Welcome to the 11th edition of Between The Lines. This week we look at why China could be heading for a Japanese-style “Lost Decade” of economic growth. Buckle up, it could be even worse than the Tokyo meltdown in the 1990s. We also focus on the new Central Bank Governor Pan Gongsheng and the lessons from the “Forgotten War.” Let’s get started.
Noble Prize laureate Paul Krugman has joined a growing chorus of economists warning of an impending China crash. Anyone with a rudimental knowledge of economics will realize that the country is facing an existential crisis after last week’s second-quarter numbers.
Under President Xi Jinping’s regime, local government debt is now an eye-watering US$23 trillion while the property sector is hooked on life support after the dramatic collapse of Evergrande. Wages have also stagnated and one in five young people are unemployed.
For Krugman, the writing appears to be on the wall for the world’s second-largest economy. In a commentary for The New York Times, he said:
China has seemed to be faltering, and some have been asking whether [its] future path might resemble that of Japan. My answer is that it probably won’t – that China will do worse.
“If China is headed for a slowdown, the interesting question is whether it can replicate Japan’s social cohesion – its ability to manage slower growth without mass suffering or social instability. But is there any indication that China, especially under an erratic authoritarian regime, is capable of pulling this off,” Krugman asked.
Technocrat Pan Gongsheng might need that fire hose
Pan Gongsheng has taken over as the governor of the People’s Bank of China. His appointment this week was overshadowed by the removal of Foreign Minister Qin Gang. Still, the “firefighting technocrat” is regarded as a “safe pair of hands.”
Stability not short-term growth will be his priority as he targets financial risks. Yet top of the 60-year-old’s agenda will be trying to get to grips with the country’s soaring debt.
Cue Neil Thomas, of the Asia Society Policy Institute’s Center for China Analysis:
[Pan’s] appointment is not necessarily a sign that Beijing is returning to the growth-first and more market-oriented policies of previous decades.
Quite the reverse. Talking to Bloomberg, Thomas stressed that Pan’s oversight of property controls “shows he is comfortable with implementing growth-negative policies” to tackle structural problems.
Less stimulus, more fire hose, one suspects.
China needs to learn lessons from the ‘Forgotten War’
Hardly a day goes by without the Communist Party of China issuing threats to the democratic island of Taiwan. It was hardly surprising then that Beijing’s propaganda machine would go into overdrive to commemorate the 70th anniversary of the ceasefire to the “Forgotten War.”
It began in 1950 when North Korea launched a surprise attack on the South backed by the Soviet Union and Communist China. A United Nations force led by the United States raced to support South Korea.
What followed turned into a bloodbath. More than three million people died in the conflict, with the majority being civilians, before the armistice on July 27, 1953. China’s battlefield casualties were estimated to be as high as 400,000.
In a distorted history lesson dressed up as an editorial, state-run Global Times lectured:
It appears that the US has not seriously reflected on the lessons learned here, but instead seems to be repeating the mistakes made back then.
“We can see that when most Americans lack knowledge about the Korean War 70 years ago and today’s Taiwan question, they can easily be led astray by radical voices,” the nationalistic tabloid said.
When it comes to the truth, it is the Party leadership that needs to learn the “lessons” of the past and let the citizens of Taiwan decide their own fate.