The New Economy Saturday: Maybe China Won’t Beat the U.S. After All
True, the Chinese economy is also humming along, but Xi and his advisers are spending more of their time grappling with its enduring vulnerabilities. Mounting debt constrains their options. More fundamentally, the Chinese state is at odds with its leading entrepreneurs. It’s becoming clear that the regulatory assault on Jack Ma’s digital empire, now spreading across China’s tech landscape, is much more than just anti-monopoly: Data is power, and the Party-state doesn’t trust private business to control it. For Xi, however, these dilemmas are dwarfed by a challenge over which he has almost no control: demographics. This week brought startling claims that China’s population may have started to shrink. That’s huge news if true. But even if it’s not, the trend is clear: China’s hardline birth control measures have disastrously backfired. If the Chinese population hasn’t peaked, it’s likely to do so soon, acting as a long-term drag on investment and growth. Indeed, the tables may be turning on the conventional wisdom regarding the next few decades. At some point in ten or 20 years, James Liang, an economist at Peking University, told the Economist, America “will retake leadership and China will never catch up.” Biden seems sure about the outcome of U.S.-China competition, too. “Autocrats will not win the future,” the Democrat went on to tell Congress on Wednesday. “We will.” That’s by no means a given, of course. A growing danger is that coronavirus mutations may circumvent the current crop of vaccines. Inflation could take off, reversing the U.S. recovery. And it’s always possible that factions within the Democratic Party could splinter over Biden’s multitrillion-dollar spending plans.
For China’s Small Businesses, Life Is Still Far From Normal
Smaller businesses are proving to be a weak link in China’s economic recovery as they struggle to fully bounce back from the effects of Covid-19. Like the U.S., China has tens of millions of small and medium-size private businesses, including restaurants and shops, which form the backbone of everyday economic activity. They account for as much as 80% of urban jobs and at least half of China’s tax revenue.
Here’s why the global reflation trade can survive China’s credit slowdown
Could a tightening of China’s lending spigots put an end to the global reflation trade in global stock markets this year as the world economy recovers from the coronavirus pandemic? Though previous slowdowns in Chinese lending have sparked market volatility, some argue this time will be different as the U.S.’s fiscal largesse may be replacing China as the engine of global growth for the first time in two decades. The International Monetary Fund predicted as much in its latest forecasts, estimating the U.S. economy to expand 6.4% in 2021. In the past few months, investors have fretted that China’s efforts to iron out excesses and stabilize its financial system could hamstring the world recovery. The “credit impulse”, which tracks lending growth as a share of GDP, has fallen below zero in recent months, after Beijing officials looked to curb lending to prevent any destabilizing excesses that might overheat China’s economy. “You’re seeing a lot of interesting soundbites among policymakers in China,” said Michael Arno, associate portfolio manager at Brandywine Global. “There’s continued discussions around property market leverage. These are all signs that this is very coordinated in my view.” Growth of outstanding total social financing (TSF), a broad measure of credit in the economy, slowed to 12.3% in March from 13.3% in February. Arno says the credit impulse has historically tracked prices for iron ore and copper, and gauges of global manufacturing activity. However, recent supply shortages and electric car adoption have helped offset falling loan growth. But the fiscal stimulus programs deployed by Western policymakers, led by the U.S., could be offsetting the impact of China’s credit pullback. “China’s credit impulse started backing off earlier in 2020, and the rest of the big economies have now joined. This would normally be a worrying sign, but we don’t think it is now,” said Tamara Basic Vasiljev, a senior economist at Oxford Economics.
Systemic Differences between Europe and China: China’s Five Year Plan 
This second article on China’s Five-Year Plan (FYP) follows the first one generally explaining the concept FYP. In this article I will first highlight the general dynamics that can be aroused by centrally set goals such as the FYP and other. I will then focus on the Olympic games of 2008 as a case of how centrally set goals are put into practice, the power and strength they can generate, and the consequences that can have nationally and internationally. In later articles I will give other examples.
End of the ‘American Century’?
No amount of infrastructure spending will be sufficient to compete with China. The “American Century” will end as Chinese hegemony becomes established.
The Two Sides of Chinese GDP
Many economists care more about China’s per capita GDP, or income per person, than the aggregate measure. The key takeaway is that China remains a poor country, despite its phenomenal headline economic growth over the past four decades
5 things Western investors misunderstand about China
Every investor needs to better understand the fundamentals of China’s economic growth, including its impact on the U.S. economy. This is increasingly important as political tensions between China and the West are rising along with China’s importance to the global economy. In this article, I will outline the five most important and most misunderstood aspects of China’s economic rise. My perspective is based on almost four decades of experience, first as an American diplomat and then as a financial sector analyst, including more than 20 years based in China. In the 10 years through 2019, China, on average, accounted for about one-third of global economic growth, according to data from the International Monetary fund—larger than the combined share of global growth from the U.S., Europe and Japan. In 2020, China most likely accounted for almost all of the world’s economic growth, as was the case during the global financial crisis. But that will likely return to “only” a one-third contribution this year. China is in the midst of a rebalancing away from an economy dependent on manufacturing to an economy which, like developed economies, is driven by services and consumption. Last year was the ninth consecutive year in which the services and consumption (tertiary) part of China’s GDP was larger than the manufacturing and construction (secondary) part, as rebalancing continued despite the pandemic. Consumption does not yet play as large a role in China’s economy as in most developed countries (consumption is about 56% of China’s GDP, compared to an OECD average of 73%, according to World Bank data). But this transformation towards a domestic demand-driven economy is well under way and will continue. China’s dynamic services sector provides investors with opportunities similar to those in the U.S. market. When I first worked in China, in 1984, there were no private companies—everyone worked for the state. You couldn’t even find a privately run restaurant. Today, almost 90% of urban employment is in small, privately owned, entrepreneurial firms, according to data from China’s National Bureau of Statistics (NBS). With the state sector continuing to shrink, all of the net, new job creation today comes from private companies. The extent of private ownership in China may surprise many investors. A recent study published in the U.S. by the National Bureau of Economic Research found that in 2019, individuals owned 69% of registered capital of all Chinese companies, up from a 52% share in 2000. In 2020, retail spending in China, converted to dollars, was equal to 88% of retail sales in the U.S., up from 52% a decade earlier, based on data from NBS and the U.S. Census Bureau. Between 2009 and 2019, the real compound annual growth rate of consumption in China was 8.5%, compared to 1.9% in the U.S. This strong consumer spending in China has been fueled by dramatic income growth. Over the 10 years through 2019, inflation-adjusted income rose at an average annual pace of 7.9% in China, compared to 1.9% in the U.S. and 0.7% in the UK. A study by economists at the St. Louis Fed found that although those imports do cause short-term pressure, “manufacturing industries across U.S. states are better off in the long run,” and “the U.S. economy is better off, as it benefits from access to cheaper goods from China.” And engagement with China has helped keep prices lower for American families, especially low-income householsd, who spend more on tradable goods. (Higher-income consumers spend relatively more on services.)A recent study by Fed economists concluded that “U.S. consumer prices fell substantially due to increased trade with China,” and that “these price effects are particularly large in product categories selling to low-income consumers.” This has been critical while so many Americans are working and studying at home, as more than 90% of laptop imports have come from China. (More details on the benefits of U.S. engagement with China are discussed in a recent issue of Sinology, my newsletter for investors.) Risks: Investing in China is not, of course, without risks. In another recent issue of Sinology, I discuss China’s aging population, rising debt levels, shadow banking, and the residential property market.
It is, however, important to understand these risks, and to put them into context. These challenges are significant, but are being addressed by regulators. They are, in my view, unlikely to disrupt the longer-term growth story that makes China an important factor for every investor to consider.
China’s Central Bank Works with Ant, Tencent to Develop Digital Currency
China’s central bank has signed a strategic cooperation agreement with Ant Group, the fintech affiliate of Alibaba Group, to help build a technical platform for its sovereign digital currency, state media reported.
China digital yuan: could backing bitcoin as an investment help promote its sovereign digital currency?
Chinese officials have endorsed the use of cryptocurrencies as investments but not as mediums of exchange, due to fear of stoking financial instability However, financial authorities appear eager to use cryptocurrency research and blockchain technology for development of the sovereign digital yuan In every category, China’s digital yuan development is leading the US The country is already drawing developers building on blockchain because it offers more freedom than the US, which is at risk of overregulation and becoming less competitive in fintech innovation, Keh said. In addition to its world-leading bitcoin mining operations, Chinese-funded Polkadot is the world’s largest blockchain development platform, while the largest cryptocurrency exchange, Binance, founded by Chinese-Candaian Changpeng Zhao, and was based in China before relocating to the Cayman Islands. “In every category, China’s digital yuan development is leading the US,” Guo said. “China has been working on its digital yuan protocol for some time now, while very little is known about what the US intends to do regarding a digital dollar.”
China’s digital yuan is a transaction helper, not a Trojan horse
Beijing puts itself at the forefront of new currency development The notion that the PBOC needs to make the effort to transition to the digital yuan, just to gain a bit of scrutiny over those third-party transactions, which represent less than 3% of total transactions, and are already visible to the PBOC, is, well, entertaining, but at the expense of those who entertain such a notion. Furthermore, the establishment of the NUCC, and the implementation of a 100% reserve requirement for the transaction funds held by third-party payment providers, has provided a regulatory safeguard against liquidity risk due to illegal investment using these funds, or even money laundering. The Chicken Little crowd, frightened of CBDCs and enamored of crypto, will do well to come back into the sunshine. CBDCs are an intuitive, rational evolution of the information age, while those crypto potatoes that speculators are eagerly passing around, each speculator hoping not to be the last recipient, are already hot and will become much more so. Asbestos gloves are advised.
Clear skies over Asia’s new foreign investment landscape
Compounding the fallout of the US–China trade war, the global pandemic and recession have caused considerable speculation on the future of foreign investment and global value chains (GVCs). But though there is likely to be some permanent change, it will probably not be as great as politicians expect. The United States is alarmed at China’s technological advance. It has instituted a range of restrictions on sales of high-tech products to China and Chinese investment in the United States, and is heavily taxing imports from China. These measures were introduced by the Trump administration and are under review by the Biden administration — but most of them will likely remain in place, reflecting a bipartisan distrust of China.
Why has TSMC’s Nanjing expansion plan stirred up a hornets’ nest in Beijing and Taipei?
TSMC says expansion will help it address chip shortage, particularly for automotive sector One analyst says move could stifle domestic chip development on the mainland
US says China has fallen short on ‘phase one’ intellectual property commitments
Office of the US Trade Representative says legal revisions Beijing has made do not produce ‘the full range of fundamental changes needed’ Agency holds off designating China a ‘priority foreign country’, which would trigger an inquiry that could lead to retaliatory tariffs
China’s carbon neutral goal: Cainiao, JD.com and online retailers say all that mountain of plastics and packaging have to go
As many as 67.1 billion packages were dispatched in 2020 in China’s online shopping industry, about 80 per cent of all parcels delivered around the country, according to an estimate by the State Post Bureau That number could balloon to 127.5 billion by 2025, leaving a carbon footprint equivalent to 116 million tons, or 1.1 per cent of China’s total emissions of greenhouse gases that year
China’s regulator names 33 apps including Baidu, Sogou, iFlytek, Tencent for unauthorised data collection
Thirty three apps from Tencent, Baidu, Sougou and more are among the latest to receive scrutiny over user data App makers will have to comply with new privacy regulations banning collection of data and forcing user
Live-streamers flock to eastern China’s e-commerce hub in search of fame and fortune, hawking wares online
Yiwu’s Beixiazhu aims to become China’s live-streaming e-commerce capital, as people flood in looking for new opportunities in the burgeoning industry The city is offering incentives to live-streamers amid a slump in exports caused by the Covid-19 pandemic
The Political Economy of Shenzhen’s Development: Immediate Implications for Hong Kong and Macau
Recent political and economic developments in Shenzhen have shown that the southern Chinese city is well positioned and prepared to be a powerful economic locomotive driving the entire economic growth of the Greater Bay Area (GBA) in the coming five years, having immediate implications for the repositioning and strategic planning of the Hong Kong and Macau Special Administrative Region
Ping An Insurance stock slammed after US$11 billion plan to reorganise assets of bankrupt Peking University Founder group
Ping An and Huafa Group to take up 73 per cent in new entity that will assume Founder’s assets, while 27 per cent is set aside to repay creditorsA separate filing in Beijing shows the restructuring could reach between 53.7 billion yuan and 73.3 billion yuan
Why China’s Economic Recovery Is Outpacing the U.S.
Andrew Browne discusses how the economic recovery in China is outpacing the U.S. as the world battles back from the pandemic. Browne says that even though China was the epicenter of the Covid-19 outbreak, the country’s lock down aided in their recovery success. He speaks with Bloomberg’s Matt Miller on “Bloomberg Markets.”
China’s coal investments in Indonesia at odds with its climate ambition
Chinese investments in low-end coal power plants are inconsistent with Indonesian interests, and China’s ambition to curb carbon emissions The Chinese export of its development model of ‘pollute first, clean up later’ is a detrimental practice that nations need to learn to say no to
Law strengthening power of China’s maritime authorities may escalate tensions in Indo-Pacific region
China has conflicting territorial claims with four of the 10 members of the Association of Southeast Asian Nations — Brunei, Malaysia, the Philippines and Vietnam — as well as Taiwan in the South China Sea and Japan in the East China Sea.
China-Japan relations: can Beijing stop other countries getting dragged into their island dispute?
Tokyo this week accused China of breaching international law with its activities around the Diaoyu, or Senkaku, Islands One observer said Beijing needed to handle the issue with care as Japan was seeking support from its allies
China’s 2nd aircraft carrier group holds 1st drill in 2021 in S.China Sea, ‘training for combatpreparedness’
An aircraft carrier group led by China’s second aircraft carrier, the Shandong, is conducting a series of exercises in the South China Sea in its first known voyage of the year, almost immediately after the country’s first carrier, the Liaoning, left the region, and Chinese analysts said on Sunday that the move highlighted the fact that the two aircraft carriers that China currently operates are actively training for combat preparedness.
Australian review of port deal may anger China
Australia will review the 99-year-lease of a commercial and military port in its north to a Chinese firm, the Sydney Morning Herald reported late on Sunday, a move that could further inflame tensions between Beijing and Canberra. Defence officials are checking if Landbridge Group, owned by Chinese billionaire Ye Cheng, should be forced to give up its ownership of the port in Darwin, the capital of the Northern Territory, on national security grounds, the newspaper said.
How China came to dominate the South China Sea
As China contests islands from Japan to Malaysia, it has deployed its ‘maritime militia’ across the South China Sea.
China acting ‘more aggressively abroad,’ Blinken says
The U.S. is not aiming to “contain China” but to “uphold this rules-based order — that China is posing a challenge to,” Blinken said.
China’s Xinjiang policies ‘poorly explained and ruthlessly executed’
Chinese experts say the country’s leaders share some of the blame for the war of words with the West over treatment of Uygur minorities Western accusations of genocide and forced labour based on ‘guesswork and unverified testimonies’ in the absence of first-hand information
China’s global plan to vaccinate its citizens faces production problems
About 200,000 Chinese nationals overseas had been vaccinated under the Spring Seedling Action programme as of last month But country does not have enough production capacity to satisfy both domestic and international demand, academic says
China has given 270.41 million doses of covid-19 vaccines as of May 1
China has administered 270.41 million doses of COVID-19 vaccines in the country as of Saturday, the National Health Commission said on Sunday. That compares with 265.06 million doses given as of Friday, up 5.34 million doses. China’s vaccination pace has quickened recently. However, because of its large population, China still lags behind the United States in terms of the proportion of the administered population per 100 people.
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