China, not looking to step up, not ready to step up, but needs to step up—now

ARTICLE: “China’s Economy: Domino or dynamo? China is pretty well placed to cushion a global downturn,” The Economist, 11 October 2008.

ARTICLE: “China Slows, World Feels the Pain: U.S. Government Weighs Stimulus; Chinese Economy Cools Faster as Exports Soften,” by Andrew Batson and Ian Johnson, Wall Street Journal, 21 October 2008.

ARTICLE: “China, An Engine Of Global Growth, Faces A Global Slump: New Strains On Beijing; Strong Economy Vital to West’s Recovery and Communist Rule,” by Jim Yardley and Keith Bradsher, New York Times, 23 October 2008.

China’s most recent quarter reports drop to 9% from previous range of 10-11%, and experts predict a further decline to about 8%, a mark most consider the lower ranger of acceptable growth in China, given everything it’s trying to accomplish.

The culprit is simple enough: decline in U.S. demand. Turns out—as I love to preach—that supply isn’t exactly king-making power in the global economy, demand is.

What do we now define as China’s real and much-needed power in the global economy? Its ability to drive some domestic demand in light of recessionary downturns in both Europe and the U.S. So the focus now is on how Beijing might stimulate domestic demand “in a nation known for high savings rates.”

Time to use that $1.9 T in reserves.

Although China’s banks are overwhelmingly domestically focused, the local stock markets lose 65%. Back when the Asian Flu hit in 97-98, the CCP responded with a huge gov spending spree over 98-00. We should expect to see that occur again.

But since China’s already spent a lot on infrastructure, it’s getting harder to find good projects to spend on, so claims the article.

Hmmm. Morgan Stanley predicted China would spend $8T on infrastructure over the next decade. I would assume the complaint here is about trying to find more to spend.

Time to start sending more credit card offers in the mail, me thinks.

Still, hard to ask China to do too much more. It already accounts for 1/3 of global GDP growth nowadays. There are sheer limits to growth.

One area to improve? China needs to make home ownership easier. You have to put down 20-30% in China, despite a declining ratio of house prices to average incomes over the past decade.

Lighten up, baby! Because nothing credentializes the regime like home ownership. People with stuff to protect like their government more.

Comments

[Dean Wakeham]

I was in China last summer, finishing up my MBA at UCLA Anderson. There are State Owned Entities (SOEs) including energy companies which are looking for FDI and in a city called Baoding, they are developing China's energy valley. Here they are doing things like making wind turbines, solar panels, and major electricity infrastructure (transformers, etc.). They are wanting to bring power infrastructure to the rest of China and are hoping to do it with renewable energy. They even make a portable solar panel for very rural areas which you can hang over your pack animal, so you can charge a battery/fuel cell to then power your TV at night.

I also think that development of water purification and clean up of their rivers are key opportunites where development of infrastrucute is badly needed. When we were there, they said of the 3 major rivers, 97% of the water monitoring stations (I believe it was something like 400 total) tested the water as not fit for human consumption.