China: The Economy and Diplomacy The Lehmann Letter (SM) Last weekend Chinese president Xi Jinping met with president Obama. Yesterday’s New York Times analyzed the meeting: “Obama and Xi Try to Avoid a Cold War Mentality” nytimes/2013/06/10/world/asia/obama-and-xi-try-to-avoid-a-cold-war-mentality.html?ref=davidesanger&_r=0 The article contained this passage: “…“This was the most important meeting between an American president and a Chinese leader in 40 years, since Nixon and Mao, ” said Joseph S. Nye Jr., a Harvard political scientist who once guided the preparation of National Intelligence Estimates, including some that tracked China’s economic and military rise. He said Mr. Obama was right to work on first creating a relationship and a tone, and dealing with specific conflicts later….” That’s quite a statement. But what about Chinese efforts – especially online – to steal our industrial technology? The article contained an explanation you don’t see too often: “…American intelligence officials have told Mr. Obama that the cyberattacks on American companies emanating from China, which have swept up billions of dollars’ worth of intellectual property, are caused by the increasing desperation inside China to keep its economy growing at 7 or 8 percent a year. Chinese leaders consider that rate necessary to create enough jobs for the millions of young Chinese who flock to the coastal manufacturing centers each year….” If the Chinese are desperate to keep their economy growing at a record pace, then recent developments must give them cause for concern. Yesterday The New York Times also published: “In China, More Signs of Slowing Economic Growth” nytimes/2013/06/10/business/global/in-china-more-signs-of-slowing-growth.html?ref=keithbradsher&_r=0 The article began: “After weathering the global financial crisis better than any other large economy, China is now showing signs of slackening growth despite heavy lending from state-owned banks and extensive government investment programs.” And on the same day an article in The Wall Street Journal examined a different issue: “Slower China Credit Is Risk to Growth” online.wsj/article/SB10001424127887324299104578534340906234614.html Here are some key quotations: “China is moving to stem a surge in credit that could produce a wave of bad debts and financial failures, but it risks slowing the world’s second-largest economy… “…But putting the brakes on lending risks a further slowing of China’s growth, as companies, government infrastructure projects and real-estate developers find it tougher to find financing… “…A lending-fueled spending binge following the 2008 financial crisis rekindled China’s growth but saddled local governments and other borrowers with heavy debt, raising concerns about the health of the Chinese financial system. Now China’s officials are faced with a dilemma: slowing the pace of lending to avoid deepening financial problems is likely to reduce the rate of growth as well. For the past decade, at least, China has counted on lending from its big state-owned banks and other financial institutions to fuel growth, especially loans to real-estate developers and to local governments building subways, highways, airports and other infrastructure. But since the global financial crisis, the payoff from such lending has fallen and concern has grown that lending now is going to many projects that won’t be able to meet their financial obligations, forcing the central government either to intervene or allow a wave of bankruptcies….” Does China face the kind of bubble that confronted us in 2007 and will it, too, also pop – sending China into a severe recession? Should China slow its credit growth and its economy and thereby risk domestic instability or should China take its chances and let events take their course? Apparently these questions affect China’s relationship with the United States as well as its domestic prosperity and perhaps its domestic tranquility. #economics #china #trade (To be fully informed visit beyourowneconomist/) (Photo: Christopher Gregory/The New York Times) © 2013 Michael B. Lehmann
Posted on: Wed, 12 Jun 2013 05:01:52 +0000
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