong Kong and mainland China, Covid may yet come back to bite us.
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Here too China is boxed in by its own success. It has successfully pursued a no-Covid policy, but due to the failing of the rest of the world, it has been left to do so in “one country”.
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Until China finds some way to contain the risks, this is a story to watch. A dramatic Omicron surge across China would upend the entire narrative of the last two years, which is framed by Beijing success in containing the first wave.