Economics

La economía china se pudre desde la cima

Oct 28, 2022 Daron Acemoglu

BOSTON – China pone de relieve una pregunta muy debatida sobre el desarrollo económico: una autocracia verticalista, ¿puede superar a las economías de mercado liberales en términos de innovación y crecimiento?

Entre 1980 y 2019, la tasa anual promedio de crecimiento del PBI chino superó el 8 % —fue mayor que la de cualquier economía occidental— y en la década de 2000 su trayectoria económica fue más allá de un mero crecimiento de recuperación (con tecnologías occidentales). China comenzó a realizar sus propias inversiones en tecnología, registró patentes, produjo publicaciones académicas y generó empresas innovadoras como Alibaba, Tencent, Baidu y Huawei.

Para algunos escépticos esto era improbable. Aunque muchos autócratas presidieron rápidas expansiones económicas, nunca antes un régimen no democrático generó un crecimiento sostenido basado en la innovación. Algunos occidentales estaban fascinados con la habilidad científica de los soviéticos en las décadas de 1950 y 1960, pero a menudo eso reflejaba sus propios sesgos. Para la década de 1970, la Unión Soviética claramente estaba quedando rezagada y estancándose debido a su incapacidad para innovar en una amplia gama de sectores.

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Daron Acemoglu, Professor of Economics at MIT, is a co-author (with James A. Robinson) of Why Nations Fail: The Origins of Power, Prosperity and Poverty (Profile, 2019) and a co-author (with Simon Johnson) of the forthcoming Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity (PublicAffairs, May 2023).

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Peter Schaeffer Oct 30, 2022

It is quite sad to say, but there may be more academic freedom in Xi's China, than in the west. China has Xi. However, it west has DEI. DEI is far more repressive than anything Xi has tried. Don't believe me? The journal Nature just stated that it won't publish anything that is not PC.

This problem is not new. Some number of years ago, two Chinese academics, Xiaolin Wu and Xi Zhang’s wrote a paper. The title was “Automated Inference on Criminality Using Face Images”. In China there was little reaction. In the West, then paper was denounced as being a violation of PC (it was). The reaction in the west was unhinged to say the least. Xiaolin Wu and Xi Zhang wrote "We welcome sober and fair academic discussions, instead of name calling, surrounding our paper".
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William Sippel Oct 30, 2022

Agree with everything, except the piece on Tencent, Alibaba, etc.

Those folks were doing things that would not have been tolerated under US antitrust laws, and, had they not been curbed in their actions, China would have had a much bigger problem later because there would be less innovation and less competition.
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Carl Buzawa Oct 30, 2022

I wonder how long Xi can keep zero COVID policies in place given a nearly endless variety of new variants that will inevitably reach China? In the interim the US and European economies are rapidly diversifying their manufacturing supply base as China veers toward more authoritarian control of its economy, Chinese suppliers become less secure, manufacturing costs in China are rising, and the U.S. and others are realizing that China’s aggressive policies towards its neighbors may make conflict inevitable. This coupled with a looming demographic collapse make further investing in China very problematic.

All these factors suggest China may not in the foreseeable future ever overtake the USA or the EU+Britain as the center of the world’s economy.
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Ragip Bayrambeyli Oct 29, 2022

I understand quite well the author of these arguments, who was born in Turkey and today celebrates the 99th anniversary of the Republic. In any developing economy, authoritarian rules of the game and generally unexecutable rules of the game and rules that depend on the leader coming to power, in the long run, are detrimental to the development of the country's economy and political culture. In a long-term authoritarian country, the concept of stability, on the contrary, hinders the country's dynamic development. The new generation of economists in the 21st century will prove this already on the basis of the Database. It is still difficult for us scientists who came from the 20th century to take all countries for analysis and immediately prove the arguments of the respected professor Acemoglu. I agree with Daron Acemoglu's arguments. China's lagging behind could play into the hands of the US and other developing countries. Therefore, the American political establishment will not particularly object to the authoritarian leaders of China. Shortcomings within the developed countries of the OECD are also more than enough. Therefore, we can openly speak in the language of proverbs and sayings that "the fish rots from the head" and give the right of choice to the Chinese leadership itself because this will be beneficial to China's competitors. The respected professor Acemoglu did his duty and reflected it openly in his text.
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vic lai Oct 29, 2022

The traditional and prevalent too-simple dichotomy of "top-down autocracy" and "liberal market economies" is too macroeconomic (and ideological) and not microeconomic enough, and so is quite misleading in explaining the different problems in each of the different countries in the respective dichotomous category :
---
(a) while the US government has recently been deficit-spending too much, which was mostly financed by inflation-prone new money printing, so that the US domestic economy is now overheating, her private households and corporations have had relatively healthy overall balance sheets as a result (which have mostly been created by the quickly deteriorating balance sheet of the US federal government), rendering their relatively low existing overall private leverage ratios much more resistant or immune to the US Fed's current non-trivial rate-hiking and QT cycles, thereby resulting in the current refusing-to-retreat runaway inflationary macroeconomic tide in the country,
---
(b) on the other hand, the Chinese central government has always been deficit-spending too little, and so, given the existing quite-highly-indebted families, private and public corporations and local governments, each with quite unhealthy highly-leveraged overall balance sheets of their own, and which can no longer mass-borrow from the commercial banks to further spend and invest, has significantly reduced the country's aggregate demand, thereby, together with the country's background of worsening population dividend, leading to lower and lower GDP growth rates in the latest decade.
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- vic lai Oct 29, 2022
  
  So, today's China is more or less suffering from an ongoing balance-sheet-recession-like economic growth model, which is relatively stagnant or lukewarm both in the real and in the virtual economies, because the country's commercial banks could hardly find enough qualified borrowers to lend to, and so to increase quickly the country's new money supply sorely needed to propel the country's much quicker GDP growth in the foreseeable future.
  ---
  China should therefore borrow from the West's recent QE experiences after the GFC of 2007-09, by buying directly in the markets, (partly) through the new-money-printing help of the PBOC, the impaired debts and other securities currently being held by the country's commercial banks, the local governments, the SOEs, public and private real estate firms, and private SMEs, not at their current very-low impaired market prices but at or close to their original face values, accompanied by the non-trivial raising of the collateralized and leverage ratios of those assets.
  Such a direct injection of new money and hence new liquidity into the country's domestic markets will help turn the relatively stagnant zero-Covid-induced domestic macroeconomy into a very active one, and the disastrous local stock markets will be beneficially supported as well.
  Stricter capital control will prevent capital flight during the suggested QE programs to be enacted by Xi's new ruling central government.
  What Xi's new ruling government should admit is that, today, what realy matters is the overall health of the country's macroeconomy and her future growth potential, not whether some "naughty" capitalists or local sovereigns should be punished.
  ---
  - vic lai Oct 30, 2022
    
    The US's coming possible "Treasury QE," perhaps enacted sometime in early next year, may be more suitable for today's China than today's US, since China's central government has been much less indebted and much less deficit-spending than her US counterpart.
    ---
    The Bank of Japan's (BOJ's) good old and proud yield-curve-control (YCC) policy, which has pressed down the country's interest rates to help stabilize the domestic economy, has recently run into trouble.
    Given the contractionary monetary policies now being practised by many other major central banks, coupled with the fact that Japan has just experienced the country's first inflation since 1991, the market widely expects that the BOJ will have to raise the interest rate anytime soon, resulting in the massive dumping of Japan's government treasuries in the market recently.
    The resulting rise in interest rate in turn forces the BOJ to rely on YCC once again to press down the interest rate, using her tool of unlimited QE.
    But as other major central banks keep raising their interest rates, Japan's YCC is becoming less and less effective.
    Since the BOJ has announced her intention to keep buying irregularly Japan's government treasuries to prevent the domestic interest rate from rising, the Japanese Yen has kept depreciating quite massively in the global FX market in the past months, reaching a 32-year lowest level.
    To prevent the Yen from further depreciating, Japan in last September alone had already spent US$ 19.7 billon to support her own currency, through the selling of US dollar to buy yen in the market.
    But Japan doesn't have an unlimited amount of US dollar cash on hand.
    It's estimated that the BOJ has more than US$110 billion in the US Fed's FIMA repo pool.
    Before finishing spending this amount of cash, the BOJ will have to start selling her US treasuries to raise the necessary fund to support her currency's exchange rate.
    Such non-trivial and persistent net-selling of US government treasuries by the foreign central banks has led Janet Yellen to worry recently about the quick loss of treasury liqudity in the market, leading to a potential free-fall-like crash of the US treasury market resembling that in Britain's gilt market recently.
    Hence Yellen's suggested Treasury Buyback starting perhaps early next year.
    ---
    This Treasury Buyback resembles the Stock Buyback of a listed private corporation, which has positive profits and hence free cash flows to support the share prices of the corporation.
    But today's highly-indebted and deficit-spending US Treasury may have to raise new funds, say through the issuance of short-term treasuries to lure funds currently stored in the Fed's RRP account to leave the Fed's balance sheet, both
    (i) to support the US treasury market, and
    (ii) to prevent the US commercial banks' reserves in the Fed from falling too quickly in the future.
    ---
    If QE isn't China's cup of tea, she may also consider Treasury Buyback.
    Xi's new ruling government can also consider using QE and/or Treasury Buyback to support the IPOs in the country's stock markets in the coming years.
    Doing so can help nurture much more new innovative domestic SMEs in China, in order to more successfully compete with the US in the coming decades.
    ---
    - vic lai Oct 31, 2022
      
      While today's US Wall Street is actively anticipating the eventual realization of Yellen's Treasury QEs early next year, to replace the Fed's missing QEs, for obvious reason, the US Fed can simply increase, in an unrestricted manner, the quota of US dollars that is available to each of her friendly major foreign central banks in the FIMA repo accounts, to help mitigate the lack of US dollar liquidity in the rest of the world, even though, given the continued strengthening of the US dollar relative to most other foreign currencies, the pumped-out Eurodollars will quite quickly flow back to the US sometime in the future, further
      (i) strengthening the US dollar as a result, and
      (ii) helping finance Yellen's Treasury QEs.
      Which also means, Yellen's Treasury QE is in essence also indirectly financed by the Fed's new QE through the Fed's enlarging FIMA pools.
      This non-stopping flowing-out-and-repatriating cycle of the US dollar may eventually stop, and the US dollar may start to weaken, when the US Fed has finished her ongoing rate-hiking and QT cycles.
      ---
      (i) Such flows of "new" Eurodollars back to the US virtual economy,
      (ii) the higher and higher interest rates received by the owners of the money in the Fed's RRP account,
      (iii) the higher and higher interest on reserves at the Fed received by the US commercial banks, and
      (iv) the extra interest revenues earned by the buyers of Yellen's new issuance of treasuries from her Treasury QEs,
      will combine to diminish the negative wealth effect of falling asset prices in the US virtual economy as a result of the Fed's current rate-hiking cycle, rendering the arrival of an eventual crash of the US everything-asset bubble and subsequent economic recession less likely than without the Treasury QE.
      ---
      - vic lai Nov 1, 2022
        
        According to Investopedia,
        "Vendor financing is a term describing the lending of money by a vendor to a business owner, who, in turn, employs that capital to buy that same vendor's products or services.
        Vendor financing helps cement the relationships between vendors and business owners."
        ---
        So, the US's coming possible Treasury QE (Buyback) mentioned upstairs in particular, and the US global dollar hegemony in general, are both a kind of vendor financing on the part of the US, performed at the international country level, using self-created US dollars to lend to other countries to buy back the US's own goods and services of all kinds, her own financial and real assets, and her federal government's new or old treasuries in both the primary and the secondary markets.
        ---
        Owing to the sudden masssive new issuances of federal government treasuries following the breakout of the pandemic in the US, the balance sheets of the 25 US treasury market-makers are now no longer big enough to provide the necessary liquidity to the market, leading to relatively wide ask-bid spreads of the transacted treasuries, especially for those off-the-run say 20-year government bonds.
        Which means, today's US Fed has to supplement the private market-makers in the US, by also acting as a major market-maker herself,
        through
        (i) the enlarged FIMA repo pools mentioned upstairs,
        (ii) the enlarged domestic standing repo facility (SRF), the US$500 billion upper limit of which should be similarly (and temporarily) raised to a much bigger amount,
        (iii) reduce the quota or counterparty eligibility of the New York Fed's ON RRP facility, to force the extra cash there to leave the Fed's balance sheet and hence to hopefully further increase the market liquidity of the US government treasuries.
        ---
        China's One-Belt One-Road (OBOR) Initiative is also a kind of vendor financing, in which China's Asian Infrastructure Investment Bank lends to the OBOR countries to build say the railways and bridges in those countries, which in turn buy back China's surplus steel and machineries and construction engineers and workers, to help solve China's lingering economic problem of excess productive capacities (or a perennial shortage of domestic aggregate demand).
        ---
        
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      - vic lai Oct 31, 2022
        
        Yellen's recently proposed "Treasury QE" seems to me to strongly suggest that, the US Fed's QE programs enacted after the GFC of 2007-09 and up until recently, together with all the (excess) reserves of the commercial banks currently at the Fed (and with all the funds, mainly from the money market funds, at the O/N RRP account of the Fed), and the accompanying very low nominal policy interest rate administered and aimed at by the Fed, have all mostly run its course.
        ---
        The US Fed should now seriously consider going back to the good old days of determining her policy interest rate using the good old tradition of Open Market Operations (OMOs), by discarding outright, sometime in the near future, all future QE programs and the present interest rate corridor (with the O/N RRP rate as the lower bound, and the Interest on Reserves as the upper bound), even though nowadays the US commercial banks seldom borrow overnight from each other.
        ---
        According to MMT, the monetarily sovereign US federal government doesn't have to borrow to finance her deficit-spending, or indeed all her spending for that matter, since it simply creates the money and (deficit-)spends first, and then, to eliminate the resulting excess reserves at the banking system so that the policy interest rate won't drop to zero, it issues government treasury debts to the market to fully sanitize the excess reserves at the banking system, so that the Fed's policy interest rate can be maintained at a suitable and chosen positive nominal level ------ the Fed's good old OMO.
        ---
        The financial repression in the US, signified by a very low level of nominal (and real) interest rate, should be no more.
        The country's "risk-free" treasury yield curve shouldn't be too low either.
        The US in the coming years should no longer keep favoring the country's Wall Street (together with the stock market and the banks), the rich people and big corporations with lots of interest-rate-sensitive financial and housing assets, and the zombified inefficient businesses, at the expense of the saving and retiring average households and workers, the MMFs, the retirement funds, and the insurance companies.
        ---
        
        vic lai Nov 5, 2022
        
        Again, so far as the Fed's interest-rate hiking is concerned, this time is quite different, since
        (i) the previous interbank-borrowing OMO overnight interest rate, used to set the Fed's administered policy interest rate, has now become an interest rate corridor, lower-bounded by the Fed's ON/RRP rate, and upper-bounded by the Interest on Reserves for the commercial banks' (excess) reserves at the Fed generated from the Fed's several rounds of past QEs, which today is 3.75% --- 4.00%.
        (ii) The remaining total debt of the US Treasury (as a proportion of GDP) keeps climbing up to a higher and higher new plateau, now exceeding 31 trillion.
        ---
        (i) above means that, the country's commercial banks can earn very easy and no-longer-trivial money from the Fed, and this may discourage them from actively and riskily lending to the country's SMEs which have always been
        (a) thirsty for money, and
        (b) providing most of the non-farm jobs in the country,
        (c) quite innovative, especially for those "hidden champions" which can keep increasing the overall productivity and competitiveness of the country.
        The country's big qualified lenders, like those MMFs, now prefer to put their cash at the ON/RRP account of the Fed, earning zero-risk and non-trivial easy money, instead of buying more of the new government treasuries issued by the US Treasury, thereby reducing the liquidity of the country's treasury market.
        Such interest incomes received by the commercial banks and the MMFs should come from the Fed's "new money printing" out of thin air, which adds to the country's runaway inflationary pressure, and so is contradictory to the ongoing contractionary monetary-policy cycle.
        Also, the fairness problem resulting from such an interest-rate-corridor arrangement is quite debatable.
        ---
        (ii) above requires the US Treasury to pay out more and more interest expenses to the holders of her issued treasuries, and so, given the set expenditure in the annual budget of the federal government, crowding out the sorely-needed expenditures of many important departments of the US government, like the country's defence budget.
        The increased interest expense of the federal government requires her to net-issue more new treasuries in the future years, thereby forming a vicious cycle if the treasury yield curve remains at a high level for an extended period of time (say to fight domestic inflation), even though high inflation will mean a lesser and lesser total real debt burden accrued to the US federal government.
        Given the Fed's ongoing QT, less and less government treasuries (and other agency debts) will be held in the Fed's balance sheet, and so less and less interest incomes will be earned by the Fed in the future, which every year will be repatriated from the Fed back to the US treasury.
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  - vic lai Oct 30, 2022
    
    If China's "top-down autocracy" has always been so bad, how can the people in the West explain China's economic miracle achieved in the past decades which has pulled hundreds of millions of Chinese people quickly out of the poverty trap, and which has always been accompanied by this exotic and "rotting" eastern political system ?
    If this eastern economic miracle can't persist due to the inevitable "Rotting from the Head," then the same can be said of the US's present democratic political election system.
    ---
    Successology, the Science of Success, tends to claim persistently and proudly that the success of the US has been due to the country's institutional superiority, the diligence and race superiority of the American people, her world-leading university education, her good culture, her mass immigrations over the decades, and so on.
    But if so, given the fact that all those factors have remained more or less the same today, why are we increasingly observing more and more quick and non-trivial rise of agitating political populism in the US today ?
    ---
    Actually, what are seeing in the US today are mainly the results --- not really the causes --- of the US's having become great : good tertiary education is the result of a country having become a globally hegemonic geopolitical giant, so are the country's mass immigration year-in and year-out (now together with a lot of refugees from the southern Spanish-speaking countries), dominant global military prowess, strong economic development over the years, popular Hollywood films and fast-food culture, ......
    ---
    Simple cross-sectional comparisons between different countries at the same point in time is always misleading without an accompanying time-series comparison of those countries also, since the contemporary political system of a country like China can never suddenly crop up before our very eyes, and its deep origin or political root must be objectively traced back to the good old ancient histories, culture, and tradition of that country.
    ---
    - vic lai Nov 1, 2022
      
      According to David Woo, instead of demonising China every day and seriously decoupling from China say through deglobalization, job-reshoring and technology restrictions, the US could actually better have ensured a happy ending to "Chinamerica" in the past 2 decades, by taxing those Americans who had profited obscenely and making out like bandits in order to help those Americans who lost their jobs to China and who didn't own any stocks or houses.
      What the US ruling governments should have done was to get the American millionaires and billionaires who became even richer to help
      (i) pay for the retraining of those who lost their jobs to China so they could become competitive again,
      (ii) invest massively in American education and retraining for the US workers, to maintain or even increase its technological lead over China.
      ---
      Put differently, the US administrations over the past 20 years, Republican and Democrat, could have used the financial windfall from China's integration in the world economy to reduce income inequality at home (and so suppress the rise of disturbing political populism) and make American workers more competitive.
      But they didn't do it.
      Instead, the US had chosen to use that financial windfall to invade other countries, like Iraq and Afghanistan, or keep geopolitically harassing Russia and China.
      ---
      Today's hawkish rate-hiking US Fed is mostly due to the US's ongoing tight labor market with high wage growth and a job vacancy of ten million workers, and low labor participation rate relative to the years before 2020, which in turn is mostly or partly caused by the skill-mismatch of many (older) US workers who have failed to receive (enough) skill-retraining that should have been heavily subsidized by the US governments in the past 2 decades.
      ---
      - vic lai Nov 4, 2022
        
        Today's US seems to be committing the same economic mistake made by many different dynasties in ancient imperial China.
        Take China's most memorable Tang Dynasty (from 618 to 907 AD), whose capital Chang'an is today's Xi'an, which is a must-visit city for the foreign tourists in China.
        During the Tang Dynasty, and in most of the subsequent dynasties in ancient imperial China, the officials in the highly privileged ruling class of the government had no obligation to pay any tax to the government of their Emperors.
        ---
        As a result, there had been widespread and persistent annexation or consolidation of farmland (the most precious capital asset in ancient imperial China, given the cheap labor) by the rich and exploitative government officials and rich (official-turned) landlords almost everywhere in the country.
        The resulting gradual but sure worsening wealth and income inequalities usually paved the way for the eventual incessant political revolutions by the highly-taxed poor peasants near the end of the dynasties, which usually succeeded in overthrowing the incumbent imperial dynasty.
        This would usually be followed by a reallocation of farmland to the poor peasants by the new ruling government of the new dynasty, and the exploitative land-concentration cycle started repeating itself once again in the coming centuries.
        ---
        
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boudekhdekh messaoud Oct 28, 2022

More like a piece of anti chinease propaganda if you wana my honest view !
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