China’s real economic problem isn’t trade war with the U. S. It’s increasing centralization. That’s the thesis of Yasheng Huang’s op-ed in the New York Times:
The trade war has merely compounded an economic slowdown in China that is substantially of the country’s own making.
The deceleration is serious. In 2018, China’s gross domestic product grew by about 6.5 percent, the lowest rate since 1990. And part of the slowdown is a predictable result of deliberate government decisions, in particular policies that favor the state sector at the expense of the private sector — even though the state sector is woefully inefficient, whereas the private sector long has long been the country’s growth engine.
And here’s a startling bit of evidence:
The most striking evidence, documented by the Peterson Institute of International Economics in October, is the drop in credit to the private sector and the rise in credit to the state sector in recent years. The largest banks in China are state-owned and hew closely to government command. In 2013, 35 percent of bank credit to nonfinancial enterprises went to the state companies and 57 percent to private companies; in 2014, 60 percent went to the state sector, and only 34 percent to the private sector. (The rest went to enterprises with foreign or mixed ownership.) By 2016, the distribution was even more skewed: with 83 percent of credit going to state-owned or state–controlled companies, and just 11 percent to private firms. (According to the Peterson report, 2016 is the last year for which official data are available.)
All of which underscores something I’ve been suggesting for some time. For the Chinese leadership keeping the CCP in control is more important than prosperity, more important than continuing economic growth. That’s China’s real economic problem.
With the caveat that I dont think we can trust much of the data coming out of China, I have thought for a while that China’s ascendence is self limited for a number of reasons, this being possibly one of them. A lot of their growth has been catch up growth, pretty easy do. They have subsidized, we think, a lot of their economy and run up debt doing it. At some point that stops working.
Steve
There is a rabbinic saying, “When a woman comes from a far country and tells you she’s divorced, believe her.” Translation: when somebody tells you something that you cannot verify but does not cast them in the best light, it has some credibility. When the official Chinese statistics tell us that their annual growth rate is 8%, I’m skeptical. When the official Chinese statistics tell us that their annual growth rate is declining, I believe it a bit more.
There’s every reason to suspect it’s worse than they say, or know.
https://en.wikipedia.org/wiki/Mao%27s_Great_Famine
Xi is aspiring to be the next Mao, the only difference he’s trying to slow-roll it instead of resorting to quick and dirty with corresponding increase in massacres. The optics of wholesale murder would be too much for even a fawning press to overlook (although he’s doing a real good PR job in Sinkiang). Look at how he’s changing the curriculum in schools to a Mao-like worship of him and his ‘profound’ sayings.
And of course state-owned is more controllable than privately owned. It’s hard to compete when your business rival can not only undercut your prices thanks to your own taxes being used to subsidize him but can call upon the authorities to restrict your trade and not his. Massive capital outflow to safer financial havens will continue if not accelerate.
Deng was a bigger revolutionary than Mao.