99 Comments
Apr 27, 2021Liked by Noah Smith

Wow, we have some angry wumao in the chat today, huh?

For my money, by far the biggest question is how the CCP will handle the rapidly-unfolding demographic crisis. Pretty much everything else stems from this. It poses serious threats to the CCP's ability to continue plowing huge amounts of money into military modernization and foreign projects, and also undercuts the overall narrative of a rising, vitalist China vs. an enervated West; China is about to become a far older society than the US even as it potentially surpasses the US economically.

In the short term, I imagine Beijing is also rather uneasy right now due to the COVID outbreak in India, specifically in how it mirrors the CCP's COVID strategy in terms of India having sent large quantities of vaccine abroad. I don't expect that the CCP will have any similar issues at home, as their ability to snuff out any outbreaks before they balloon out of control is pretty robust (and I certainly hope that they're able to keep it under control!) but given the huge quantities of vaccines they've sent abroad, they really cannot afford any kind of outbreak domestically.

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Apr 27, 2021Liked by Noah Smith

There has been no shortage of criticism of the BRI from the beginning. Too many mediocre projects have been funded. Nationally many Chinese wonder why China should fund poor countries when there is no shortage of domestic problems.

Now with BRI losing momentum, this may be the perfect time for other Eurasian actors (like India, EU, ASEAN, Russia, Japan) to join and shape the BRI, somewhat on the model of the AIIB.

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Let's not forget how badly their one child policy and the large, lonely male populous is going to hurt them in the long run. They're going to be a noticeable source of instability.

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A couple of points made my Michael Pettis:

(a) BRI problems due ot over-confidence and inexperience. Pettis compares US experience of lending to South America long ago. The Brtish had learned how to do it. Basically what Noah says.

(b) G DP is an input figure. The CCP sets it and local governments and SOEs do what is needed to meet it. But much is just wasted infrastructure investment and house building. GDP goes up (for that year) but debt is increased while the wasteful investments do not increase debt servicing capacity. Does this matter? Chinese seem to think so because they are trying to constrain debt. What happens, though, if they just keep going? Pettis is rather coy here. You can mention the Japanese experience, decades of lower growth, but actually Japan seems to be doing OK.

The question for me is what happens in a closed economy when the government prints money to fund various favoured projects, taxing as need be to control inflation. Perhaps you cease to have a market economy and instead have a command economy as in the old Soviet Union?

The modes of failure of a debt driven Chinese economy are in the end a mystery to me.

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Didn't see it mentioned - perhaps it's implicit - but the biggest risk I see for their government is managing the labor share of income falling to their middle class (such as it is). Their export dominance (which they're trying to solidify through belt and road) depends upon keeping wages down. History shows us that labor can only tolerate this for so long once they get a taste of rising standards of living. That class / labor challenge will define their political and economic challenges going forward. It either ends in political change or rising labor / middle class share of income and a shift away from an export-driven economy.

At least, that's what I've picked up so far from Trade Wars are Class Wars. Would love your take on that book's thesis if you've heard of it @Noah.

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If you include the environmental devastation (not accounted for in GDP of course... where it perversely generates more GDP as you pay to fix it) properly, i.e. account for depreciation in natural assets, then the screw ups date back much longer. If you don't bother measuring depreciation in your capital stock, then profits can look very high...until they don't.

When 70% of your groundwater is unsafe due to pollution and toxins, plus top-soil, plus the loss of wealth due to air-pollution related sickness and costs, it doesn't look quite so omnipotent in the first place. The inequality caused by the pro-producer policy legacy, etc. Although I agree that there is a bizarre acceptance of some kind of China-rise inevitability around much of the world, and that the SARS2 / Vaccine Fail / BRI issues have dented this odd belief.

But for natural capital etc, counter-factuals should be kept in mind as money is spent fixing these problems. GDP doesn't equal wealth sometimes. Not to mention the spiralling credit-to-GDP rates that are needed to keep growing.

On the BRI, the "miracle" of no strings attached investment (actually a lot of strings, just not the "western" ones of transparency/anti-corruption/AML/HR) that pre-dated BRI in Africa, has partially dissolved. Venezuela (China development bank anyone?..loans backed up with crude!!!, Egypt, Libya etc are all examples). Would love to see CDB's TCFD disclosures! Political risk and the dangers of propping up or doing massive investment deals with unstable regimes under poor governance will inevitably be coming home to roost in some cases. Is Myanmar in the BRI?

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China still has a long way to grow if it is to provide most of its citizens with the lifestyle of a typical developed country. Whether or not it gets there is probably of more importance than any particular screw ups along the way. That said, a major screw up would probably remove the rose-tint from some observers glasses. The big potential screw-up with BRI seems to me to be the potential for forgein entanglements when the investments sour. Military misadventure in the middle east is a traditional route to screw up that China will soon have the opportunity to partake in as the US pulls back.

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An epic weird post.

Please stop shitposting about China. Your knowledge about east Asia is so weird, according to your past posts. In particular, the post that claims Taiwan is a civilization, which is the most laughable post I have ever seen.

Chinese vaccine is bad. So what? The U.S blocks its vaccine exports for the American first ideology as well as your fellow west friends who also block vaccine exports and hoard vaccines. So why does vaccine diplomacy fail when China exports a lot of vaccines while the U.S. is hoarding more than it needs? And don't you know the key of a vaccine is to prevent severe symptoms instead of preventing all new cases? The Chinese vaccine has the same level of efficacy level as the normal flu vaccine.

Claiming the one belt one road initiative has failed is also a bizarre point. CCP has successfully expanded its political influence and exported its overcapacity to foreign countries. You should write a serious academic paper to say the initiative does not affect the local economy instead of using a handful of examples. I think a lot of journals will be highly interested in this topic.

Most importantly, an advice form a Chinabro if you want to write something seriously about East Asia and China. Stop being brainwashed by your domestic propaganda media and read some serious books about what is going on. Sincerely, you look like a reverse-engineered wumao to just say "China bad". I think CCP propaganda should learn something from American media like CNN and fox news about how brainwashing its own people and even intellectuals.

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What sectors could stimulus have gone in that is more productive? tech and semiconductors?? if so, then isn't that their aim now?

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Is this an internal or external perception of omnipotence? As far back as I remember, China’s government comes across in the news as pretty jacked up, with pervasive corruption, lots of unrest, and bad environmental problems. I’d compare to US government, which has also been pretty jacked up for most of its history. Apparently municipal corruption was massive in the 1800s — and America grew rapidly in wealth, power, and population at that same time. Some failures called out here seem to be pretty ordinary failures of government: every state goes in for big investments and often fails.

Fundamentals like an overaged population seem important, though. On the other side, a huge population could be a big advantage.

And, of course, if results stop being so good, internal perceptions will change. I think it’s very likely. It’s easier to catch up, so gains will probably slow over time. Prosperity will probably shift values from survival to self-expression, giving people more scope to criticize and debate. I think approval ratings are really high only when the state can control the narrative.

There is an opportunity for China, though. US-type government is obsolescent, as will be the Chinese government of China reaches a similar wealth level. So, having a different, newer, less old-regime-encrusted government, China might more successfully adapt to present conditions and leapfrog electoral democracy. And that might even be what US government needs, a spur to innovate and perform.

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I think this is a good, thought-provoking piece from Noah. But its a realization which hit many/most of us in the China-watching community as far back as c.2015, with the epic stock market meltdown AND the ensuing RMB devaluation crisis.

Ultimately, no government is omnipotent.

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China: Italy's demographics, Mexico's wealth.

Seems bad.

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Is it possible that with Belt & Road there will be a round 2 and they will take all these lessons and do much better the next time…kind of like when Amazon launched the Fire Phone and though it flopped, it derived a lot of important lessons that made the failure (likely) value accretive

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There's two kinds of believing-your-own-propaganda failures in Belt and Road. One is that international development banks are imperialist tools for imposing control over local policy. They're not actually very useful for that, and when attempted tends to attract take-the-money-and-runners. The other is that China has a glorious history as architect of the Silk Road. Really that was an Iranian network built on the old Achaemenid and before that Iraqi empires' networks of royal stations, where provinces were required to provide markets to marching imperial armies instead of having them plunder the provinces every time they came through. Later the Mongolian empire mimicked this opening another more northern route. China's silk was the most famous product traded, but China had nearly nothing to do with creating the routes.

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This might be a very dumb question but wasn't the point (or, at least, the conspiracy theory) behind a lot of BRI projects that the borrowing governments would have to default on them, allowing Chinese officials to repossess the projects, run them directly and gain even stronger leverage over the borrowing countries? If BRI sputters out but ends up with a vast chain of African and Asian countries in a forced debt alliance with China, that might be harsh but it doesn't strike me as necessarily a bad thing for Beijing.

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Wishful thinking.

BRI funding is no worse than the West's terrible record of resource transference from Africa while leaving the host countries in poverty. eg IMF policies: Instant Misery Fund. Whereas China is building real infrastructure like ports, rail, and road. etc

Vaccines: so China's are not as good as the West's? Maybe so. And China is quick to lock-down?

Yes, and in 2020 its economy grew by c.2%, with less than 5K covid deaths in total; while the US economy contracted by 3.5%. and I don't need to mention the quantum of the unnecessary sacrifice of American lives in the name of economic efficiency.

Re the aging population: China will soon be investing more in AI than the US, so an aging workforce will decrease in significance as the nation's productivity increases regardless of population. And re your concerns about government debt..... well you reject MMT ... so good luck with Biden's spending proposals.

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