Is China’s Economy Overheating?

Much interest – and muted apprehension – has been focused on the rapid growth of China’s economy. The Great Recession barely put a dent on the country’s continuing expansion, in stark contrast to the troubled economies of the First World.

Yet now an interesting thing is occurring; one hears murmurs about weakness in the Chinese economy, murmers which were not heard last year. Analysts are starting to advance the possibility that China’s economy is overheating. This is based upon economic indicators such as rising inflation (a classic sign of an economy running too fast).

Perhaps the most widely held view is that China faces a property bubble, whose bust would do quite a bit of damage to the economy. The New York Times, for instance, has written several articles examining excesses in China’s property boom. One article talks about a city named Ordos in northeastern China, full of recently built apartments that sit empty of residents. Such stories strongly recall tales during America’s property bubble, of empty suburban lots built around cities like Phoenix and Las Vegas, founded on the confident assumption that prices would keep on rising forever.

To be fair, there is a rationale for the speculation in Ordos. Despite its economic success, China has a lot of room to grow. Per capita income in China is still below that of Jamaica, for instance. So the new houses in Ordo will be filled, eventually, as poor peasants migrate to the cities.

Another article in the Times describes the building boom in Hainan Island – something that is harder to defend as economically rational. The Chinese government is apparently hoping to make the place a tourist destination, and such plans have set up an orgy of new construction. It is not immediately apparent, however, why Hainan Island is a better tourist spot than anyplace else in the world. In ten years its numerous golf resorts may well be languishing in red ink. The Hainan Island boom constitutes a strong indication of a property bubble.

China’s government seems to be recognizing these signs; the official rhetoric has shifted to cooling down the economy. Recently China’s central bank surprisingly raised interest rates in an attempt to do just that.

What would a property bust in China look like?

Well, China has actually had a previous property boom go awry. This was in the 1990s, and it may have temporarily lowered growth rates from ~12% to ~8% (although that bust apparently had little effect on the average Chinese person). The last time China had non-Chinese growth rates was in 1989 and 1990; the last time it had negative growth was during 1976, the year Chairman Mao Zedong died.

Given the political turmoil that occurred on both dates, a bad enough property bust might spark similar unrest. On the other hand, China’s government probably has enough domestic credibility to weather even negative economic growth. Moreover, the country’s economy probably has enough steam – the percentage of GDP in investment and savings is unparalleled in modern history – to continue growing at >6% per year even were such a bust to occur. It would take quite a shock to throw the economy off from its current upsloping course.

--Inoljt, http://mypolitikal.com/ 

 

What Does China Think About North Korea’s Aggression?

In discussing how America should respond to the North Korean artillery attack on South Korea, almost all the discussion invariably turns to what China will do. The only ally of North Korea, China is the only nation in the world which can effectively pressure North Korea.

There has been quite a bit of debate about what China is thinking right now. Many hope that China will value its commercial ties to the West above its ties to North Korea. Others point out, less optimistically, that China wishes to preserve North Korea – if North Korea fell, millions of impoverished refugees would flood into the country. Moreover, a reunified Korea would be aligned with the West, constituting a threat next to China’s border.

All this is very much speculation and guesswork. What does China really think about the North Korean attack?

Actually, it is very easy to find out what China thinks. In fact, the Chinese government has an official press agency: Xinhua. Most people probably don’t know this, but Xinhua can be read for free online in English.

So what does China think about the North Korean attack?

Well, what better way to find out than to go read the Chinese government’s official newspaper!

Xinhua has several articles covering the incident. Unfortunately, most of the stuff is fairly boring – a simple recitation of facts. Unlike newspapers such as the Times, there is little editorializing and little insertion of opinion. In general, more room is given to what North Korea is saying without the obvious disbelief present in Western newspapers. The frame is: South Korea says this, North Korea says that, we don’t know who’s right other than there was artillery fired by both sides.

Perhaps the most revealing section was this quote:

Though Seoul blamed Pyongyang for military provocations, there is still no way to confirm who started the shelling attack.

A statement issued by the DPRK army accused South Korea of setting off the exchange of fire, saying dozens of shells from the south fell in the waters of DPRK around Yonphyong Islet at 1:00 o’clock p.m. local time Tuesday afternoon. Ensuing shellings were countering measures of the DPRK, it said.

Acknowledging it did fire shots in the area, South Korea denied any of the test shots fell in the DPRK territory.

The incident came as South Korea was engaged in a massive annual military exercises involving some 70,000 troops, launched Monday and scheduled to last through Nov. 30. Pyongyang has repeatedly warned against such military drills, usually joined by U.S. soldiers, describing them as provocations and real threats to its security.

So here one gets a pretty clear sense of what China might say: either we don’t know who really started it, or North Korea’s attack was provoked by South Korea.

This is not very comforting for the West. For multiple times North Korea has launched military aggressions that could be construed as acts of war. Reading Xinhua seems to indicate that China still is not ready to out-and-out criticize North Korea for these attacks. The North Korean artillery attacks have not been the first time North Korea has killed South Koreans without much response. As long as China’s stance remains unchanged, it will probably not be the last.

(A note: Reporting in China can often be quite different between English-language and Chinese-language news. English reports in China generally have more freedom and leeway, and therefore may be more critical. For comparison’s sake, several articles in Chinese – translated by google – can be found here and here. The translation is pretty bad, but there didn’t seem to be too much difference between what the Chinese version and English version articles were saying.)

Weekly Mulch: For Cancun Climate Summit, Activists Consider the Long View

by Sarah Laskow, Media Consortium Blogger

A year ago, it seemed possible—likely, even—that President Barack Obama would sweep into the international negotiations on climate change at Copenhagen and make serious progress on the tangle of issues at stake. The reality was quite different. This year, the expectations for the United Nations Climate Conference in Cancun are less exuberant.

The conference will be held from Nov 29 to Dec 10 and the same issues from 2009 are up for debate. Countries like the United States, Britain, and Germany are still contributing an outsize share of carbon to the atmosphere. Countries like India and China are still rapidly increasing their own carbon output. And countries like Bangladesh, Tuvalu, and Bolivia are still bearing an unfair share of the environmental impacts brought on by climate change.

A very different set of expectations are building in the climate movement this year. If last year was about moving forward as fast as possible, this year, climate activists seem resigned to the idea that politicians just aren’t getting it. Change, when it comes, will have to be be built on a popular movement, not a political negotiation.

Climate change from the bottom up

Last year, climate activists put their faith in international leaders to make progress. This year, they believe that it’s up to them, as outside actors, to marshal a grassroots movement and pressure their leaders towards decreased carbon emissions.

“There’s a recognition that the insider strategy to push from inside the Beltway to impact what will happen in DC, or what will happen in Cancun has really not succeeded,” Rose Braz, climate campaign director at the Center for Biological Diversity, told Making Contact’s Andrew Stelzer. “What we’re doing in conjunction with a number of groups across the country and across the world is really build the type of movement that will change what happens in Cancun, what changes what happens in DC from the bottom up.” (This entire episode of Making Contact is dedicated to new approaches to climate change, at Cancun and beyond, and is worth a listen.)

Fighting the indolence of capitalists

Here’s one example of this new strategy: as Zachary Shahan writes at Change.org, La Via Campesina, an international peasant movement, is coordinating a march that will begin in San Luis Potosi, Guadalajara, Acapulco, Oaxaca, and Chiapas, then converge on Cancun. The march will include “thousands of farmers, indigenous people, rural villagers, urbanites, and more,” Shahan reports.

After they arrive in Cancun, the organizers are planning an “Alternative Global Forum for Life and Environmental and Social Justice” for the final days of the negotiations, which they say will be a mass mobilisation of peasants, indigenous and social movements. The action extends far beyond Cancun, though. Actually, they are organizing thousands of Cancuns around the world on this day to denounce what they see as false climate solutions.

These actions echo the strategy that environmentalist and author Bill McKibben and other climate leaders are promoting to push for climate change policies in the U.S. All this talk about building momentum from the bottom up, from populations, means that anyone looking for change is now looking years into the future.

The U.S. is not leading the way

Of course, ultimately, politicians will need to agree on a couple of standards. In particular, how much carbon each country should be emitting and how fast each country should power down its current emission levels. The U.S. is one of the biggest stumbling blocks to agreement on these questions, especially due to the recent mid-term elections. As Claudia Salerno, Venezuela’s lead climate change negotiator wrote at AlterNet:

Unlike what many suggest, China is not the problem. China, along with India and others, have made considerable commitments to reduce greenhouse gas emissions and are already working to realize them. Other developing countries have done the same, although we only generate a virtual drop in the bucket of global carbon emissions. The key player missing here is the U.S.

China, the U.S. and Clean Coal

The most interesting collaborations on clean energy, however, aren’t happening around the negotiating table. This week, The Atlantic’s James Fallows wrote a long piece about the work that the U.S. and China are doing together on clean coal technology, the magic cure-all to the world’s energy ills.

In the piece, Fallows recognizes what environmentalists have long argued: coal is bad for the environment and for coal-mining communities. But, unlike clean energy advocates who want to phase coal out of the energy equation, Fallows argues that coal must play a part in the world’s energy future. Therefore, we must find a way to burn it without releasing clouds of carbon into the atmosphere. That’s where clean coal technology comes in. So far, however, researchers have had little luck minimizing coal’s carbon output.

A few progressive writers weighed in on Fallows’ piece: Grist’s David Roberts thought Fallows was too hard on the anti-coal camp, while Campus Progress’ Sara Rubin argued that the piece did a good job of grappling with the reality of clean energy economics. And Mother Jones‘ Kevin Drum had one very clear criticism—that the piece skated over the question of progress on carbon capture, the one real way to dramatically reduce carbon pollution from coal. He wrote:

All the collaboration sounds wonderful, and even a 20% or 30% improvement in coal technology would be welcome. But that said, sequestration is the holy grail and I still don’t know if the Chinese are doing anything more on that front than the rest of us.

On every front, then, the view on climate change is now a long one.

This post features links to the best independent, progressive reporting about the environment by members of The Media Consortium. It is free to reprint. Visit the Mulch for a complete list of articles on environmental issues, or follow us on Twitter. And for the best progressive reporting on critical economy, health care and immigration issues, check out The Audit, The Pulse, and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

 

Weekly Audit: Banks Get Big Bucks, Consumers Get Bupkis

 

by Lindsay Beyerstein, Media Consortium blogger

Last week, the Federal Reserve announced a plan to buy an additional $600 billion worth of Treasury bonds in an attempt to stimulate the economy. On Democracy Now!, economist Michael Hudson argues that the $600 billion T-bill buy will help Wall Street at the expense of ordinary Americans.

The Fed justifies the purchase as an infusion of cash into the U.S. economy. The buy-up will certainly be an infusion of cash into U.S. banks. In effect, the Fed will help the government pay back the banks that lent money to finance deficit spending. The hope is that these banks, suddenly flush with cash, will help the U.S. economy by lending money to finance projects that will create wealth and jobs (i.e. opening factories and hiring more workers).

However, as Hudson points out, there’s no guarantee that the banks are going to use the windfall to build wealth in the U.S. On the contrary, he argues, there’s every reason to suspect that they’ll invest the money overseas in currency speculation deals. Why? Because the Fed has also put massive pressure on Congress to push China into raising its currency by 20%. The banks know this because the House voted overwhelmingly to approve such a threat in September.

If the banks convert their extra billions to Chinese currency, and China raises the value of its currency in response to the threat of an across-the-board U.S. tariff on its imports, then banks that bought Chinese RMB when it was still artificially cheap will reap huge profits overnight.

Later in the Democracy Now! broadcast, Nobel Laureate Joseph Stiglitz describes how the U.S. employed a similar strategy of currency devaluation to insulate itself against the ravages of the Great Depression, with devastating global consequences:

So, the irony is that money that was intended to rekindle the American economy is causing havoc all over the world. Those elsewhere in the world say, what the United States is trying to do is the twenty-first century version of “beggar thy neighbor” policies that were part of the Great Depression: you strengthen yourself by hurting the others. You can’t do protectionism in the old version of raising tariffs, but what you can do is lower your exchange rate, and that’s what low interest rates are trying to do, weaken the dollar.

Trade war between the U.S. and China

The U.S. and China have a longstanding trade rivalry, but suddenly the two powers seem to be even more at odds than usual.

William Greider of The Nation argues that plummeting global demand has ratcheted up tensions as the two exporting nations fight over a dwindling pool of customers. The U.S. accuses China of artificially deflating its currency to make its exports cheaper. In retaliation, the U.S. imposed tariffs on Chinese tires and tubular steel. China, in turn, imposed a tariff on U.S. poultry. As I mentioned above, the House voted 348-79 in September to impose additional tariffs on nearly all Chinese imports if China doesn’t revalue its currency, though the Senate has yet to vote on this legislation.

The U.S. acts indignant about China manipulating its currency, but Grieder argues that this stance is hypocritical in light of the Federal Reserve’s decision to buy an additional $600 billion worth of Treasury bonds from the federal government to help finance the budget deficit. One effect will be to weaken the U.S. dollar, which will make our exports more competitive relative to those of China.

Voters reject free-for-all trade

In last week’s midterm elections, voters rewarded candidates who oppose unfettered free trade, according to Kari Lydersen of Working In These Times. According to a new report by Public Citizen, 60 congressional races were fought wholly or largely on trade issues in 2010. Only 37 candidates favored NAFTA-style free trade pacts and half of them lost. Not all the candidates who won on a protectionist trade platform were advocating a progressive agenda of fairly compensating trading partners, protecting American jobs, and upholding environmental regulations. Senator-Elect Rand Paul (R-KY) argued that the World Trade Organization is a threat to U.S. sovereignty.

Anti-union ballot initiatives win big

Mikhail Zinshteyn of Campus Progress brings us an update on the anti-union initiatives that appeared on the ballots in many states last week. Voters in Arizona, South Carolina, South Dakota and Utah approved legislation to preemptively neutralize the already-stalled Employee Free Choice Act (EFCA), should it ever become federal law. EFCA, also known as card check or majority sign-up, would allow workers to organize by signing up for a union, instead of going through a grueling National Labor Relations Board (NLRB) election process, which makes workers sitting ducks for management threats and propaganda.

Bean there, done that

Move over, Elizabeth Warren. The White House may be poised to appoint one of Wall Street’s favorite Democrats to head the new Consumer Financial Protection Bureau. Andy Kroll and David Corn report in Mother Jones that Rep. Melissa Bean (D-IL) is a favored contender for the job if her still-undecided race for reelection doesn’t work out. That would be heartening news for Bean’s former chief of staff, John Michael Gonzalez, now a leading lobbyist for Big Finance.

Bean, who serves on the House finance and small business committees, has received over $2.5 million in campaign contributions from the financial sector over the course of her 5-year career. Bean was also a big beneficiary of the Chamber of Commerce, which vehemently opposed the Dodd-Frank financial reform bill that created the CFPB in the first place. Bean ultimately voted for the bill, but not before she unsuccessfully attempted to water down the consumer financial protections therein, the very provisions Bean would be tasked with enforcing.

“The White House needs to beat back the Bean idea, otherwise they’ll look like fools,” one Democratic strategist told Corn and Kroll. “This is the craziest thing I’ve ever seen. She’s a tool of the financial industries.”

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

The China Blames Game

Cross-posted at River Twice Research.

So bipartisanship isn’t dead. By a vote of 348-79, Democrats and Republicans alike put aside their acrimonious differences and agreed, at least for a moment, to stop blaming each other for the sad state of American economic life. Instead, they agreed to blame China.

The bill authorizes the president of the United States to impose tariffs on Chinese goods in response to what it considers an illegal subsidy of Chinese exports in the form of an undervalued currency. It helps that the supporters in the House know that this bill has precious little chance of becoming law; it will not pass the Senate and it is unlikely that it would be signed into law by Obama if it ever came to that. As a result, the bill is the perfect campaign gesture, bombastic, angry, self-righteous, and without much real-world consequence.

The office AFL-CIO union leader Richard Trumka issued a statement that encapsulated the thinking behind the bill: “the House of Representatives voted to put an end to the Chinese government’s currency manipulation, which has destroyed millions of good American manufacturing jobs. For more than a decade, the Chinese government has deliberately manipulated the value of its currency, ballooning our trade deficit with China and costing American communities good jobs….Working people continue to mobilize to elect candidates who will put America’s workers first and are committed to rebuilding an economy that values working people. This November we will send a powerful message that we will support those who vote for an economy that works for everyone.”

 

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