From today's Daily Telegraph. In view of the state of three other major
economies then the following is worth reading. Also, since America has
hurtled itself into shale gas production, I wonder whether China will do
the same (present indications are that it has vast gas fields, just like
America). It would be a good test of the state of war between the reformers
and the old guard.
Keith
Policy battle rages in China as slowdown feeds 'sense of crisis'
Anti-reform hardliners in China's Communist Party have become seriously
alarmed by the sharp slow-down in economic growth, creating a "task-force"
to crank up production.
Ambrose Evans-Pritchard
comments
China's Caixin Magazine reports that there is a growing "sense of crisis"
not felt since the depths of the global banking crash in 2008-2009.
The State-owned Assets Supervision and Administration Commission (SASAC)
has assembled a team to "protect economic growth" and pressure state
companies to boost jobs at all costs.
SASAC is the bastion of vested interests and controller of 115 state
behemoths with assets above $6 trillion and lock on much of the economy.
The move comes amid further signs that growth is faltering across all
fronts. HSBC's gauge of Chinese services fell three points to 51.1 in
April, the lowest in almost two years.
The broader composite index also dropped sharply to a six-month low of 51.1
and is now barely above the contraction line, with new orders trailing
badly. The economy grew 7.7pc in the first quarter, slower than expected.
The Shanghai index of stocks rolled over in early March and has given up
the half the gains since the rally started late last year. It has dropped
almost 60pc since its peak in 2008 and is now trading at levels comparable
to 2003.
China's downturn is rippling through commodity markets, led by a major
sell-off of base metals this year. Credit Suisse said the short-covering
rally over the last few days is likely to prove a "dead cat bounce" as
China's structural slow-down and a weakening global economy overwhelm all
else. It expects copper to "bite the dust", falling to 2009 levels near
$6,000 a tonne.
China's authorities have been trying to stop property speculation with loan
curbs but it is proving hard to pop the housing boom without popping the
economy itself.
New so China's growth task-force comes amid reports that SASAC has ordered
state firms to go for expansion and disregard other objectives such as
investing in new technology.
The policy drive cuts across efforts by the reformist premier Li Keqiang to
wean China off uber-growth and shift to a different development model. He
has asked China's State Council to study ways to cut growth to 7pc next
year, deemed the safe speed limit.
Resistance from SASAC is thwarting his efforts to reduce Beijing's stifling
control over production. State firms have grown fourfold since 2003,
meaning that the economy is being renationalised. The unreformed behemoths
gobble up most of the available bank credit even though many are
loss-making, or are grossly inefficient.
Mr Li was a key sponsor of a report last year by China's Development
Research Council and the World Bank warning that the country has already
picked the low-hanging fruit of catch-up growth and can no longer rely on
cheap exports and imported know-how.
The report has become the policy Bible for reformers. It said China risks
languishing in the sort of "middle income trap" that has ensnared much of
Latin America and the Middle East at different times, unless it embraces
the free market and fosters bottom-up thinking.
"The forces supporting China's continued rapid progress are gradually
fading. The government's dominance in key sectors, while earlier an
advantage, is in the future likely to act as a constraint on creativity,"
it said.
"The role of the private sector is critical because innovation at the
technology frontier is quite different in nature from catching up
technologically. It is not something that can be achieved through
government planning."
Mr Li faces powerful resistance from entrenched interests and those in the
Politburo who fear that China risks a social explosion unless it keeps the
economy on steroids.
Pressure is building for yet another burst of easy credit, even though the
"economic efficiency" of debt is collapsing. The output gained from each
extra yuan of credit has fallen from a ratio of 0.8 to 0.35 since 2008, a
warning sign that the cycle has played out.
Fitch downgraded China's debt in April, warning that credit has already
jumped from 125pc to 200pc of GDP in four years, much of it in shadow
banking. While another burst of loans may boost growth in the short run, it
risks storing up ever greater problems.
President Xi Jinping has yet to tip his hand in what amounts to a civil war
over policy and China's economic destiny. Experts say he tilts back and
forth between the reformist and dirigiste wings of the party. The Standing
Committee appears evenly split.
The International Monetary Fund warned last week that China is in danger of
becoming "old before it is rich" as the demographic crisis hits. The
work-force has already begun to shrink, contracting by 3.5m last year.
The IMF said China and other emerging economies in Asia must embrace the
rule of law, sound institutions, credit reform, and "limited government
involvement in the economy", or risk falling into the middle income trap.
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
