China’s economy is bigger than you think

With China set to announce its third-quarter gross domestic product report on Monday, skepticism over its economic data is arising anew.

Recall that Bill Gross has described China as “the mystery meat of emerging-market countries.” Premier Li Keqiang, before taking that post, said he didn’t rely on official statistics. He preferred things like rail freight and electricity use to gauge activity.

So is China about to puff up its economic report card once more?

Quite the contrary, according to one of the world’s foremost emerging market investors, Mark Mobius.

“I know there’s a lot of debate as to whether the numbers are true, whether it’s really 7 percent, but our numbers indicate that it is at least that,” the chairman of the emerging-markets group at Franklin Templeton Investments said in a recent interview with Bloomberg TV. “We think that a lot of the economy is not really being counted because China is being converted from a manufacturing-oriented economy to a service economy.”

That gels with the view of Rhodium Group analysts in a September report for the Center for Strategic and International Studies.

Their 200-plus page study found China’s GDP methodologies are largely in line with international practices and charges that estimates are sheer fabrications are “misinformed.”…China’s economy is bigger, not smaller than official data suggests, the analysts found, with the services sector the hardest to measure and real estate even more important than currently reflected…

As for Monday’s reading, economists forecast the government will say GDP growth slowed to 6.8 percent in the three months through September from a year earlier. That would be the slowest quarterly pace since 2009.

That isn’t deterring Mobius, who says: “The transition is definitely on its way and is going to be successful.”

I could write pages on the topic – and won’t. I honestly don’t think the average American cares enough to look beyond the party line fed officially from the White House and Congress – and willingly, by the Beltway Press like the Washington POST. And, of course, that includes the New York TIMES. Just let me back up a Wall Street minute.

I was never interested in serious investing for the future. My bad. So, I was really pissed-off when the criminal derivative called the Great Recession hit all of us. What little I had squirreled away in what I thought were safe, conservative funds was diminished by over half in a matter of weeks.

Pissed-off, I decided to manage my savings myself. Took what I had left to cash and studied business and industries I knew something about and prepared for the start of the slow turnaround I expected. After all the creeps in charge had damaged the world economy as severely as the Wall Street Crash of 1929. Some aspects of economic life might never return.

I started investing just a few months before March, 2009 – the bottom. Since then, the cash I had has multiplied over 500%. The industries I knew about were mostly geeky, tech-oriented. My business experience the last 30 years was grounded in Asian producers, American companies invested in Asia.

I spent those years witnessing all the usual crap about Asian misconceptions: country by country, Japan, Taiwan, finally China. I learned how to survive a culture of bribery that was thousands of years old – and changed dramatically in just the past few years. I chuckled over Americans discovering Chinese Marxists figuring out how to heat up the achievement of socialist ideals through a market economy – something I was berated for seriously discussing in the late 1950’s. Really.

I’ve watched and listened to the same official crap, pandered and promulgated by everyone from the Compradore pimps who fled China with Chiang Kai-shek in 1949 to the short sellers who make a quick fortune with their quarterly expose of one or another corrupt little corporate entity – blathering about crooks who couldn’t even stand in the shadows of the truly corrupt barons of Wall Street – or Wolfsburg.

But, I also paid attention to folks like Stephen Roach, Peter Nolan, Richard Evans and, yes, Mark Mobius…and former White House advisors like Ian Bremmer because after all, even if Obama’s foreign policy can’t and won’t improve upon that of John Foster Dulles – he still really needs to know what is going on.

I guess I probably should have gotten pissed off, sooner, eh? 🙂

China adopts emissions policy that won’t get through U.S. Congress


George HW Bush signing Clean Air Act legislation including cap-and-trade in 1990

Last Thursday night news broke of the impending announcement of a national cap-and-trade program for carbon in China, as part of a U.S.-China joint climate announcement. This market-based approach, pioneered in the U.S. with the sulfur dioxide trading program, has clearly come to be seen as an essential policy tool to combat climate change, increasingly embraced by countries, policymakers, and global business leaders of all political persuasions.

The 1990 Clean Air Act Amendments that established the Acid Rain program to limit emissions of sulfur dioxide (SO2) and nitrogen oxides was a milestone for market-based environmental policies. It led to the creation of the SO2 trading program, which has helped cut those emissions at a lower cost than many had envisioned at the start of the program. The experience with this program also provides critical lessons on the importance of good policy design that can help inform future policies. (For example, the need for updating emissions caps to reflect the latest science and declining technology costs.)

Since then, cap-and-trade systems have been successfully established in Europe (the EU ETS), California (via AB32), and the nine Northeast RGGI states, among other places. Many other places, including the Canadian province of British Columbia, have a carbon tax or plan to implement one…

Starting in 2013, China began to pilot carbon cap-and-trade programs at the sub-national level. The pilot programs now extend to six cities (Beijing, Chongqing, Hangzhou, Shanghai, Shenzhen, and Tianjin) and two provinces (Guangdong and Hubei). The experiment has had some encouraging results, and (together with lessons from the EU ETS, California, RGGI, and other carbon trading regimes) provide the real-world experience needed to design a national system to limit emissions in a cost-effective way. China’s INDC announced earlier this year signaled the country’s intention to use carbon pricing to help meet its goal of peaking CO2 emissions by 2030, if not earlier…

Last week was a momentous one for climate action, book-ended by the Pope’s address to Congress and the joint climate announcement from Presidents Obama and Xi. The economist in me cannot help but wonder: If China can do it, why not the U.S.? It’s time for a national price on carbon in the country that invented the concept.

You needn’t be a cynic to understand why the United States will not keep its fair share of the bargain struck between Presidents Obama and Xi. Congress must be part of the equation funding efforts of this size. Between Flat Earth Republicans and Blue Dog Democrats, nothing will be accomplished. That’s just a realistic view of what our national-level politicians have become.

China’s pilot programs have moved forward. Just as their experiments with individual cities becoming Free Trade Zones worked out, other cities are already in line waiting not-very-patiently to acquire the benefits of progressive reforms.

While this system can sort about half the polluting problems of excess carbon, the last-mile question also needs to be answered, as well. China needs to replace coal home fires for heating and cooking with natural gas. That process began a few years ago; but, in many ways, it is more demanding because it requires upgraded infrastructure — nationwide.

Nevertheless, both are on the way. Which is about two orders of magnitude more than we can say about the dungheap of backwardness that stretches from SCOTUS to Congress.

Obama and Xi pledge cooperation on greenhouse gas emissions

China and the US have unveiled new pledges on greenhouse gas emissions, as the leaders of the two countries met for talks in Beijing.

US President Barack Obama said the move was “historic”, as he set a new goal of reducing US levels between 26%-28% by 2025, compared with 2005 levels.

China did not set a specific target, but said emissions would peak by 2030.

China has cut carbon intensity for nine years in a row.

The two countries also agreed to reduce the possibility of military accidents in the air and sea…

In case you didn’t notice, only one of those two countries is stacking up military forces in air and on the sea – next to the other.

The two countries together produce about 45% of the world’s carbon dioxide…

President Obama’s offer is based on cuts in carbon emissions from coal power (a policy the Republicans threaten to reverse).

China’s offer to peak emissions is a long-awaited decision. Its emissions trajectory is now similar to Europe and the USA, just further behind because it still has so many people in poverty.

Scientists will fear this agreement is not yet strong enough. But it does show leadership – and it sends a powerful signal to financiers that investing in dirty fuels for the future is becoming a risk.

Except, not for the next two years at least. The Party of NO is now in a position to try to turn back what little has been done.

In September, China told a United Nations summit on climate change that it would soon set a peak for carbon emissions and that it would make its economy more carbon efficient by 2020.

China had previously aimed to reduce its carbon intensity, which meant reducing the amount of emissions per dollar of economic output. This meant that with its rapidly growing economy, its emissions could still rise.

Wednesday’s pledge is the first time it has agreed to set a ceiling, albeit an undefined one, on overall emissions.

China can speak for themselves and their actions speak much louder than editorial content in the NY TIMES. As an American citizen, I’m concerned with what my nation does – or in the case of any political topic requiring commitment at least 6th grade science, what my nation does not do.

Americans aren’t educated. Our politicians reject education and science – aside from lip service. As the recent mid-terms proved, our nation not only does not vote in their own self-interest, they don’t vote.

I think my cynicism is justified.

Has China left behind traditional fixed growth targets?

three
Lou Jiwei, Xi Jinping and Zhou Xiaochuan

“Isn’t it now time for China to abandon the concept of a growth target?”

That was the question I asked Chinese Finance Minister Lou Jiwei this week at the 15th annual China Development Forum, which brings together top Chinese officials and an international delegation of academics, leaders of multilateral organizations, and business executives. Having attended the CDF since former Premier Zhu Rongji initiated it in 2000, I can attest to its role as one of China’s most important platforms for debate. Zhu welcomed the exchange of views at the Forum as a true intellectual test for China’s reformers.

It was in that spirit that I posed my question to Lou, whom I have known since the late 1990’s…I have always found him to be direct, intellectually curious, a first-rate analytical thinker, and a forward-looking advocate of market-based reforms. He is cut from the same cloth as his mentor, Zhu…

While it may seem like splitting hairs, continuing to frame the economic goal as a target sends a message of determined and explicit guidance that now seems at odds with the government’s market-oriented intentions. Wouldn’t dropping the concept send a far more powerful message? Isn’t it time for China to let go of the last vestiges of its centrally planned past?

Lou’s response: “Good question.”

China, he went on, is in fact moving away from its once single-minded emphasis on growth targeting. The government now stresses three macroeconomic goals – job creation, price stability, and GDP growth. And, as evidenced by the annual “work report” that the premier recently submitted to China’s National People’s Congress, the current emphasis is in that order, with GDP growth at the bottom of the list…

This is particularly relevant in light of the important threshold that has now been reached by the structural transformation of the Chinese economy – the long-awaited shift to a services-led growth dynamic. Services, which now account for the largest share of the economy, require close to 30% more jobs per unit of output than the manufacturing and construction sectors combined. In an increasingly services-led, labor-intensive economy, China’s economic managers can afford to be more relaxed about a GDP slowdown…

RTFA. Few economists have the experience, personal knowledge of Stephen Roach on China. I mentioned in a recent post about the fight against corruption that economics and commerce fit more into my personal interests. You may find the topics dull as a hoe handle; but, if you haven’t curiosity about what’s going on in the whole world and how events will affect your own life – you may as well settle back and let some priest or pundit run your life.

Here’s where Doctor Roach ends up on this particular occasion. For more, read his latest book, Unbalanced: The Codependency of America and China.

Since Deng Xiaoping’s reforms of the early 1980’s, less and less attention has been paid to the numerical targets of central planning…China’s most senior fiscal and monetary policymakers – Lou Jiwei and Zhou Xiaochuan – are close to taking the final step in the long journey to a market-based economy. Their shared interpretation of flexible growth targeting puts them basically in the same camp as policymakers in most of the developed world. The plan is now a goal-setting exercise. From now on, fluctuations in the Chinese economy, and the policy responses that those fluctuations imply, need to be considered in that vein.

Looks like China’s assault on corruption ain’t limited to second tier bureaucrats

Chinese authorities have seized assets worth at least $14.5 billion from family members and associates of retired domestic security chief Zhou Yongkang, who is at the centre of China’s biggest corruption scandal in more than six decades…

More than 300 of Zhou’s relatives, political allies, proteges and staff have also been taken into custody or questioned in the past four months…

Prosecutors and the party’s anti-corruption watchdog had frozen bank accounts with deposits totalling 37bn yuan and seized domestic and overseas bonds with a combined value of 51bn yuan after raiding homes in Beijing, Shanghai and five provinces.

Investigators had also confiscated about 300 apartments and villas, antiques and contemporary paintings and more than 60 vehicles, the sources added. Other items seized included expensive liquor, gold, silver and cash in local and foreign currencies.

According to the sources, the seized assets had a combined value of at least 90bn yuan = $14.5 billion.

The sheer size of the asset seizures and the scale of the investigations into the people around Zhou – both unreported until now – make the corruption probe unprecedented in modern China and would appear to show that President Xi Jinping is tackling graft at the highest levels

The government has yet to make any official statement about Zhou or the case against him and it has not been possible to contact Zhou, his family, associates or staff for comment…

Nice to see the fight against corruption making progress. Frankly, my interests in China proper are more concerned with economics and commerce. But, both of those qualities are affected by corruption. Just as corruption is affected by whether or not crooks are actually prosecuted.

Good thing we don’t have to worry about that here in the GOUSA.

Oh.

A report on the all-round reform from the 3rd Plenum

The King of Bahrain Hamad bin Isa Al Khalifa Visits China
The cranes are flying

I finally tracked down a release of documents detailing the sixty points of reform from the 3rd Plenum just concluded in China. Aside from wanting to read through it and form my own opinions – I’d like to make it available for any of my readers.

What I am posting here is linked to an 8-page summary from the online edition of the China Daily. I’ll put up a couple of categories just to note the breadth of the document. I’m confident what I’m looking for is online already – Here is a brief note from China’s president Xi Jinping, as well. Google hasn’t been much of a help, frankly.

Much has come from the third plenum regarding the management of State-owned assets, particularly State-owned enterprises. The reforms are not going to wipe SOEs out of existence, however.

The communique said China’s basic economic system is one that depends on public ownership as its main body but allows for the prosperity of various ownerships. Both public and nonpublic ownerships are important components, it said…

China must accelerate construction of a new agricultural management system and give farmers more proprietary rights, to realize the equal exchange of production factors, achieve a fair allocation of public resources between urban and rural areas, and promote healthy urbanization, the communique said…

This milestone will bring concrete benefits to farmers, lay a foundation for modern agriculture, and pressure local governments to end their reliance on land transfers for large profits…

Guo Jianguang, a professor at the Central University of Finance and Economics, said the market, rather than the government, is likely to play a more important role in deciding China’s exchange and interest rates. As an effective measure to control the macroeconomy, the exchange and interest rates have long been tightly regulated, he said…

The communique points out that to better adjust to the new realities of economic globalization, China must accelerate the pace of opening-up, both internally and in terms of the outside world. The country will lower the thresholds for investment, accelerate the construction of free trade zones, and boost opening-up in inland and coastal areas…

The communique said China will strive to make social welfare fairer and more sustainable. Reform of social affairs is vital to guarantee all citizens enjoy the fruits of China’s development, it said.

Guan Xinping, director of the department of social work and social policy at Nankai University, said China has almost met the goal of universal social welfare coverage for its urban and rural populations, but a great disparity still exists among different professions and regions…

Regardless of personal and political ideology, the proposed structural changes in China will affect the world economy. Primary source information is always useful. There will be no shortage of analysts and pundits.

Pic of the Day

xi-jinping-in-the-rain

China’s president was making an unannounced trip to visit a construction site. American journalists say this has provoked a furor of discussion in China over national leaders behaving like ordinary folk. I don’t doubt the discussion has happened. But, ascribing some new qualitative level to either the act or the discussion is hogwash.

Nothing new. Part of the “amazement” fits the ongoing Cold War attitude towards China and the Chinese nation. Part fits American xenophobia. Part reflects – unfortunately – how little coverage is ever found in the media of the United States about one of the largest economies in the world. One of our biggest trading partners.

I’m a news junkie. So, I see many news sources every day from around the world, around Asia, around Europe. They’re all accessible here in the States – either on the Web or on TV from DirecTV or channels on my AppleTV [again from the Web]. Most Americans have the same access – and don’t take the time to look and see much of the world around us.

As self-limiting as our pundits and politicians would ever wish us to be.

So, he rolled up his pants cuffs, grabbed an umbrella, and carried on with his walkabout at the job site. His wife probably gave him hell when he got home for looking so untidy.

China on the move – first steps

The debate is over. After six years of weighing the options, China is now firmly committed to implementing a new growth strategy. At least, that’s the verdict I gleaned from the just-completed annual China Development Forum, long China’s most important dialogue with the outside world.

There were no surprises in the basic thrust of the strategy – a structural shift in China’s investment- and export-led growth model toward a more balanced consumer-based and services-led economy. The transformation reflects both necessity and design.

It is necessary because persistently weak global growth is unlikely to provide the solid external demand for Chinese exports that it once did. But it is also essential, because China’s new leadership seems determined to come to grips with a vast array of internal imbalances that threaten the environment, promote destabilizing income inequality, and exacerbate regional disparities.

The strategic shift is also a deliberate effort by Chinese policymakers to avoid the dreaded “middle-income trap” – a mid-stage slowdown that has ensnared most emerging economies when per capita income nears the $17,000 threshold (in constant international prices). Developing economies that maintain their old growth models for too long fall into it, and China probably will hit the threshold in 3-5 years…

Continue reading

China in transition – 5 Easy Pieces from Project Syndicate

There are dozens of pieces in this collection linking the latest with the recent, butting the detailed up against broad data sources, contrasting old hands with new analysis from within and outside China. Some of my favorite writers from Project Syndicate. Some I haven’t read before. I’ve picked out five – to start.


Xi Jinping talks with local people in the home of Roger and Sarah Lande in Muscatine, Iowa

President Xi’s Singapore Lessons

China is at a crucial point today, as it was in 1978, when the market reforms launched by Deng Xiaoping opened its economy to the world – and as it was again in the early 1990’s, when Deng’s famous “southern tour” reaffirmed the country’s development path.

Throughout this time, examples and lessons from other countries have been important. Deng was reportedly substantially influenced by an early visit to Singapore, where accelerated growth and prosperity had come decades earlier. Understanding other developing countries’ successes and shortcomings has been – and remains – an important part of China’s approach to formulating its growth strategy…

China’s House Divided

There has been much talk about America’s decline in recent years, with the corollary that China will take its place. But, while the United States does indeed face problems that urgently need to be addressed, if China is to rise further, to say nothing of supplanting the US internationally, it must first put its own house in order.

Those who argue that America is in decline have a difficult case to make in economic terms. For all its recent woes (which many countries would gladly exchange for their own), the US remains a dynamo of industry and innovation, and may be emerging as an energy powerhouse as well.

What threatens America’s global leadership is, rather, some of the most divided and disruptive domestic politics in its history. A country whose people have traditionally prided themselves on practicality is experiencing a debilitating bout of excessive theorizing, ideology, and so-called “new ideas,” thereby forestalling the practical ideas that come from constructive interaction with one’s political opponents…

A New Agenda for China’s New Leaders?

Political leadership transitions typically signal either a change in direction or continuity. But the mere prospect of such a transition usually postpones some important political decisions and freezes some economic activity, pending the resolution of the accompanying uncertainty.

China’s decennial leadership transition, culminating at the Chinese Communist Party’s 18th Congress, is a case in point. And, while many will remember when a Chinese leadership transition was a political and cultural curiosity that had few direct economic implications for the world’s major powers, those days are long gone.

The Renminbi Challenge

Last month, China unveiled its first aircraft carrier, and is gearing up to challenge the United States in the South China Sea. By initiating a plan to internationalize its currency, China is similarly seeking to challenge the dollar on the international stage.

In carving out a global role for the renminbi, Chinese policymakers are proceeding deliberately. In the words of the venerable Chinese proverb, they are “feeling for the stones while crossing the river…”

China is Okay

Concern is growing that China’s economy could be headed for a hard landing. The Chinese stock market has fallen 20% over the past year, to levels last seen in 2009. Continued softness in recent data – from purchasing managers’ sentiment and industrial output to retail sales and exports – has heightened the anxiety. Long the global economy’s most powerful engine, China, many now fear, is running out of fuel.

These worries are overblown. Yes, China’s economy has slowed. But the slowdown has been contained, and will likely remain so for the foreseeable future. The case for a soft landing remains solid…

The voices in our press that speak for official wings of American politics are still locked into Cold War ideology. I doubt the difference is more than one of degree between the NY TIMES and FOX NEWS. Without this commitment, the single largest wasteheap of taxpayer dollars – the Pentagon Budget, public and hidden – cannot be justified. The built-in subsidy to America’s war machine is impossible to pass in a nation at peace, working for peace, a nation that considers peace a critical goal.

A sound deficit-free economy is still held hostage to the military-industrial complex Eisenhower feared – and every president since has worked to increase, fatten and fawn over.

Snapshot of a decade in China


Click to reach interactive infographic

Interesting stuff. If you know your history, China and India shared pretty much the same sort of economic power and social situation internally at the time of China’s revolution – 1949. Their economies have diverged.

One of the most significant parallels, the shared experience of corruption – if you’re a Westerner doing business in either country – is slowly beginning to turn. The international rating system for corruption now place China just above India – and we will learn over the next few years whether or not the call to clean that nation of corrupt officials and business people actually becomes a standard.

Still, the infographic says a lot about rising from the Dark Ages to, say, mid-20th Century levels in 60 years is impressive.