Will China’s Economy Hit a Great Wall?(nytimes.com)
nytimes.com
Will China’s Economy Hit a Great Wall?
https://www.nytimes.com/2019/01/15/opinion/will-chinas-economy-hit-a-great-wall.html
47 comments
My prediction: To reinvigorate the economy, China will invest even more heavily in technological R&D as a form of economic stimulus since the last round of 2008 stimulus already resulted in some superfluous infrastructure.
Its R&D spending as a percentage of GDP is already head & shoulders above most other developing economies and in fact above several Western European economies (it is close to the level of France) but still below Japan and South Korea, for example.
https://en.m.wikipedia.org/wiki/List_of_countries_by_researc...
Its R&D spending as a percentage of GDP is already head & shoulders above most other developing economies and in fact above several Western European economies (it is close to the level of France) but still below Japan and South Korea, for example.
https://en.m.wikipedia.org/wiki/List_of_countries_by_researc...
One thing to point out is China still has around 600 million citizens that live in poverty.
Just getting them up to current Chinese standards will ensure China’s economy for awhile.
Just getting them up to current Chinese standards will ensure China’s economy for awhile.
Yeh but with what. Manufacturing from exports is basically saturated, construction is saturated, public works is saturated. Yes you have 600M people but what will you do with them all.
>One thing to point out is China still has around 600 million citizens that live in poverty.
Um.... No. There are now less than 600M people living in poverty around the world. There are now less 30M of Chinese living in poverty. With the aim of getting close eradicating poverty by 2020.
Um.... No. There are now less than 600M people living in poverty around the world. There are now less 30M of Chinese living in poverty. With the aim of getting close eradicating poverty by 2020.
You're both correct but relatively so.
You're thinking about the poverty line of $1.90 a day, what the late Hans Rosling would refer to as Level 1. And you're spot on.
Relatively speaking though anyone living on level 4 feels like level 2 or 3 is 'poverty' in comparison. From that perspective there is still a lot of potential upside and maybe that's what the parent was trying to say?
You're thinking about the poverty line of $1.90 a day, what the late Hans Rosling would refer to as Level 1. And you're spot on.
Relatively speaking though anyone living on level 4 feels like level 2 or 3 is 'poverty' in comparison. From that perspective there is still a lot of potential upside and maybe that's what the parent was trying to say?
Thanks to all those downvoting and not giving a reply. Figures came out of Wiki and other World Data sources. As much as I dislike the idea of how we define poverty, that is how most of the economist today are defining them.
> Endogenous growth theory, ... implies that long-term economic prosperity depends on the spread of knowledge and technological innovation
What if Moore's law wasn't really an exponential, but more of a step function over the past 50 years. What if it was a one-time fluke that greatly advanced society, but we're gearing up for a long haul of flat or linear growth?
It explains a lot, including why China is able to quickly catch up to the U.S. in tech. If U.S. tech was really growing exponentially, it would be impossible for China to gain ground even if it was growing at an equal exponential rate. It also explains why iPhone sales are down. It isn't because of lower consumer demand or market saturation, those are just symptoms of a larger problem. It's because the rate of innovation is slowing down.
We've relied on Moore's law of exponential growth for three generations, but it's sadly dying (if not dead). The ramifications will affect everything.
What if Moore's law wasn't really an exponential, but more of a step function over the past 50 years. What if it was a one-time fluke that greatly advanced society, but we're gearing up for a long haul of flat or linear growth?
It explains a lot, including why China is able to quickly catch up to the U.S. in tech. If U.S. tech was really growing exponentially, it would be impossible for China to gain ground even if it was growing at an equal exponential rate. It also explains why iPhone sales are down. It isn't because of lower consumer demand or market saturation, those are just symptoms of a larger problem. It's because the rate of innovation is slowing down.
We've relied on Moore's law of exponential growth for three generations, but it's sadly dying (if not dead). The ramifications will affect everything.
Catching up is usually faster than pushing the state of the art further.
I think the smartphone industry’s slower growth is more the result of diminishing returns from the form factor than the cessation of Moore’s law.
I think the smartphone industry’s slower growth is more the result of diminishing returns from the form factor than the cessation of Moore’s law.
> Catching up is usually faster than pushing the state of the art further.
Not so for exponential growth. e^x will always be greater than e^(x-t).
Not so for exponential growth. e^x will always be greater than e^(x-t).
The base for an economic growth model does not need to be e and generally would not be the same for different economies. The base for catching up economies is usually higher than developed economies (say 1.2 vs 1.1).
In any case, a simple exponential equation is too simplistic for real economies.
In any case, a simple exponential equation is too simplistic for real economies.
You missed the part where they can simply borrow to catch up:
“One is that as Chinese technology converges on that of advanced countries, the room for rapid improvement through borrowing declines”
“One is that as Chinese technology converges on that of advanced countries, the room for rapid improvement through borrowing declines”
Moore's law is dandy and all that but doesn't have a huge effect money wise. Back in the 80s you might spend £1000 on a pc and these days you might spend that on an iphone which does more cycles per second but still most of your money is going on rent food and non tech things.
Also while Moore's "the number of transistors in a dense integrated circuit doubles about every two years" may be ending, the more significant rising number of cycles per second per dollar will probably continue one way or another.
I daresay the effect of tech money wise will do a step function if we hit super human AI. Rather than saying to a builder can you work on my house and him saying maybe Tuesday week I can do something, which doesn't change much if he has an iphone of not we'll be able to say robot, build me another 1000 robots and then a huge palace. Maybe.
Also while Moore's "the number of transistors in a dense integrated circuit doubles about every two years" may be ending, the more significant rising number of cycles per second per dollar will probably continue one way or another.
I daresay the effect of tech money wise will do a step function if we hit super human AI. Rather than saying to a builder can you work on my house and him saying maybe Tuesday week I can do something, which doesn't change much if he has an iphone of not we'll be able to say robot, build me another 1000 robots and then a huge palace. Maybe.
This is an perfect example of a news for the sake of news. The author twice points out that he could be wrong and that they can't really predict at all.
I guess if things do go south, he will be able to use this article to point out that he had predicted it and that he is a economic guru.
I guess if things do go south, he will be able to use this article to point out that he had predicted it and that he is a economic guru.
Honestly, all economic reporting should come with a small box showing the author making a bet on his own analysis. At least if he turns out to be wrong, you would know he was honest and really believed it and that he paid a price for his mistake.
As usual, Krugman has little to say and takes his time not saying it.
Krugman won a Nobel Memorial prize for studies on a fairly specific topic and since then, hasn't done much other than be a political pundit. At least he's kind of admitting to being wrong with his predictions concerning China.
Some of it was new to me, and I suspect to many of his readers.
The best thing said in the article is "Many people have been predicting a China crisis for a long time, and it has kept on not happening". Since China has a planned economy with a strong grip from the government, they could keep things going for a while. No planned economy has ever gotten so big
The state enterprise side of the economy is planned, but the private capitalist - sorry, communist with Chinese characteristics - sector accounts for 60% of GDP growth and half of fiscal revenue[0].
That strong grip does more harm than good IMHO. Just look at how appallingly badly they mismanaged their domestic stock markets over the last few years.
[0] http://www.xinhuanet.com/english/2018-03/06/c_137020127.htm
That strong grip does more harm than good IMHO. Just look at how appallingly badly they mismanaged their domestic stock markets over the last few years.
[0] http://www.xinhuanet.com/english/2018-03/06/c_137020127.htm
>>The case for crisis seems compelling – but I said that in 2011, too.
Just a matter of time son, you will be proven right one day. Just keep repeating it.
Just a matter of time son, you will be proven right one day. Just keep repeating it.
I respect anyone who is willing to point out when they were wrong before.
In regard to China, I think that they (like the Soviet Union before them) were very good at playing catch-up, because command economies are very good at getting everybody on board to do the thing which everyone knows needs to be done. "Do this, or we will put you in prison or worse."
However, once you have (mostly) caught up, it becomes less obvious what the next thing to do is. Literal moonshot? Fiberoptic internet to every house in the nation? Particle accelerator that can hit energies never before reached? Every student gets a spot in a university?
Some of these might be good ideas, some might be boondoggles. It's hard to know, when you're nearing the front of the pack. The Soviet Union was great at playing catch-up until, sometime in the mid 60's, they were too close to the forefront to be able to clearly see what needed to be done next.
China's Communist Party is great at getting everyone to do what they have decided to do. I think it is going to be harder for them to figure out what an economy, of their size and relatively advanced state, should be doing next. If they guess wrong, it will be ugly.
In regard to China, I think that they (like the Soviet Union before them) were very good at playing catch-up, because command economies are very good at getting everybody on board to do the thing which everyone knows needs to be done. "Do this, or we will put you in prison or worse."
However, once you have (mostly) caught up, it becomes less obvious what the next thing to do is. Literal moonshot? Fiberoptic internet to every house in the nation? Particle accelerator that can hit energies never before reached? Every student gets a spot in a university?
Some of these might be good ideas, some might be boondoggles. It's hard to know, when you're nearing the front of the pack. The Soviet Union was great at playing catch-up until, sometime in the mid 60's, they were too close to the forefront to be able to clearly see what needed to be done next.
China's Communist Party is great at getting everyone to do what they have decided to do. I think it is going to be harder for them to figure out what an economy, of their size and relatively advanced state, should be doing next. If they guess wrong, it will be ugly.
> However, once you have (mostly) caught up, it becomes less obvious what the next thing to do is. Literal moonshot? Fiberoptic internet to every house in the nation? Particle accelerator that can hit energies never before reached? Every student gets a spot in a university? Some of these might be good ideas...
All of these are good ideas, and China or South Korea is doing them. 1) Literal moonshot. Heard of Chang'e 4 which landed on 2019-01-03 yet? 2) Fiber optic. Ever wondered why South Korea is land of MMORPG? 3) Particle accelerator. Heard of CEPC yet? 4) Every student at university. Check South Korea.
China (and South Korea) is doing them and tens more. Yes, some of it will fail, it's natural. But there are lots of "the next thing to do", it's not "less obvious" than what came before.
All of these are good ideas, and China or South Korea is doing them. 1) Literal moonshot. Heard of Chang'e 4 which landed on 2019-01-03 yet? 2) Fiber optic. Ever wondered why South Korea is land of MMORPG? 3) Particle accelerator. Heard of CEPC yet? 4) Every student at university. Check South Korea.
China (and South Korea) is doing them and tens more. Yes, some of it will fail, it's natural. But there are lots of "the next thing to do", it's not "less obvious" than what came before.
Yeah, they weren't chosen randomly. Also, China and South Korea seem to be taking very different paths. While there are always similarities between any two country's governments, there are a lot of differences there. South Korea has competitive elections, where incumbents are not uncommonly voted out of office, and China does not. South Korea is fundamentally a market economy (with lots of government involvement), and China is much closer to a command economy (with lots of market elements). Neither one is at an extreme on the market-vs-command spectrum, but they are in very different parts of that spectrum.
South Korea did a large chunk of its economic growth as a military dictatorship. Only recently has it become a democracy.
I suspect those examples were chosen from conscious knowledge.
I would agree that a developing economy can copy the best practices and latest technology from the leading economies to, relatively, quickly catch up.
You say that the USSR got close to the leading economies in the mid 60's. But that does not explain why they fell so far behind afterwards. How come they did not continue to be just behind for the succeeding decades?
You say that the USSR got close to the leading economies in the mid 60's. But that does not explain why they fell so far behind afterwards. How come they did not continue to be just behind for the succeeding decades?
The west had institutions and processes for developing new technologies and infrastructure and evolving or renewing and replacing them efficiently. What the USSR did was simply copy what the West had, but at the end of doing so instead of having their own institutions and processes for developing new technology and infrastructure, they had a broken cookie-cutter for an outdated version of an industrialized society the west was already moving beyond. They had no process for evolving it into the future, because they had no real process for getting there themselves in the first place.
It's not that they couldn't develop any new technology. They had, and still have centres of excellence and technology sectors they’re very good at, just not enough across the whole economy.
This is why Russia is still such a backwater. It has never developed it's own internal marketplace for ideas, innovation, entrepreneur-ism and technical evolution. The Resource Curse and attendant corruption and political rent seeking has hit them hard. I believe that China has largely avoided this mistake.
It's not that they couldn't develop any new technology. They had, and still have centres of excellence and technology sectors they’re very good at, just not enough across the whole economy.
This is why Russia is still such a backwater. It has never developed it's own internal marketplace for ideas, innovation, entrepreneur-ism and technical evolution. The Resource Curse and attendant corruption and political rent seeking has hit them hard. I believe that China has largely avoided this mistake.
Besides other problems that USSR had, like the pervasive corruption and the lack of incentives for taking initiative in almost anything, it's worth considering that it achieved economic development by large scale investments. That meant huge farms, huge factories, huge everything please! The good was the immediate results of the said investments thanks to the good (enough) efficiency as the economies of scale kicked in. The bad was in the costs required to keep those damn behemoths competitive as the world evolved! Factor in the fact that the declared reason behind those huge investments was not economic efficiency but employment of people, and you get something that will have trouble in the long term keeping up with their counterparts in the capitalist world. That was short-term (political) capital seeking policy at its best! That however, mattered less because usually it was just about some bureaucrat's career bet for getting results fast, cashing out in time the political merits, and then exit by propelling himself to another position somewhere, a game played up to the highest levels (e.g. Leonid Brezhnev and Virgin Lands Campaign). The ending question is, does China differ in this regard?
The point is, that once you have (nearly) caught up, it is less clear what needs to be done next, and command economies are not as good at that.
Because once you're close the sense of urgency wears off, people get comfortable and corruption sets in.
Command economies are macro efficient, micro inefficient, as opposed to pure capitalism, which is generally micro efficient, macro inefficient
China's economy isn't effecient at the macro level and never has been.
It's wildly inefficient, with those inefficiencies previously covered over by the former rapid rate of growth.
You can see that inefficiency coming to light now, as they over-invest into stagnant state owned enterprises in their credit markets and deprive the private market of capital. That despite most of the employment, innovation, and growth formerly coming from the private sector. The reason they're doing that, is to fake growth, the only place they can immediately force-allocate stimulus spending is in the giant stagnant state owned enterprises. Several years ago all of their economic metrics went hard south, despite their claims about growth everything was indicating a near recessionary environment, so they fired up big stimulus programs and inflated assets such as real-estate. That stimulus was overwhelmingly focused on things they didn't actually need and it has resulted in mediocre growth. They're facing the exact same situation again now.
Their productivity rate has collapsed since they shifted to that perma stimulus model seven years ago or so. Once your productivity implodes, you can only grow by shoving capital or labor at a problem. They have a contracting labor market, so their options there are now mostly exhausted. Which is why China now has to constantly run capital stimulus programs with big shots of capital or credit lending to the state enterprises. Their economy is no longer growing rapidly organically. Each subsequent round of this produces reduced returns, because the last thing China actually needs is to produce a lot more steel or concrete or buildings (they have extreme vacancy problems in their real-estate market), and those are the easy targets for juicing the economy in a command style from the top. It also resulted in loading up their local economies with enormous amounts of debt, as the local regions & munis are part of the stimulus shoveling process of moving capital into the state enterprises and real-estate.
It's wildly inefficient, with those inefficiencies previously covered over by the former rapid rate of growth.
You can see that inefficiency coming to light now, as they over-invest into stagnant state owned enterprises in their credit markets and deprive the private market of capital. That despite most of the employment, innovation, and growth formerly coming from the private sector. The reason they're doing that, is to fake growth, the only place they can immediately force-allocate stimulus spending is in the giant stagnant state owned enterprises. Several years ago all of their economic metrics went hard south, despite their claims about growth everything was indicating a near recessionary environment, so they fired up big stimulus programs and inflated assets such as real-estate. That stimulus was overwhelmingly focused on things they didn't actually need and it has resulted in mediocre growth. They're facing the exact same situation again now.
Their productivity rate has collapsed since they shifted to that perma stimulus model seven years ago or so. Once your productivity implodes, you can only grow by shoving capital or labor at a problem. They have a contracting labor market, so their options there are now mostly exhausted. Which is why China now has to constantly run capital stimulus programs with big shots of capital or credit lending to the state enterprises. Their economy is no longer growing rapidly organically. Each subsequent round of this produces reduced returns, because the last thing China actually needs is to produce a lot more steel or concrete or buildings (they have extreme vacancy problems in their real-estate market), and those are the easy targets for juicing the economy in a command style from the top. It also resulted in loading up their local economies with enormous amounts of debt, as the local regions & munis are part of the stimulus shoveling process of moving capital into the state enterprises and real-estate.
What do you think of the upcoming $300 billion tax cut which they recently announced and increasing their European-level R&D spending (see my other comment) further?
I think it's a great move in the right direction. Someone there has a decent idea what they're doing, I just hope they get a chance to see it through. China is likely to face some tough challenges in the next few years and maintaining discipline will not be easy.
If you can point to any facet of Soviet, Pol Pot or Maoist economic history that makes them look efficient please do so. The best one can say about any of them as far as I can see is that they were far superior to war and reasonable at heavy industry.
The US also entered a more command economy during wartime, when industries were nationalized or coerced into producing wartime supplies.
> However, once you have (mostly) caught up, it becomes less obvious what the next thing to do is.
Chinese economy is not about catching up with the west anymore. If you ever lived in China in recent years, you'd see that the Chinese economy is advancing in lots of aspects, and many of those in ways vastly different from western societies. The government plays an important part in it, but private companies are just as important. For example, the tech industry in China (which comprised of mostly private companies) evolved into its own ecosystem, and is iterating faster than that of silicon valley.
Chinese economy is not about catching up with the west anymore. If you ever lived in China in recent years, you'd see that the Chinese economy is advancing in lots of aspects, and many of those in ways vastly different from western societies. The government plays an important part in it, but private companies are just as important. For example, the tech industry in China (which comprised of mostly private companies) evolved into its own ecosystem, and is iterating faster than that of silicon valley.
Right, maybe that’s the parents point: that innovation comes from the private sector now, and the command and control state owned enterprises are inefficient and slowly dying..
Something very interesting about this comments section. For years now when HN had a link about problems with the Chinese economy, there would be number of comments from China defenders who would say no, things are fine and the government knows exactly what it is doing. I strongly suspected many of them were paid government trolls.
This time we are aren't getting any such comments. Instead we have gotten a number of attacks on Krugman, without saying anything specific about how his analysis is wrong.
I could be mistaken, but I am guessing that the troll minders see they can't make a real defense, so they are trying to just distract readers away from what Krugman had to say.
This time we are aren't getting any such comments. Instead we have gotten a number of attacks on Krugman, without saying anything specific about how his analysis is wrong.
I could be mistaken, but I am guessing that the troll minders see they can't make a real defense, so they are trying to just distract readers away from what Krugman had to say.
The manufacturing economy is done. They're trying to re-invent themselves.
They may become the next Japan.
They may become the next Japan.
https://www.youtube.com/watch?v=cZ5dVBa3grw. I don't know why anyone still reads or listens to this clown.
I think it's because he's a Nobel winner that agrees with the sympathies of the readers of the New York Times. This way the readers can think they're smart, since they can understand the writing of a Nobel, while not being challenged to actually have to think about something they may not agree with.
yes, obvi
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If these are the primary factors, then the closest analogues to China would be other East Asian economies like Japan and South Korea. These nations greatly value education, with top-tiered performance in international tests, and invest heavily in R&D.
An oft-repeated criticism that authoritarianism constrains scientific and technological creativity is still unproven and will be tested in the coming decades by China. [2]
[1] From Wikipedia: “Endogenous growth theory holds that economic growth is primarily the result of endogenous and not external forces.[1] Endogenous growth theory holds that investment in human capital, innovation, and knowledge are significant contributors to economic growth.”
https://www.nobelprize.org/prizes/economic-sciences/2018/pre... https://en.m.wikipedia.org/wiki/Endogenous_growth_theory
[2] How China could dominate science. https://www.economist.com/leaders/2019/01/12/how-china-could...