There were contrasting reactions when the US rating agency Moody’s downgraded China’s A1 credit rating outlook from stable to negative last month. Financial markets, focused on the economy, paid it barely any attention. Chinese state media, looking at the politics, saw red. Global Times called it “biased and unprofessional.” A few days later, the Ministry of State Security issued a statement stipulating that the only purpose of “negative talk” was to doubt or deny China’s socialist system, and to contain its development.
The Chinese Communist party’s prickly attitude to criticism is not uncommon. It chooses instead to propagate a narrative of continuous success in which its own role is pivotal. It recognizes that China confronts big challenges nowadays, but attributes them to low confidence, thinks they are fleeting and says they’ll be resolved this year.
The reality, though, is that systemic problems have over the years become features in China’s US$19 trillion economy. The real estate market has tipped over after an almost unbroken 20-year boom, which the government itself encouraged. At about a quarter of GDP, housing now faces years of shrinkage as it adjusts to chronic oversupply and lower household formation.
Photo: AP
Property developers, local governments and state enterprises have high levels of debt and many face debt service difficulties. The virtual absence of inflation reflects inadequate aggregate demand. Stalled productivity growth, the politicization of regulation and the business environment, rapid aging, high youth unemployment and inequality also figure prominently.
It may seem churlish to draw attention to these things in the world’s second-largest economy, center of global exports, manufacturing and supply chains, and home to brands such as Alibaba, Tencent and TikTok. Yet Japan, 30 years ago, reminds us that it is quite possible to have islands of technological excellence and leadership, and also deep economic imbalances, deflating asset bubbles, over-indebtedness, and institutional weaknesses that compromise growth and prosperity. Technological prowess could not prevent Japan from succumbing to its proverbial lost decades, and there is no reason to think differently about China.
China’s outlook this year is likely to be more challenging than last year’s. The party will probably adopt a 5 percent GDP growth target again, but it may prove more elusive than last year’s, which had COVID weakness in 2022 as a comparison.
Photo: AFP
Last month, the annual Central Economic Work Conference set out priorities for this year, including science and technology innovation, stronger demand, stability, rural development and integration, and low carbon and ecological investment. Yet the government also said that impediments to recovery remain, citing inadequate demand, overcapacity in several sectors, weak social expectations and “still numerous risks and hidden dangers.”
Those expecting meaningful macroeconomic stimulus and reforms will continue to be disappointed. There will be some tax cuts and fee reductions for businesses and more support for the beleaguered housing market but only to stabilize the economy. Monetary and credit policies will remain “prudent.” There is no suggestion that the government will adopt serious measures to boost consumer demand and household incomes. It is reported to have decided instead to “strengthen economic propaganda and public opinion guidance and promote a positive narrative of China’s economy.”
In other words, cheerleading.
It is easy to see why Xi Jinping (習近平) was minded to meet Joe Biden in San Francisco in November. Both sides wanted to stabilize their most important external relationship, for a while at least, and Xi’s interest was clearly the economy. He also met EU Commission officials recently in Beijing to try to keep the EU close for trade and access to technology, but distant politically from the US.
No one should be fooled into thinking, though, that the slight thaw with the US and EU amounts to more than expedience. Indeed, a new trade war threat looms on the horizon, not least with the EU.
Chinese industrial policy, based around the proliferation of large-scale industrial funds and state subsidies and access to foreign technology has in the past resulted in excess capacity in sensitive areas such as steel and renewables, and is now being reflected in Chinese electric vehicle and battery production. The Chinese auto industry produces at less than 60 percent capacity utilization, and exports about 12 percent of its current 27 million unit production, in which the share of electric vehicles is rising steadily.
America’s 27.5 percent tariff on Chinese-made car imports make it a tougher market to crack. It is also trying to strengthen its own manufacturing capacity in new electric vehicles, renewables and semiconductors through the passage of the Inflation Reduction and Chips and Science Acts, and the imposition of export controls on sales of sensitive products to China. If Trump is re-elected in November, the bipartisan position regarding China would probably not change, but he might again emphasize trade policy as he did in his first term.
Europe, where tariff rates are much lower, offers a much more fertile opportunity for Chinese exports of its cars and its overcapacity. To this end, the EU Commission has initiated an anti-subsidy investigation, which is liable to result in restrictions and tariffs on imports of electric vehicles made in China. German and other auto manufacturers are shuddering already in the face of the steep increase in imports of Chinese autos, especially electric vehicles.
Faced with an array of domestic economic problems, China should ideally substitute market and structural reforms for the more familiar strategy of doubling down on already high manufacturing investment and exports. But it won’t. As a result, the economy will become still more unbalanced. This policy focus will trigger a new round of trade war as China’s industrialization and export push forces the US and Europe to import more Chinese products and de-industrialize.
The US, EU and other industrial countries will not go meekly to another deindustrialization graveyard in this way.
Nov. 11 to Nov. 17 People may call Taipei a “living hell for pedestrians,” but back in the 1960s and 1970s, citizens were even discouraged from crossing major roads on foot. And there weren’t crosswalks or pedestrian signals at busy intersections. A 1978 editorial in the China Times (中國時報) reflected the government’s car-centric attitude: “Pedestrians too often risk their lives to compete with vehicles over road use instead of using an overpass. If they get hit by a car, who can they blame?” Taipei’s car traffic was growing exponentially during the 1960s, and along with it the frequency of accidents. The policy
What first caught my eye when I entered the 921 Earthquake Museum was a yellow band running at an angle across the floor toward a pile of exposed soil. This marks the line where, in the early morning hours of Sept. 21, 1999, a massive magnitude 7.3 earthquake raised the earth over two meters along one side of the Chelungpu Fault (車籠埔斷層). The museum’s first gallery, named after this fault, takes visitors on a journey along its length, from the spot right in front of them, where the uplift is visible in the exposed soil, all the way to the farthest
While Americans face the upcoming second Donald Trump presidency with bright optimism/existential dread in Taiwan there are also varying opinions on what the impact will be here. Regardless of what one thinks of Trump personally and his first administration, US-Taiwan relations blossomed. Relative to the previous Obama administration, arms sales rocketed from US$14 billion during Obama’s eight years to US$18 billion in four years under Trump. High-profile visits by administration officials, bipartisan Congressional delegations, more and higher-level government-to-government direct contacts were all increased under Trump, setting the stage and example for the Biden administration to follow. However, Trump administration secretary
The room glows vibrant pink, the floor flooded with hundreds of tiny pink marbles. As I approach the two chairs and a plush baroque sofa of matching fuchsia, what at first appears to be a scene of domestic bliss reveals itself to be anything but as gnarled metal nails and sharp spikes protrude from the cushions. An eerie cutout of a woman recoils into the armrest. This mixed-media installation captures generations of female anguish in Yun Suknam’s native South Korea, reflecting her observations and lived experience of the subjugated and serviceable housewife. The marbles are the mother’s sweat and tears,
RSS