Sunday, November 3, 2013

Unprecedented Upon Us




Another miraculously clear day outside.  Keep it coming. Sun shining off a blue metallic vase on the porch.  Green stems, red chilies hanging in a garland. 



A mosquito, that mosquito, flying around in full view as he crosses the lines of sunlight.  You’re the same guy who was flying around my head a few hours back when I was trying to mediate, aren’t you?  I never killed him then and he never got his needle nose up into my blood either.  And there in the dark we kept up our dance regardless, him with his smell and his sonar drawn to my heat avoiding my hand.  Me with my ears inescapably tuned to his infernal whining. 

Speaking of needles and blood, I was pleasantly surprised to hear The Velvet Underground’s “Heroine” on Chinese pop radio yesterday.  A young Chinese D.J. was driving a tribute to Lou Reed, who had recently passed.  There I was speeding along the third ring road with John Cale’s distorted electric violin screeching away in perfect dissonance with all the sunny construction sites off to my left and my right.  How is that Lou gets to sing about how the vile opiate “shoots up the droppers neck” to the people of Beijing and nonsense about drunken parties by the likes of Katy Perry is banned by censors?  http://www.theguardian.com/world/2011/aug/24/banned-china-lady-gaga-perry I am a mere armchair censor.  I have faith that those wiser guardians of Zhongnanhai have Katy’s risk potential properly factored.



Yesterday I was on about light matters like “faith” and how we or at least I approach news stories in China as opposed to news stories concerning the United States differently.  Here are some assumptions:  U.S. policy decisions are slow and tortuous, indecisive but along with the imperfect representative democracy that architects the process, they are ultimately more stable and sustainable than those of an autocracy.  In China decisions can be more swift and thoroughgoing once the Party is largely aligned, because there is only one Party and its decisions come ex cathedra, and as a result they can be breathtaking and broad but ultimately less stable and sustainable.

Here then are two interesting articles to consider in parallel: The first is a report from the Chinese publication, Global Times, suggesting that the top government think tank, the Development Research Center of the State Council, will be issuing a broad reform plan at the coming third plenary session of the State Council.  http://www.globaltimes.cn/content/820690.shtml#.UnW185Rgaqx

The Plenum will begin this Saturday.  (No weekend downtime for those tireless mandarins).  The reforms pending, it has been suggested, will necessarily be “bold” and  "broad, with major strength, and will be unprecedented."  The usually conservative paper further hinted: “This needs to take on the powerful groups such as the public sector and State-owned enterprises.”

What are we to expect from this?  Are we back to 1898 and with President McKinley appointing a U.S. Industrial Committee to bust up the trusts? The CCP doesn’t allow any one State Owned Enterprise (SOE) to ever really be a monopoly. They are coordinated as duopolies or three and four player markets in Petroleum, Telecom, Insurance, etc. and all are clearly allowed to thrive by the will of the Party.   Beneath these tall trees comparatively less innovation or creative disruption takes place on the jungle floor.  What will the SOE reform look like and will entrenched power groups find ways to resist or indeed fight back?   Will that mean a period of comparatively less domestic stability as the transition is navigated?

Meanwhile economist Steve Roach has an interesting article explaining why the U.S. debt-ceiling debacle may have jolted P.R.C. policy makers to definitively begin the economic decoupling built up over the last two decades to its current $2 trillion dollar exposure.  http://www.project-syndicate.org/commentary/on-what-the-us-debt-ceiling-fiasco-should-teach-its-largest-foreign-creditor-by-stephen-s--roach

China has bought U.S. Treasuries so as to park nearly 60% their savings surplus into U.S. dollar instruments.  This, as they need to slow and hedge on the appreciation of the Ren Min Bi against the dollar.  Inflation would otherwise have been a drag against China’s export led economy.  This has kept U.S. interest rates down and allowed for big benefits to U.S. consumers for cheaper Chinese imports.  And Roach suggests that while this served both countries interests in the past, on account of their tremendous savings imbalance, it will not hold.

If the debt ceiling shenanigans were a wake up call to the CCP and if they are suggesting bold reforms for as early as this Saturday what are we in store for?  The Party’s current Five Year Plan from 2011 has already called for a shift from export led growth to domestic private consumption.  If a “rebalancing” policy is enacted and, as Roach suggests, the demand for foreign exchange reserves reduces sharply, America will suddenly find securing external capital, much more expensive.  Papers like the Global Times call for a de-American-ized world, which sounds provocative but may be just spin, for what is inevitable and practical when viewed from Beijing. For China this is a rational decision, needed to drive domestic growth (and to ensure stability and the Party’s continued rule.) And it is unlikely to be seen in such reasonable macro-economic terms in Washington.

It may be an interesting week of news once the Plenum kicks off.

In the post 9-11 world America focused on potential military threats from global jihadist terrorism.  Economically China and the U.S. became ever more mutually dependent partners in a symbiotic surplus/debt strategy.  What will the next decade look like as the global war on terror, winds down, America pivots to Asia and China is notably less interested in buying U.S. securities?  What happens to the relationship when one side finally takes steps to assert an economic reprioritization that will not be to the other’s short-term benefit?

Invariably, the U.S. will react to another country's policy initiatives that could have a drag on the U.S. economy, first by means of rhetoric.  Both the Republicans and the Democrats will presumably frame any Chinese reforms as designed, in part to hurt the United States. Will the Democrats simply blame the Republicans for having expedited Chinese thinking to this point of departure?   Will Republicans counter that this is part of China’s willful economic strategy to hobble the U.S.?  Will either party humbly acknowledge that the Chinese decision may be reasonable objectively and get down to the hard work of reducing the debt that has grown to where it is?  Neither party will react well to having the issue forced upon them, by an outside power, particularly from China.

And if the U.S.is then forced to make difficult choices to service its debt, and interest rates rise and consumer prices all rise, will the whole of the country increasingly see China has adversarial not just in word, but in deed?   The relationship, already frayed militarily, technologically, will have little of any silver lining left to point to without the economic underpinning of the last two decades, firmly in place.  The mutual dependency had gone a long way to keeping everyone engaged and civil.  We may be in for a rough patch. 

I have some “faith” that Chinese side is not prepared at this point upset the U.S.- China relationship lightly.  Because their circumstances are more fragile they must of necessity 未雨绸缪[1], or plan prudently. If they initiate significant reform next week, they will have already thought through how to proceed incrementally, if only because they still need a strong and stable U.S. for now, to orchestrate their development initiatives.  They’ve come to learn how our party politics work and have probably done some anticipatory thinking for the United States in this regard.

I also have some well placed faith that most American leaders have a haughty disdain for China, and will be surprised when the Chinese act willfully, even if gradually, to develop their own growth strategy, to America’s detriment.  American politicians with their hands forced will be incapable of blaming themselves and rather, will further aggravate the demonization of China. 

This is something American leaders should have acted on, should have planned for,  and now they will have to react to.  In the long run America has great wherewithal rise to this challenge, such as this.  But it is not clear to me that relative interstate harmony with China will survive the effort. 

By this time next week we should know more. 





[1] wèiyǔchóumóu: lit. before it rains, bind around with silk (idiom, from Book of Songsd); fig. to plan ahead / to prepare for a rainy day

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