cawacko
Well-known member
It's rather funny to look back at the people who thought the Soviet Union model was the future and superior to the U.S. There are people who believe China has a superior model and think similar thoughts that they will surpass us and America will be her b*tch so to speak. The cracks have been exposed in China's model and now Xi is turning inward and away from what drove their astronomical growth.
China Is About to Fall Into the Middle-Income Trap
By turning away from free enterprise, Xi Jinping ensures that the country’s economy will stop growing.
The 20th National Congress of the Chinese Communist Party solidified Xi Jinping’s power and confirmed his ideological view of China’s future. Beyond that, it revealed little about how China will deal with its faltering economy. Growth is slowing and increasing autocracy will only aggravate long-run problems. The command-and-control model of governance is inherently flawed. The drags it places on economic growth will mount and compound as Beijing tightens its grip.
There’s a stark irony in Mr. Xi’s intensifying shift away from markets, for markets are what made China the economic powerhouse it is today. The robust growth that lifted China from poverty was driven by a hybrid model: a form of state capitalism in which Beijing allowed private ownership and U.S.-style free enterprise to flourish alongside large, low-productivity state-owned enterprises. China’s booming export-related manufacturing was driven by low-cost labor, government investment and highly efficient acquisition of foreign technology and know-how. With free enterprise, human capital flowed into China and drove innovation and productivity. China’s share of global exports rose from 4% in 2000 to 14% in 2015, creating well-paying jobs and domestic prosperity that financed modern urban infrastructure. China accounted for 30% of global growth in this period.
Some commentators touted China’s economic-growth model as a favorable alternative to U.S. capitalism and projected rapid growth far into the future. This was naive. That’s not how economies work. As China’s supply of cheap labor was absorbed, wages and costs of production rose sharply, while returns on capital investment declined. Total productivity from combined capital and labor inputs diminished. China’s goal of making a transition from export-related manufacturing to domestic consumption has failed, and growth relies increasingly on government spending, a policy doomed to fail.
Mr. Xi’s regime has throttled back free enterprise, undercutting what brought China prosperity. Tighter controls are squeezing private entrepreneurship, innovation and capital mobility. The government’s increasing ownership of industry and bureaucratic allocation of national resources are generating inefficiencies and excesses.
Consider China’s real-estate woes. Beijing’s central planners persistently set wildly high targets for gross domestic product and achieved them by cranking up government spending on infrastructure and residential real estate. Compliant local Communist Party bosses benefited from the revenue from land sales and jobs created by property developers. Booming development and property values lifted real-estate activity to more than 25% of GDP and roughly 75% of household net worth, very unhealthy and unsustainable levels.
The excesses are unraveling, with sharp declines in home prices and soured expectations clobbering household net worth and depressing confidence. This is reducing consumer spending and rendering ineffective government initiatives to stimulate consumption. The largest property developers are in dire straits, with mounting defaults on loans and default rates on dollar-denominated foreign bonds exceeding 20%. Prospective homeowners are protesting their mortgage payments on apartments under construction. Government bailouts will be costly, and gaining public confidence will be a challenge.
Mr. Xi is tightening state control over China’s digital economy, large-cap social-media and information-technology companies and many businesses he deems a threat to Communist ideals. These include firms that provide a platform to express contrary views and “excess” wealth generation. More capital is being allocated to politically loyal state-owned enterprises. Stricter financial regulations and constraints on capital flows are oppressive and reduce capital to finance private entrepreneurs. Debt defaults on foreign creditors and tighter controls deter foreign investment, raising the cost of capital.
Deteriorating relations with the world will also challenge China’s economic progress. Global businesses weary of China’s unsavory practices in trade and joint ventures, not to mention its belligerence toward Taiwan, are taking steps to reduce supply-chain exposure. Many nations are constraining trade and exchanges of technology and human capital. President Biden’s initiative to halt U.S. exports of computer chips, semiconductors and related technology, if effectively implemented, will weigh heavily on China’s development and innovation in a variety of industries. The diminished flow of tech competency and ideas will, in the long run, sap China’s innovative capabilities.
China’s days of persistently strong growth are over, but it will remain an economic powerhouse. Corporate reductions in supply-chain links are a long-run proposition, and China will continue to be the global hub of manufacturing and trade. Its technology and government-supported civilian and defense industries will remain sources of strength.
Nevertheless, Mr. Xi’s tightening grip and rejection of free enterprise raise the probability that China will become mired in the middle-income trap that has captured many emerging nations. Its oppressed citizens will pay the price. China’s trading partners are already feeling the effects. Looking forward, this economic environment makes China’s international maneuvering prone to risks and a potential source of global instability.
Mr. Levy is senior economist at Berenberg Capital Markets and a visiting scholar at the Hoover Institution.
https://www.wsj.com/articles/middle...turing-11666815892?mod=hp_opin_pos_3#cxrecs_s
China Is About to Fall Into the Middle-Income Trap
By turning away from free enterprise, Xi Jinping ensures that the country’s economy will stop growing.
The 20th National Congress of the Chinese Communist Party solidified Xi Jinping’s power and confirmed his ideological view of China’s future. Beyond that, it revealed little about how China will deal with its faltering economy. Growth is slowing and increasing autocracy will only aggravate long-run problems. The command-and-control model of governance is inherently flawed. The drags it places on economic growth will mount and compound as Beijing tightens its grip.
There’s a stark irony in Mr. Xi’s intensifying shift away from markets, for markets are what made China the economic powerhouse it is today. The robust growth that lifted China from poverty was driven by a hybrid model: a form of state capitalism in which Beijing allowed private ownership and U.S.-style free enterprise to flourish alongside large, low-productivity state-owned enterprises. China’s booming export-related manufacturing was driven by low-cost labor, government investment and highly efficient acquisition of foreign technology and know-how. With free enterprise, human capital flowed into China and drove innovation and productivity. China’s share of global exports rose from 4% in 2000 to 14% in 2015, creating well-paying jobs and domestic prosperity that financed modern urban infrastructure. China accounted for 30% of global growth in this period.
Some commentators touted China’s economic-growth model as a favorable alternative to U.S. capitalism and projected rapid growth far into the future. This was naive. That’s not how economies work. As China’s supply of cheap labor was absorbed, wages and costs of production rose sharply, while returns on capital investment declined. Total productivity from combined capital and labor inputs diminished. China’s goal of making a transition from export-related manufacturing to domestic consumption has failed, and growth relies increasingly on government spending, a policy doomed to fail.
Mr. Xi’s regime has throttled back free enterprise, undercutting what brought China prosperity. Tighter controls are squeezing private entrepreneurship, innovation and capital mobility. The government’s increasing ownership of industry and bureaucratic allocation of national resources are generating inefficiencies and excesses.
Consider China’s real-estate woes. Beijing’s central planners persistently set wildly high targets for gross domestic product and achieved them by cranking up government spending on infrastructure and residential real estate. Compliant local Communist Party bosses benefited from the revenue from land sales and jobs created by property developers. Booming development and property values lifted real-estate activity to more than 25% of GDP and roughly 75% of household net worth, very unhealthy and unsustainable levels.
The excesses are unraveling, with sharp declines in home prices and soured expectations clobbering household net worth and depressing confidence. This is reducing consumer spending and rendering ineffective government initiatives to stimulate consumption. The largest property developers are in dire straits, with mounting defaults on loans and default rates on dollar-denominated foreign bonds exceeding 20%. Prospective homeowners are protesting their mortgage payments on apartments under construction. Government bailouts will be costly, and gaining public confidence will be a challenge.
Mr. Xi is tightening state control over China’s digital economy, large-cap social-media and information-technology companies and many businesses he deems a threat to Communist ideals. These include firms that provide a platform to express contrary views and “excess” wealth generation. More capital is being allocated to politically loyal state-owned enterprises. Stricter financial regulations and constraints on capital flows are oppressive and reduce capital to finance private entrepreneurs. Debt defaults on foreign creditors and tighter controls deter foreign investment, raising the cost of capital.
Deteriorating relations with the world will also challenge China’s economic progress. Global businesses weary of China’s unsavory practices in trade and joint ventures, not to mention its belligerence toward Taiwan, are taking steps to reduce supply-chain exposure. Many nations are constraining trade and exchanges of technology and human capital. President Biden’s initiative to halt U.S. exports of computer chips, semiconductors and related technology, if effectively implemented, will weigh heavily on China’s development and innovation in a variety of industries. The diminished flow of tech competency and ideas will, in the long run, sap China’s innovative capabilities.
China’s days of persistently strong growth are over, but it will remain an economic powerhouse. Corporate reductions in supply-chain links are a long-run proposition, and China will continue to be the global hub of manufacturing and trade. Its technology and government-supported civilian and defense industries will remain sources of strength.
Nevertheless, Mr. Xi’s tightening grip and rejection of free enterprise raise the probability that China will become mired in the middle-income trap that has captured many emerging nations. Its oppressed citizens will pay the price. China’s trading partners are already feeling the effects. Looking forward, this economic environment makes China’s international maneuvering prone to risks and a potential source of global instability.
Mr. Levy is senior economist at Berenberg Capital Markets and a visiting scholar at the Hoover Institution.
https://www.wsj.com/articles/middle...turing-11666815892?mod=hp_opin_pos_3#cxrecs_s
