A ditadura equivocada na China - Carlos Alberto Sardenberg

A ditadura equivocada na China

Carlos Alberto Sardenberg

O Globo, 16/09/2023

Como não há debate sobre a falência de certas políticas, não há base para a procura das mais corretas

O governo da China enfrenta sérias dificuldades naquilo que parecia ser sua especialidade: botar o país para crescer. Há problemas econômicos específicos — como o endividamento das administrações regionais e o esgotamento de grandes projetos de infraestrutura —, mas a questão básica é mais profunda. Trata-se da perda de eficiência do sistema político, aquele que se poderia chamar de ditadura esclarecida.

Ditadura, pelo óbvio. A sociedade vigiada e controlada pelo Partido Comunista. Na economia, ampla abertura para o investidor privado nacional e estrangeiro. Por trás disso, o comando de uma burocracia formada nas melhores universidades ocidentais e treinada em grandes companhias.

Um pequeno exemplo: a política monetária é aplicada pelo Banco do Povo da China. O povo não manda nada. Mandam economistas que trabalham exatamente como os mais eficientes banqueiros centrais do mundo.

Há uma ideologia por trás disso. Sustenta que a democracia política, estilo ocidental, não funciona e, pior, atrapalha o crescimento econômico. Muito debate, parlamentos atrasando a aplicação dos programas, imprensa incomodando, sociedade reclamando e resistindo a medidas do governo — não há como ter eficiência, diz essa doutrina. Mas, para que isso seja verdade, é preciso admitir que a tecnocracia é eficiente e sabe claramente os interesses atuais e futuros dos cidadãos e do país. Logo, não erra.

Pois o governo do presidente Xi Jinping vem cometendo erros sucessivos. O mais desastroso foi o programa Covid Zero. A ideia era bloquear a transmissão do vírus. Um teste positivo numa fábrica — e se fechava toda a fábrica, trabalhadores e funcionários lá dentro, por quantos dias fosse necessário para testar todo mundo e isolar os doentes. Um caso num bairro, e todos os moradores eram simplesmente trancados em suas casas, com barricadas à frente dos prédios. Se o vírus escapava do bairro mesmo assim, regiões inteiras eram isoladas. Um caso num porto, e se fechavam todas as operações ali.

Sendo essa a política, o governo se descuidou da vacinação — e deu tudo errado. A Covid Zero paralisou seguidamente a economia e não impediu a transmissão. Quando, finalmente, se abandonou a política, a economia estava desorganizada, a sociedade cansada e não vacinada. Depois o governo se equivocou em várias tentativas de recuperação, e o resultado aí está: a China crescendo muito pouco, os ganhos de renda bloqueados.

Como se chegou a esse ponto? Pela natureza do regime. Sem democracia, sem livre debate, os médicos e cientistas que alertavam sobre os erros da Covid Zero eram simplesmente presos ou trancados em casa. Incipientes debates em alguma imprensa regional, reportando reclamações de moradores, foram rapidamente abafados.

O mesmo acontece nas decisões de política econômica. Quando o presidente e a administração central erram, a burocracia mantém esse erro, insiste, até que as próprias instâncias superiores, o presidente e a cúpula do partido percebam a besteira. De novo, como não há debate sobre a falência de certas políticas, não há base para a procura das mais corretas. Erro atrai erro.

E quer saber? É bom que isso esteja acontecendo. O povo chinês paga um preço e também muitos países cujas economias se ligaram mais fortemente à China. Mas era preciso desmistificar o sistema e derrubar a ideia de que a democracia atrapalha. É notável também a perda de prestígio da China como parceiro econômico e geopolítico. Se o governo lá muda suas políticas sem consultar seu próprio povo, por que consultaria outros governos?

Assim é que os países ocidentais no sentido amplo, democráticos e desenvolvidos — incluindo Japão, Austrália e Coreia do Sul —, buscam parceiros confiáveis. Países emergentes democráticos são candidatos. Alguns pularam na frente. O México ultrapassou a China como maior fornecedor dos Estados Unidos. Canadá também. A União Europeia, outro exemplo, procura fontes de energia fora da Rússia.

Enquanto isso, o Brasil de Lula, antiamericano, se alinha com China e Rússia.

A via chinesa da armadilha da dívida - Michael Bennon and Francis Fukuyama (Foreign Affairs)

O artigo trata da iniciativa chinesa do Cinturão e Rota (BRI), a nova rota da seda unindo a China a mercados na Eurásia e até mais além, mas baseada em empréstimos chineses para a construção de grandes obras de infraestrutura, mas que podem se revelar uma armadilha para países mais pobres. 

Paulo Roberto de Almeida

China’s Road to Ruin

The Real Toll of Beijing’s Belt and Road

By Michael Bennon and Francis Fukuyama

Foreign Affairs September/October 2023

Published on August 22, 2023

This year marks the tenth anniversary of Chinese President Xi Jinping’s Belt and Road Initiative, the largest and most ambitious infrastructure development project in human history. China has lent more than $1 trillion to more than 100 countries through the scheme, dwarfing Western spending in the developing world and stoking anxieties about the spread of Beijing’s power and influence. Many analysts have characterized Chinese lending through the BRI as “debt trap diplomacy” designed to give China leverage over other countries and even seize their infrastructure and resources. After Sri Lanka fell behind on payments for its troubled Hambantota port project in 2017, China obtained a 99-year lease on the property as part of a deal to renegotiate the debt. The agreement sparked concerns in Washington and other Western capitals that Beijing’s real aim was to acquire access to strategic facilities throughout the Indian Ocean, the Persian Gulf, and the Americas.

But over the last few years, a different picture of the BRI has emerged. Many Chinese-financed infrastructure projects have failed to earn the returns that analysts expected. And because the governments that negotiated these projects often agreed to backstop the loans, they have found themselves burdened with huge debt overhangs—unable to secure financing for future projects or even to service the debt they have already accrued. This is true not just of Sri Lanka but also of Argentina, Kenya, Malaysia, Montenegro, Pakistan, Tanzania, and many others. The problem for the West was less that China would acquire ports and other strategic properties in developing countries and more that these countries would become dangerously indebted—forced to turn to the International Monetary Fund (IMF) and other Western-backed international financial institutions for help repaying their Chinese loans.

In many parts of the developing world, China has come to be seen as a rapacious and unbending creditor, not so different from the Western multinational corporations and lenders that sought to collect on bad debts in decades past. Far from breaking new ground as a predatory lender, in other words, China seems to be following a path well worn by Western investors. In so doing, however, Beijing risks alienating the very countries it set out to woo with the BRI and squandering its economic influence in the developing world. It also risks exacerbating an already painful debt crisis in emerging markets that could lead to a “lost decade” of the kind many Latin American countries experienced in the 1980s

To avoid that dire outcome—and to avoid spending Western taxpayer dollars to service bad Chinese debts—the United States and other countries should push for broad-based reforms that would make it more difficult to take advantage of the IMF and other international financial institutions, imposing tougher criteria on countries seeking bailouts and demanding more transparency in lending from all their members, including China. 

HARD BARGAINS, SOFT MARKETS 

In the 1970s, the Harvard economist Raymond Vernon observed that Western investors had the upper hand when negotiating deals in the developing world, since they had the capital and know-how to build factories, roads, oil wells, and power plants that poorer countries desperately needed. As a result, they were able to strike bargains that were highly favorable to themselves, transferring much of the risk to developing countries. Once the projects had been completed, however, the balance of power shifted. The new assets could not be taken away, so developing countries had more leverage to renegotiate debt repayment or ownership terms. In some cases, contentious negotiations led to nationalizations or sovereign defaults.

Similar scenarios have played out in several BRIcountries. Major Chinese-funded projects have generated disappointing returns or failed to stimulate the kind of broad-based economic growth that policymakers had anticipated. Some projects have faced opposition from indigenous communities whose lands and livelihoods have been threatened. Others have damaged the environment or experienced setbacks because of the poor quality of Chinese construction. These problems come on top of long-standing disputes over China’s preference for using its own workers and subcontractors to build infrastructure, edging out local counterparts.

The biggest problem by far, however, is debt. In Argentina, Ethiopia, Montenegro, Pakistan, Sri Lanka, Zambia, and elsewhere, costly Chinese projects have pushed debt-to-GDP ratios to unsustainable levels and produced balance-of-payments crises. In some cases, governments had agreed to cover any revenue shortfalls, making sovereign guarantees that obligated taxpayers to foot the bill for failing projects. These so-called contingent liabilities were often hidden from citizens and other creditors, obscuring the true levels of debt for which governments were liable. In Montenegro, Sri Lanka, and Zambia, China made such deals with corrupt or authoritarian-leaning governments that then bequeathed the debt to less corrupt and more democratic governments, saddling them with responsibility for getting out of crises.

Contingent liabilities on debt to state-owned enterprises are not unique to the BRI and can plague privately financed projects, as well. What makes BRI debt crises different is that these contingent liabilities are owed to Chinese policy banks rather than to private corporations, and China is conducting its debt renegotiations bilaterally. Beijing is also clearly negotiating hard, because BRI countries are increasingly opting for bailouts from the IMF, even though they often come with tough conditions, rather than trying to negotiate further relief from Beijing. Among the countries that the IMF has intervened to support in recent years are Sri Lanka ($1.5 billion in 2016), Argentina ($57 billion in 2018), Ethiopia ($2.9 billion in 2019), Pakistan ($6 billion in 2019), Ecuador ($6.5 billion in 2020), Kenya ($2.3 billion in 2021), Suriname ($688 million in 2021), Argentina again ($44 billion in 2022), Zambia ($1.3 billion in 2022), Sri Lanka again ($2.9 billion in 2023), and Bangladesh ($3.3 billion in 2023).

Some of these countries resumed servicing their BRI debts soon after the new IMF credit facilities were in place. In early 2021, for instance, Kenya sought to negotiate a delay in interest payments for a struggling Chinese-funded railway project linking Nairobi to Kenya’s Indian Ocean port in Mombasa. After the IMF approved a $2.3 billion credit facility that April, however, Beijing began withholding payments to contractors on other Chinese-financed projects in Kenya. As a result, Kenyan subcontractors and suppliers stopped receiving payments. Later that year, Kenya announced that it would no longer seek an extension of debt relief from China and made a $761 million debt service payment for the railway project.

The stakes for Kenya and the rest of the developing world are enormous. This wave of debt crises could be far worse than previous ones, inflicting lasting economic damage on already vulnerable economies and miring their governments in protracted and costly negotiations. The problem goes beyond the simple fact that every dollar spent servicing unsustainable BRI debt is a dollar that is unavailable for economic development, social spending, or combating climate change. The recalcitrant creditor in today’s emerging market debt crises is not a hedge fund or other private creditor but rather the world’s largest bilateral lender and, in many cases, the largest trading partner of the debtor country. As private creditors become more keenly aware of the risks of lending to BRI countries, these countries will find themselves caught between squabbling creditors and unable to access the capital they need to keep their economies afloat.

HIDDEN FIGURES

Beijing had multiple objectives for the BRI. First and foremost, it sought to help Chinese companies—mostly state-owned companies but also some private ones—make money abroad, to keep China’s huge construction sector afloat, and to preserve the jobs of millions of Chinese workers. Beijing also undoubtedly had foreign policy and security goals, including gaining political influence and in some cases securing access to strategic facilities. The large number of marginal projects Beijing undertook hints at these motivations: Why else fund projects in countries with huge political risks, such as the Democratic Republic of the Congo or Venezuela?

But accusations of debt trap diplomacy are overblown. Rather than deliberately miring borrowers in debt in order to extract geopolitical concessions, Chinese lenders most likely just did poor due diligence. BRI loans are made by Chinese state-owned banks through Chinese state-owned enterprises to state-owned enterprises in borrowing countries. The contracts are negotiated directly, rather than opened to the public for bidding, so they lack one of the benefits of private financing and open procurement: a transparent market mechanism for ensuring that projects are financially viable. 

The results speak for themselves. In 2009, the government of Montenegro asked for bids on a contract to build a highway connecting its Adriatic port of Bar with Serbia. Two private contractors participated in two procurement processes, but neither was able to raise the necessary financing. As a result, Montenegro turned to the China Export-Import Bank, which did not share the market’s concerns, and now the highway is a major cause of Montenegro’s financial distress. According to a 2019 IMF estimate, the country’s debt-to-GDP ratio would have been just 59 percent had it not pursued the project. Instead, the ratio was forecast to rise to 89 percent that year. 

Not all BRI projects have underperformed. Greece’s Piraeus port project, which expanded the country’s largest harbor, has delivered the win-win outcomes Beijing promised, as have other BRIinitiatives. But many have left countries suffering under crushing debt and wary of deeper engagement with China. In some cases, the leaders and elites who negotiated the deals have benefited, but the broader populations have not.

China’s BRI does pose problems for Western countries, in other words, but the primary threat is not strategic. Rather, the BRI creates pressures that can destabilize developing countries, which in turn creates problems for international institutions such as the IMF and the European Bank for Reconstruction and Development, to which those countries turn for assistance. Over the last six decades, Western creditors have developed institutions such as the Paris Club to deal with issues regarding sovereign default, to ensure a degree of cooperation among creditors, and to manage payments crises equitably. But China has not yet agreed to join this group, and its opaque lending processes make it hard for international institutions to accurately assess how much trouble a given country is in.

CAUTION AND PRESSURE

Some analysts have argued that the BRI is not a cause of the current debt crisis in emerging markets. Countries such as Egypt and Ghana, they point out, owe more to bondholders or multilateral lenders such as the IMF and World Bank than to China and are still struggling to manage their debt burdens. But such arguments mischaracterize the problem, which is not simply bad BRI debt in the aggregate but also hidden BRI debt. According to a 2021 study in the Journal of International Economics, approximately half of China’s loans to the developing world are “hidden,” meaning that they are not included in official debt statistics. Another study published in 2022 by the American Economic Association found that such debts have resulted in a series of “hidden defaults.”

The first problem with hidden debt occurs during the buildup to a crisis, when other lenders do not know that the obligations exist and are therefore unable to accurately assess credit risk. The second problem comes during the crisis itself, when other lenders learn of the undisclosed debt and lose faith in the restructuring process. It does not take much hidden bilateral debt to cause a credit crisis, and it takes even less to shatter trust in efforts to resolve it. 

China has taken some measures to ease the strain of these debts, hidden and otherwise. It has provided its own bailouts to BRI countries, often in the form of currency swaps and other bridge loans to borrower central banks. These bailouts are accelerating, with one working paper published in March 2023 by the World Bank Group estimating that China extended more than $185 billion in such facilities between 2016 and 2021. But central bank swaps are far less transparent than traditional sovereign loans, which further complicates restructurings.

China’s preference for not disclosing lending terms and renegotiating bilaterally may help protect its economic interests in the short term, but it can also derail restructuring efforts by undermining the two foundational elements of any such process: transparency and comparability of treatment—the idea that all creditors will share the burden equitably and be treated the same.

It does not take much hidden bilateral debt to cause a credit crisis.

The IMF’s policies for lending into murky distressed debt situations have evolved over decades, growing more flexible so that the fund can lend into and “referee” debt restructurings. But although the IMF was well suited to this role when the creditors were Paris Club members and even sovereign bond hedge funds, it is not well positioned to deal with China. Moreover, the mechanisms that the IMF and Western creditorshave developed to alleviate the worsening sovereign debt crisis among BRI countries are insufficient. In 2020, the G-20 established a Common Framework intended to integrate China and other bilateral lenders into the Paris Club’s restructuring process with IMF oversight and support. But the Common Framework has not worked. Ethiopia, Ghana, and Zambia have all applied for relief through the mechanism, but negotiations have been extremely slow, and only Zambia has reached a deal with creditors. The terms of that agreement, moreover, were underwhelming for Zambia, Zambia’s non-Chinese official creditors, and, most important, for the prospects of future restructurings.

Under the deal, reached in June 2023, Zambia’s official creditor debt was revised down from $8 billion to $6.3 billion after a major BRI loan was reclassified as commercial (even though it was covered by Chinese state-backed export credit insurance). Furthermore, the agreement may only temporarily reduce Zambia’s interest payments on official debt. If the IMF concludes that Zambia’s economy has improved at the end of its program in 2026, the country’s interest on official credits will ratchet back up. That creates a terrible set of incentives for the Zambian government, whose cost of capital will increase if its creditworthiness improves and could cause friction between the IMF and China down the road. These results are not surprising: the Common Framework provides the carrot of IMF support but lacks a stick to deal with a recalcitrant creditor, especially one with China’s geopolitical leverage over borrowers. 

Another initiative aimed at easing the brewing BRI debt crisis is the IMF’s Lending Into Official Arrears program. In theory, the program should allow the IMF to continue lending to a distressed borrower even when a bilateral creditor refuses to provide relief, but it, too, has proven ineffective. In Zambia, China holds more than half of official debt, making it extremely risky for the IMF to extend additional financing. Even in other cases in which China does not hold a majority of official debt, China simply has too much economic leverage over borrowers relative to the IMF, and the fund’s staff and leadership will always err on the side of caution when attempting to resolve conflicts between member states. 

As long as the IMF continues to exercise such caution, Beijing will continue to use its leverage to pressure the fund into supporting borrowers even when it does not have complete visibility into their indebtedness to China. To prevent future debt restructurings from becoming as challenging as the ongoing ones in Ethiopia, Sri Lanka, and Zambia, the IMF will need to undertake substantial reforms, strengthening its enforcement of transparency requirements for member states and taking a much more cautious approach to lending into heavily indebted BRI borrowers. Such a course correction is unlikely to originate from within the IMF; it will have to come from the United States and other important board members.

SLOW LEARNERS AND FAST LENDERS 

Some analysts have argued that China is going through a “learning process” as a debt collector, that Chinese lending institutions are fragmented, and that the process of building understanding, trust, and organized responses to sovereign debt crises takes time and cooperation. The implication is that Western creditors should be flexible while Beijing grows into its new role—and that the IMF should keep cutting checks in the meantime. 

But patience will not solve the problem because China’s incentives (and those of any other holdout creditor) are not aligned with those of the IMF or creditors who wish to expeditiously negotiate the restructuring of debts. This is why the IMF must strictly enforce requirements that oblige member states to be transparent about their debt obligations.

Even if the Chinese lending landscape is fragmented, moreover, the IMF and the members of the Paris Club should treat the Chinese government as capable of organizing its state-owned entities and providing a state-level response in debt restructurings. Beijing appears to be capable of doing so in bilateral debt renegotiations. In 2018, for instance, Zambia announced plans to restructure its bilateral debt with China and to delay ongoing BRI projects because of debt concerns. But after meeting with China’s ambassador to Zambia, then President Edgar Lungu reversed course and said there would be no disruption of the Chinese-financed projects, suggesting that Beijing had been able to coordinate with a number of Chinese state-owned enterprises and state-owned banks to avert a blowup. If China could do so bilaterally, it should be able to do so multilaterally, as well. 

One drawback of adjusting the IMF’s approach to the BRI debt crisis is that it would slow the fund down, preventing it from responding quickly to new crises. This is clearly a tradeoff. The IMFcannot act as both an unequivocal lender of last resort and an enforcer of the norms of transparency and comparability. It must be able and willing to withhold credit assistance when its requirements are unmet. The non-Chinese taxpayers who fund the IMF should not see their money pay for bad Chinese lending decisions. 

GOOD FOR THE IMF, GOOD FOR THE WORLD

Members of the G-7 and the Paris Club have several options for addressing the BRI debt crises. First, the United States and other bilateral creditors could assist BRI borrowers in coordinating with one another. Doing so would improve transparency, enhance information sharing, and enable borrowers to negotiate with Chinese creditors as a group instead of bilaterally. China’s approach of conducting renegotiations secretly and bilaterally disadvantages BRIborrowers, as well as other creditors, including the IMF and the World Bank.

Second, the IMF should establish clear criteria that distressed BRI borrowers must meet before they can receive new credit facilities from the fund. These criteria should be agreed on by a number of IMF board members in order to insulate the fund’s staff and leadership from conflict with China, which is also an important board member of the IMF. Transparency related to BRI debts is not the only area that these criteria should address. The IMF should also set much clearer criteria regarding which BRI loans will be considered official credits, as opposed to commercial ones. China has claimed that some major BRI loans are commercial rather than official loans because they are priced at market rates, even though they come from state-owned lending institutions such as the China Development Bank. The IMF has considered these classification questions case by case. But this approach is proving unworkable, since it enables scenarios such as the Zambian one in which a sizable portion of official debt suddenly becomes commercial overnight, enabling China to seek better terms. A continued ad hoc approach by the IMF will likely lead to similar gamesmanship and conflict in future restructuring negotiations. The IMF should simply clarify which BRI lending institutions will be considered official creditors in any restructuring process.

Under some recent IMF programs, borrowers have continued to service BRI debts through their state-owned enterprises while receiving sovereign debt relief at the national level. The only way to prevent this behavior is for the IMF to require borrowers to identify and commit to including all state-owned enterprise debts with sovereign guarantees in restructuring processes. Otherwise, BRI lenders will simply pick and choose which state-owned enterprise loans they would like to include in restructurings based on whether they think they can get a better deal through restructuring or through a bilateral renegotiation on the side. 

A Chinese construction project east of Cairo, Egypt, January 2023

Amr Abdallah Dalsh / Reuters

Requiring distressed countries to meet these criteria before they get new credit facilities would make the IMF less agile and limit its ability to respond quickly to balance-of-payments crises. But it would give borrowers and the sovereign finance industry much-needed clarity and certainty on the requirements for IMF intervention. It would also insulate IMF staff and leadership from recurring conflicts with China during every debt restructuring. 

Some will no doubt frame such reforms as “anti-China.” In truth, however, they are simply the steps necessary to protect the principles of transparency and comparability in sovereign debt restructuring. Western countries must be able to stand up for key elements of the rules-based international order when they are imperiled while still cooperating with China, which is an important member of that order. 

Finally, these reforms are the only way to protect the IMF from the fallout of the BRI debt crisis. Conflicts over BRI debt will continue to impede debt-relief efforts, undermining both the economic health of indebted developing countries and the effectiveness of the IMF. Only a reformed IMFcan reverse the damage—to developing countries and to itself.

O tamanho da crise econômica da China - Paul Krugman (NYT, OESP)

O Brasil seria mais impactado por uma crise chinesa do que os EUA (pouco) ou o Japão e a Alemanha, que vendem muito para a China. Ou seja, o Brasil é um perdedor se a China entrar em recessão. 

O tamanho da crise econômica da China

Paul Krugman

O Estado de S. Paulo | Internacional

30 de agosto de 2023

Paul Krugman 

É colunista e ganhador do prêmio Nobel de Economia de 2008

The New York Times

Graças à baixa exposição da economia dos EUA, é difícil que problemas chineses se tornem globais

O efeito da crise seria maior em países que vendem mais para a China, como Alemanha e Japão

A s agruras econômicas dos anos pós-pandêmicos têm ocasionado intensos debates intelectuais e sobre políticas. Algo com que quase todos concordam, porém, é que a crise póscovid se assemelha pouco à crise financeira de 2008. Mas a China – segunda maior economia do planeta – parece balançar à beira de uma crise muito parecida.

Eu não confio no meu próprio entendimento sobre a China para julgar se o país vive seu momento Minsky, o ponto em que todos de repente se dão conta de que uma dívida insustentável é, de fato, insustentável. E, de fato, duvido que alguém ? incluindo as autoridades chinesas ? saiba responder a essa questão.

Mas acho que somos capazes de responder a uma pergunta mais condicional: se a China realmente passa por uma crise em estilo 2008, ela transbordará para o restante do mundo? E a resposta é clara: não. Por maior que seja a economia chinesa, os EUA estão pouco expostos aos problemas chineses. Antes de chegar aí, contudo, falemos sobre por que a China de 2023 se assemelha às economias americana e europeia de 2008.

BOLHA. A crise de 2008 foi ocasionada pelo estouro de uma bolha imobiliária transatlântica. Os efeitos foram amplificados por perturbações financeiras, especialmente o colapso dos ditos "shadow banks" – instituições que agiam clandestinamente como bancos, criando riscos de uma corrida bancária, mas prescindindo de regulamentações e de redes de segurança.

E agora chega a China, com um setor imobiliário ainda mais inchado que o dos países ocidentais em 2008. A China também tem um atribulado setor de "shadow banking", além de problemas peculiares, como dívidas enormes de governos locais.

A boa notícia é que a China não é a Argentina ou a Grécia, que deviam quantias imensas a credores estrangeiros. A dívida em questão aqui é de dinheiro que a China deve para si mesma. E deveria ser possível, em princípio, para o governo nacional resolver a crise por meio de alguma combinação entre resgates de devedores e abatimentos para credores.

Mas o governo da China tem competência para gerir o tipo de reestruturação financeira? As autoridades chinesas têm determinação ou clareza intelectual para fazer o que é necessário? Eu me preocupo especialmente com a segunda questão.

A China precisa substituir o investimento imobiliário insustentável por maior demanda de consumo. Mas alguns relatos sugerem que autoridades chinesas mais graduadas continuam suspeitas em relação a gastos de consumo "supérfluos" e resistem à ideia de "dar poder para os indivíduos tomarem mais decisões a respeito de como gastar seu dinheiro".

E não é nada tranquilizador o fato de as autoridades chinesas estarem respondendo à possível crise pressionando os bancos para emprestar mais, basicamente continuando a política que levou a China à situação em que ela se encontra.

EXPOSIÇÃO. Portanto, a China poderá entrar em crise. Se entrar, como isso afetará os EUA? A resposta, até onde eu consigo perceber, é que a exposição dos americanos a uma possível crise chinesa é surpreendentemente pequena.

Quanto os EUA têm investido na China? O investimento direto é de US$ 215 bilhões. Investimentos em carteira – ações e obrigações –, pouco mais de US$ 300 bilhões. Então, estamos falando de um total de US$ 515 bilhões.

Este número pode parecer grande, mas, para uma economia enorme, não é. Considerem uma comparação. Neste momento, há muitas preocupações a respeito do setor imobiliário comercial dos EUA, especialmente em relação aos prédios de escritórios ? que provavelmente encaram uma redução permanente na demanda em virtude do aumento do trabalho remoto. Os prédios de escritórios dos EUA valem hoje US$ 2,6 trilhões, aproximadamente cinco vezes mais que o nosso investimento total na China.

Por que uma economia tão grande atraiu tão pouco investimento dos EUA? Basicamente, porque, dadas as arbitrariedades das políticas chinesas, muitos possíveis investidores temem a possibilidade de a China se tornar uma armadilha: você consegue entrar, mas não consegue sair.

Mas o que dizer da China enquanto mercado? A China é uma importante jogadora no comércio mundial, mas não compra muito dos EUA – apenas US$ 150 bilhões, em 2022, menos de 1% do nosso PIB. Portanto, uma crise não surtiria muito efeito direto na demanda por produtos americanos.

O efeito seria maior em países que vendem mais para a China, como Alemanha e Japão, e algo poderia ricochetear nos EUA por meio das vendas a esses países. Mas o efeito geral ainda seria pequeno.

DIFERENÇAS. 

Uma crise poderia até surtir um pequeno efeito positivo nos EUA, porque reduziria a demanda por matérias-primas, especialmente petróleo, o que reduziria a inflação. Nada disso significa que devamos aplaudir a possibilidade de uma recessão chinesa ou tripudiar sobre os problemas de outro país.

Mesmo que por razões puramente egoístas, devemos nos preocupar com o que o regime chinês poderá fazer para distrair a atenção de seus cidadãos dos problemas domésticos. Mas, em termos econômicos, parece que estamos diante de uma possível crise interna na China, não de um evento global em estilo 2008. 

TRADUÇÃO DE GUILHERME RUSS

China financia publicações de esquerda do Brasil (Gazeta do Povo, NYT)

 Os americanos costumavam fazer isso antigamente. Agora, os chineses são os novos americanos, a sort of…

New York Times: China financia publicações de esquerda do Brasil

Uma reportagem do The New York Times desvendou uma rede de influência internacional bancada pela ditadura chinesa. Alguns desses braços estão no Brasil. 

A investigação do jornal americano joga luz sobre a atuação de Neville Roy Singham, empresário de origem indiana ligado ao Partido Comunista da China. Singham mora em Xangai e produz, dentre outras coisas, um programa para o YouTube financiado pela cidade — leia-se o partido. 

Mas a sua atuação vai muito além disso. Segundo o jornal, ele está na linha de frente de uma guerra silenciosa iniciada pelo Partido Comunista da China para influenciar a opinião pública fora do país. Em outras palavras: propaganda política apresentada como se não fosse. 

Em 2017, Singham vendeu sua empresa do ramo da tecnologia, a Thoughtworks, por US$ 785 milhões (o equivalente a R$2,5 bilhões à época). Agora, o ativismo pró-ditadura chinesa é a sua principal ocupação. A rede movimentada por ele distribuiu pelo menos US$ 275 milhões nos últimos anos, de acordo com o jornal americano. O repasse do dinheiro é feito por manobras que dificultam o seu rastreio e utiliza quatro organizações não-governamentais de fachada com sede nos Estados Unidos. A única presença real dessas entidades são caixas postais. A legislação americana não exige que organizações sem fins lucrativos divulguem quem são os seus doadores. 

Think tank marxista Singham financia uma teia de organizações que têm como objetivo divulgar propaganda (ou desinformação) sobre a ditadura chinesa. Um dos pontos centrais dessa teia é um think tank chamado Instituto Tricontinental de Pesquisa Social. O instituto se apresenta como "uma instituição internacional orientada por movimentos e organizações populares do mundo, focada em ser um ponto de apoio e elo entre a produção acadêmica e os movimentos políticos e sociais". 

Brasil, Índia, Argentina e África são o foco da organização, que cita Karl Marx e Antonio Gramsci como suas referências. Uma das sedes da organização fica no Brasil. Na página de apresentação do instituto, a palavra “China” simplesmente não aparece. O conselho consultivo não tem chineses — mas inclui Neuri Rossetto, do Movimento dos Sem-Terra. 

Porta-voz da China no Brasil 

A reportagem do jornal americano menciona especificamente um veículo brasileiro financiado pela rede de Singham: o Brasil de Fato, publicação de extrema-esquerda que faz apologia ao regime chinês. Entre ataques ácidos aos Estados Unidos, ao "neoliberalismo" e a políticos conservadores, a página publica notícias chapa-branca sobre o regime chinês. "China combate desertificação para garantir segurança alimentar e qualidade do ar", diz uma reportagem publicada em 15 de agosto. Pouco sutil, um artigo publicado em 30 de junho ganhou o seguinte título: "China cresceu e erradicou a pobreza porque fez tudo ao contrário do que pregam os neoliberais." 

O Brasil de Fato é um veículo influente na esquerda brasileira. Em 2019, por exemplo, a publicação entrevistou Luiz Inácio Lula da Silva dentro da cadeia. O vídeo reúne quase 800 mil visualizações no YouTube. O grupo também já publicou entrevistas exclusivas com o ator Wagner Moura e o ex-presidente do MST, João Pedro Stédile. Mais recentemente, o canal passou a produzir conteúdo em inglês. 

Em seu canal no YouTube, o Brasil de Fato publica semanalmente um programa chamado "Notícias da China", que traz uma versão pró-chinesa dos acontecimentos. O conteúdo é apresentado por Marco Fernandes. Ele, por sua vez, trabalha para um site chamado Donsheng News. A página apresenta-se apenas como “coletivo internacional de pesquisadores interessados pela política e sociedade chinesas”. Marco também se apresenta como pesquisador do Instituto Tricontinental e organizador do "No Cold War" — outra publicação pró-ditadura chinesa de perfil nebuloso e ligada a Singham. "Uma nova Guerra Fria contra a China vai contra o interesse da humanidade", proclama a página. 

O fundador do site Spotniks, Rodrigo da Silva, também mostrou que outros sites brasileiros, como o Brasil 247 e o Opera Mundi, publicam artigos de Vijay Prashad, diretor do Instituto Tricontinental. 

Além disso, o Brasil de Fato, o No Cold War e o Instituto Tricontinental realizaram um seminário online que teve a participação da ex-presidente Dilma Rousseff e de João Pedro Stédile, além do ex-chanceler Celso Amorim e do professor Elias Jabbour, da Universidade do Estado do Rio de Janeiro. O evento aconteceu em 2021. 

A influência chinesa mundo afora também se dá nos círculos acadêmicos. Como a Gazeta do Povo mostrou, o regime de Pequim utiliza os Institutos Confúcio para espalhar seus tentáculos. 

No Brasil, onze universidades mantêm filiais do centro chinês. 

https://www.gazetadopovo.com.br/vida-e-cidadania/new-york-times-china-financia-publicacoes-esquerda-brasil/amp/

China: será o centro da próxima crise na economia mundial? - Adam Tooze

Whither China? Part I - Regime impasse?

ADAM TOOZE AUG 12

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Whither China? 

With the inflation (or should we say price shock) drama in the West largely played out, there is no story more important in the world economy right now than the question of China’s future. 

The mood on China has shifted spectacularly in the last 18 months. Whereas once the prevailing impression was one of awe, now what prevails is a negative story. This is assembled out of data, official news from Beijing, quotations from off the record interviews with interlocutors in China and more or less commonplace assumptions about economic and political development. This may be bricolage. But it is the best we can do. There is not other way of forming a view. But in such moments it is a good idea to check our prejudices. 

On the podcast, Cam and I took on the challenge of making sense of China’s current situation. 

China's Economic Crisis Ones and Tooze 39:43

In this mini-series of newsletters I want to review the main lines of interpretation in Western public debate about China. Six lines of interpretation immediately come to mind which will form the first installments in the series. 

(1) Part I - Regime impasse 

(2) Part II - Balance sheet recession 

(3) Part III - Keynesian structuralist 

(4) Part IV - Dual-circulation, Siege economy 

(5) Part V - Zero COVID in hindsight

(6) Part VI - One China or many Chinas? Regional economies and debt crises 

To make sure you get all the parts of the mini-series, sign up here and consider supporting the Chartbook Newsletter project. 

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***

The news out of China is not good. Growth has slowed dramatically in recent years. Under the impact of zero-COVID it was sometimes brought to a halt. The recovery since the abrupt end of zero-COVID has seemingly run out of steam. The housing market is in crisis. China has been spared the inflation that afflicted the rest of the world. Instead seems to teeter on the edge of deflation. 

Reading the business-cycle is a difficult business at the best of time. Though one measure of inflation - CPI - moved into deflation this month, China’s core inflation actually appears to have bottomed out and ticked up slightly.

In recent months the export numbers have turned downwards. But this is against the backdrop of world historic export records in 2022. It was always a mistake to read those exports and the resulting giant trade surplus as signs of economic health. They were rather the opposite a symptom of sluggish domestic demand. 

For all the negative talk we should bear in mind that most economists both inside and outside China expect its economy to grow at 5 percent per annum. Whatever the fundamentals, it is a long way from Japan-style stagnation.

Source: FT

But, beyond the mood swings of the media cycle, what is going on is clearly very dramatic. We are witnessing a gearshift in what has been the most dramatic trajectory in economic history. The question is how to interpret it. 

***

The most obvious line for many Western interpreters to take is that China’s problems are basically political. Specifically they are to do with the unpredictable and ideologically motivated turns taken by Xi’s government, which themselves reflect the irredeemably authoritarian quality of the Chinese regime. Xi’s regime may undertake efforts to revive the economy with stimulus measures, but they lack conviction. 

This interpretation is common place in the West but it has been presented in quintessential form in recent weeks in essays in the twin flagship publications of American liberalism, one by Li Yuan in the New York Times and the other by Adam Posen in Foreign Affairs. The two pieces differ in style, in their sources and in the point they are trying to make. But they deliver a common message. The problems of China’s economy are political and though they center on Xi they go beyond him and concern the entire system. 

On the basis of her no-doubt excellent contacts in the Chinese business class Li Yuan paints a picture of a resentful stand off between “business owners” and the regime, an impasse which is resistant to any recent efforts by the party to raise spirits. 

Stocks on the mainland and in Hong Kong, where many of China’s biggest private enterprises are listed, fell on Thursday but regained their footing on Friday. Some entrepreneurs rushed to praise the guidelines in official media. But in private, others I interviewed dismissed the party’s pep talk in words that can be best translated as, “Save it for the suckers.” By now it’s obvious that the country’s economic problems are rooted in politics. Restoring confidence would require systemic changes that offer real protection of the entrepreneur class and private ownership. If the party adheres to the political agenda of the country’s paramount leader, Xi Jinping, who has dismantled many of the policies that unleashed China’s economy, its promises on paper will remain just words. 

Speaking to her off the record “business-owners” vented their frustrations with the regime. 

The stock markets’ reaction was very honest, one tech entrepreneur said. Investors sensed how desperate the party is, he said, and how meaningless the guidelines are. At its core, he said, the issue of confidence is a matter of government credibility. Beijing has lost nearly all its credibility in the past few years, he said. If it really wants to remedy the situation, it can at least apologize for its wrongdoings. He cited a document that the party issued after the Cultural Revolution admitting some of its mistakes under Mao Zedong’s leadership from 1949 to 1976. Other people pointed to similar steps the party took then, such as rehabilitating persecuted cadres and intellectuals. At the very least, they said, the government should release Ren Zhiqiang and Sun Dawu, outspoken entrepreneurs who are serving 18-year prison sentences after their arrests in the recent crackdown. Or, another entrepreneur told me, the government could return the fines it imposed on his company, which he believed served as punishment for not toeing the party line and as revenue for an overextended local government. He said he felt that he had been robbed. None of the business owners I talked to expects the government to take any of these steps. They all spoke on condition of anonymity for fear of punishment by the authorities. 

It is hard to know how seriously to take such spleen from aggrieved business people. Are they representative of opinion at large or is there selection bias at work, in that those who are most upset are also most likely to talk to a Western journalist. And how far are the grumpy views of frustrated managers, anywhere indicative of what actually gets done in business? In any case, Li Yuan uses these quotes to suggest that any bond of trust between the regime and vocal segments of business opinion has snapped. Though the regime in the summer of 2023 is trying to curry favor with business, everyone remembers the rollercoaster of recent years. 

In 2021, a commentary headlined, “Everyone can feel it, a profound transformation is underway!” was reposted on many of the most important official media websites. Praising the suppression of the private sector and the policy proposal known as “common prosperity,” the commentary said, “This is a return from capital groups to the masses, and a transformation from a capital-centered approach to a people-centered approach.” 

In the spring of 2023 the regime reversed course and turned back to private business:

“We have always regarded private enterprises and entrepreneurs as part of our own,” Mr. Xi said in March, repeating himself from 2018. The head of the National Development and Reform Commission, the country’s economic planning agency, held a series of meetings with business leaders, pledging support. Then came the 31-point guidelines. Most Chinese businesspeople support the government and willingly follow what it says. Still, the comments from some entrepreneurs on state media read more like pledges of loyalty to the party than authentic expressions of confidence. Ben Qiu, a lawyer who practices law in Hong Kong and the United States, summed up the executives’ comments in a social media comment: “The emperor’s clothes look fabulous.” … No matter how many supportive words the party offers now, it will be hard for the private sector to feel confident. 

Effectively, Li Yuan suggest that China is experiencing something akin to a “capital strike” spreading through the business community. And this matters, because of the overall weight of the private sector in China’s modern economy. 

The private sector … contribute(s) more than 50 percent of the country’s tax revenues, 60 percent of economic output and 80 percent of urban employment, according to none other than Mr. Xi in 2018. 

If Li Yuan had wanted data to back up her argument she could have turned to the output of the Peterson Institute for International Economics in Washington DC, whose team tracks the balance of public and private sectors in the Chinese economy. 

The data show a lurch towards the priority of state investment during the initial shock of COVID and no substantial recovery by the private sector since. So far at least the pessimism of Li Yuan’s informants is born out. 

The head of the Peterson Institute is Adam Posen who has emerged in recent months as perhaps the leading public critic of the Biden administration’s industrial policy. His latest piece on China in Foreign Affairs has to be read in this context. Posen is worried that America’s aggressive trade and industrial policies are based on a fundamental misdiagnosis of China’s situation and the Biden team are thus missing a historic opportunity to wrong-foot and undermine the authoritarian regime of the CCP. 

For Posen, Xi’s China has reached a tipping point, which unlike Li Yuan he traces less to China’s national history, than the general logic of authoritarian regimes. According to Posen, all authoritarian regimes suffer from a severe case of what is called “original sin”. The lack of credible legal constraints on action by the sovereign makes it hard to sustain a high-functioning economic regime. Since the reform period of the 1980s, the CCP has, in fact, been unusual in holding out for a relatively long time against the temptations of arbitrary rule. But in Xi’s third term the regime is finally succumbing to this universal temptation and - this is the crucial point - broader Chinese society is now waking up to this reality. 

Riffing on the famous Martin Niemöller poem - “first they came for the socialists” - Posen describes the unraveling of the bargain between the majority of Chinese and the regime. Most Chinese, Posen claims, live with an understanding that is summarized by the motto “no politics, no problems”. If you pursue your private interest at a distance from politics you could count on remaining unmolested. When Xi wielded his power versus corrupt officials at the top of a party to which 7 percent of the population belong, the rest of China was not displeased. When Xi came down on the tech oligarchs after 2020, the rest of society shrugged. But the extreme policy of zero-COVID in 2022 extended this domineering, capricious logic to the entire society.

Certainly the fiasco of COVID policy in 2022 delivered a severe shock to the authority of the CCP regime. But it is remarkable that Posen attributes so much significance to this one moment, as opposed to longer term factors stressed by critical analysts like Michael Pettis. After all, but for the total mishandling of the pandemic by the West, which massively amplified the second and third waves, China’s regime might well have emerged triumphant from the crisis. Beijing’s policy was not capricious as such, but lackadaisical when it came to vaccination and ineffective against highly-infections variants. 

In any case not only stresses the historical importance of the COVID shock, he claims that we can see an immediate impact of the new insecurity in the macroeconomic numbers. “In China’s case, the virus is not the main cause of the country’s economic long COVID: the chief culprit is the general public’s immune response to extreme intervention, which has produced a less dynamic economy.” The immediate reflection of this new anxiety appears for Posen in the dramatic surge in household bank deposits. 

On top of Li Yuan’s investment strike, Posen thus sees a comprehensive defensive retreat by Chinese society that is driven not by economic circumstances but ultimately by fear of the regime. 

Since Deng Xiaoping began the “reform and opening” of China’s economy in the late 1970s, the leadership of the Chinese Communist Party deliberately resisted the impulse to interfere in the private sector for far longer than most authoritarian regimes have. But under Xi, and especially since the pandemic began, the CCP has reverted toward the authoritarian mean. …. What remains today is widespread fear not seen since the days of Mao—fear of losing one’s property or livelihood, whether temporarily or forever, without warning and without appeal. … The COVID response … made clear that the CCP was the ultimate decision-maker about people’s ability to earn a living or access their assets—and that it would make decisions in a seemingly arbitrary way as the party leadership’s priorities shifted. 

SAME OLD STORY 

After defying temptation for decades, China’s political economy under Xi has finally succumbed to a familiar pattern among autocratic regimes. They tend to start out on a “no politics, no problem” compact that promises business as usual for those who keep their heads down. But by their second or, more commonly, third term in office, rulers increasingly disregard commercial concerns and pursue interventionist policies whenever it suits their short-term goals. … Over varying periods, Hugo Chávez and Nicolás Maduro in Venezuela, Recep Tayyip Erdogan in Turkey, Viktor Orban in Hungary, and Vladimir Putin in Russia have all turned down this well-worn road. 

Li Yuan avoids this kind of comparative historical rumination. But she makes a similar point by citing as a witness sociologist Sun Liping, who in recent essays has highlighted the sense of uncertainty afflicting Chinese society. Sun Liping is a well-known public intellectual who recently retired from Tsinghuawhere he taught sociology. 

“Why are many people saving money and cutting back on spending? Why are ambitious entrepreneurs reluctant to make long-term planning and investment?” Sun Liping, a sociology professor at Tsinghua University wrote in an article last month. “It’s because they feel uneasy.” He said that for China to get out of its slump, the government needs to create a business environment that can provide reassurance. … “Private enterprises don’t need support. They need a normal social environment” regulated by the rule of law.

Whereas Sun Liping calls for a reaffirmation of law, Posen points out the regime seems to be headed in the opposite direction, responding to emergency by demanding more discretion.

In March, China’s parliament, the National People’s Congress, amended its legislative procedures to make it easier, not harder, to pass emergency legislation. Such legislation now requires the approval of only the Congress’s Standing Committee, which is made up of a minority of senior party loyalists. 

Posen thus sees a spiraling breakdown of trust. The lack of trust undermines the credibility of policy. Businesses and householders no longer believe that stimulus means stimulus and that it will not be countermanded by some dramatic intervention of a punitive kind. This lack of credibility makes markets less responsive to policy. Less responsiveness to policy increases volatility as policy becomes less effective. Greater volatility increases the need to intervene. As Posen puts it: 

Once an autocratic regime has lost the confidence of the average household and business, it is difficult to win back. A return to good economic performance alone is not enough, as it does not obviate the risk of future interruptions or expropriations. The autocrat’s Achilles’ heel is an inherent lack of credible self-restraint. To seriously commit to such restraint would be to admit to the potential for abuses of power. Such commitment problems are precisely why more democratic countries enact constitutions and why their legislatures exert oversight on budgets. 

With Xi having undone the fragile equilibrium that allowed China for decades to avoid the usual fate of authoritarian regimes, China is now embarked on a road back to stagnation and serfdom. It is a vision worthy of Hayek.

You might think that this is all a little overdone and that to compare contemporary China with Venezuela is far-fetched. Indeed one imagines that Posen himself does not mean the point to be taken literally. What he is trying to do with this jarring comparison is to correct the blindspots of Western observers. He wants them to radically revise their outlook for China in a negative direction. 

Many outside observers have overlooked the significance of this change (the breakdown of trust and “Long-covid”). But its practical effects on economic policy will not go unnoticed among households and businesses, who will be left still more exposed to the party’s edicts. The upshot is that economic long COVID is more than a momentary drag on growth. It will likely plague the Chinese economy for years. More optimistic forecasts have not yet factored in this lasting change. To the extent that Western forecasters and international organizations have cast doubt on China’s growth prospects for this year or the next, they have fixated on easily observable problems such as chief executives’ fears about the private high-tech sector and financial fragility in the real estate market. These sector-specific stories are important, but they matter far less to medium-term growth than the economic long COVID afflicting consumers and small businesses 

The analysts of China that Posen most wants to reach are decision-makers in Washington. Posen is alarmed by the move to protectionism and confrontation towards China. He thinks this is dangerous, because increasing the risk of war, self-harming, because inefficient, and counter-productive, because it strengthens Xi’s regime. 

Western officials should adjust their expectations downward, but they should not celebrate too much. Neither should they expect economic long COVID to weaken Xi’s hold on power in the near future. … The perverse reality is that local party bosses and officials can often extract yet more loyalty from a suffering populace, at least for a while. In an unstable economic environment, the rewards of being on their good side … go up, and safe alternatives to seeking state patronage or employment are fewer. 

Faced with this situation, what Posen takes encouragement from is that some Chinese rather than turning to the regime for reassurance are opting for self-insurance i.e. are trying to opt out of the future as defined for them by Xi and the regime in Beijing. 

If CCP policies continue to diminish people’s long-term economic opportunities and stability, discontent with the party will grow. Among those of means, some are already self-insuring. In the face of insecurity, they are moving savings abroad, offshoring business production and investment, and even emigrating to less uncertain markets. Over time, such exits will look more and more appealing to wider slices of Chinese society. 

This is the opportunity that America’s present policy of confrontation is missing. 

Washington should think in terms of suction, not sanctions. … The United States should welcome those (Chinese) savings, along with Chinese businesses, investors, students, and workers who leave in search of greener pastures. … Removing most barriers to Chinese talent and capital would not undermine U.S. prosperity or national security. It would, however, make it harder for Beijing to maintain a growing economy that is simultaneously stable, self-reliant, and under tight party control. Compared with the United States’ current economic strategy toward China, which is more confrontational, restrictive, and punitive, the new approach would lower the risk of a dangerous escalation between Washington and Beijing, and it would prove less divisive among U.S. allies and developing economies. This approach would require communicating that Chinese people, savings, technology, and brands are welcome in the United States; the opposite of containment efforts that overtly exclude them. … If Washington goes its own way instead—perhaps because the next U.S. administration opts for continued confrontation or for greater economic isolationism—it should at the very least allow other countries to provide off-ramps for Chinese people and commerce, rather than pressuring them to adopt the containment barriers that the United States is installing. 

What Posen wants to offer is the opportunity for individual Chinese and their families to vote with their feet. His suggestion that the West should open “off ramps” for Chinese seeking to opt out of the Cold War is telling - off ramps being a phrase more commonly invoked nowadays in Washington to discuss possible peace terms with Putin. 

***

Thus, two pieces that are supposedly about the limit topic of disillusionment in business circles in China and China’s current economic difficulties, spiral into readings of world history. 

The most radical assumption of all is encapsulated in the subtitle of Posen’s Foreign Affairs article, which boldly declares that what we are witnessing in China is the “Same old story”. One should linger over this apparently casual remark. Though passing for social scientific common sense, it is a staggering claim to make. One is tempted to say - paraphrasing Samuel Johnson - that when an analyst says about China, with a bored shrug, that is the same old story, they are probably done with intellectual life. 

If it were true that anything about Venezuela or Turkey’s complex histories clearly anticipated that of China it should surely count, not as a confirmation of the some obvious piece of wisdom, but as a staggering and profoundly counter-intuitive discovery. These kind of comparisons again and again reveal the failure to grasp the sheer scale of the Chinese projects. This China that we are casually generalizing about, is a state whose population is the same as that of North America, South. America and all of Europe put together, under almost 80 years of uniquely transformative rule by a historically unique and still dynamic political party that directly inherits the DNA of the revolutionary era and self-consciously orientates itself towards avoiding the fate of the only regime to which it can, at a pinch, be meaningfully compared, namely the Soviet Union. 

As Robert Harding put it very nicely in the FT a few days ago:

China’s economy defies analogies. Just as its growth over the past four decades was unprecedented, its current difficulties — and it certainly has a problem, if not quite a crisis — are unique. It is not Japan in 1990, Korea in 1997 or the US in 2008. (AT: let alone Venezuela, Turkey or Russia)

It may be true that parts of Chinese society are for a variety of reasons suffering a crisis of confidence, but precision is called for. Adam Posen and Li Yuan talk in general terms about “confidence” and credibility, but their narratives and evidence actually pertain to three different groups. Households are the center of the Posen story. Presumably the households that count are actually the affluent upper 25 percent or so, concentrated in Tier 1 cities, who are responsible for most spending and saving. Secondly, there are the corporate chieftains who not only toe the line, but whose businesses also have really big investment budgets that are easy for the regime to inspect. And then, the third group, the nameless group of “business owners” who are Li Yuan’s interlocutors. Presumably they are not so large that they must be seen to conform, but they are significant enough to attract the attention of a New York Times correspondent and be worth quoting. 

Across these basic sociological divisions run questions of party membership, connection to provincial cliques and institutional connections to banks and other sources of funding. Those matter because what we in the end want to know is which of these groups is spending how much on consumption and investment and why. What kinds of things they are buying? What kinds of projects they are undertaking and how far this shows up in the macro data? If business confidence is shaken, what is the balance between large privates who are toeing the line and the mass of smaller private firms, where proprietorial dissatisfaction - expressed so graphically to Li Yuan - rules the roost? 

Above all what we need to know to arbitrate the basic causes of the current malaise is how far depressed private business investment is in fact due to the kind of sectoral issues that Posen so quickly dismisses. Since property is the main store of household wealth in China, is this not likely to be the main driver of uncertainty, rather than views about Xi, the party and the capriciousness of their rule. Li Yuan’s piece is about the latest stimulus package and the stock markets so you would not necessarily expect a long discussion of the real estate crisis. But it is truly remarkable how little space Posen in his Foreign Affairs article devotes to the drama of China’s housing market. 

At first glance this is doubly surprising because you might see the real estate slump as the single most important demonstration of the regime’s capriciousness. That is by all accounts how many property developers in China view the so-called “three red lines” policy that was announced in August 2020 at the peak of regime hubris. But before taking that interpretation at face value, ask yourself for a second how subprime mortgage lenders and dealers in MBS, or shareholders in AIG are wont to talk about the 2007-8 financial crisis. When tracking an unfolding economic crisis, who are the reliable informants? Whose opinions do we take at face value and whose do we take with a pinch of salt? Whose opinions matter because whether right or wrong they wield substantial power in the economy? Whose opinions can we discount on account of their powerlessness? 

My bet is that Posen steers clear of discussing the housing crisis - overwhelmingly the most important source of uncertainty in the Chinese economy right now - because it causes problems of his argument. He knows that it does not fit his overarching thesis that the regime’s authoritarianism is the main source of risk for the modern Chinese middle class and that this by itself makes Xi’s regime incapable of ensuring sustained economic growth. At a technical level, as Michael Pettis explains, the figures for bank deposits that Posen cites to underpin his case, reflect both an increased rate of savings by worried households and a reallocation away from riskier assets, more closely associated with risks in housing. They are, in other words, an indicator of specific as much as general uncertainty. This is not to deny that the repressive tendencies and the ideological intent of the regime are a source of risk for private business and private individuals. Of course, they are. But the regime also offers advantages and protections. And those are not merely cold comforts. One cannot sensibly generalize about a downward spiral into an increasingly abusive relationship, as Posen’s narrative suggests. Sectoral performance is not a detail. It is all important. What is decisive is whether Beijing gets policy right and this reflects specific issues of policy and political economy that go beyond the simple boundary between public and private. These more complex balances of interests were decisive in the handling of COVID, of the real estate crisis, of the debt crisis, in the economic war with the US. They will be the topic of further installments to come.