Dangers of an Overheated China

老郭

By TYLER COWEN
Published: November 28, 2009

PRESIDENT OBAMA’S recent trip to China reflects a symbiotic relationship at the heart of the global economy: China uses American spending power to enlarge its private sector, while America uses Chinese lending power to expand its public sector. Yet this arrangement may unravel in a dangerous way, and if it does, the most likely culprit will be Chinese economic overcapacity.

Several hundred million Chinese peasants have moved from the countryside to the cities over the last 30 years, in one of the largest, most rapid migrations in history.

To help make this work, the Chinese government has subsidized its exporters by pegging the renminbi at an unnaturally low rate to the dollar. This has supported relatively high-paying export jobs; additional subsidies have included direct credit allocation and preferential treatment for coastal enterprises.

These aren’t the recommended policies you would find in a basic economics text, but it’s hard to argue with success. Most important, it has given many more Chinese a stake in the future of their society.

Those same subsidies, however, have spurred excess capacity and created a dangerous political dynamic in which these investments have to be propped up at all cost.

China has been building factories and production capacity in virtually every sector of its economy, but it’s not clear that the latest round of investments will be profitable anytime soon. Automobiles, steel, semiconductors, cement, aluminum and real estate all show signs of too much capacity. In Shanghai, the central business district appears to have high vacancy rates, yet building continues.

Chinese planners now talk of the need to restrict investment in sectors that are overflowing with unsold products. The global market is no longer strong, and domestic demand was never enough in the first place.

Regional officials have an incentive to prop up local enterprises and production statistics, even if that means supporting projects or accounting practices that are not sustainable. For an individual business, the standard way to get more capital resources is to put forward a plan for growth. Because few sectors are mature, and growth has been so widespread, everyone can promise to be profitable in the future.

Over all, there is a lack of transparency. China’s statistics on its gross domestic product are based more on recorded production activity than on what is actually sold. Chinese fiscal and credit policies are geared toward jobs and political stability, and thus the authorities shy away from revealing which projects are most troubled or should be canceled.

Put all of this together and there is a very real possibility of trouble.

China has had a 30-year run of stellar economic growth. But it’s only human nature for such expansion to breed too much optimism, overextending an entire economy. Americans have found this out the hard way in their own financial crisis.

History has shown that no major economy has grown into maturity without bubbles, crises and possibly even civil strife or civil wars along the way. Is China exempt from this broader pattern?

The notions of excess capacity and malinvestment were common in business-cycle theory of the 19th and early 20th centuries, when growing Western economies had frequent crashes of this kind. Numerous writers, from the Rev. Thomas Malthus to the Austrian economist Friedrich A. von Hayek, warned about the overextension of unprofitable capital deployments and the pain from the inevitable crashes. These writers may well end up being a guide for understanding China today.

What will the consequences be for the United States if and when the Chinese economic miracle encounters a major stumble? A lot of Chinese business ventures will stop being profitable, and layoffs and unrest will most likely rise. The Chinese government may crack down further on dissent. The Chinese public may wonder whether its future lies with capitalism after all, and foreign investors in China will become more nervous.

In economic terms, the prices of Chinese exports will probably fall, as overextended businesses compete to justify their capital investments and recoup their losses. American businesses will find it harder to compete with Chinese companies, and there will be deflationary pressures in both countries. And even if the Chinese are selling more at lower prices, they may be taking in less money over all, so they may have less to lend to the United States government.

In any case, China may end up using more of its reserve funds to address domestic problems or placate domestic interest groups. The United States will face higher borrowing costs, and its fiscal position may very quickly become unsustainable.

That’s not so much a prediction as a very possible contingency, and we should be prepared for it. For now, we should avoid two big mistakes. The first would be to assume that just because borrowing costs are now low, we can postpone fiscal responsibility and keep running up the tab — with the aid of Chinese lending, of course. The history of financial crises shows that turning points can come swiftly and without much warning.

The second mistake would be to demand too many concessions from the Chinese. What we see in the numbers today are a growing China and a somewhat ailing America. Yet there’s a real chance that, soon enough, Chinese economic weakness will be a bigger problem than was Chinese economic strength.

Tyler Cowen is a professor of economics at George Mason University.

老郭

中美關系的現狀是：美國拿中國的貸款發展公共事業，中國用美國的消費能力發展私營企業。如果有一天這個狀況被打破了，那元兇一定是中國的過度生產能力。

這篇文章給美國人的告誡是：1. 不要因為現在借中國人的錢很便宜就不做好思想準備。情況說變就變。等中國有麻煩了，他們就會把錢主要用在國內。2. 不要向中國人要求太多的讓步。雖然目前的狀況是中國經濟強勁、美國經濟惡化，但非常有可能不久之后中國的經濟就會出現大問題。

老郭

產能過剩肯定是個大問題。這個禍根早晚要發作。得做好過苦日子的打算。

宇宙飛船

時事術語太多，生詞不少，俺看得很費勁，連蒙帶猜也沒有完全弄明白，先做個標記，有空就一天譯一小段。

宇宙飛船

用翻譯軟件試了一下，時事術語竟然譯得好象八九不離十了。
PRESIDENT OBAMA’S recent trip to China reflects a symbiotic relationship at the heart of the global economy: China uses American spending power to enlarge its private sector, while America uses Chinese lending power to expand its public sector. Yet this arrangement may unravel in a dangerous way, and if it does, the most likely culprit will be Chinese economic overcapacity.
奧巴馬總統最近訪問反映了中國在全球經濟心臟的共生關系：中國利用美國的消費能力，以擴大其私營部門，而美國使用中國貸款的權力，擴大公共部門。然而，這種安排可能會顯現出來了一個危險的方式，如果確實如此，最有可能的原因則是中國經濟的產能過剩。 //完全計算機翻譯的，未作任何修改。

老郭

奧巴馬總統最近的中國之行反映了全球經濟心臟中的標志性關系：中國利用美國的支出能力來擴大其私有領域，而美國利用中國的放貸能力來擴展其公共領域。然而，這種安排也許會以一種危險的方式瓦解，并且，如果這種現象出現，最有可能的罪魁禍首將是中國經濟的產能過剩。

@︻$▅▆▇◤

還是郭總牛。

宇宙飛船

老郭的確是牛，熟知電子與時事的術語。
由于英語單詞是意境單詞，某些單詞有十多種的意思，不同的語境就有不同的中文意思，因此英語翻譯這個東東，隔行如隔山。

terrysun

再走日本走過的路

2010年的北外同傳試題！！！！