The special New Year’s Day edition of the Southern Weekend features an article titled “is GDP growth capable of ‘assuring 8′” – it contains a healthy bit of realism, something that has until now been absent from mainstream Chinese media. This is important because the SW is probably the best mainland publication you’ll find that tracks the attitudes of the political elite and business community (translation is my own, paraphrased; original follows):

… When will the Western consumption market return?  This is certainly something that we have little influence over. But in order to take advantage of this challenge, the Chinese economic system must go from “foreign reliance” to “domestic reliance,” and make this transition a priority. It will be impossible to achieve this “transmutation” within the space of one or two years. As a result, the massive 4 trillion RMB investment plan will be able to stimulate the economy, though its exact effects must still be examined. 

西方终端消费市场何时恢复？这并不掌握在我们手里。却使想借机调整中国的经济增长模式，从依靠“外需”为主改为依靠“内需”为主，并不能在一两年内完成这种“蜕变”。因此，一4万亿元为重点的巨额投资拉动经济经济的政策，何时见效，效果如何，仍待观察 。

In The Global Credit Crisis as History, Professor Barry Eichengreen (Berkeley) asserts that the rest of the world has not reacted as proactively as the U.S. due to a pre-existing “American” narrative regarding the importance of government intervention in preventing the Great Depression. He reaches for some interesting historical parallels – on Asia, and the emerging dynamics between Japan, China and the U.S. he writes:

It is tempting to draw an analogy between China’s reluctance to top up the financial resources of the IMF and the refusal of the United States to join the League of Nations after World War I.  Pushing this further, there is the parallel with Charles Kindleberger’s interpretation of the interwar depression – that it resulted from the inability of the declining power, Great Britain, to exert leadership and the unwillingness of the rising power, the United States, to do so.  In fact this comparison is overdrawn.  China’s economy is still less than a quarter the size of that of the United States at market exchange rates… In contrast, the United States had already surpassed Britain in absolute economic size in the 1870s… But China is not yet in the position to exert the kind of leadership that could be reasonably expected of the United States in 1929…

… But whichever route is taken, not accommodating the rising power by giving it a seat at the table and a voice in key deliberations is a recipe for disaster.

From a few weeks ago, VoxEU has a new book about Crisis and Protectionism (via JD):

The magnitude of the new protection is modest. However, as the recession spreads and deepens globally, this could change – especially if world leaders lose control of the situation; protectionism and competitive devaluations could trigger a vortex of beggar-thy-neighbour policies.

At the time this warning seemed rather benign. Not so much anymore? The U.S. has just hit China with a WTO suit, alleging that “industrial policies are unfairly promoting Chinese branded products at the expense of American workers…”

A former professor of mine writes, regarding the popular notion that “China is building a new coal power plant every week” (see here and here). He turns to the China Energy Databook (available for free on CD from these kind people): in 2006, China added 92.44GW of Thermal Electric capacity. Assuming this was all coal, and that each coal-fired plant produced 500MW, the weekly average would be approximately 1.78GW (1.78GW / .5GW) = 3.56 500MW power plants opening per week on average (thanks to WP). 

Three and a half power plants a week – where are all of these? I’ve not seen any under construction. There is a lot of construction, especially for somewhere that is supposed to have a real estate bubble. 

It will be interesting to see how the numbers continue through this year, given that electricity demand has actually been falling in recent months. Certainly there are expectations of 8-9% growth built into things like capital investment – expect a lot of good deals on apartments / office space in the coming year.

So as I was writing the post the other day, it seems that RMB appreciation was already in the works – back to 6.88, and set only to continue going up. Yes half of a percentage point counts as vindicating. Free Exchange has a good take:

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Interesting events relating to my readings as of late – yesterday’s Yangtze River Times featured a frontpage article titled “China’s next year GDP growth rate will be above 9%.” This is coming up all over the place – the Chinese Academy of Social Sciences recently released a ‘blue book’ claiming that although China will “be influenced” by the global crisis, GDP growth should exceed pessimistic expectations (7%, the point at which growth is estimated not to support enough jobs for the expected expansion of the labor force, assuming no increase in unemployment.) 

In Marxist class yesterday my professor mentioned that ‘growth was slowing – maybe even 7%’ and ‘now is a very difficult time to find jobs for [university] graduates.’ A furious discussion immediately broke out, with students attempting to correct him that ‘growth would be at least 9%! It was in the papers this morning!’

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Consensus is emerging that no RMB appreciation will occur. I’ve been of that opinion for months now, mostly based upon creative interpretations of tea-leaves (read: don’t have any idea what I’m talking about). 

… most people believe official urban employment rate significantly understates real urban unemployment, and the real level could be as high as 10-11%… The key to social stability is adequate employment growth.  That growth either has to be fueled by maintaining exports, or increasing domestic consumption.  But there are important reasons why domestic consumption won’t increase.  For one, the lack of safety nets in health and elder care cause Chinese households to save in order to self-insure their risks for illness or health care emergencies.

So they’ll have to push more exports in any way possible; subsidies and currency seem the most likely – and might work, that is until hit with protectionist measures from the rest of the world. Real RMB depreciation is great for me – kegs of beer will remain at the appropriate price of $2.67. Of course, factors motivating this phenomena also mean that unemployment will increase; research becomes more complicated. Chinese are generally a jovial people, but poverty can motivate all sorts of undesirable behavior towards a walking white ATM: being mugged may well complicate my project, which consists of me wandering around talking to underemployed guys with power tools. 

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