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China’s Trump Challenge.
Some Perspectives On a Possible War
People and companies in China—indeed in business communities around the world—have eagerly embraced Beijing’s promises to enact policies that will restore the nation’s economic momentum. However, disappointment has always followed. It is beginning to look as though China’s leadership simply does not know what to do.
This conclusion is entirely plausible since China’s economic and financial troubles largely sprouted from ill-conceived policies dating back to well before the pandemic.
China’s economy has come a long way from the place that once garnered nothing but praise from Western media. Not too long ago, it was common to read that China’s economy would soon eclipse that of the United States.
Commentary often praised the effectiveness and prescience of Chinese top-down planning, some suggesting that perhaps it was superior to the comparative chaos of democratic practice and market-based approaches. In 2009, for instance,
New York Times columnist Thomas Friedman extolled what could be accomplished by China’s “one-party autocracy.”
Canadian prime minister Justin Trudeau spoke admiringly about how China’s “basic dictatorship” allowed it to “turn the economy around on a dime.”
President Barack Obama gave credit to China’s approach to bringing millions out of poverty. This is just a small sample of the kind of commentary that was prevalent during China’s great growth strides. But now, that system seems to be failing.
Praise for the prescience of China’s central planning was always misplaced. Since modern China began as a severely underdeveloped and war-torn economy, its planners had an easy time identifying where the nation should put its emphasis.
All they needed to do was to look at the developed world. They could see that building new roads, rail links, port facilities, housing, power stations, and the like would pay huge growth dividends, and they did. People rose from dire poverty and became richer.
However, as China developed and joined more advanced economies, its future needs became less obvious. Beijing’s central planners had lost their model and increasingly began to make mistakes.
This new fact of economic life (for China) became evident in the 2010s. By then, the authorities had been promoting residential construction for some time, giving subsidies for building, advancing credit on easy terms to developers, and enlisting the support of local governments by making land sales lucrative for them and even encouraging them to enter joint ventures with developers.
However, as China shifted from a housing-short economy to one of abundant housing, planners made the mistake of keeping these policies in place. Real estate development rose to an unsustainable 30% of China’s economy.
When Beijing finally woke up to the problem, it made a second error. In 2019–2020, Beijing suddenly removed all the former support to the housing sector. The decision was reasonable, but the suddenness of the action caused problems.
It caught both developers and local governments by surprise, leaving them no time to adjust. Having extended themselves under policies that no longer existed, developers and local governments faced severe financial troubles.
In 2021, developers began to fail, and local governments began to report difficulties meeting their financial obligations, in some cases, even in providing basic public services.
That year, matters in Chinese finance began to resemble those in the United States during the global financial crisis of 2008. Rather than act forcefully to stem the spread of financial failure, the authorities in Beijing made yet another mistake.
They sat on their hands as if nothing were wrong. Their inaction allowed the financial problems to spread throughout the system, rendering Chinese finance far less able to support growth than it had been.
PART 2#China #Trump #US
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