The Chinese challenge to US scientific and technological superiority, and the US response, may end up greatly benefitting the world. The question for China is its sustainability, especially as its GDP growth starts to drop rapidly.
scmp.com/tech/policy/ar… via @scmpnews
I'd argue that the key is the mix of political and economic institutions that are best suited to make technological innovation commercially sustainable. Highly centralized systems can very be very efficient at achieving clear goals, like building needed infrastructure or...
restricting population growth. They are certainly capable too of tremendous advances in politically-directed areas of science (e.g. Germany in the 1930s, the USSR in the 1960s and 1970s). So far, however, the most successful high-tech economies seem to succeed...
by allowing and encouraging explosive creativity in a wide range of self-reinforcing areas — science, technology, culture, business practices, financing — so that technological innovation becomes commercially sustainable in ways that we don't fully understand.
Obviously Beijing is aware of this. The SCMP article notes that "in 2014, Xi said in a speech at the Chinese Academy of Sciences that for years, China has had a 'chronic illness' of failing to translate technological achievements into economic productivity."
China has seen major political and institutional changes in the past few years. The question for me is whether these changes were designed to accommodate the economic needs of China's technological...
development, which Liu He describes as "a matter of survival", or whether China's technological development is expected to conform to the evolution of its political system.

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More from @michaelxpettis

27 Nov
After 4-5 decades of wage stagnation, I think it definitely makes sense that Washington try to strengthen the bargaining position of American workers. Not only would this reverse the huge imbalance of the past few decades, in which...
wsj.com/articles/biden… via @WSJ
a very small elite captured nearly all of the productivity gains made by American workers and the middle classes, but it will also encourage business investment by increasing sustainable domestic demand. i.e. without underpinning it with soaring household debt.
It would also incentivize American businesses to invest in boosting labor productivity, which in the end is the only sustainable way to increase income.
Read 7 tweets
26 Nov
The State Council has warned that "it is necessary to strengthen the oversight for local government debt to ensure that funds are used to expand domestic demand and promote consumption."
scmp.com/economy/china-… via @scmpnews
This makes a lot of sense – as I have argued for years, sustainable domestic demand requires that local government spending be used increasingly to support household income and domestic consumption rather than more non-productive investment.
But this is likely to be much easier said than done. Over 40 years China has built a substantial system of institutions that transfer revenues towards large investment projects, along with a powerful set of vested interests that benefit from these transfers.
Read 4 tweets
25 Nov
His logic seems pretty tight: "Liu Shengjun, head of the China Financial Reform Institute, said the property tax was likely to encounter strong opposition from local governments, which could lead to the proposal being delayed or even shelved."
He continues: "Local governments have limited sources of revenue other than land sales and are likely to either reject the idea of a property tax or recommend a high tax rate to boost their coffers.
His conclusion? “Under either of these scenarios, local residents will be the victim.” Whether local residents pay in the form of alternative taxes or a reduction in services, in other words, they won't benefit.

But there are other possibilities, although none is easy.
Read 4 tweets
25 Nov
Reuters: "China's vice commerce minister Ren Hongbin said on Wednesday there are still many concerns for foreign trade, especially for struggling smaller exporters, and China will introduce a new round of measures to stabilise it in due course."
China's exports have surged in the past year, and it has been running the highest monthly trade surpluses in its history, and yet Beijing is still concerned about struggling exporters.
"Measures to stabilize trade" is usually a euphemism for additional indirect export subsidies, and so we should probably expect tax cuts, further spending on logistics and so on to increase export competitiveness, ultimately to be paid for by the household sector.
Read 5 tweets
24 Nov
I haven't read their report, but if this article correctly summarizes it, I half agree with their 5.5% 2022 GDP growth forecast for China. I've said almost since the beginning of this year that Beijing would probably choose...
a 5.5% GDP growth target in 2022, but whereas they seems to think that this is because deleveraging this year will "lay the foundation for high-quality economic growth" next year, I would argue that it is almost the opposite.
From early this year, because of a partial reversal of last year's contraction in consumption, I expected GDP growth to come in between 6% and 8%, depending on how seriously they took deleveraging (they expected 8.7%).
Read 10 tweets
24 Nov
"Losing money from their property investments, some trust companies are now suffering high liquidity pressure that has in turn prompted them to scale back their immense investments in the real estate sector."
This could be more important than it at first it seems — trusts are major lenders directly and indirectly to the property sector. If they do cut back their exposure substantially, I suspect that regulators will put...
pressure on the banks to make up for it by increasing their support for the sector, even though, ironically, banks often used the trusts as conduits to get around regulatory restrictions on property loans.
Read 8 tweets

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