a forced savings glut

The piece in the Atlantic by James Fallows caught my eye. It reminds us of the role the Chinese government has played in ensuring that Americans borrow from Chinese and not vice versa. The oddness of China-US goods flows is something I’ve been trying to drum into students recently. I like the way he puts it:

Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.

Fallows goes on to make some nice points on the sustainability of this arrangement, but they’re mostly focused on the international sphere, for example on the prospect of a dollar crisis. One thing I haven’t seen addressed is the internal political sustainability of China’s currency management and export focus. [Note: I know that just because I haven’t seen it doesn’t mean it’s not out there.]

Any faithful reader of this blog knows that mass-group-incidents, or MGIs, are on the up in China. Regional inequalities are large and the cause of significant internal migration. China is still poor, even poorer than we thought. And if the Beijingologists are right, Hu Jintao is worried:

Danwei gave an award to the China Media Project (based at the University of Hong Kong), which had an analysis of Hu Jintao’s big speech to the congress. Since China may well be approaching a moment of economic, environmental and political crisis, this has a claim to being the most important political speech anywhere in the world this year. The trouble is that these speeches are in code. Also, since Mao, China’s leaders have tended to adopt a technocratic, deliberately anti-charismatic public manner. Hu takes that about as far as it can go; he makes Jiang Zemin look like Iggy Pop. To decode the speech, therefore, one must count it. This the China Media Project has done:

And the results are in! ‘Socialism with Chinese characteristics’ logged the most number of uses, appearing 52 times in Hu Jintao’s political report to the 17th National Congress. A distant second, ‘scientific development’ racked up 38 appearances. Used a total of 34 times, ‘opening and reform’ finished third, just edging out ‘harmony’ at 33.

‘Socialism with Chinese characteristics’, a phrase patented by Deng, which in practice means ‘capitalism with Party control’, is the official policy of China, and the surge in mentions – up from 30 at the 16th Party Congress – is a strong, perhaps even a protesting-too-much, signal of continuity. ‘Harmonisation’, a new word, is more interesting. According to the excellent political blog Blood and Treasure, ‘the near tie between opening & reform and harmony means that Hu regards the maintenance of social stability as a discrete policy objective, rather than an inherent consequence of economic growth, as was the general line during the Jiang years.’ In other words Jiang thought growth would magically resolve questions of rising inequality, but Hu disagrees. This is a huge, huge deal …

An obvious question must be: how long does Hu let this go on? Will ‘harmonisation’ entail straying from the path of `export-led growth’ that so many developing countries seem to want to follow? [An even more basic question, to which we may find out the answer, is: in a country the size of China, is it sensible to say that export markets are needed for growth?]

The classroom view on free trade is that you can always compensate the losers, with some left over. The Chinese government is in a position to do just this, with its immense claims on foreign assets. It’s merely choosing to defer the compensation until a bit later, thank you very much. Just how much later it can afford to wait to call in these claims is the big unknown.

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