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The Chinese Century

Discussion in 'Politics' started by Solfege, Jan 25, 2018.

  1. Solfege

    Solfege Headmaster DLP Supporter

    Nov 21, 2008
    East Coast & the South
    Ha. I've been focusing on personal frustrations with, namely, my inadequacy at internalizing and synthesizing information. Thought I'd organize some topics I'm crunching down on, as an intermediate step in compressing academic history (took Modern East Asia in high school, it's been touch-and-go ever since) with present applications. For what I'm aiming for, this is still a pretty lossy format.

    Most of what's written is fairly boilerplate if you're semi-regularly hooked into the China-watching community. It's just, as Bob Zoellick said, public perception of China tends to be at least five years delayed. Hopefully, by injecting some Chinese perspective with historic fundamentals, this helps bring DLP more into the present and sets a baseline for further discussion. Keep in mind these are just broad strokes and there's a lot more nuance on the ground. Like, I handwaved all the hoary details trying to keep the wheel of progress going that I'm sure @Invictus is staring really hard as fuck at. And he's right to be wary here. China intends to deleverage its massive debt bubble without any significant recession, an unprecedented proposition. Federal policy liberalizations may be outweighed by an inability to slack party control over massive state-owned regional sectors. Picking which levers to loosen and which to tighten is a tightrope act over an abyss.

    But from a political standpoint it is interesting to think how much we might be projecting on other cultures and societies, to our detriment. The past 20 years, Chinese success has been largely a Rorschach blot for both left and right commentary, and China's very size seems to draw our own insecurities out into public discourse rather than attempts at any objectively predictive model. I wonder how many people in 1944 had expected America to set up a global monetary system in pursuit of free trade [disproportionately to its own advantage naturally] instead of its own continuation of the centuries-old mercantilist regime? Anyone privy to the conversations of Harry White and John Maynard Keynes, besides.

    I was segueing syllogistically from the challenges of organizational inertia to the challenges of technical innovation. As you say, this is one of those things that can be done fairly quickly if the organization is fundamentally streamlined behind it. Steady work, if slow, can make speedy progress. That said, I took the italicized out of war stories I've heard from industry vets, essentially Sauce's reply. Workforces that don't already have a healthy approach to change baked into their culture just aren't interested in it. Because "Made in America" is already the best, or a toxic workforce-management culture casts inherent suspicion that management's only out to cut worker compensation, etc.

    I can guarantee you if I were to go into certain bespoke tailoring houses today, many of whom have yet to modernize, as a contractor taken on to digitize all their records and tailoring books for seamless transfer of knowledge (i.e. new hires to more easily learn and upgrade techniques instead of relying on the luck of senior-assigned rotations), I'd be persona non grata. No one would show me their books, period. I'd be perceived as the guy trying to commoditize their skills and lower the barriers of entry to their specific market tasks, this despite a shortage of young tailors everywhere endangering the profession. Without meaningful backup from on high or streamlined support on the ground, I'd have to wrangle person by person.

    In NUMMI's case, a workforce sent to Japan to learn from their Toyota counterparts were forcefully adapted to a new culture; their plant, formerly on the verge of bankruptcy, recovered. So adopting Japanese workflows was quite doable. Clearly if GM had been really invested in upgrading their production capabilities, they could've quite easily — from a technically able standpoint — done it. Always a big "if." So easy to abstract away all those pesky social frictions... well, interest at the top turned out to be fractured. And when mid-tier management from the successful cohort was sent out to other GM plants to try to spread the gospel, they failed. Utterly.

    Or in other words, it won't go at any quick pace when everyone isn't convinced it's in their interest.

    Pace of technical innovation's a separate issue, which I think you know.

    That's something of a commonality among the most successful catch-up economies. China's is a version of the East Asia Development Model taken from Friedrich List's German strategy that was inspired by Alexander Hamilton and Henry Clay's American System. The common template is agricultural reform, export-oriented manufacturing, and financial repression. You're referring in some part to the last, where financial markets are restricted in their directing of capital to build up strategic sectors.

    There are a variety of ways to achieve this depending on local conditions/pre-existing institutions, but as I mentioned South Korea, Japan, and Taiwan were steadfast in the face of much intense lobbying by the U.S. and multilateral institutions to float their exchange rates and liberalize markets [and thereby let American multinationals swoop in for great profit]. Don't know SK and Taiwanese strategic initiatives offhand, but Japan's infamous MITI shepherded their homegrown companies with favorable loans and industrial policies periodically formulated by a consensus of top experts in the sectors. Not that they were always on the ball — I saw an article from '92 recently resurface on MITI making their Fifth Generation project, which was supposed to inaugurate artificial intelligence via logic programming, open-source after a decade's failure to realize commercial value.

    None of these countries permitted much foreign direct investment, as they already benefited from the policy largesse of the American alliance network. China, in contrast, has had to rely on FDI to bootstrap technological and managerial know-how.

    Probably nothing you can't have already heard about. Xi was largely expected to expand the Central Military Commission to induce greater checks and balances but didn't — it's been Jiang's domain, run by his vice-chairmen Guo Boxiang and Xu Caihou. Most of the factions within the army ranks themselves are sufficiently broken up, but senior officers all have had to buy their positions from Guo and Xu, and beyond the men he's appointed Xi needs to test whom he can trust. Were he to promote too prematurely to fill spots, he'd run the risk of backlash from various army and party factions. Downsizing from 11 to 7 CMC generals and from 18 army groups to 13 allows him to maintain control while gauging men for the next round of promotions in 3 years' time.

    Control over the CMC's no small thing. Hu's presidency had signs of civil-military disconnect, as when an anti-satellite weapon was tested in disposing an old Chinese satellite in '07, without statement from the Foreign Ministry for a full two weeks; or when testing the new Chinese stealth fighter occurred the same day Hu met with Defense Secretary Gates in '11, also without statement. Deliberate belligerence or a Reichswehr out of control?

    Then, historically, Deng Xiaoping saw little party support for market reforms even after he conducted his famous Southern Tour to promote the achievements of the Special Economic Zones, and only got General Secretary Jiang to engage with full speed by "privately" suggesting to CMC officers over whom he'd chaired, "individuals opposed to reform must be removed." And Deng confided in Pierre Trudeau that had the Tiananmen Square protests stood to the end, certain party factions would've seized various army units and incited civil war.

    I'm not terribly on the ball about other specific party organs. Eyes on the national congress are usually towards individual promotions, and on that both Jiang and Hu's people (the ordinary Youth Communist League factions) are out of the present 7-man Politburo Standing Committee. I'm not sure of the man who's taken over the Organization Department [in charge of promotions to party, government, CEOs of state-owned corps, university chancellors], but Huang Kunming at the Propaganda Department is a Xi insider. The other major item I can think of is the transfer of military police (essentially National Guard) to CMC jurisdiction, where prior they were at the personal beck and call of regional officials.

    We've seen the March announcement of government appointments — you might be referring more to this? Lots of consolidations then, including diplomacy, resource management, and environment. They took no small amount of inspiration from U.S. departments with their version of FEMA and Veterans Affairs. The general theme's been the streamlining of fragmented, competing bureaus to strengthen decision-making under loyal but "wise" hands, while reducing the costs of interdepartmental communication. In this, Xi's basically doing to the executive what Trump wishes he were capable of doing... for a Chinese precedent, a similar (scale-wise) ministry reshuffle was done by premier Zhu Rongji, easily regarded the greatest economic reformer in CCP history.

    Of note, banking and insurance regulation were merged under Guo Shuqing, who with Liu Shiyu at securities are expected to impose serious discipline. Yi Gang at the People's Bank of China has a mandate to overhaul monetary policy, Liu He as vice-premier of economy and finance is a well-known reformer in Xi's inner circle, and Wang Qishan (retired from the PSC as mentioned earlier) is in charge of trade. So financial development and liberalization is being taken very seriously by a very experienced team, to be coordinated under the Financial Stability and Development Committee established last December.

    How seriously? Early April, Yi Gang announced that limits on foreign ownership of local banks and asset management companies would be erased and foreign banks permitted to set up locally "within a few months." Limits on other Chinese financial companies will be raised to 51% and removed three years' hence... national banks and asset management are exempt for now, understandably cautious, though the major players are state-owned anyway, so a key question is, how much impact can privatized local enterprises have?

    Which inflects on the other key question, being whether reforms will be taken to state-owned enterprises, which the party has so far reigned in unilaterally. This is the other half of the resource efficiency equation, and we've yet to see movement here.

    I do think restructuring bespeaks an earnestness to addressing the issues at play. Whether the usual operational necessities that make any bureau chug along are set up well... if the other super-ministries are spearheaded as nicely as the financial ministries are, by competent doers (I know, I know, that's enormously simplifying), then I should at least look optimistically on the prospects.
    Last edited: May 8, 2018
  2. Arthellion

    Arthellion The Chosen One

    Apr 14, 2017
    Georgia, USA
    High Score:
    Regarding digitization, this is a huge discussion in the historical societies right now.

    New programs for digital archivists are and have been developed, but the digital world currently poses a serious issue to historians.

    So much information is being lost. When a committee keeps their minutes in a google doc and it later gets deleted, how is a historian going to write a history of that committee?

    Digitization is going to happen and it needs too (to an extent) but it needs a system so information is not lost.

    One other issue is that people drawn to history typically are not trained in IT. The interests are very different so that lack of overlap also poses an issue.

    And this is a rabbit hole not related to China.
  3. Story Content: property markets and fiscal reforms

    Solfege Headmaster DLP Supporter

    Nov 21, 2008
    East Coast & the South
    So ghost cities. As mentioned earlier China has projected incredible rates of urbanisation. Some 700 millions are presently "urbanised" — but this number obscures some technicalities, namely about 250m migrants who've not been integrated into the urban fabric and lack permits for housing, schooling, and welfare.

    The other issue is a "city" being a geographic administrative unit, not an actual physical urbanity, so often includes various townships, farms, villages, industrial zones, deserts, mountains, etc. So urban numbers seem exaggerated — for instance Changzhou is listed as pop. 4.6m but the recognisational residential core covers about 800k. Outside of first- and second- tier cities, China is still very dispersed. But the process of urbanisation continues, rapidly. Cities are being rebuilt, new districts added all the time.

    An additional 300m are expected to urbanise by 2030. Many are expected to be relocated to the western provinces. A key strategic aim is to build up western, landlocked cities to reduce dependency on US-secured shipping routes and shift the geopolitical weight of resource-rich Central Asian economies (who've been largely monopolised by Russia). The displacement, internment, and abuse of Muslim minorities native to these areas is out of a genuine fear of insurgency spreading out of Central Asia, as has troubled Moscow; in their words, to prevent a Chinese Libya.


    The appearance of ghost cities relates to how the housing market works, uniquely. As an urban buyer looking to relocate, it might take me a while to buy an apartment from a speculator who's snapped up these buildings the moment they went on market — in a vacant complex that's essentially still in construction for a year or two, where the utilities still need installing, the pavement needs paving, etc.

    Even after "construction" finishes, what I've bought is an empty concrete block. It's my responsibility to hire contractors for the entire interior design: windows, walls, bathrooms, plumbing, kitchens, etc.

    Even after that, I'm not liable to move in until the developers have put in the urban amenities that make it worth living there: the malls, supermarkets, restaurants, hospitals, parks, schools, and public transportation.

    So what you get, what westerners see from photos, are empty slabs hanging around for years. It's my empty slab that I can't even rent out, because rental markets suck for shit. Why'd I buy? Because I'm (upper) middle-income with appetite for an upgrade to a more luxurious neighborhood. My old apartment will sell to some upwardly-mobile working-income, eventually perhaps a migrant family.

    For new cities altogether, it's naturally difficult for markets to flourish without a pre-existing network. Therefore governments employ a time-honored imperial tradition: forcibly moving large populations, sometimes with financial bonuses, starting with the bureaucratic, managerial, and educational core (including tens of thousands of students). This provides the initial consumer base on which the city can bootstrap greater economy.


    Urban real estate is the primary source of inequality. When the government first liberalised urban real estate in '98, they made it available for the first urbanites to snap up properties at artificially suppressed rates. Notably, all land is government-owned; you're just leasing for 70 years underneath the house that's actually yours (which won't last anywhere near).

    That inequality persists, as farmland is considered a strategic concern and rural property rights are severely limited. The resulting scenario is one of incessant exploitation of farmers, as local and provincial governments force land purchases at suppressed prices to sell at vast markups to urban developers. This is the primary means, besides securing loans on said land as collateral, of financing government budgets and making up the shortfall for previously exuberant unfunded federal mandates.

    Moreover, farmers lacking urban permits are locked out of urban property markets, where prices have risen sky-high. Unbridled market speculation and sky-high local gov't debt,* especially after the massive federal stimulus of 2008, has placed China seemingly on the verge of a massive bubble burst. In addition to being the main source of local government revenue, property has been the sole investment opportunity for most ordinary people. (But a domestic equities market is slowly being shaped, esp. as financial regulation strengthens.)

    Therefore, absentee ownership of real estate is rampant; nor does the government collect property tax. In fact the ordinary people are taxed very little... primarily on real estate transactions. Else most federal revenue comes from industrial VAT. No representation without taxation works both ways!

    * Locked into semi-productive, semi-speculative real estate development but also, more critically, inefficient local SOE debt. Local state-owned enterprises lag far behind federally-owned SOEs in productivity terms.


    Cooling the markets without stemming growth (and keeping gov't budgets afloat) has been a federal and provincial priority. There are a number of creative, unintuitive tools the governments have and can use to cap speculative price movements and prevent supply from coming onto market too quickly (more "ghost" cities!). With a pipeline of 200-300 urbanites over the next decade and half, there's demand to smooth out if markets just don't get too far ahead of themselves.

    The oversupply is on the high end, and so governments can take more conventional measures to vet residential buyers to slake luxury demand and encourage affordable housing — where comes haphazard foot-dragging from local governments, who don't want the immediate burden of providing amenities for many low-income neighborhoods... for them a speculative buffer slows the process down to adequately plan out operations.

    These tools are imperfect; whereas 36 million units of affordable housing were planned from '11-'15, market pressures dictated the eventually lifting of price restrictions, and the emphasis has shifted from what were unrealistic financial expectations for low-income earners towards shaping a budding rental market.

    Some local property markets may well burst from poor planning; whether most will is far less likely than westerners predict. Financing streams have tightened up, yet buyers are still well able to pay in cash — or with massive down payments. On average, households carry less than 50% of annual disposable income in debt. So property is fairly isolated from default.

    More concerning is the spectre of rising non-household debt, which governments and SOEs took on rapidly in the aftermath of '08, successfully staving off a recession (what with 20% drop in exports too — confirming fears that export dependency and a strong trade surplus was more vulnerability than strength). The present level of ~250% GDP is not terribly worrisome, as OECD economies have proved. China's continued rate of growth will enable it to service debts more ably than any OECD economy.


    The more critical question is whether there may be a near-term trigger event to incapacitate its debt servicing. The classic scenario in emerging-market debt crises is a sudden inability to pay foreign creditors, leading to currency collapse and individual borrowers' inability to repay their debts. A sovereign debt crisis is unlikely, given China's minimal foreign exposure, massive foreign reserves, and trade surplus (down from 10% a decade ago to 2-3% today).

    A financial system can stall, however, if inundated with bad (non-performing) loans and banks lack liquidity, requiring them to call in payments from shaky borrowers, in turn setting off a cascade of asset sales. China is not, at first glance, prone to a liquidity trigger either, as the vast majority of loans are backed 1:1 by deposits, the safest, most stable form of funding.

    Early '90s Japan is an example of crisis avoidance, for despite an overload of bad loans, regulators encouraged banks not to call in their loans while the central bank printed sufficient money to revitalise their balance sheets. The price they paid was Japan's Lost Decade.

    China has addressed a similar crisis once, if with much lower levels of debt, under the 1998 fiscal reforms of Zhu Rongji. By swapping out bad assets into specialised asset management companies with fresh capital from the treasury and foreign investors, and enacting reforms to close the worst SOEs, deregulate manufacturing, and privatise housing, banks had newly productive sectors of the economy to lend in.

    Such easy industrial growth is no longer accessible today, yet China cannot afford to cut back on credit. The only path forward is greater per-dollar efficiency, so that at given levels of spending, debt and GDP may converge. This requires key structural reforms — less credit to inefficient local governments and their SOEs and/or deregulating profitable opportunities. We'd not seen this in Xi's first term.


    When the CCP embraced markets, they did so thinking the key lesson isn't private ownership — it's competition. As a result they broke up monolithic SOEs into competing groups and allowed for a burgeoning private market to pressurise those SOEs into seeking productivity growth. That worked reasonably well until 2008, after which SOE productivity growth never recovered. Still, there is no intention of letting the private market dominate the economy, although it outstrips the SOEs by far in efficiency (bringing in 75% of revenue while taking on 35% of bank loans).

    Instead the CCP is dabbling in mixed public-private ownership of local SOEs. It's hard to see what impact such half-hearted privatisation will have. Central SOEs, on the other hand, will be overseen by specific industrial asset management groups, a la Singapore's Tematek. If industrial reforms are sufficiently bold and all goes well, we may optimistically expect a Singaporean-like economic track with a sustainable 5-6% growth for the next decade plus.

    What Xi has done well to implement in a '14-'16 program are much needed fiscal reforms to draw local governments away from reckless shadow loans by

    1) streamlining central-local fiscal transfers
    2) imposing more transparent budget reporting requirements
    3) creating bond markets to subject localities to market discipline and initiate a process of restructuring local debt
    4) reducing unfunded mandates and shifting local revenue sources from industry to consumer services

    For the time being, the central government will not permit local bonds to default; so the transition is very much incomplete. Whether they'll secure the various local shadow banking vehicles as well is unknown. But investors are definitely optimistic, as the real estate market is seen as too big to fail.

    This fiscal reform can be seen as the grassroots half of the anti-corruption campaign. While central officials tamp down on factional self-interest, local officials are re-incentivised to be service providers instead of glorified chambers of commerce.

    Corruption was a critical feature of the original transition to a market economy. Decision-makers needed buy-in from party elite, which they could only secure if "some people get rich first." And while the economy was growing fast and easy, the tapeworm even in excess could be tolerated.

    But in efficiency-driven growth, rampant corruption is a death knell. Therefore Xi's extraordinarily broad and extended anti-corruption campaign (which is running into predictable abuses of power as it expands outside well-defined central party figures to all parts of local governance and local society) is meant not only to destroy rival political networks and break down factional resistance to reform efforts, but also renegotiate the implicit social contract between the Party and its elites; to permanently recalibrate (not eliminate) its tolerance levels for corruption and improve its governing capacity.

    After all, political legitimacy is underwritten by effective governance.
    Last edited: Aug 17, 2018
  4. awinarock

    awinarock Fourth Champion

    Dec 10, 2009
    @Solfege Are farmers a dying breed in China due to exploitation, and since farmland is being gobbled up by urban developers and local governments, is there a worry that there might be an codependency on foreign markets for food supplies in the future (if that isn't the case already)?
  5. Solfege

    Solfege Headmaster DLP Supporter

    Nov 21, 2008
    East Coast & the South
    =============== Trade War
    Ah, I can see how you might think that. You have to remember, controlling population flows and the subsequent fiscal burden on local governments is a major issue for which the hukou system was created. Your household registration limits your legal mobility; you’re entitled to the benefits of your county only. Without urban permits, which I don’t think displaced farmers are given, you can’t move into the city without becoming a migrant.

    The migrant economy has its own issues; a third (70 million) of China’s children lack one or both parents in their lives, and migrant children who live in the city attend black-market, private schools of questionable quality. The government is aware of the potential instability this may cause, and in 2016 set out a quota of 100 million urban permits for migrants by 2020. Well-tiered urban schools are not only much better resourced in a highly cutthroat educational environment, they are also feeders to the province’s flagship universities with real consequences for employment.

    Incidentally think of the Chinese New Year, when 250 million people move all at once, on the same day, back to their villages for a week. Making sure the trains run all across the country is one fucking massive logistical undertaking.

    Farmers are compensated by a formula counting the number of floors in a dispossessed property, so what you get is really shoddy construction of as tall a building as can be afforded if they suspect their land might be acquired. In this economy, everyone games the system for their own slice of pie. I think once they receive the money they typically do become urban migrants.

    Like most industries in China to date, farming is highly labor-intensive, employing far greater numbers than western farming. Even with an exaggerated urban count of 700 millions, there are still 600 millions categorised as living essentially in countryside farm villages.


    You raise a legitimate point: cultivated land is being reduced at a rate fast approaching the official “red line” of 120 million hectares. Here's another urgent factor behind the local fiscal reforms. Separately, rural reforms being constructed are stronger property rights for farmers, promotion of larger-scale mechanisation, and “townisation” by which multiple villages are consolidated and former residences freed up for land.

    All governments want food security for their people. China is no different, and their productivity of crops and livestock has well risen over decades as some of the most intensely farmed acreage in the world. Of course their diet composition changes with consumer expectations, with greater demand for meat and therefore feed-grain, a big driver of soybean demand alongside the use of cooking oil.

    The Chinese have this particular (irrational but historically understandable) hang-up on grain “self-sufficiency,” defined as 95% domestic fulfillment of demand. They can do this for cereals, primarily rice, wheat, and corn (likely not much longer), but cannot for beans, potatoes, and obviously soybeans.

    Globalised markets make for a strange world where Brazilian and American imports, on which they cannot completely eliminate dependence, are cheaper than shipments from intensive, rich northeastern Chinese soybean fields. Even with tariffs. They're looking into further substitutes from Argentina and Russia, to different oilseeds for processing, and expanding domestic production into vacant but marginal lands around the Yangtze. Best case scenario for the remainder of this year (and right after harvests too!), China still imports $4.1B worth of American soybeans with tariff costs of $1B that upturns the low-margins soybean-processing industry.

    From the economist’s standpoint, import diversity within stable globalised markets is sufficient security and outweighs the costs of striving for theoretical “self-sufficiencies.” For a similar dilemma, despite the fracking revolution and net export capacity of American natural gas, talk of “energy self-sufficiency” is more political hype and accounting sleight-of-hand than near-term feasibility. We may export more than we import, but our import flows go to critical use-cases that aren’t easily substituted for, if we tried would impose high consumer costs… and why our strategic oil reserves are still needed.

    And this is a good segue into the trade war. Thanks @awinarock


    Xi's position seems unexpectedly brittle all of a sudden. To reiterate: Xi is not a Putin. Xi's current efforts were obliquely architected by the previous Politburo standing committee that included his and Wang Qishan's (Xi’s current right hand) fathers. Putin's party is a creature of Putin, but Xi is a creature of the Party, ever-balancing enormous intraparty and intranational pressures.

    This summer has yielded additional observations. The government bungled its handling of the fake vaccine scandal — do not fuck with people's kids — virtually copy-and-pasting press releases as from another fake vaccine corporate scandal two years ago. Even far left social media, ever quick to support the government, has been reproachfully silent. Admittedly the middle-class, who are really hierarchically upper-mid, have just as much to lose as elites do from a system crash, but a unified front for an adequate response contributes to the ominous air.

    Who could've imagined, a year ahead of Xi's "monarchical" high, there'd be rumors of a party coup over his few days' disappearance, a foreign trip spun as the beginning of exile? Eyes were on Beidaihe, a favored seaside summer escape of Mao's, where top party leaders vacation annually for informal talk on events and personnel.

    The trade war has put pressure on domestics. At this point we're no longer fighting over trade surpluses, not even over legitimate business issues of Chinese market access (where the American business community is completely fatigued and has lost all patience for Chinese promises) but over Trump’s own fears of potential Chinese technological dominance and credibility as rival bidder for geopolitical influence. Xi was terribly burned by Trump's surprise advance of $50B in extra tariffs, when his vice premier (and Harvard grad) Liu He had seemed to secure a deal with the promise of an additional $70B purchase of American exports.

    As in all dealings with Trump, there's no trust in the administration's good faith. Party elites are unsettled by Trump’s sincere zero-sum mentality. Xi's government, seeing Trump means to stymie Chinese ambitions totally, have abandoned an unsustainable tit-for-tat and bunkered down for a cold war if a deal can't be had. Any current attempt at rapprochement will be low-level contact. The Chinese can't trust Mnuchin to close any deal. The leading U.S. official for the coming August summit has no authority to negotiate substance, and anything he negotiates can be struck down by a dysfunctional Cabinet.

    If there's to be a deal, it’ll be directly between Trump and Xi; but Trump won’t give until he can say he’s defeated Xi and China, and Xi would rather be dead than give him that impression.


    Market analysts on both sides are settling in for a possible economic cold war through the late 2020s. Chinese trade and investment flows are being diversified, measures taken to soften the blow for businesses. Ministry of Commerce cadres are being recalled to duty, but even there macroeconomic and trade negotiation expertise remains shallow. The watch phrase of the Politburo is: "stable employment, stable finance, stable foreign trade, stable foreign investment, stable domestic investment and stable expectations."

    The RMB was initially overvalued, as all Communist currencies were, and from '79 to '94 steadily devalued to more realistic levels. It was then pegged to the dollar with a managed float (small range of daily market movement) from '96-'04 at, or slightly under, fair market value.

    The priority by that point had shifted from export competitiveness to investor confidence — investors like to know they're not losing money from foreign exchange volatility. This was demonstrated in the Asian financial crisis of '97-'98, when its neighbors were forced to devalue but China didn’t, doubling down on the peg and tightening the float to a mere 0.1% of dollar value. China suffered short-term loss of exports but its bet paid off as by 2001 it'd achieved a reputation as the best place in Asia to do business, and by '04 exports were roaring again.

    This is the point where American media and labor take notice and begin to accuse China of currency manipulation. Where in fact, two things had happened to increase exports.

    1) Chinese workers became more productive, what with industrial reforms and a private market sector

    2) The USD had weakened sharply after 2001. A pegged RMB didn't cheapen relative to the dollar, but it did cheapen relative to the euro and the yen

    The peg was abandoned in 2005, and the RMB has since steadily appreciated against the dollar.
    and shows how utterly wrong our narrative is of China as currency manipulator.

    While the Chinese would rather not do anything to jeopardise their investment environment, they will be asked to make tradeoffs between investment stability and further short-term growth. I don’t see Xi’s position being in any real danger, but the trade war has narrowed the room for maneuverability in pursuing continued, effective governance. Elites are suggesting it was too soon to abandon Deng's "lie low and bide your time" approach. Appropriately they've adopted a long-term defensive view.

    The propaganda department is being taken to task for overhyping Made in China 2025. New propaganda is being spooled out to suggest China isn’t so advanced, Made in China isn’t so ambitious, there is ample space in a global economy for complementary trade among advanced industrialised nations.

    Of course we should ask to what extent China can achieve real technological leadership in the near future, vis a vis Silicon Valley. Much of their vaunted futuristic hardware systems (including most public surveillance outside core areas of first-tier cities) are cheaply made, poorly maintained, and quickly abandoned. Their technical strength has heretofore been in novel, wonderfully creative adaptations of existing software, algorithms, and startup frameworks. But then, Made in China was to comprise three decade-long stages.

    What overt leadership they can establish in the near-term is still limited to a narrow set of fields, likely including consumer electronics and select consumer manufacturing as from earlier.

    My assessment is it's prematurely alarmist to fear Made in China 2025 as we did Japanese dominance in the '70s-'80s. There are legitimate issues we should force China to bend on, notably fair access to domestic markets and a cession to the brazen corporate espionage fucking everywhere, in all fifty states. Otherwise, we can certainly withstand a healthy near-term market competition. Odds are heavily weighed in our favor to come out ahead, and free flow of information would mean we both innovate faster, particularly in machine learning systems where we hold the definitive edge in top academic and research talents.
    Last edited: Aug 18, 2018
  6. Download

    Download Dark Lord DLP Supporter

    Aug 6, 2014
    Adelaide, Australia
    I don't think China will stop their corporate espionage unless there are massive reforms at all level of Chinese government and culture.
  7. Innomine

    Innomine Death Eater Prestige DLP Supporter

    Nov 27, 2007
    New Zealand
    High Score:
    It would be naive to expect them too. It'll all just be done more subtly.