Michael Pettis posts his divergent view on China’s economic growth at Financial Times:
In the first quarter of 2022, China’s total foreign trade grew a little faster than GDP, but this growth wasn’t evenly distributed. Exports grew year on year by 13.4 per cent, more than one and a half times the growth rate of the economy overall. Over that same period, imports grew by 7.5 per cent, more slowly than GDP and much more slowly than exports.
This really isn’t the way trade is supposed to work.
If the revenues generated by rising exports are properly distributed domestically, as they normally are in a well-functioning economy, imports should rise just as quickly as exports.
Instead, China had the highest first-quarter trade surplus in its history, the latest in a line of record-breaking trade surpluses. These surpluses are symptoms neither of manufacturing prowess nor of a culture of thrift, but are instead a consequence of the great difficulty China has had in rebalancing its domestic economy.
And yet for years Beijing has stressed the need to boost domestic demand, so what has gone wrong?
He attributes the mismatch to Beijing’s overreliance on supply-side measures, e.g. business subsidies, export subsidies, investment in infrastructure and logistics, etc. That differs pretty dramatically from the orthodox view in the West.
It’s easy to imagine demand-side measures—they’re what we rely on here, equally too much so in my opinion. The open question is why the Chinese authorities aren’t replacing the web of subsidies that have been used for the last 30 years? I suspect several reasons. First, people tend to continue to do what’s worked for them in the past and that web of subsidies has served them pretty well. Second, those who’ve benefited from the business and export subsidies, etc. want them to continue.
But I also wonder if the authorities aren’t skeptical that adopting consumption subsidies will foster their own power.
As I say, I’m open to suggestions.
Pettis has talked about the difficulties Beijing has had in shifting from overreliance in supply side measures — he identifies the main barrier as “vested interests”; i.e. the opposition of those who benefit from current policies and resist change. In many ways, its analogous to the difficulties in the US on efforts to focus on “supply” and less on consumer demand; examples include “BANANA”.
One should also look at the bigger picture. China’s economic development model was pioneered in Japan and copied by other East Asian countries (South Korea, Taiwan, Vietnam, Hong Kong, Singapore). To date; all of them are export-oriented economies and all rely more on “supply-side” measures than on consumer demand.
That maybe the biggest barrier of all; there’s no roadmap for how to transition from an export oriented economy inspired by Japan to a consumer demand driven economy. Its easier to follow in the footsteps of others, much harder to figure chart your own course.
There’s a qualitative difference between a city of 5 million people becoming prosperous primarily through trade and a country of a billion people doing so. The only practical way for China to continue to grow is through domestic consumption.
That’s not a new revelation. I was pointing it out twenty years ago.
“The only practical way for China to continue to grow is through domestic consumption.”
Which is a byproduct of a well functioning economy only modestly throttled by a meddling government involved in directing economic activity based upon the whims of the day, graft and subsidizing politically preferred entities.
Now contrast with Mr Sirota, who believes that stuffing a wad of cash into the pockets of the poor (yeah, right, the poor) is the road to economic health.
I think it’s a question of economic/social inertia. When Deng Xiaoping took power in 1978, China was a backward, no-technology Third World country with a huge population surviving by subsistence agriculture. Some years they couldn’t feed themselves.
Over a number of years, Deng’s reforms moved some 600 to 800 million people into the international middle class. They created the greatest economy in the world, and the largest and most modern manufacturing sector by a long shot. They build the equivalent of one San Francisco per month, and populated it with new migrants from the countryside. They are world leaders in technological innovation, clearly the equal if not superior to the US in every area of science and engineering.
That is the greatest economic revolution in history. The entire European/American industrial revolution is 30 years, not 300 years. And Deng Xiaoping is without doubt the greatest statesman in history. (Pace Bismarck)
But, there is still in China at least 600 million people stuck in Third World poverty. Their elevation will require another generation of peaceful development, which will happen if the US doesn’t start WW III in frustration over its replacement as world hegemon.
Rather than worry about China’s mythical failures, Pettis et al. should worry about the collapse of America’s industrial base and of its education system, the immiseration of its workers, and the corruption of its politics. China is doing just fine.
So is Russia.
Interesting analysis of China’s well being as “doing just fine.†I wonder how the CCP’s control over the country fits into this rosy scenario. I also want to bring in the Tuidang movement’s quiet impact on China’s future, where almost 400,000 Chinese have already denounced communism, with purportedly a continuing stream of one per second of the Chinese people joining this movement of dissenters.