【TIO 太和观察家】China-US Economic Comparison: Let the Data Talk
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☉ 太和智库线上英文刊物《太和观察家》2024年3月刊第42期原创文章,转载请注明出处。
☉ This article is from the March issue of TI Observer (TIO), an online publication of Taihe Institute. Please indicate the source if you hope to share this article.
☉ 点击“阅读原文”,查看本期精彩内容。(文件加载需要时间,请耐心等待)
☉ Click "Read More" to access the full text of TIO vol. 42. (It may take some time to download the PDF text.)
正文1370字,读完约需5分钟。
Wordcount: 1370. The article will take about 5 minutes to read.
艾那·唐根
Einar Tangen
·太和智库高级研究员
·Senior Fellow of Taihe Institute
Introduction
First, there may be a debt problem in China, but it is not as serious as the debt problem in the United States. China's central government is addressing high local government borrowing. Consumer borrowing is also an issue due to the pandemic. Beijing's solution is to jumpstart the economy and rely on higher disposable income, with a 6.1% increase in 2023, and introduce targeted stimulus aimed at increasing innovative ideas and manufacturing, which will generate higher margins.
Taking a dispassionate view, if I was the IMF and evaluating the United States, what would I say? I would probably say that the US government budget is a Ponzi scheme. The country is borrowing money to pay the interest on its existing debt, while adding more debt with no plan or intention to address it, as evidenced by the recent increases in the debt ceiling. Consumer and corporate defaults and bankruptcies are higher than those during the 2008-09 financial crisis, caused by the greed and selfishness of those responsible for the capital markets.
Last year, the total spending of the US government was around 6.2 trillion USD, resulting in a deficit of 1.7 trillion USD. About 1 trillion USD went to debt repayment, which was up dramatically over the previous years due to the increase in the nation's debt and the Federal Reserve's repeated rate hikes. This is going to continue this year. Growth in the United States is projected to be 1.2%. That's a rosy projection, given the problems that are now occurring in the Middle East. What could potentially happen if there's a further escalation? This doesn't take into account all the other "black swans," "gray rhinos," or whatever you want to call these looming potential disasters. As more conflicts are erupting around the world, they are disrupting already fragile economies and logistics.
Examining this through another lens, you cannot separate politics and economics. I often hear people say, "I don't want to talk about that," at investment banking events, "That's politics." My retort is, how can you separate the two? Policies and money are never far apart because power feeds on money and those with the money are continually trying to maximize their returns by influencing policy.
In terms of China, China does have many problems. What is the difference? In the United States, the problem is a 34 trillion USD national debt, contributing to a spiraling crisis. What has been the government's response as debt and inequality grow out of control? Kick it down the road, literally, like a child kicking a can down on a road, whilst saying it's a problem and there is no plan to deal with the mounting debt.
So, what do they do in China? China says, there is a problem with real estate and a problem with local government debt and private debt, so we must transform the economy to get over the middle-income trap, and we want to figure out how we can do that. China is doing this at a time of geopolitical change, at a time when the economic paradigm is shifting into a digital age. You couldn't pick a worse time, but you can't pick when the change comes.
What has China's response been, and why is that so important? Right now, the global economic gravity has been moving eastward, not within the last couple of years, but for the last 30 or 40 years. It used to be somewhere in the Atlantic, but now it's somewhere near Kazakhstan, and this is going to continue. Why? Because the resources, production, and markets are there.
China continues to try to bring down costs even as it raises wages. China accounted for more than 50% of newly installed industrial robots worldwide in 2022 and 2023. Why would a country with 1.4 billion people be interested in robots? Because it has to, in order to stay competitive. What is the US doing? Is it installing robots in an effort to compete? No, not at all. In fact, US companies ordered about 30% to 40% fewer robots last year because US businesses are unwilling to invest in more plants while there is so much uncertainty and higher borrowing costs. At a time when they should be building their competitiveness, they're doing nothing.
For China, it's not only about low-cost production, but about driving what they call "high-quality development." China is trying to figure out ways of cutting costs, which means increasing productivity. When productivity increases, everyone benefits. This is happening not only in the production part of the industrial supply chain, but also in the logistics part of it, and now it's moving towards the transactional part. Think of how much time and effort goes into the transaction component between two companies in different countries. If you have a smart contract that simplifies the negotiation and payment process, you don't need lawyers and accountants. If you have AI, you don't have to have a negotiation or bank intermediary. When you get rid of these costs, profits rise while consumers benefit from lower prices.
For comparison, what is the cost of your credit cards right now? If you go out and use your Visa card, they will add around 4% or 5% to what you pay in fees paid by both you and the vendors. What does it cost when you use WeChat Pay? Nothing.
The London School of Economics and Political Science is famous for the fact that it looks at business in a very balanced form, and looks at the market fundamentals. So, looking at the data is their way to understand the history and trends. That's what I am emphasizing today.
Every time you hear these narratives about how China is failing, and the West is just doing terrific, take it with a grain of salt. For 50 years, the United States has been going sideways, going from 61% of the nation being middle class to less than 50%. Fifty percent of American renters pay more than 30% of their income for rent. People can't afford that. They are seeing downgrades to their lifestyles. The problem, exacerbated by inflation, can't be solved by adjusting rates, because the underlying issue is America's higher costs and lack of competitiveness.
Look at what nurses, farmers, doctors, and everybody in Britain and Europe are complaining about. They are not paid enough, yet their wages are much higher than those in other countries. For example, if you need to have a heart valve replacement, you can do it for 170,000 USD in the US, or you could go to Mexico and get it done for 22,500 USD. Then again, you could go to India and do it between 4,000 and 8,000 USD. Guess what? In India and Mexico, your treatment would be akin to staying in a five-star hotel, but in the US you would be lucky to receive overpriced aspirin every four hours.
Start looking at the data, and start thinking about it. I don't think that China has the kind of problems that are being used in the narrative against it. China has problems, but it seems that they are trying to work towards solutions, whereas many countries around the world have done nothing. We were talking about earlier that in the US, we have tactics, but we have absolutely no clear view of an ending. I don't care if you're talking about Gaza or Ukraine. I don't care if you're talking about our economy or debt. Think very carefully about this. When you hear these narratives, go back to the data and judge the situation based on who is implementing solutions and who is not.
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太和智库线上英文刊物《太和观察家》(TI Observer)致力于促进中外沟通交流,弥合“理解鸿沟”。
TI Observer (TIO) is an online monthly English publication produced by Taihe Institute. TIO is dedicated to promoting transnational interaction and mutual understanding, thus bridging the gap of misunderstanding and bringing China and the world closer to each other.
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