This will be an unusual entry in that rather than focus on economic analysis I want to address one of the too-widely-repeated myths common outside China which, I think, may distort some of our understanding of China’s growth trajectory. One of the more absurd claims often made by foreign observers with little knowledge of China is that only “foreign pundits” (why must they always be “pundits”?) are worried by China’s debt levels, the undervaluation of the currency, the financial system, or the development model. Chinese scholars, according to this line, are actually very bullish about everything happening in China and agree very broadly on the measures that have been taken, and so the opinions of foreign worriers should be heavily discounted because clearly they cannot know more than the locals.
This is wrong on two counts. First, there is very little historical evidence that foreign observers tend systematically to be less-often right than local observers. In fact many of the great economic problems in recent years, including Japan’s bubble economy in the 1980s, Argentina’s external debt trap in the late 1990s, Iceland recently, and the Chinese banks at the end of the last decade, (not to mention Keynes’ criticisms of US policies in the 1930s) were first brought to serious attention by foreigners, whose warnings were often enough stubbornly rejected by local observers as being overly pessimistic and caused by the typical foreign misunderstanding of “our culture”.
Second, it is simply not true that Chinese scholars are largely cheerleaders for China’s development policies, and certainly not to the extent that foreign observers tend to be. In fact the discussion within China is far more sophisticated, and fierce, than anything outside the country, although the ferocity of the debate is often disguised by a certain shyness on the part of most of the mainstream Chinese press.
I mention all this because People’s Daily had a very interesting article on the subject several days ago in response to a conference held at my school, Peking University:
China’s unusually high lending growth last year has sparked differences among the country’s top economists as the central bank seems to be taking new measures to contract credit and control inflation. While many economists believe that control of credit is a must to prevent serious inflation and ensure stable growth, some hold that too drastic a contraction could lead to stagflation.
“Currently the government shouldn’t steer off the easy monetary policy track to avoid possible stagflation, which is symbolized by not only inflation but high unemployment,” said Li Yining, professor and dean emeritus of Guanghua School of Management of Peking University.
China may get stuck in stagflation even with a mild GDP growth like 6 percent year-on-year, given the huge unemployment pressure caused by its large population, said Li, one of the most influential economists in China. He made the remarks on the 11th annual China economic forum held by the school. He warned that too early an exit strategy could affect employment and increase the possibility of stagflation at a time when the country’s economic recovery is still not solid enough.
China initiated a massive 4-trillion yuan ($586 billion) stimulus package in late 2008 to overcome the fallout of the global financial crisis. Its new lending was expected to amount to 9.5 trillion yuan in 2009, almost double the previous year. The ample liquidity, while helping the country meet its GDP growth target of about 8 percent in 2009, has triggered concern that the menace of serious inflation may loom large this year.
Zhang Weiying, economics professor and dean of the Guanghua school, warned that excessive credit expansion and low interest rates are the root of all financial crises in history and cause high inflation and massive toxic assets. ”We need to notice that this round of credit surge (in China), boosted by the 4-trillion-yuan stimulus plan, comes on the back of continually strong economic growth for many years,” said Zhang. That means the scale of credit last year was exceptionally large.
By coincidence, the day before, another Peking University economist, Huang Yiping, published a piece in the East Asia Forum making his not-so-rosy predictions for 2010. They were:
1: The renminbi will probably begin to appreciate against the dollar.
2: Job market pressures may rise again even as the economy recovers.
3: Housing prices will probably begin to weaken.
4: Structural imbalances are likely to worsen.
5: The government will likely introduce another stimulus package
His comments on his fourth prediction are worth repeating:
Almost all policymakers, from the Premier down, are talking about adjustment of economic structure in order to improve quality of growth. This is very positive. But the measures being considered, such as better credit allocation, remain administrative in nature. In fact the government has been doing the same for at least seven years. But the imbalance problems continued to worsen. I don’t see any difference this time round.
…The root cause of the structural imbalance is distorted incentive structures, especially depressed factor costs. Until more decisive steps are taken to liberalise factor markets, adjusting economic structure could remain on the top of policy agenda every year for a very long time.
So were his comments on his fifth prediction:
Although most analysts expect China’s GDP growth to be at 9-10 per cent in 2010, it is unclear whether strong growth can sustain itself without the helping hand of the government. The ideal scenario is that when the RMB 4 trillion spending runs out, either exports or consumption or private investment or a combination of these would be strong enough to carry forward the growth.
But it is not clear that this will happen in the near term. Exports should recover but they are unlikely to return to the levels achieved before the crisis. The growth potential of the global economy has shifted lower and rising saving ratios further limits potential for China’s export growth. Consumption has been resilient, partly as a result of the stimulus measures. Without strong income growth, the consumption momentum could weaken. Private investment remains weak outside the housing sector.
Along similar lines, yesterday John Garnaut published a piece on his correspondence with one of my favorite Chinese economists, Yu Yonding, from which it is worth quoting a longish selection:
Yu, the recently retired director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, did not explicitly say I was barking mad. But his email continued: “When a country has an investment rate over 50 per cent [of] GDP and rising, you say this country is not suffering from overcapacity! … are you serious? ”To judge whether there is overcapacity you cannot just do a head account. With a 1.3 billion population and human greed, China’s needs are unlimited, you can say that China will never suffer from overcapacity!”
The email noted that, on my logic, no developing country could ever suffer from overcapacity until it became rich and that the world should never have suffered a Great Depression in 1929.
Since that salutary critique, Yu has elaborated further on his views.
He believes China is trapped in a cycle where constantly rising growth in investment is constantly increasing China’s supply, but consumption has conspicuously failed to grow fast enough to absorb it. And so China is forced to increase investment in order to provide enough demand to absorb the previous round of increased supply, thus creating ever-widening cycles of oversupply.
In this manner, the investment share of gross domestic product has increased from a quarter of GDP in 2001 to at least half. “There is sort of a chase – demand chasing supply and then more demand is needed to chase more supply,” he says. “This is of course an unsustainable process.”
From 2005 China’s overcapacity problem had been “concealed” by ever-increasing net exports – but that strategy was interrupted by the financial crisis. Then came last year’s globally unprecedented stimulus-investment binge, which might not have been so worrying if it were delivering things that people needed. But the Government’s hand in resource allocation has grown heavier since the crisis without reforms to make officials more responsible for what they spend.
“As a result of the institutional arrangements in China, local governments have an insatiable appetite for grandiose investment projects and sub-optimal allocation of resources,” as Yu previously said, in his Richard Snape lecture for the Productivity Commission in November.
So there are now airports without towns, highways and high-speed railways running parallel, and towns where peasants are building houses for no reason other than to tear them down again because they know that will earn them more compensation when the local government inevitably appropriates their land.
Meanwhile a few weeks after Zhang Bin, a CASS economist, called for a 10% one-off revaluation (I discussed this two weeks ago on my blog), Zhang Shugang, another CASS researcher, argued that “China’s exchange rate is distorted, and China has been undervaluing the yuan to keep export prices low and to gain competitiveness.” According to an article in today’s South China Morning Post:
Mainland must let the yuan rise because its undervaluation is fuelling domestic economic imbalances, such as a stunted services sector, a mainland researcher said on Tuesday.
…While Zhang’s views in no way represent Beijing’s official stance, they do reflect a simmering debate among government-linked researchers about whether and how mainland should let the yuan rise again after effectively re-pegging it to the US dollar since the middle of 2008.
The article goes on to describe the range of opinions in the debate.
Premier Wen Jiabao said in late December that Beijing would not give into foreign demands to let the yuan rise because these were little more than attempts to stifle the country’s growth.
[But] Shi Jianhuai, a professor at Peking University, also added his voice to the camp calling for a stronger yuan, saying in an interview with local media on Tuesday that yuan appreciation would force mainland exporters to move up the value chain.
“If we were short-sighted and cared about nothing but growth this year, we would continue the dollar peg and distort the economy,” Shi told the 21st Century Business Herald. But if we cast our sights a little bit further and are willing to accept some short-term pain, we should see through quick market reform of the exchange rate, letting the yuan rise and float freely.”
…But powerful interests and officials are arrayed against proponents of yuan appreciation. Chinese Commerce Minister Chen Deming last week restated the government’s official view that a stable yuan had benefited the global economy and that any exchange rare reform would be gradual.
As the South China Morning Post article indicates, it is not just among think tanks and academics that a debate is taking place. One of my former students who now trades interest rates for a major bank in Shanghai sent me a report yesterday in which analysts sought to interpret what was rumored to be a fairly substantial argument in the State Council about increasing the lending quota for 2010, which as originally set at RMB 7 trillion. In the end, after furious debate, the quota was increased by a mere RMB 0.5 trillion. My former student’s conclusion (and that of most market participants): the huge fight over such a small increase shows just how divided policymakers are.
Meanwhile yesterday on Caing, in an article titled “Cloudy with a Chance of Torrential Credit”, the author discusses an “unusual” emergency meeting at the PBoC to discuss and react to a panic-inducing burst of new lending in the first two weeks of January (apparently 15% or more of the year’s quota was disbursed in the first two weeks of the year).
Sources close to the central bank say that the State Council’s dissatisfaction with loan growth mainly stems from its large size, uneven pace and irrational structure. “The State Council is looking at credit numbers daily,” the source said.
The point of all this is to suggest the richness and even ferocity of the internal debate taking place within China. There is a tendency I think, especially among the foreign cheerleading fraternity, to ascribe a unanimity of opinion within China and to see this both as a good thing and as a confirmation of the views of the cheerleaders.
I would argue that this is wrong on all three counts. First, there is most certainly no consensus. The debate in China is as fierce and as well-informed as it is anywhere in the world. Second, unanimity, or even strong consensus, would not be a good thing for China. Given how complex matters are, any strong consensus would simply represent a failure to debate the issues, and a corresponding increase in the probability of making horrible policy mistakes. In fact if there is a rapidly growing consensus about anything it is that policymakers seriously flubbed the chance to force through adjustment measures, such as a revaluation of the RMB, earlier when conditions were much more propitious and when the cost of adjusting would have been much lower. Third, cheerleading tends to occur far more enthusiastically among foreigners than within China. That is clearly a good thing.
At any rate as the debate rages on, this weekend I will go to DC and NY for a week of meetings, so I’ll probably not be posting anything for a while.
Another great post. Is there any authoritative source on where the government and ban stimulus was directed? Everytime I read an article on China I see a different answer.
Michael
Thank you for the marvelous post and links. It will take a while for me to absorb all of it.
I do understand your fondness for Yu Yonding: “There is sort of a chase – demand chasing supply and then more demand is needed to chase more supply…”
A compound growth trap perhaps?
One wonders what will transpire if the voices of the status quo in China prevail, with more of the same until the emergence of a Chinese variant of a black swan.
Would you care to hazard a guess ?
Michael,
You should have quoted Thomas Huxley……..
“There is a wonderful truth in that saying. Next to being right in this world, the best of all things is to be clearly and definitely wrong, because you will come out somewhere. If you go buzzing about between right and wrong, vibrating and fluctuating, you come out nowhere; but if you are absolutely and thoroughly and persistently wrong, you must, some of these days, have the extreme good fortune of knocking your head against a fact, and that sets you all straight again.”
THH (THE PRINCIPAL SUBJECTS OF EDUCATION)
Hi Michael,
Well, let´s see if I can change your mind about the role and importance of Chinese reserves. First, a few questions:
1. Is it reasonable to compare a bank loan to an established reserve asset?
2. Do you believe that the whole of the reserves were constituted through internal debt?
3. Why do you refer to reserves as wealth?
4. Don´t you think that wealth comes from labor and that its intensity is what explains a certain capital accumulation level at each point in time?
And I will finish repeating my previous question: Can´t you imagine various powerful ways how 2,4 trillion dollars can be used by and in China´s advantage? Trying to answer I´m sure your understanding will change.
Regards,
Christopher.
Well said.
Will you be giving any public talks in NY this weekend?
The debate is raging on …
Right at the heel of the biggest financial crisis since the Great Depression …
We are all good students with good short term memory (though not so great longer term) …
Like listening to the pattering rain drop outside the window while curled up in a warm bed…
I will surely sleep very soundly this year knowing everything will be fine!
At least this year and maybe next!
But Michael, Western pundits have been incorrectly predicting the collapse of the Chinese economy for the past several decades. Economist Jim Chanos on CNBC predicted last week that the Chinese real estate economic bubble will “crash hard and soon”. Perhaps there is evidence of a speculative real estate bubble in a few Chinese cities, but the China PBoC is actually trying to address the economic situation by tightening credit and raising standards. Some day these “impending doom” predictions may come true, but I wouldn’t short China just yet. Instead of collapsing China, the wrenching global financial crisis badly damaged the United States credibility in economic management. Bernanke still even blames the US financial crisis on a “surplus savings glut from the Chinese” that somehow forced Americans to overconsume and Wall Street to speculate on subprime junk bonds. With greater government involvement and strictly controlled capital markets, “Socialism with Chinese characteristics” has proven superior over unregulated Neo-liberalism casino capitalism.
Great post.
CASS economist Yu Yongding is hardly a cheerleader. In spite of his stated optimism regarding the longterm prospects for China’s economy, he seems to be fully aware of its enormous structural problems and the likelihood of very serious troubles ahead. In addition to the following speech which he delivered in Australia in November
http://www.pc.gov.au/__data/assets/pdf_file/0003/92595/2009-yongding.pdf
there is this article which appeared in the Sydney Morning Herald just a day or two ago
http://www.smh.com.au/business/chinas-runaway-growth-train-on-a-dangerous-course-20100124-msll.html
Sometimes the sky really is falling.
I found the issue of stagflation an interesting one. As described China will experience high inflation, while at the same time high unemployment, but still be able to grow at perhaps 6% growth.
This could only happen, as you have said many times, if you create incentives that favor one sector over another. In China’s case the most glaring example is the subsidies for banking and investment at the expense of savers and consumers. The level of mal-investment, or as Zhang Weiying said, toxic assets, must be high to have both high growth and high unemployment. The high growth will come from new investment, and the unemployment will result from the high level of mis-allocated resources, where the labor market is several years behind the investment curve.
To experience high unemployment while experiencing 6% growth would indicate that a substantial portion of the previous investment boom was very poorly allocated. This mis-allocation of investment must, as a result, become a serious drag on the banking sector. That drag will either lead to a serious banking sector correction, resulting in far lower lending, as banking capital structures would be stretched, or the banking sector will be subsidized with extremely low borrowing costs, and high lending returns. If the latter happens then consumption must be limited, as consumption will be subsidizing the investment/banking sectors.
This will of course make China more dependent on exports, enhancing the coupled relationships between East and West, as opposed to China increasingly becoming decoupled which many believe is happening. This will require the West to continue the high consumption levels or China will be forced into a serious correction, and the high growth (6%) will not be possible to support.
Here’s another recent Yu article that might be of interest:
Managing China’s Crisis Management
Yu Yongding
http://www.project-syndicate.org/commentary/yu1/English
OGT, on issues like these there are no authoritative sources. Everyone develops his own “credible” sources. One bank, however, (Credit Suisse, if I remember right) recently published a research report in which they asked senior bankers at seven banks whether or not they had been told to stop lending and published their answers – of course without identifying the bankers or the banks. Six confirmed that they had received instructions and the seventh refused to answer.
Nada, one of my points is that I don’t think there is an intellectual “status quo” in China. There is a real debate, and, not surprisingly, the positions in the debate are often influenced by the political orientation and incentives of the debaters, but it is not clear how the debate will evolve. In the past few months we have seen more and more Chinese analysts insisting that an RMB revaluation is not simply a plot hatched by the enemies of China to destabilize the country, but rather that it will actually be in China’s best interest to revalue. Although I think they are clearly in the right for the medium-term outlook, what always matters is what the short-term consequences are and how different constituencies are affected, so that the country will move in their direction only to the extent that constituencies that support a revaluation get the upper hand. That, for me, is the importance of inflation. If inflation rises, the balance of power clearly tips in the direction of revaluation.
Christopher, to answer your questions.
1. Yes, because both are debt claims. The big difference is that central bank claims are mostly highly liquid and with very low credit risk, whereas commercial banks have more credit risk.
2. It is not a question of belief. Except in the very rare instances (none that I know) of central banks accumulating reserves via generous bequests from individuals, reserves must be purchased, and those purchases must be funded either by borrowings or by the creation of currency. The net equity position of the central bank may rise or fall, depending on how differential currency movements affect the currency mismatch, but in the case of the PBoC, this is a one-way risk that can only result in an erosion of net equity (technically there is one exception – a fall in the dollar against non-dollar reserves with no concomitant rise in the value of the RMB against the dollar would result in an increase in net equity, but this effect is overwhelmed by the other).
3. I do not. Reserves are most emphatically not wealth.
4. I have no idea what you mean by that and am pretty sure it is wholly irrelevant to the analysis of central bank balance sheets.
I wonder if you have spent much time trying to understand the nature of central banks and central bank reserves? These are not obscure points that I am raising.
Kevin, my schedule is pretty tight so I won’t do many public talks. I will be speaking at a conference on China and Latin America in DC on February 2 in the early afternoon and at Columbia University later that evening, in Bruce Wolfson’s class. I may also do something February 8 at Harvard, but not finalized.
Dave, I have heard that statement made dozens of times and I think it is incorrect on three accounts—and so widespread that it makes sense to address it. First, the implicit claim that “Western” pundits have been bearish on China is nonsense. Most western commentators on China are, in my opinion, absurdly bullish – and almost breathlessly silly at times. A few Westerners have been bearish, but they have tended to be in the minority.
Second, the claim that bearishness is a phenomenon that has been largely restricted to Western pundits is also nonsense. As I have argued many times, and presumably proven in this particular post, the strongest and fiercest criticisms of the Chinese development model have almost always come, as they properly should, from Chinese “pundits”. Your argument that the Chinese economists are too simple-minded to understand the considerable risks their economy faces is to me quite bizarre and is more a product of Orientalism than of real understanding..
Third, the idea that the warnings in the past 30 years have always failed to come true is astonishing. Do you spend any time at all reading about recent Chinese economic history? Or do you, like most foreigners, assume that a crisis can only be said to have occurred if people in the US and Europe lose money on their stock portfolios? China experienced a difficult crisis in 1985-87 that was severe enough to be blamed for the political events of 1989. It experienced another brutal crisis in 1993-94 that, according to many people I know here in China, nearly caused a government crisis far more serious than 1989. Finally at the end of the 1990s and the beginning of the last decade it experienced a banking crisis that, according to the World Bank, cost over 50% of GDP and resulted in the firing of tens of millions of workers. I know that to many foreigners these don’t really count as crises because your stock market portfolio didn’t fall in value, but to most people here these were pretty brutal events.
The idea that China will grow over the long term is perfectly compatible with the idea that it will nonetheless experience many crises over the short term. In fact every successful developing economy has followed a very bumpy road. Pretending that this can’t happen to China is just plain silly. I am a little perturbed by how little knowledge of China it seems to take for people to become bona fide experts on China.
Michael, I don’t understand why you have to spend time on someone who is paid 50 feng to write a posting in praising the superiority of the mafia controlled authoritarian capitalism. I don’t see how Newtonian laws would apply to Chinese economy at all, in a system that is described as:
“With greater government involvement and strictly controlled capital markets, “Socialism with Chinese characteristics” has proven superior over unregulated Neo-liberalism casino capitalism.”
Christopher and Michael:
On the issue of reserves as wealth, perhaps I can try to simplify. (Michael, correct me if I am wrong.) China’s dollar reserves are built in the following way. China’s exporters sell in US dollars, and convert those dollars through the PBOC and SAFE into RMB at a pegged exchange rate (currently about 6.83). PBOC has to print RMB, effectively, to do this, which is partly the reason that Mq has been growing at 25% or so annually. The dollars, of course get invested in US treasuries or other dollar denominated assets as decided by CIC or some other Chinese government body. In order to reduce the inflationary effect of a ridiculously large increase in the money supply, the PBOC issues “sterilization bonds” which it forces Chinese banks to purchase, effectively taking the money out of circulation, even though I believe it is still counted as M1. Through sterilization bonds, reserve requirement increases, jawboning lenders, the central bank can reduce the inflationary effect of RMB supply increases.
So, are these instruments of wealth? Effectively, the Chinese government has borrowed from that exporting depositor (or crowded out the prospective Chinese borrower who could have borrowed this liquidity from the Bank). Not to speak for Michael but this has been his point…China’s “wealth” is achieved by forcing the working masses to deposit their RMB in low yield deposit accounts. It’s debt the Chinese government owes its citizen depositors.
Patrick Chovanec has a good explanation of the sterilization bonds on his blog at
http://chovanec.wordpress.com/2010/01/17/is-inflation-stalking-china/
Professor Pettis: Thanks for a great post on the internal debate in China.
The wide range of views you cite may reflect the difficulties of assessing how distorted economies adjust to huge shocks — compounded by partially liberalised financial markets, distorted incentive structures and lousy data. Hence, using any other countries’experience as a guide to the future is probably hazardous.
That said, I assume that your previous reply using Japan in the late 1980s as a better comparator, than Japan in the l960s — is because of the 1988-89 credit,land and asset price bubble?
If so, why aren’t the pessimists lauding the recent measures to rein in excess bank reserves, tighten credit standards and the trial balloons being floated of a unilateral revaluation of the RMB?
Finally, do you know of any credible estimates of fiscal positions INCLUDING unfunded contingent liabilites (NPLs, social security, etc.)? According to IMF estimates, China’s fiscal deficit is projected at 2-3% of GDP for 2010 — while the US figure is in double digits. Even including future NPLs, I find your aside that the fiscal deficits (and debt/GDP ratios?) in China and USA may be quite similar surprising — as the USA social security system may be actuarially bankrupt, while China’s demographic time bomb is a bit further down the road? best regards James
I read your article in FT today ( http://www.ft.com/cms/s/0/3236fe3c-0ab2-11df-b35f-00144feabdc0.html )
Interesting as usual. One point however; that China and the deficits countries need to act together to adjust the global imbalances in an orderly fashion, I totally agree about. But a problem is that China seems to not even recognize that anything is wrong (at least in its actions, even if the internal debate is fierce) and does not want change current policies. What should the deficits countries do?
Michael, prior to the US financial crisis, Ben Bernanke and Hank Paulson travelled to Beijing to lecture the Chinese on the management of their socialist-market economy. The US Economy was portrayed as a stellar example of unregulated Neo-liberalism capitalism by Bernanke delibering his speech at the Chinese Academy of Social Sciences in Beijing (ie. Dec 15th 2006). By contrast, the regulated Chinese economy was portrayed as a dinosaur, inefficiently allocating capital and lending itself to an eventual financial collapse with massive social disorder. It’s actually disturbing that the Federal Reserve would involve itself in foreign policy affairs with the political position of the US Treasury / Government Sachs. Yet even after the US Financial crisis, Bernanke denies any role of Federal Reserve monetary policy and regulation, but instead blames the US Economic imbalances on a “surplus savings glut by the Chinese”.
http://www.usnews.com/money/blogs/capital-commerce/2009/04/14/bernanke-blame-china-not-greenspan
Gull-Up Huang, i imagine Prof Pettis does it because it is easy, and also quite entertaining (to me at least!), especially when the other protaganist almost always fails to address where his / her arguments have been so thoroughly exposed as nonsense.
Prof. Pettis, thank you again for the post. And a special thank you for spending your time replying to our comments! (in particular when you have to repeat yourself week in, week out about the same misconceptions. Maybe you could create a nice little menu on the right somewhere so you can direct people to such explanations – eg Reserves are not wealth (i think this is the one you spend the most time re-explaining on this blog!). Anyway, Bon Voyage to the US!
Chiang: “It’s actually disturbing that the Federal Reserve would involve itself in foreign policy affairs with the political position of the US Treasury.”
Why? Because it would imply that the Fed is not independent? Unlike, say, the PBOC? Do you even understand what you are saying, or are you just trying to undermine Chinese nationalists by making them look like dopes?
I am glad Mr. Pettis responded to that particular comment by Chiang because I have heard it made several times before, and it always seemed wrong to me. Now I am sure that it is wrong, although it looks like the response flew completely over Chiang’s head again. Again. Also, WangL, Chiang is not Chinese. He is ABC, I think, but with a deeply rooted inferiority complex about being Chinese.
James, FWIW I found Tong Li’s (Milken Institute) paper on NPLs pretty credible: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1278235
I think it was Michael who first pointed it out. It does not discuss other contingent liabilities.
re Jim Chanos: I don’t know if he’s an economist or not, but the reason they put him on CNBC is because he’s such a good short seller. He’s never waited around being wrong for 30 years about anything that I know of. The last public call he made that I can remember was around last Spring, I think. It was that Dubai had more buildings with debt than buyers/renters with money. When will these doomsayers just get on the bus?
Michael, in during your conversations with policy makers has there been any concern about the possibility that internal stimulus measures may be exhausted?
The reason I ask is I came across a CBRE report that showed between 2005-2009 the amount of office space constructed or under construction in China has equalled 26.6 billion sq ft. For some perspective the labour-force is 800 million. Even if 70% of the labour force worked in offices that would mean that since 2005, 47.5 sq ft. per person of space has been constructed (or under construction). This excludes both the existing (prior to 05) inventory and the amount retired.
Surely the pace of development cannot go on as it is. What other areas can China turn to?
Michael
If your schedule permits you to appear at Harvard on February 8 please let us know.
I live near the campus and would appreciate having an opportunity to hear you speak.
I’m guessing this perception has partly to do with stereotypes many Americans hold of Chinese culture, i.e. uniformity, discipline, insularity. And talking with a cab driver on the way to a five-star hotel passes for cultural interaction for too many commentators in the U.S., whose job it is to present realities to the larger public.
“I am a little perturbed by how little knowledge of China it seems to take for people to become bona fide experts on China.”
This reminds me of something a professor of mine once told me at a time when I thought I knew everything there was to know about China: “There’s a big difference between a China hand and a China scholar.” The former are a dime-a-dozen, and proof that a little knowledge really is a dangerous thing. I, for one, was so much more certain that I understood China before spending 5 years in China and 8 in graduate school. The more I’ve read and learned, the less certain I’ve become. A few of the commenters here could benefit from a seminar or two.
Hi Michael,
Thanks for all the great posts and insight. In my opinion, your blog (and the lecture you gave to IMUSE in Aug-2009) is among the best resources on the Chinese economy.
This post reminds me of a psychological bias called the outgroup homogeneity effect. I believe that it is prevalent in economic, political, and academic spheres, and I have witnessed it (or so I think) in many of my travels.
In short, the outgroup homogeneity effect (or bias, as it is sometimes called) makes individuals perceive their ingroup as being more heterogeneous than outgroups. In the case of China’s economy, it is the natural tendency of outsiders to perceive Chinese economists as (more or less) homogeneous. One of the main causes of this bias is the asymmetry of information that outsiders have about the Chinese economy, especially given language barriers that may prevent outsiders from seeing a strong debate within China. While knowledge of this effect does not excuse the (exaggerated) “myth” that you present in your post, it may help explain one of its causes.
Thanks again for sharing your perspectives.
Warm regards,
Leo
http://www.gmfus.org/doc/GMFPower%20Shift%20Asia%20Paper_for_web%200128.pdf
Prof Pettis, not sure if you have seen the above PDF report from the German Marshall Fund. It repeats this point that China is an important creditor to the US. I know you have commented on this before, but was wondering if you have any thing to say about this report.
It is not only on economic issues that many “pundits” believe there is no debate in China. Your comments should be widely dispersed in the US and elsewhere so people understand the serious, vociferous debates that occur in China on a wide range of issues including political reform, social reform, education, health care etc