For quite some time now, readers have been fed a regular diet of commentary pointing to economic decline in China. To use just one example, Washington Post Columnist Katherine Rampel recently wrote that the Chinese economy is facing “difficult times.” Rampel is not alone. Around the time of his column, Post brought together a number of contributors to think about Why Behind China’s economic difficulties.
Is it struggling? As this column always acknowledges, it would be very difficult to measure the “GDP” of one’s street, let alone that of a vast country. Moreover, economies are not drops whose temperature can be measured, they are people. The speculation here is that Chinese measures of economic health are as misleading as they are at the state level. The economies of both the US and China are too dynamic to be tracked by those arrogant enough to measure them.
Also, it is noteworthy that there has not been any improvement in the US equity indices. non sequitur? no way. China is a big market for American companies. Readers have seen this most recently with Apple’s AAPL’s $200 billion market cap loss that occurred after Chinese authorities threatened only a limited ban on the sale of iPhones. Apple sells a lot of iPhones there, only for investors to express panic. Apple is not alone. If China’s economy weakens, we will see it clearly through equity weakness in the US
Which raises an obvious question: If China’s economy is so weak, why is it not reflected in market indices? why indeed. Perhaps the answer can be found in Xi Jinping, the same man whom many American pundits point to as the source of China’s alleged economic malaise.
According to a recent report wall street journal, Xi’s substantial power “is delaying the country’s response to its worst economic downturn in years.” While “officials in charge of day-to-day economic affairs have been holding increasingly urgent meetings in recent months to discuss ways to address the worsening scenario,” Xi is clearly not satisfied with doing nothing. in the words of magazine According to reporters Lingling Wei and Stella Yifan Xie, Xi “has not shown interest in supporting further stimulus” despite “advice from leading Chinese economists to take bolder action”. She is intelligent.
Even better, if Benjamin Anderson had been around he would have cheered Xi’s lack of activism. In his brilliant book on the 1930s, Economics and Public WelfareAnderson was clear that the “Great Depression” was only “Great” because in response to a weak economy, the political class took the power to fix it. There was your depression.
The opinion of economists and politicians, then in the US and now in China, is that a “recession” is a sign of an economy recovery As bad investments are suppressed, poorly positioned workers are laid off so they can find better-suited work for them elsewhere, and largely this is when mistakes are rapidly corrected. Fighting the “recession” is fighting the recovery. Instead of allowing individuals and companies to fix themselves, “incentives” make it possible for bad ideas to flourish. There was no Great Depression caused by politicians absent from “doing something” in the 1930s. There is simply a surge, much like there was when President Harding did nothing in response to the Great Depression of 1920-21. The author of Do Nothing is Roaring 20. pick him up?
By doing nothing now, Xi is ideally making it possible for the Chinese to correct their errors and for well-run businesses to obtain physical and human capital relatively cheaply. All this points to the possibility that Xi Jinping knows more than economists about why economies grow. Well, stock markets also do the same.