Posts Tagged ‘China’s economy’

China’s reported GDP growth overstates the real increase in wealth by failing to account for bad debt

November 22, 2017

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Michael Pettis
FT (Financial Times)

China’s 19th Communist party congress ended last month with an indication that Xi Jinping’s new administration plans to rein in debt by abandoning the country’s long-term economic targets and allowing gross domestic product growth to fall.

Typically, analysts assume that changes in reported GDP reflect movements in living standards and productive capacity. In China, however, this is not the case. Local governments are expected to boost spending by whatever amount is needed to meet the country’s targets, whether or not it is productive.

GDP growth is not the same as economic growth. Consider two factories that cost the same to build and operate. If the first factory produces useful goods, and the second produces unwanted ones that pile up as inventory, only the first boosts the underlying economy. Both factories, however, will increase GDP in exactly the same way.

Most economies, however, have two mechanisms that force GDP data to conform to underlying economic performance. First, hard budget constraints, which set spending limits, drive companies that systematically waste investment out of business before they can substantially distort the economy.

Second, there is a market-pricing factor in GDP accounting that when bad debts caused by wasted investment are written down, the value-added component of GDP and the overall level of reported growth are reduced.

In China, however, neither mechanism works. Bad debt is not written down and the government is not subject to hard budget constraints. It is the government sector that is mainly responsible for the investment misallocation that characterises so much recent Chinese growth.

The implications are obvious, even if most economists have been surprisingly reluctant to acknowledge them. Anyone who believes there has been a significant amount of wasted investment in China must accept that reported GDP growth overstates the real increase in wealth by the failure to recognise the associated bad debt. Were it correctly written down, by some estimates GDP growth would fall below 3 per cent.

Historical precedents suggest the potential magnitude of this overstatement. Japan’s economy in the 1980s, for example, had distortions that resemble those of China today. Although not nearly as extreme, Japan too suffered from a very low consumption share of GDP and an overreliance on investment that, by the 1980s, had veered into substantial misallocation.

In the early 1990s, Japan’s reported GDP comprised 17 per cent of the overall global total, and few doubted that its soaring economy would become the world’s largest by the end of the century. Instead, once credit growth stabilised, Japan’s share of global GDP began to plummet, and has since fallen by nearly 60 per cent.

The same happened to the former USSR. It grew so quickly after the second world war that by the late-1960s it comprised 14 per cent of global GDP, similar to China today, and was widely expected to overtake the US. But two decades later, its share of global GDP had fallen by more than 70 per cent.

These cases may appear shocking, but, like China today, 1980s Japan and 1960s Russia lacked the mechanisms to account for wasted investment in reported GDP. At their peaks, growth for each country was seriously overstated by the failure to write down the waste, and understated once debt levels stabilised.

The implications are clear. China’s growth miracle has already run out of steam. It is only by allowing debt to surge that the country is able to meet its GDP targets. This may be why President Xi has been eager to stress more meaningful goals, such as increasing household income. Whatever the reason, analysts should not read GDP growth as an indicator of China’s underlying economic performance. Piling up unsold and unsaleable goods or building empty airports may boost GDP in an economy whose financial system does not recognise bad debt, but it does not measure its performance.

The writer is a professor at Peking University and an associate at the Carnegie Endowment


U.S. Throws Out Playbook on China Trade

November 21, 2017

Cheered on at home, Robert Lighthizer readies a sledge hammer of punitive measures

SHANGHAI—Bill Clinton called it a “hundred-to-nothing deal for America.”

U.S. advocates of China’s entry to the World Trade Organization in 2001 saw no downside—“Zero. Zip. Nothing. Nada,” exclaimed the Business Coalition for U.S.-China Trade. After all, China would have to tear down its barriers to trade, while American markets were already wide open.

In a 2010 testimony to Congress, Robert Lighthizer, then a trade lawyer, outlined the loss of U.S. jobs, factories and intellectual property that ensued, along with exploding trade deficits, concluding that the optimists had been “simply wrong” and advocating “a significantly more aggressive approach.” Now, as the Trump administration’s chief trade negotiator, he is readying a barrage of punitive measures. Much of the U.S. political establishment, including both Republicans and Democrats, are cheering him on.

Will Mr. Lighthizer spark a trade war with China and blow up the WTO in the process?

This month’s U.S.-China summit saw the first signs of his strategy at work, with a departure from the old negotiations-based playbook.

The first effort to rebalance trade—a 100-day review that took place after an inaugural summit between Donald Trump and Xi Jinping in Mar-a-Lago in April—was overseen on the U.S. side by Commerce Secretary Wilbur Ross. Its results were underwhelming. The second try, at an annual economic dialogue in July, was a total bust.

Now, say White House aides, Mr. Lighthizer is leading the charge against Chinese mercantilism; he has formally launched an inquiry into Chinese intellectual-property abuses. At the Beijing summit, these aides say, he shocked the Chinese hosts by declining their proffered trade concessions including a financial-opening package that Beijing announced after Mr. Trump left the Chinese capital. His message: Half-measures won’t work for a White House seeking fundamental change.

Meanwhile, almost identical bills introduced in the U.S. House and Senate would limit foreign investment in U.S. technology companies and infrastructure on national-security grounds. The main target is clear: China. There’s a good chance that some version of this legislation will pass with bipartisan support, marking the start of hostilities.

Mr. Lighthizer apparently doesn’t fear a showdown, judging by his 2010 congressional testimony on China’s first decade in the WTO , which offers the best insight into his thinking on trade with China.

Although he didn’t advocate the U.S. pulling out of the WTO—“that body is too important to us and the global trading system”—he mocked those who regard compliance with WTO rules as having “almost religious or moral significance.” And he played down fears of Chinese retribution against non-WTO-compliant actions like import tariffs and quotas, arguing that when bilateral trade is so massively out of kilter (in 2010, the annual U.S. deficit with China was $230 billion; today it’s $350 billion) the benefits to the U.S. of such aggressive moves would outweigh any possible risks.

Many believe that Mr. Trump will hesitate to pull the trigger given his need to enlist China’s help on North Korea. Mr. Lighthizer had an answer to that, too, arguing that “there will always be some type of crisis where we could use China’s assistance.”

Besides, he added: “Our trade deficit with China is itself a major crisis.”

A trade war, while costly for both sides, would be more damaging to China.

That doesn’t mean hostilities are inevitable. Republican free-traders will resist import tariffs. The U.S. financial community, dazzled by Chinese wealth, will argue for a softer line. American corporate chiefs whose companies rely on Chinese markets for growth will be too scared of punishment by Beijing to join a White House crusade.

Still, China shouldn’t count on the support of these constituencies to head off conflict.

U.S.-China relations have reached a turning point. A broad U.S. coalition in favor of “comprehensive engagement” with China—the mantra of the Clinton presidency—has crumbled as China’s WTO membership, far from encouraging greater economic and political liberalization in China as many hoped, does the opposite. A Hillary Clinton administration would have been under similar pressure to get tough.

Almost nobody in the U.S. now argues that America should assist China’s rise on the expectation it will emerge as a democratic free-market partner, a view that won the day in debates over whether to grant China permanent normal trade relations that allowed the country to join the WTO.

Some argue that Chinese state capitalism can’t be constrained by WTO dispute settlement rules, which were drawn up to mediate between free-market economies. As Clyde Prestowitz, a senior trade official in the Reagan administration puts it: “China is playing football while we’re playing tennis.” He calls for tit-for-tat retaliation.

If there is a complaint against Mr. Lighthizer in the U.S. mainstream it isn’t that he is too hawkish but rather that he is moving too slowly; his critics are impatient for action to begin.

Write to Andrew Browne at

Fear American Complacency, Not China

November 21, 2017

Today just 8% of U.S. businesses are startups, down from about 12.5% in 1980.

The last time I visited China, I had tea with Deng Xiaoping. It was 1978, and the Chinese leader outlined for me a plan to modernize his country by unleashing its enormous entrepreneurial energies. At the time, I thought his approach seemed pie-in-the-sky.

But today, having just returned from my first visit to China in 40 years, I’m a believer. Back when I met Deng, the number of private automobiles in all of China could be counted in the thousands. Today there are about 200 million. Since 1978, China’s economy has grown more…

U.S. Rebuffs China’s Charm Offensive, Edging Closer to Trade War

November 20, 2017

U.S. looks at sanctions with the goal of fundamentally challenging Chinese trade practices

The U.S. and China are vying for influence in Asia, but tensions between the U.S. and North Korea, as well as President Donald Trump’s focus on prioritizing American interests, have complicated Washington’s agenda. Photo: AP

A month before President Donald Trump’s visit to Beijing, Chinese officials presented an offer they thought Washington couldn’t refuse.

China proposed that during the trip, Mr. Trump and his counterpart, Xi Jinping, unveil a plan to widen foreign firms’ access to China’s vast financial industry, according to people with knowledge of the matter. It was a move previous U.S. administrations had sought for years.

To Beijing’s consternation, according to the people, Washington wasn’t interested. The offer was made a second time during one of Mr. Trump’s meetings at the Great Hall of the People. Hours after Air Force One took off from Beijing, China announced the opening on its own.

The cold shoulder from the White House reflects a fundamental shift in how the U.S. manages its relationship with China, one that suggests a bold gamble and a rocky road ahead despite the bonhomie of the presidential summit earlier this month in Beijing.

The financial opening initially attracted wide attention from market participants, and Beijing called it evidence of its commitment to market liberalization. U.S. reaction has been tepid. A White House spokeswoman on Friday called it “welcome but long overdue” and said: “It is also only one of a plethora of problems China needs to address in order to provide fair and reciprocal access to its market.”

The Trump administration, which recently completed a comprehensive review of China policy, is rejecting the longstanding practice of eking out concessions from Beijing on trade and market access around high-level meetings.

To Mr. Trump and his aides, that approach has yielded few substantive benefits but allowed China to continue policies that put American businesses at a disadvantage. One White House official refers to that pattern as Beijing’s “rope-a-dope” strategy. The administration is now investigating trade sanctions or enforcement actions against China with the goal of fundamentally challenging Chinese trade practices.

The White House is also trying to invest in the personal relationship between Mr. Trump and Mr. Xi to absorb some of the shock of the coming trade measures.

That helps explain Mr. Trump’s unorthodox blend of tough talk on trade and effusive praise for Mr. Xi in Beijing. In China and around the globe, the White House is aiming to make an asset out of Mr. Trump’s unpredictability, which has been criticized by foreign-policy experts as a destabilizing influence on international negotiations over trade and national security.


A Chinese Conglomerate’s Fall From Favor
China to Give Foreigners Greater Access to Its Financial Sector (Nov. 10)
In China, Trump Employs Tough Talk, Flattery With Xi (Nov. 9)
Decoding Trump’s China Trade Strategy (Nov. 5)
Where Donald Trump’s Unpredictability Could Hurt Him (Oct. 23)
“The U.S. now believes that only the threat of unilateral action will compel China to change,” says Scott Kennedy, a deputy director at the Center for Strategic and International Studies, a Washington think tank.

The new China strategy carries considerable risk. Some policy experts fear it could set off a trade war. Others, especially advocates of harsh sanctions, worry Mr. Trump might not follow through if Beijing steps up its charm offensive with further attempts to flatter him or if his agenda becomes monopolized by domestic issues, especially the tax overhaul proposed by the Republicans in Congress.

Still, in Beijing, the prospect of a much tougher U.S. stance is starting to sink in. China had hoped to show it is doing its part to improve the relationship by granting Mr. Trump a “state-visit-plus”—including a private dinner with Mr. Xi in the Forbidden City—and opening the financial sector.

“China realizes that it can’t continue to drive away foreign capital,” says He Fan, a professor at Peking University HSBC School of Business. “It likely will take more measures to open up its economy.”

Beijing is likely to point to any opening measures, however symbolic, to argue against unilateral action by Washington.

Under the new financial opening, Beijing pledged to let foreign securities firms own majority stakes in their Chinese ventures and to scrap foreign ownership limits on Chinese banks. Officials indicated the security-industry changes would be limited, at least initially.

Western officials treat such pronouncements with skepticism, pointing to China’s poor follow-up record and saying hurdles have grown despite similar pledges in the past.

“This opening-up comes at a late stage in development,” said the European Chamber of Commerce in a statement. “It is now difficult for foreign firms to capitalize on these changes as domestic Chinese firms have stronger positions in their respective industry.”

Such views are shared by U.S. officials. “The overall approach now is not to negotiate over crumbs, not celebrate small deals that will have limited impact,” one official said.

While attending meetings by the International Monetary Fund and the World Bank in Washington in October, China’s Vice Finance minister Zhu Guangyao told U.S. officials about the new financial-opening plan, according to the people familiar with the discussions. The Chinese side had expected U.S. officials would welcome the proposal and agree to roll it out as a breakthrough during Mr. Trump’s visit to Beijing.

Instead, U.S. officials called it too little too late.

“We said, ‘No, we’re not going to take your gifts because you’re just trying to sucker us,’” said a U.S. official familiar with the discussions. “The idea with China is no negotiation because it will just make us beholden to them and reluctant to slam them on other stuff.”

The Trump administration trade team is weighing a half-dozen trade enforcement actions that are aimed directly, or indirectly, at China, with decisions expected by early next year.

The team is looking at invoking a Cold War-era law that was last used in the early 1980s to block steel and aluminum imports in the name of national security. It is also studying dusting off another law last used in 2002 to protect domestic producers claiming to have been damaged by a sudden surge of cheap imports; solar panels and washing machines are goods in focus.

The U.S. and China are vying for influence in Asia, but tensions between the U.S. and North Korea, as well as President Donald Trump’s focus on prioritizing American interests, have complicated Washington’s agenda. Photo: AP

Shortly before Mr. Trump’s trip to Beijing, his Commerce Department issued a lengthy study justifying the continuing branding of China as a “nonmarket economy,” a status that allows the U.S. to impose extra high duties on Chinese imports found to have been illegally subsidized or “dumped” below production costs. Commerce has since imposed duties of up to 162% on Chinese aluminum foil and 194% for hardwood plywood. China has filed a complaint over that designation to the World Trade Organization.

At the same time, Mr. Trump’s trade agency is building a broad case to charge China with “unfair trade practices” by improperly pressuring American companies to turn over valuable intellectual property as the price for entering the Chinese market.

Still, the question is when, or whether, the administration will actually take action on these fronts. So far, trade enforcement has taken a back seat to White House priorities such as winning passage of a tax cut and securing Chinese cooperation to curb North Korea’s nuclear program.

U.S. officials have struggled to find remedies that won’t trigger a wide backlash from industries that consume Chinese products or free-trade Republicans in Congress. Excessively harsh sanctions could also provoke a full-blown trade war, some policy experts say.

Although an open line to Mr. Xi could help in managing a trade crisis and allow for more meaningful deal-making, efforts to forge a personal rapport with previous Chinese leaders have rarely borne fruit.

“The development of personal relations is a fact, not a strategy,” the White House spokeswoman said. Messrs. Trump and Xi “seem to have established a good personal relationship, as the president has with many world leaders,” she added.

Already, some supporters of Mr. Trump’s promised China trade crackdown have grown frustrated at the limited results. The Alliance for American Manufacturing, a group formed by the United Steelworkers union and U.S. steelmakers, praised Mr. Trump in April when he launched his study on national-security steel tariffs, and his aides had promised action by June.

Now, they have launched a petition drive protesting the delays and demanding the administration follow through.

The deadline “is long past — and still no action,” the petition reads. “President Trump pledged to stand up for America’s working class—and it’s time for him to make good on his word.”

Asked Tuesday at The Wall Street Journal CEO Council about the delays, Commerce Secretary Wilbur Ross said: “Well, the president has indicated that he doesn’t want that to come out until after the tax legislation is dealt with.”

Write to Lingling Wei at, Jacob M. Schlesinger at, Jeremy Page at and Michael C. Bender at

Household wealth in China to reach US$39 trillion in 2022, says Credit Suisse

November 16, 2017

Number of millionaires might surge by 41pc to 2.7 million in the same period

By Karen Yeung
South China Morning Post

China had shifted from a stage of high-speed growth to high-quality growth

PUBLISHED : Wednesday, 15 November, 2017, 7:17pm
UPDATED : Wednesday, 15 November, 2017, 10:38pm

China’s household wealth is forecast to increase by about US$10 trillion to reach US$39 trillion in 2022, and it will be a major contributor of wealth growth globally in the next five years, according to Credit Suisse.

The number of millionaires in China might surge by 41 per cent to 2.7 million in the same period, becoming the country with the third-largest number of millionaires after the United States and Japan, Credit Suisse said in its Global Wealth Report, which was compiled from data on the wealth holdings of 4.8 billion adults across about 200 countries.

At the same time, the global economy is projected to add another 719 billionaires in the next five years, taking their tally to nearly 3,000, with close to 30 per cent coming from China, the Swiss financial service company said.

The surge in household wealth reflects gains in China’s asset prices, including its market capitalisation and house prices. Gains in global equity markets have also been matched by similar increases in non-financial assets, which moved above the pre-crisis year 2007’s level for the first time this year.

“A decade since the start of the global financial crisis, we see a significant increase in wealth across all regions of the world,” said Urs Rohner, chairman of the Credit Suisse Research Institute and chairman of the board of directors at Credit Suisse Group.

While aggregate wealth in Asia-Pacific increased to a record high of US$89 trillion in 2017, median wealth across the region grew by just 0.2 per cent, suggesting income inequality that is edging higher.

“In terms of GDP per capita, China is still poor and has a fair amount of catching up,” said Alan Oster, group chief economist at National Australia Bank.

Countries with lower levels of wealth inequality continue to have higher median wealth per adult, with Switzerland and Australia being the two highest in the world at US$229,000 and US$195,400, respectively, Japan seventh with US$123,700 and Singapore ninth with US$108,900. China is not among the top 10.

In general, millennials globally will experience greater wealth inequality than previous generations, and face challenges such as tighter mortgage rules, increasing house prices, increased income inequality and lower income mobility, Credit Suisse said.

Last month, President Xi Jinping said at the 19th party congress that China had shifted from a stage of high-speed growth to high-quality growth, and called for a narrowing of the gap between rich and poor, and for structural reforms and technological improvements to modernise the economy.

China clearly does not want to be cursed by the “middle income trap”, DBS Bank economists including Chris Leung and Nathan Chow wrote in a research note recently. Middle income trap

is a situation where a country attains a certain income and gets stuck at that level.

“The authorities know well that artificial wealth creation via inflation of the property bubble is a precarious route.”


China imposes new rules on policy banks to curb risks

November 16, 2017


© AFP/File | Debt-fuelled investment has underpinned Chinese economy’s rapid growth, but there are widespread concerns that years of freewheeling credit could lead to a financial crisis with global implications

BEIJING (AFP) – China has set new rules to curb risks at its policy banks, stepping up oversight of the country’s financial system as Beijing looks to address a ballooning debt crisis that threatens the world’s number two economy.

 Image result for China Development Bank,, photos

For the first time, the China Banking Regulatory Commission (CBRC) will impose specific rules designed in part to reduce financial risk at three banks tasked with funding Beijing’s pet projects and supporting Chinese companies abroad.

The rules, released on Wednesday, include setting up mechanisms to make sure they do not lend more cash than they can afford as well as corporate governance provisions.

The new rules come as Beijing copes with ballooning debt that some analysts say threatens the stability of the Chinese economy.

The three banks — China Development Bank, Export-Import Bank of China and the Agricultural Development Bank of China — had 25 trillion yuan ($3.8 trillion) in assets at the end of September, according to state news agency Xinhua.

That makes them roughly as large as the country’s biggest state-owned bank, the Industrial and Commercial Bank of China.

Image result for Industrial and Commercial Bank of China, photos

The special regulations will “strengthen risk control” and ensure the policy banks’ “safe and stable” operations, an unnamed CBRC spokesman said on the commission’s website, noting the lenders had consulted commercial banking regulations since their establishment in 1994.

The policy banks figure prominently in President Xi Jinping’s signature One Belt, One Road project that China says will invest $1 trillion in Asian and European countries to revive ancient trade routes with a massive network of rail and maritime links.

Some of the projects have faced headwinds and critics say the initiative is weighing down some countries with debt they will struggle to repay.

The policy banks had directed 1.42 trillion yuan of lending to One Belt, One Road projects as of September, according to Xinhua.

China’s leadership are struggling with a vast debt mountain that has seen Moody’s and Standard & Poor’s downgrade their sovereign ratings for the country.

Debt-fuelled investment has underpinned the economy’s rapid growth, but there are widespread concerns that years of freewheeling credit could lead to a financial crisis with global implications

China’s Indicators Point to Slowing Economy

November 14, 2017

With the Chinese leadership’s 2017 growth target secure, the economy showed signs of slowing in October after Beijing dialed back stimulus efforts and closed northern factories around a big Communist Party meeting.

The Wall Street Journal
November 14, 2017

BEIJING—With the Chinese leadership’s 2017 growth target secure, the economy showed signs of slowing in October after Beijing dialed back stimulus efforts and closed northern factories around a big Communist Party meeting.

Growth in factory output, fixed-asset investment and retail sales all slowed a tad in October, as Beijing imposed tighter pollution controls and continued restrictions on home purchases in the country’s big cities.

Industrial output, a rough proxy for economic growth, expanded by 6.2% in October compared with a 6.6% increase the month before, according to data released by the National Bureau of Statistics on Tuesday. The reading, though it met economists’ estimates, was the second slowest this year.

Economists say the slower output growth was a result of Beijing’s antipollution crackdown and a production halt in northern China as Chinese leaders gathered in the capital last month for a twice-a-decade party congress.

Related Coverage

  • China Wants to Talk Less About Growth Targets (Oct. 26)
  • China’s Booming Housing Market Proves Impossible to Tame (July 12)
  • China’s Growth Masks Unresolved Debt and Real-Estate Problems (July 17)

Fixed-asset investment climbed 7.3% in the January-October period from a year earlier, slowing from a 7.5% increase in the first nine months and hitting the slowest pace since December 1999. Slower property investment was the main factor dragging down total investment, economists say.

“The cooling real-estate market is the biggest downside risk for the Chinese economy next year,” said Liu Xuezhi, an economist with Bank of Communications .

China’s housing sales slowed further in October as the government’s property-buying controls continued to chill the market. Housing sales by value dropped 3.4% from a year earlier in October, compared with a 2.4% decrease in September.

Property investment expanded at 7.8% in the January-October period, though Mr. Liu expects it to be below total investment growth next year and expects slower home sales will mean demand for furniture, home appliances and construction materials will shrink accordingly.

China’s retail sales grew 10.0% in October from a year earlier, down from a 10.3% increase in September. The reading was the slowest in eight months and below market expectations.

“Both investment and fiscal spending have decreased, indicating that the government has pulled back some stimulus as the whole-year growth is on track to beat the 6.5% target,” said Zhou Hao, an economist with Commerzbank AG .

Helped by robust foreign demand and state investment, China posted robust 6.9% growth in the first three quarters of the year, well above expectations at the beginning of the year.

With the annual growth target of at least 6.5% well within reach, Beijing is likely to turn its focus back to reducing industrial overcapacity and excessive borrowing, economists say. Government spending saw a rare on-year decline in October while banks sharply scaled back lending last month.

“At the end of the day, China still intends to strike a balance between growth, debt and leveraging,” Mr. Zhou said, adding that the Chinese economy is expected to slow further in coming months.

—Grace Zhu and Lin Zhu

Opinion: Donald Trump’s policies have fed China’s rise as world power

November 12, 2017

By Miodrag Soric
Deutsche Welle

Donald Trump’s “America First” mantra won him the presidential election, but it may have cost the US its place as world superpower. China is hot on America’s heels economically and politically, writes DW’S Miodrag Soric.

US President Donald Trump shakes hands with Chinese President Xi Jinping (Reuters/D. Sagolj)

US President Donald Trump’s rants about China during his election campaign were loud and clear. He claimed that China had been “ripping off” the US for years and stealing its intellectual property. Trump also accused China of artificially devaluing its currency in order to flood the US market with cheap Chinese goods, thereby also putting American jobs at stake. Republican presidential candidate Trump promised a radical change of course. He vowed to impose import tarriffs as a means of pressuring China and putting American interests first.

President Trump has been in office for a year now. He has not implemented any of his grand schemes. In fact, he is doing the opposite of what he promised. While in China, the first stop on his current tour of Asia, he fawned over Chinese President Xi Jinping, who, in turn, silently endured Trump’s ingratiating behavior while flashing a smile now and then for the media.

What prompted Trump’s change of heart?

It seems the US president has woken up and smelled the coffee. China’s economy has been booming for decades. The country’s share of global exports has reached 14 percent and continues to rise, while the US has only hit the ten percent mark. Americans are living on credit and must rely on loans from China in the future. For years now, Beijing has been investing its export surplus in US bonds and has become the nation’s largest creditor, if you exclude the US Federal Reserve. If Beijing wanted to, it could turn off the money supply and plunge the US economy into a crisis.

Read more: Trump and Xi hail ‘$250 billion’ trade deals

Of course, the Chinese would do no such thing as they would only hurt themselves. Nonetheless, being in this position of power certainly boosts the Asian country’s ego. Any time the US and China sit at the negotiation table, China will have the upper hand over its debtor.  Apparently China’s ambassador to the US has an ego so inflated that it almost lifts him off the ground.

Nowadays, most economic experts agree that it is only a matter of time before China overtakes the US as the nation with the world’s strongest economy. Time is on President Xi’s side. Any threats made by the loud man in the White House just bounce off the Chinese leader.

With respect to North Korea, the Chinese president will let himself be put him under pressure. Beijing does not want a “regime change” in Pyongyang. Why should China help expand the American influence in East Asia? Xi also does not want war to break out in this region of the world since it would be bad for business. Beijing has warned the US to tone down its threats towards North Korea and to seek a diplomatic solution. The European Union and Russia have applauded these calls for restraint.

DW's Soric Miodrag


DW correspondent Soric Miodrag

TTP withdrawal a bad move

China’s rise to the top has been bolstered by Donald Trump’s many bad decisions, the key one being America’s withdrawal from the Trans-Pacific Partnership agreement (TPP). It was designed as a way to contain China’s pursuit of world supremacy. With the help of the US, countries like Vietnam or Japan wanted to set standards for production, trade, safety and environmental protection. China would have had to adapt to the requirements. But Trump demonized the TPP during his election campaign and once in office, he scrapped US participation in the agreement. America’s Asian partners now have growing doubts about American’s reliability. China will be most pleased about the situation.

Beijing’s resurgence as a global power looks like it will continue for a while. Mao Zedong united Chinese provinces that once fought against one another. Then Deng Xiaoping kicked off an economic boom. Now, Xi intends to strengthen China’s foreign and security policies so that international political decisions must take the country’s interests into account.

Trump cannot prevent China’s rise. Washington’s days as world power number one are numbered.


China’s Dangerous Debt Bubble

November 10, 2017

Tiananmen, Gate of Heavenly Peace, Beijing, China. (Photo: bjdlzx/Getty Images)

For two thousand years, the Chinese Empire has sought to overawe visiting barbarians with the magnificence of the imperial court. It still does today.

This article originally appeared on BreitbartAs Air Force One lands at the dragon-shaped Beijing International Airport, President Trump will be treated to a skyline that didn’t exist until a few years ago.Most of Beijing’s old residential neighborhoods — called hutung’s — were deliberately destroyed in the frenzied build-out that preceded the 2008 Olympics. They have been replaced by stadiums like the Bird’s Nest (which actually resembles a giant bird’s nest) and by high-rise office buildings.

Then there are the Leaning Towers. The headquarters of China Central Television — the Beijing regime’s primary propaganda outfit — the Leaning Towers consist of two towers leaning at different angles joined 36 stories up by a 250-foot, L-shaped overhang. Unlike the Leaning Tower of Pisa, which acquired its tilt naturally, the awkward structure was designed to look like it is falling over.

As such, it could stand as a metaphor for the reckless building boom that has plunged China into a level of debt that few nations have ever recovered from. Without going through a devastating economic meltdown, that is.

For the past twenty years, China has kept roughly half of the world’s cranes busy turning wheat fields and peasant huts all over China into skyscrapers. For someone like myself, who first visited China in 1979, the transformation is almost miraculous.

The luster begins to fade when you realize that the land was stolen by rapacious Communist officials from poor workers and peasants who had lived in these huts, and farmed these lands, for centuries. It disappears entirely when you understand that many of these new apartment and office buildings are often nearly devoid of tenants. This means that the soft construction loans that were so generously doled out by the Party’s managers of state-owned banks to their Party comrades who run construction companies will never be paid back.

China’s Xi Jinping should have asked Donald Trump what happens when you overbuild.

Instead, back in at the 2012 Party Congress, the newly installed Party Supremo announced that he intended to double the size of the economy by 2020. The regime’s central planners swiftly calculated that this required an annual GDP growth of 6.5 percent, and ordered everyone to fall in line. In order to hit this target, the state has been recklessly printing money and rolling out debt ever since.

As a result of these practices, the country’s debt has been ballooning in recent years. The Institute of International Finance estimates that “China’s total debt surpassed 304 percent of GDP as of May 2017.”

Knowing something about Chinese accounting practices, I would guess that even this startling number is a gross underestimate.

Consider that most Chinese businesses keep three sets of books. The first two are cooked, one to convince the government that the company owes no taxes, the other to mislead business partners (especially foreign partners) that it is barely turning a profit. The only accurate accounting of revenues and expenses is to be found in the third set, which the proprietor keeps carefully hidden away from prying eyes.

It is a safe bet that many local, city, and provincial governments are fudging the numbers, or keeping bad loans off the books entirely, in the accounting they send up the chain of command to Beijing.

The China that Xi Jinping will showcase to the American President thus contains lots of beautiful new buildings, and cranes that are busy constructing even more.

The builder in Donald Trump will probably be impressed by all the new construction, but the businessman may question whether such an overheated economy can long survive.

Trump knows that the Chinese economy is essentially derivative. It feeds parasitically off of the U.S. consumer economy, soaking up $500 billion a year in foreign currency, which it then uses to prop up its failing state-owned enterprises.

He also knows, thanks in part to Peter Navarro, all about the “dizzying array of illegal export subsidies, currency manipulation, intellectual property theft, sweatshop labor, and pollution havens” that China has used to seize market share from both Europe and North America.

Finally, he knows that America’s ruling class – that loose coalition of Globalists and Progressives also known as the Washington Establishment – literally sold out America when it allowed China to join the World Trade Organization. As Lenin might have said, the Establishment “sold China the rope that it is using to hang us.”

But if the Establishment made the classic Capitalist blunder, Comrade Xi may have made the classic Communist one.

Like all good Communists, Xi apparently believes that he can simply command the economy to grow … and grow it will.

Acting on the belief that the economy was his to command, the late Chairman Mao nearly destroyed it. He launched the Great Leap Forward in the late Fifties, ordered his people into communes, and commanded them to catch up to Great Britain in steel production in three years.

Xi Jinping, acting out of the same belief, has set the Chinese economy on a similarly dangerous course. He is so bent on surpassing the United States and achieving his “China Dream” of world hegemony, that he ordered the Chinese economy to double in size in eight years.

Mao’s blunder led to a massive famine costing 45 million lives. Xi’s blunder has led to a debt bubble so massive that it may turn China’s beautiful new façade of modernity into nothing more than a world-class Potemkin Village.

Last year, for the first time in our nation’s history, the American people elected as president someone with no experience in government. Trump has never been a senator, a congressman, or a governor, nor even a cabinet secretary or a general. What he does bring to the table is the acumen of an entrepreneur who has spent his life in construction and finance.

If anyone understands that China is sitting on a mammoth debt bubble of its own making, it is Donald Trump.

The President needs to make clear to Xi that he holds a very, very sharp pin.

Then he needs to begin to do what he does best: negotiate in earnest.

Barbarian outreach: Xi and Trump look friendly, but anti-US feeling stirs in China — A lesson in the ancient art of feigned deference

November 9, 2017

The two great powers have very different dreams

CHINA’S leader, Xi Jinping, welcomed Donald Trump on the American president’s first visit to Beijing like a Chinese emperor receiving a barbarian potentate, with a mixture of flattery and disdain. The government closed to the public the 9,000-room Forbidden City—the vermilion-walled former imperial palace at the heart of Beijing—so the visitor could have his own tour and dinner there. The courtiers of the Communist Party have lost little of the ancient art of feigned deference.

The Chinese also bore gifts: trade deals worth over $200bn, covering everything from jet engines and car parts to shale gas. Most of the pledges were memoranda of understanding: expressions of intent, not enforceable contracts. Many concerned things the Chinese would have done anyway. Still, Mr Trump seemed pleased, as he also was by Mr Xi’s (reiterated) pledge to enforce UN resolutions on North Korea.

The question is how long the summit’s bonhomie will last. Under Mr Xi, China has become more open in its challenge to American influence in Asia. The official media have turned more sharply critical of America’s political system. The problem has hardly reached the embassy-burning stage (angry crowds last surrounded the American embassy in Beijing in 1999, after NATO’s mistaken bombing of the Chinese embassy in Belgrade). But there is a whiff of anti-Americanism in the air.

Mr Trump claims that he and Mr Xi are close. The same can hardly be said of public attitudes towards each other’s countries. A study in 2016 by Zhang Kun and Zhang Mingxin of Huazhong University of Science and Technology found that America was far down the list of countries about which the Chinese express favourable opinions—below Germany, Britain, France, Canada, Australia and Russia. Things may have changed since then because views of Mr Trump are warmer in China than in most places. But opinions of America itself are unlikely to have improved much. A survey in the same year by the Pew Research Centre in Washington also found that only half of Chinese respondents were favourable to America—much less than the global median “favourability rating” for the United States of 64% then.

American opinions of China are even cooler. Pew’s poll in 2017 found more Americans expressed negative views about China than positive. Such attitudes might not affect policy but they could make public dissatisfaction easy to ignite.

Anecdotal evidence suggests there is plenty of flammable material. One of the most popular questions on Zhihu, a Chinese question-and-answer site, is “Is America preparing to dismantle China?” (the most popular answer, though, is that if China were to collapse, America would not be the main reason). It has been viewed 3m times since the start of 2016. The phrase “American air is so sweet” has become a term of online abuse. It stems from a comment by a Chinese graduate of an American university who said that “when I took my first breath of American air, it was so sweet and fresh…I felt free.” The remark produced a torrent of criticism in China; she apologised and closed her online account. The term is now used as sarcastic criticism of all things American.

For many years, despite ups and downs in policy, China’s rulers stuck to a strategic view that the United States was essential to their country’s modernisation. China, they argued, needed American technology to upgrade its industries and American markets for its exports. That view has become far less strongly held as China’s economy shifts away from exports and towards home-grown innovation. In the past year, moreover, it has been overlain by a competing idea: that China’s global ambitions require a dose of anti-Americanism.

Bucking the norm

In a speech last month at a five-yearly party congress, Mr Xi made those ambitions even more apparent. He talked of moving China “closer to centre stage” and of the country’s “all-round efforts” to pursue “great-power diplomacy with Chinese characteristics”. It is not clear what these characteristics are, but it is a safe bet that they do not involve accepting global norms established by America.

The United States has long proclaimed itself “the last, best hope of Earth” (to quote Lincoln). Now Chinese media are advancing similar claims about China’s system. In mid-October Xinhua, the main state-run news agency, made the case explicitly. In an article called “Enlightened Chinese democracy puts the West in the shade”, it said the Western kind was “doddering”. It argued that the Chinese system “leads to social unity” rather than the divisions which it said were an “unavoidable consequence” of Western democracy. The commentary forbore to name names, but state media often talk of Mr Trump’s America as a prime example of what Xinhua referred to as “the endless political backbiting, bickering and policy reversals which are the hallmarks of liberal democracy”.

Xinhua’s description of democracy’s self-destructive tendencies echoes that of a book published in 1991 called “America Against America” by a professor at Fudan University, Wang Huning. But there are three important differences between China’s interaction with America today and the way it was then. One is that Mr Wang has just been elevated to the party’s most powerful body, the Politburo Standing Committee, where he is likely to be in charge of propaganda (that is, projecting the party’s image at home and the country’s abroad). Having in such a position an America-sceptic who actually studied there is unprecedented.

Next, the government has started to export what it calls “the China model”. Deng Xiaoping once said China was not a model for anyone. At last month’s party gathering, Mr Xi talked about China “blazing a new trail for other developing countries” and offering “Chinese wisdom and a Chinese approach to solving problems” (his “Belt and Road Initiative” offers lots of cash, too). Orville Schell of the Asia Society in New York says this seems to set up a clash not just of civilisations and values, but of political and economic systems.

Third, the anti-American strain now seems to run from the top of the Chinese state (Messrs Xi and Wang) to the bottom (Xinhua and internet trolls). That suggests such sentiment is gaining strength. Mr Xi may still prefer to exercise caution in his country’s rivalry with America. But he does not seem to have moderated his global ambitions because of Mr Trump. And it will take more than a dinner in the Forbidden City to wish those ambitions away.

This article appeared in the China section of the print edition under the headline “Barbarian outreach”