The “new” narrative about China

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By JAMES K. GALBRAITH*

The narrative about the Asian country says more about the West itself. It's about reinforcing what Westerners like to believe: the inevitable triumph of capitalism and democracy

According to a new narrative that has recently emerged in the United States, China is suffering an economic decline. Therefore, no less than the previous narrative about China's inexorable rise, it represents a growing global threat. However, in their prognoses and prescriptions, Western leaders and experts repeat what they said 30 years ago.

Three recent articles in The New York Times signaled a “new” narrative about China. Just a few weeks ago, China was America’s fearsome “peer competitor” on the world stage. But now, we are told, it is a wounded dragon. If it once emerged as a threat due to its inexorable rise, it now represents a threat because it is in decline.

US President Joe Biden has been defining the terms of this new narrative. As Michael D. Shear of The New York Times, the White House now worries that “China’s struggles with high unemployment and an aging workforce mean that the country could become “a ticking time bomb in the heart of the world economy.” Biden warned: “when bad people have problems, they do bad things”; however, he did not explain how, exactly, unemployment and an aging population would make China a threat.

For his part, Michael D. Shear gives another reason for China's recent decline: “the president has acted aggressively to contain China's rise and to restrict its ability to benefit militarily from the use of technologies developed in the United States.” Given the scope of Joe Biden’s new restrictions on semiconductors, he could have added that he acted aggressively “also not militarily.”

However, economics reporter Peter S. Goodman points to a “series of developments” that support the new narrative. These include the decline in Chinese exports and imports, the fall in prices “of a range of goods, from food to apartments”, a housing crisis and a real estate default that produced losses of US$7,6 billion (a considerable event, but nothing close to the typical US bank bailout). In answering an impertinent question, Peter S. Goodman wrote: “Chinese authorities are limited in their options…given mounting debts now estimated at 282% of national output.”

According to Peter S. Goodman (and many economists, including in China), China's difficulties stem from deeper problems, such as a high savings rate, vast deposits in the banking system, a new wariness about the housing problem, and , consequently, a growing need “to boost domestic demand”. He and his sources agree that proper healing is the “stimulus” – meaning more consumption and less investment.

Furthermore, Peter S. Goodman cites MIT economist Yasheng Huang, who notes that China's exports plus imports total 40% of GDP (much of this includes final assembly and re-export of imported components). But although Huang appears to have left Goodman with the impression that reducing this “pass-through” trade would have a large effect, the fact is that the effect would be quite small, since imports are a subtraction from GDP. China is only losing the added value, a fraction of the global value of the product.

Finally, Nobel laureate Paul Krugman provides a complement to the paper's coverage of China's “stumble.” Here he presents a “systemic view” of an economist of the system. According to Krugman, China previously grew “largely by keeping up with Western technology,” but now faces the problem of too much savings, too much investment and too little consumption. It therefore needs “fundamental reforms” to “put more income in the hands of families, so that increased consumption can replace unsustainable investment”.

In fact, there is nothing new about Paul Krugman's key point about saving. Western economists were already moving along these lines 30 years ago, by the time I became (for four years) the chief technical advisor for macroeconomic reform at China's State Planning Commission.

“Invest less! Consume more!” – here’s the mantra that didn’t make sense to me at the time – and still doesn’t today.

Someone asks: but what does this mean? Should China have more cars but worse roads and fewer gas stations (not to mention subways and high-speed trains)? Are more televisions needed, but fewer apartments to install them? Does the population need more food and clothing, despite the majority of them being well fed and decently clothed for three decades?

It is true that Chinese families save prodigiously for education, health and old age. But they can do so because they have income, which largely comes from jobs in the public and private investment sectors. Chinese workers are paid for building factories, houses, railway lines, roads and other public works that have transformed China in our lifetimes. Contrary to Paul Krugman, the typical (statistically average) Chinese family is not income constrained. If it were, you wouldn't be able to save as much as you do.

Furthermore, if China were to run out of investment projects, income would fall, savings would slow down and consumption as a percentage of income would necessarily increase. But this decline in savings would make Chinese households less secure, which worsens the current slowdown. It is no wonder that the government has struggled to maintain the flow of investment through important programs such as the Belt and Road Initiative.

Even after China itself is fully built (or overbuilt), it will still have much to do in Central Asia, Africa and Latin America. China's investments have been welcomed in these regions. Therefore, the following is often said: “when we got involved with the Chinese, we got an airport. But when we deal with you [Americans], we get a lecture.”

Yes, China's economy is slowing down. It will be difficult to find anything that can match the cities and transport networks that already exist, or the recent campaign to eliminate extreme poverty. China's main tasks now lie on the other side of development: it must focus on education and health care, matching skills to jobs, supporting the elderly, and reducing pollution and carbon dioxide emissions. There is no guarantee that these efforts will be successful, but at least they are on China's agenda. This means that they will be persecuted in the Chinese way: step by step, over time.

So what is the new narrative really about? It's not so much about China as it is about the West itself. This is about our leadership in technologies, our free market system and our ability to exercise power and keep all adversaries at bay. It's about reinforcing what Westerners like to believe: the inevitable triumph of capitalism and democracy. Above all, it is about American leaders being able to overcome “bad people” who might do “bad things.” It is a narrative tailor-made for the 2024 election campaign.

*James K. Galbraith is a professor at the University of Texas at Austin. Author, among other books, of Inequality: what everyone needs to know (Oxford University Press) (https://amzn.to/3sXLvDS).

Translation: Eleutério FS Prado.

Originally published on the portal Project syndicate.


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