I’m in China this week and have had limited internet access (and time) to post while bouncing between meetings and cities. I’m here as a guest of the China-United States Exchange Foundation and traveling with a great group including MSNBC’s Jonathan Alter; ThomsonReuter’s new acquisition the kidnapping-defying David Rohde; National Public Radio’s managing editor David Sweeney; and Daniel Gross, now at Yahoo Finance and author of one of the most fun and counter-intuitive books I have read on economic history, Pop! Why Bubbles are Great for the Economy.
I personally think that the US has overdone its bubbles and is now paying a heavy price — but Gross’ book is still a stimulating and important take on innovation and how it works.
There are probably significant economic bubbles embedded in China’s political economy — I just can’t find them. Some argue that the entire country is a bubble, or a ponzi scheme, that will collapse the moment China has a really bad year. Very few of the people we have met here have been able to navigate the question of what happens if the great numbers we keep having recited to us about improved water quality, more good air days, surging levels of year on year economic performance, more patents issued, all in accordance with primary targets in the 11th 5-year plan.
China’s bank reserve requirements are 21%. These must be among the
highest reserve levels in the world. Housing prices are falling at the
moment as the government is working to rein in speculators — but the
fall off is minor and it is not creating a cascading spiral downward as
over-leveraged real estate holders dump holdings. Most second, third,
seventeenth homes bought by China’s new rich, who the Chinese are
beginning to call “the golden collars” are bought with cash full board
— no leverage.
The odd thing as that many of these homes sit
vacant as many Chinese who buy more homes as investments don’t want to
spoil the home with renters — and when they sell, they want to sell
them new. The indifference to rents shows to some degree how
under-leveraged some key sectors may be.
Carnegie Senior Fellow Michael Pettis has one of the best blogs in the China-watching business and his work would be good to troll through for those digging into the China bubble question.
gut at the moment is that as the renminbi continues to rise, China will
do what Japan did after the September 1985 Plaza Accord after which its
currency significantly rose and begin to collateralize more of its
assets and expand China-directed manufacturing capacity all around the
world. Japan experts Karel van Wolferen and R. Taggart Murphy provide
some of the best late 1980s/early 1990s chronicles of Japan’s global
expansion fueled by a strong currency. China’s global diversification
could make what Japan did look trifling.
It’s a cliche of course,
but China is big — it has such huge scale and discipline that it can
move its bulk impressively fast towards national objectives.
have many friends who worry about America’s ability to compete with
China and are concerned about Chinese mercantilism. I worry about these
issues as well and have since the early 1990s. Many are late to the
But what I find few Americans who poke at China want
to answer is what would they do differently if they were driving the
helm of China’s economic machinery. Chinese industrial policy,
education policy, innovation policy, investment policy, trade policy,
and more are models that the US could learn from, or remind itself
America simply doesn’t tend to its interests in the
nationally cohesive way that I see here in China — where problems
abound, and probably corruption. The State probably makes too many of
the decisions in China — but still, China is moving and the US, in
contrast, seems stupidly paralyzed.
If I see another industrial
park in China with a basketball court sized model of the successful
development of one of some eighty different national development zones, I
feel like I want to push a pencil through my head. It’s all
impressive, all looks successful — but my frustration is not with
hearing for the seventh time a routine script offered by the very nice
hosts of these industrial, high tech, and software parks — but in my
own lament that one just doesn’t see much of this anymore in the United
States. Maybe in Raleigh-Durham. Perhaps in Rio Rancho and Wichita —
but very few places.
We visited Applied Materials’ impressive
solar panel and semiconductor equipment manufacturing R&D facility
in Xian today (yes, where the Terra Cotta warriors hang out), and a
data point that just shows what a steep hill China has climbed — and
what a challenge faces the US in its renewable industries and jobs
objectives — is that approximately three years ago, China had about 5%
of the global solar production capacity. Today that figure is 50%. And
if one adds Taiwan, the figure is closer to 70%.
This is Andy Grove/Gordon Moore fast — and this is China’s “government”
moving that quickly in partnership with industry.
the paralysis in Washington — the inability to move a serious jobs or
infrastructure plan not only in Obama’s recent legislative effort but
since he came into office — assures that America is quickly forfeiting
opportunities, growth, and its role as the cutting edge of the global
economy to China. America needs to wake up.