Friday, July 31, 2015

The Madness of Mandarins

Yeah! Beijing has won the 2022 Winter Olympics.  Yeah. The Olympic committee awarded the games to a city of 22-million with a water supply capable of supporting 12-million.  Yeah.  By the time the games open (if they can find/make snow), Beijing should be transformed into a new supercity of 130-million renamed as Jing-Jin-Ji.

The Jing is for Beijing, the part shown in the center. The Jin is for the city of Tianjin which will be amalgamated.  The Ji is the popular name for the region of Habei.  It's a great name, really easy to remember.  You start with Jing and then just keep dropping off the last letter.  You'll notice from the map that it's larger than South Korea with its paltry population of a midge under 50-million.

This was all done, why?  So Beijing won't be eclipsed by the even more prosperous cities to the south, Shanghai and Nanjing.  If this all sounds a little crazy, the New York Times columnist and economist, Paul Krugman, writes that it's a madness that begins at the very top.

Politicians who preside over economic booms often develop delusions of competence. You can see this domestically: Jeb Bush imagines that he knows the secrets of economic growth because he happened to be governor when Florida was experiencing a giant housing bubble, and he had the good luck to leave office just before it burst. We’ve seen it in many countries: I still remember the omniscience and omnipotence ascribed to Japanese bureaucrats in the 1980s, before the long stagnation set in.

This is the context in which you need to understand the strange goings-on in China’s stock market. In and of itself, the price of Chinese equities shouldn’t matter all that much. But the authorities have chosen to put their credibility on the line by trying to control that market — and are in the process of demonstrating that, China’s remarkable success over the past 25 years notwithstanding, the nation’s rulers have no idea what they’re doing.

China’s leaders appear to be terrified — probably for political reasons — by the prospect of even a brief recession. So they’ve been pumping up demand by, in effect, force-feeding the system with credit, including fostering a stock market boom. Such measures can work for a while, and all might have been well if the big reforms were moving fast enough. But they aren’t, and the result is a bubble that wants to burst.

China’s response has been an all-out effort to prop up stock prices. Large shareholders have been blocked from selling; state-run institutions have been told to buy shares; many companies with falling prices have been allowed to suspend trading. These are things you might do for a couple of days to contain an obviously unjustified panic, but they’re being applied on a sustained basis to a market that is still far above its level not long ago.

What do Chinese authorities think they’re doing?

...the Chinese government, having encouraged citizens to buy stocks, now feels that it must defend stock prices to preserve its reputation. And what it’s ending up doing, of course, is shredding that reputation at record speed.

Indeed, every time you think the authorities have done everything possible to destroy their credibility, they top themselves. Lately state-run media have been assigning blame for the stock plunge to, you guessed it, a foreign conspiracy against China, which is even less plausible than you may think: China has long maintained controls that effectively shut foreigners out of its stock market, and it’s hard to sell off assets you were never allowed to own in the first place.

So what have we just learned? China’s incredible growth wasn’t a mirage, and its economy remains a productive powerhouse. The problems of transition to lower growth are obviously major, but we’ve known that for a while. The big news here isn’t about the Chinese economy; it’s about China’s leaders. Forget everything you’ve heard about their brilliance and foresightedness. Judging by their current flailing, they have no clue what they’re doing.

So, to recap, while China's leaders are walking a stock market slack rope with the grenade in one hand and the pin in their teeth, they're going to amalgamate Beijing into a supercity of 130-million and host a winter olympics even as their nation descends into a desperate water crisis while sea level rise begins to imperil their coastal mega-cities.  What could possibly go wrong?  Oh yeah, everything. Stay tuned. 

Wait a second. I know what the Chinese need in this hour of desperation.  Donald Trump.

1 comment:

Hugh said...

So China's GDP growth slowed to 7.4% last year.

Dividing into 72 means, at that growth rate, the GDP will double in 9.7 years. Crazy.