Three recent articles in the New York Times have signaled a “new” narrative about China. Only weeks ago, China was the US’ fearsome “peer competitor” on the world stage, but now, everyone is told, it is a wounded dragon. Once a threat by dint of its inexorable rise, now it poses a threat because it is in decline.
US President Joe Biden set the terms of this new narrative. As the New York Times’ Michael D. Shear reported, the White House worries that “China’s struggles with high unemployment and an aging workforce make the country ‘a ticking time bomb’ at the heart of the world economy.”
Biden said that “when bad folks have problems, they do bad things,” but he did not explain how, exactly, unemployment and an aging population have turned China into a threat.
Shear gives another reason for China’s newfound decline.
“The president has moved aggressively to contain China’s rise and to restrict its ability to benefit militarily from the use of technologies developed in the United States,” Shear wrote.
Given the scope of Biden’s new semiconductor restrictions, he might have added “and non-militarily as well.”
Meanwhile, Peter S. Goodman, an economics reporter, wrote about a “slew of developments” supporting the new narrative. These include declining Chinese exports and imports, falling prices “on a range of goods, from food to apartments,” a housing slump, and a real-estate default that has produced losses of US$7.6 billion — a sizable event, but nothing close to the typical US bank bailout.
“Chinese authorities are limited in their options ... given mounting debts now estimated at 282 percent of national output,” Goodman wrote in response.
According to Goodman, and many economists, including those in China, the country’s difficulties stem from deeper problems, such as a high savings rate, vast deposits in the banking system, a new wariness about real estate, and, consequently, a growing need “to boost domestic demand.”
He and his sources have said that the proper cure is “stimulus” — meaning more consumption and less investment.
Moreover, Goodman cited Massachusetts Institute of Technology professor of political economy and international management Yasheng Huang (黃亞生), who has said that exports plus imports in China total 40 percent of GDP — much of which comprises final assembly and re-exports of imported components.
However, while Huang appears to have left Goodman with the impression that reducing this “pass-through” trade would have a big effect, the effect would actually be quite small, as imports are a subtraction from GDP. China is losing merely the value-added, a fraction of the overall product value.
Nobel Prize in Economics winner Paul Krugman rounds out the paper’s coverage of China’s “stumble” by offering an economist’s “systemic view.”
China previously grew “largely by catching up to Western technology,” but now faces the problem of too much saving, too much investment and too little consumption, Krugman said.
It therefore needs “fundamental reforms” to “put more income in the hands of families, so that rising consumption can take the place of unsustainable investment,” he said.
There is actually nothing new about Krugman’s key point about savings. Western economists were already pushing that line 30 years ago, when I became (for four years) chief technical adviser for macroeconomic reform at the Chinese State Planning Commission.
“Invest less. Consume more” — the mantra made no sense to me then, and it still does not today. One wonders what it even means. Should China have more vehicles but worse roads and fewer gas stations, not to mention subways and high-speed trains? Does it need more televisions, but fewer apartments to put them in? Does the population need more food and clothing, even though it was already mostly well-fed and decently dressed three decades ago?
True, Chinese families save prodigiously for education, healthcare and old age, but they can do that because they have incomes, which come in large part from jobs in the public and private investment sectors. Chinese workers are paid for building the factories, homes, rail lines, roads and other public works that have transformed China within our lifetimes. Contrary to Krugman, the typical (statistically average) Chinese family is not income constrained. If it were, it would not be able to save as much as it does.
Moreover, if China were to run out of investment projects, incomes would fall, savings would slow and consumption as a share of income would necessarily rise, but this decline of savings would make Chinese families less secure, deepening today’s slowdown.
No wonder the government has taken pains to keep investment flowing through major programs such as the Belt and Road Initiative. Even after China itself is fully built (or overbuilt), it would still have plenty to do in Central Asia, Africa and Latin America. China’s investments have been welcome in those regions, where it has been said: “When we’re engaged with the Chinese, we get an airport. And when we’re engaged with you [Americans], we get a lecture.”
China’s economy is slowing. It would be hard to scale anything to match the cities and transport networks that are already in place, or the recent campaign to eliminate extreme poverty. China’s main tasks now lie elsewhere: in education and healthcare, in matching skills to jobs, in providing for elderly people and in curbing pollution and carbon dioxide emissions.
There is no guarantee that these efforts will succeed, but at least they are on China’s agenda. That means they can be expected to be pursued in Chinese fashion: step by step, over time.
So, what is the new narrative really about? It is not so much about China as it is about the West. It is about our lead in technologies, our free-market system and our ability to wield power and to keep all challengers at bay.
It is about reinforcing what Westerners like to believe: the inevitable triumph of capitalism and democracy. Above all, it is about the US’ leaders winning out against “bad folks” who may do “bad things.”
It is a narrative that is made to measure for next year’s election campaign.
James K. Galbraith, professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, served as chief technical adviser for macroeconomic reform and strengthening institutions to the Chinese State Planning Commission from 1993 to 1997, under a contract with the UN Development Programme.
Copyright: Project Syndicate
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