Here’s an extract about the country’s economic prospects:
“While the last three decades tell us that it’s unwise to bet against China fixing its problems, there are some big questions.
“One is about the effectiveness of the transition to a consumer economy, which needs significant institutional change if it is to work. This leads to a second question, of whether China’s market institutions are robust enough and trusted enough to support such a transition; this is almost certainly one factor behind the country’s anti-corruption drive. An important issue in this is openness: despite its huge internal market there will be doubts about how effectively China can modernize or innovate while it shuts off its internet from the world. The cost of managing its “Golden Shield” is said to be $1.6 billion to date.
“A third question is about the cost of unwinding or writing off stranded assets, whether they are ghost cities or the government’s cotton mountain, bought at prices well about the world market. There are also questions about the overall levels of Chinese debt, and whether a combination of asset bubbles, shadow finance, and bad debts throughout the country’s banking system could prompt a financial crisis. Finally, there are signs that the “Chimerica” system, under which Chinese savings bought American debt, and Americans then bought Chinese goods, is coming to an end.
“As Robert Gottliebsen argued recently in Australia’s Business Spectator:
China does not want to fund further US deficits and the US wants to reduce its deficits. And so the US-China model that has dominated the world is changing and Chinese consumers must be stimulated to replace the Americans. … The Chinese leadership understands this but changing the model will not be easy, particularly as the population is ageing. Japan tried a similar switch and failed.”
The image at the top of this post is from Wikimedia, and is used here, with thanks, under a Creative Commons licence.
I’ve seen quite a lot of comment, but not much analysis, of Google’s decision to face down China. The comment says (a) it’s a principled stand on human rights; (b) a response to poor business performance; (c) a lack of confidence in the prospects for the Chinese economy; (d) a risk management decision to underline its commitment to the integrity of the ‘internet cloud’ in the face of Chinese hacking. My take is that it’s a belated realisation that international businesses can no longer partition the world – and that oft-cited ethical concerns about its role in China were increasingly likely to damage more compelling business opportunities elsewhere.
Readers will know that I come back to the subject of space from time to time. Having seen Duncan Jones’ science fiction film Moon this weekend, it’s as good reason as any for a return visit – while trying to avoid any spoilers. As a film, it should be said, there’s a lot to like; an intriguing story, well told, and the production design is dazzling. It pays its respects to other space films, but is, unmistakably, a film of the ‘noughties’. As a piece of futures (it’s set in the mid-2020s) the on-board computer, with more than a nod to HAL and Dark Star, is like the human resources department of a global company – sometimes solicitous and caring, sometimes trying to enforce the bottom line – and the task the workers are engaged in is to harvest energy.
The first time I saw an article headed “State Capitalism and the Crisis” in McKinsey Quarterly (free, but registration required) I thought I had slipped into an alternate reality. But even when I pinched myself it was still there. In it, the political risk analyst Ian Bremmer argues that one of the results of the financial crisis is a resurgence of political economy (although he doesn’t use the phrase). Markets are now far more influenced by national politically influenced decisions than at any time in the last thirty years; this is not a temporary phase but a permanent shift; and as a result the ‘globalised markets’ paradigm is no longer the dominant model, even if some politicians and corporations haven’t caught up with this yet.
The National Intelligence Council’s four-yearly report to the incoming President is worth noting this time around because it appears to represent such a sharp shift in world view in such a short time. Suddenly, the “official” view of the world projected by the NIC, which fronts for America’s multiplicity of intelligence agencies, is projecting a world of energy scarcity and resource shortages along with challenges to America’s global leadership. Such a sharp shift, in fact, that it makes you wonder if there’s a different “Phoenix” version which would have been pulled out of the drawer had McCain won the election.
Those of us who have been sceptical of China’s ability to maintain its heroic rates of economic growth normally look at environmental issues, or its financial infrastructure (a theme of Will Hutton’s), or burgeoning inequality. Recent reports suggest that the last of these is causing political instability.
The idea that the globalising wave of the last quarter of a century was mostly built on cheap energy and easy money is one that we’re now getting the opportunity to test. So far, the hypothesis is holding up. In particular, according to a story in this week’s Daily Telegraph, high energy costs seem to be having a significant impact on China’s low-cost manufacturing sectors. At the same time, Paul Krugman has been niggling away at the underlying economics. After all, as the French are supposed to say: That’s all very well in practice, but how does it look in theory?
I blogged at the start of the month on Martin Jacques’ observation on the extent to which China was now more significant than the US in the politics of Asia in all aspects other than military. Since then, I’ve noticed a post on the IFTF blog which argued that as China and India become the dominant trading partners across Africa and Asia that we are reverting to the trading patterns seen before European colonisation.
The Guardian filled its G2 supplement on 2nd January by asking contributors to reflect on the decade so far, probably so its sub-editors could recover on New Year’s Day. Most of the comment was as you’d expect. But Martin Jacques’ brief comments on China’s burgeoning political influence caught something deeper – and suggested that the West had missed much of it because it had been distracted by the Middle East.