China’s mainland: The PRC today celebrated as the world’s silver. For it is today that it became officially the number two world economy, sending Japan to the bronze step.
The second economy of the world is frightfully unequal and unbalanced. There isn’t any balance resembling a socialist economy or a market economy or a capitalist one or what have you. It can only be reasoned as an economy in heat. An overheated economic miracle that will only deal with it’s internal inequities once the race is finished and the economy is number one and then the dust will settle and we’ll see the future shaping itself up.
The fact is that there isn’t any balance in China. And that is striking. Even between the people of the city and those of the country there are tremendous imbalances.
Even the particular cities of the rich Han interior and the Cantonese coast, the main beneficiaries of the Chinese economic miracle are vastly unequal to their other brethren. The rest might as well be in another country…
Hell, there isn’t any economic balance here to be found; even if you went out looking for it with a flashlight at night.
All things about China are unequal and imbalanced. That is partly it’s beauty, it’s attraction and frontier excitement…
Confucius would have been dismayed at the lack of balance had he paid us a visit today – still he might have joined up for the whiskey and broads poker game – willingly.
Yes. In fantasy and in theory all is possible.
In theory, the Chinese GDP divided up equitably amongst the citizens, tells us that China’s annual per capita income is $3,678. This is rather impressive.
A great stride from a few years back in 1977 onwards when it was $ 264 per capita at the beginning of the market revolution of the chief comrade Teng Hsiao Ping. Actual per capita disposable income in 1978 was only 285 yuan in 1990 prices equivalency, which was significantly lower than the official poverty line of 318 yuan, and much lower than the poverty line of 454 yuan as defined by the World Bank then.
Still about 890 million people are bellow the $ 500 per capita disposable income per annum – today, when the success of the economic reforms, is evident in a number of macroeconomic indicators. Most important here, is the people’s income: $478.03 per capita in 1977 adjusted for inflation in 1990 prices hasn’t really risen significantly. Therefore in Yuan, income as measured in constant 1990 prices, the per capita GDP in China, has more than quadrupled from 1977 to 1995, rising from 657 to 2970 yuan, or by 9.3 per cent per annum and continuing thus to this day. But for more than half the population nothing much has transpired…
Yet even the more respectable $ 3,678 per capita, per annum imaginary equal allocation, is still less than a 10th of Japan’s average per capita income today. And Japan is a far better balanced society in terms of economic distribution and wealth equity amongst it’s citizens. But the poorer classes and the working proletariate class of the developed world and in particular that of America and Japan have slid back in real earning and disposable income power. For at least the disposable income of the Chinese peasant and factory workers has risen significantly since the Market Economy blossomed in the land of the great Dragon.
And the fact remains that China has surpassed Japan as the number two economy of the world today and that is a Cause Celebre.
The fact that China has overtaken the world’s second-largest economy, Japan, in terms of nominal gross domestic product should be welcome news to the rest of the world in general and to the Americans in particular.
China remains a very poor country to it’s citizens, despite its spectacular recent growth rate and it’s magnificent achievements in all fields of measure.
China’s challenge to itself is to produce more Balance and Equality.
The challenge presented to the US and the EU is export-led and although its current account surplus is the biggest contributor to the Eurasian savings glut that led to the credit bubble and the global imbalances behind the financial crisis it offers scant help towards internal or external balances. Because despite its success, China’s economic model generates wasteful over-investment and under delivers to ordinary people, who have the lowest share of private consumption of GDP in Asia. In a country that enjoys double-digit growth rates, employment growth has been running at an anemic 1% per cent per year, while real returns on savings are negative.
Still, the economy delivers a poorer quality of life than the per capita income figures suggest, with pollution, adulterated food and bad employment conditions posing threats to health. The distinct lack of societal choice and perceived lack of freedoms and the spectacular rise in inequalities leaves the vast majority of people alienated and frustrated with their life direction. Of course in a society given wholeheartedly to the pursuit if material comforts, such existential queries might seem remote…
China’s export-led growth, was always further fuelled by an undervalued renminbi, and in turn that has only been possible because the EU and US and all other deficit-happy countries have been willing to run up these large debts to finance household consumption and recently the resulting government spending. The snag is that the resulting imbalances are not sustainable because the point of debt exhaustion is close. Yet the policy response to the crisis has been too narrowly focused on financial issues rather than global imbalance and the continued avoidance of substantive floatation of the currency remains the unseen and unspoken elephant in the global finance room of the Chanceleries, the Ministries of Economics and the Treasuries.
In a nutshell, here is a Chinese and a global Macro Economic policy impasse.
How does the world escape from its dire potential economic consequences? And how does the Yuan float properly without killing the golden growth and causing panics and economic distress?
One scenario might be to try to muddle-through it as we have done so far. Thus the US and the EU both respond to an impending economic slowdown with looser fiscal and monetary policy, at the cost of racking up more debt and a crunch later on. Or continuing the existing mega recession till kingdom come…
Another scenario, would be that the US and the EU fiscal conservatives prevent budgetary loosening, while monetary policy remains lax. This would cause the US current account deficit to shrink sooner rather than later but the Europeans will lag far behind in a coherent policy response across this mega market of twenty plus odd nations… joined in the hip by the Euro and little else.
Here is the recipe for a bit of balance: What I think is needed globally is for both debtor and creditor countries to rebalance their economies. The debtors need to tidy their balance sheets, while the creditors need to bump up domestic consumption, let currencies float and reduce export dependence. This would also be in China’s own interest because its economy is in disequilibrium. It cannot, among other things, prevent inflation and asset-price bubbles while running an artificially low exchange rate. Yet the obstacles to change are formidable. The key to rebalancing towards consumption, may be relaxation of government control over its citizens.
Under the current PRC regime and party, this is highly unlikely to happen. There are also very powerful lobbies against any change, elsewhere too. Not just the inefficient producers who have been featherbedded by a cheap currency and whose economic survival depends on continuing undervaluation and belt tightening of their trading partners.
The tragedy of the bazaar classes of traders is that they will continually exploit their consumers until they spoil their own market and then they need to move the bazaar elsewhere.
A difficult thing the move now in the global village and the networked world…
Markets behave that way illogically often, as we bear witness in todays malaise.
Yours,
Pano
PS:
Either way, the risks of a protectionist backlash against China would rise.
Under any of the visible paths and the options present at the table, the world’s creditor countries would ultimately see their chief market dry up.
The main difference is in the timing.
When will the creditors wake up?
Better question yet is: When the Balance must be restored.
For it will fall back to the Equilibrium balance – sooner or later – of it’s own accord.
And it might fall dramatically so…
Manifesting the balance willingly is the masterful Economic Architecture here.
But who will be the Architect?
