CHINAMacroReporter

China & the U.S.: Getting Each Other Wrong

China and the U.S. seem to be in the process of reassessing their views of each other’s strengths and weaknesses. Xi Jinping appears to be seeking some balance in his assessment of the U.S. And analysts in the U.S. have reversed a trend of opinion that ‘China is inexorably rising and on the verge of overtaking a faltering United States.' They argue instead ‘the United States has good reason to be confident about its ability to compete with China.’
by

|

CHINADebate

March 4, 2021
China & the U.S.: Getting Each Other Wrong

China and the U.S. seem to be in the process of reassessing their views of each other’s strengths and weaknesses.

  • Xi Jinping appears to be seeking some balance in his assessment of the U.S.
  • And analysts in the U.S. have reversed a trend of opinion that ‘China is inexorably rising and on the verge of overtaking a faltering United States.'
  • They argue instead ‘the United States has good reason to be confident about its ability to compete with China.’

But Mr. Xi’s subordinates reportedly don’t provide him with unbiased facts and analyses about the U.S.

  • And in the U.S. the calm assessment needed for rational China strategy is upended by the competition among politicians to see who can be toughest on China.

Thus, the chance of either side getting a clear picture of the other and making sound policy based on that is slim.

  • And that is dangerous.

1 | Misperceptions, Miscalculations, & War

‘History is replete with cases of misperception about changing power balances.’

  • ‘To prevent a new cold or hot war,the US and China must avoid exaggerated fears and misperceptions about changing power relations.’

‘Today, some Chinese analysts underestimate America’s resilience and predict Chinese dominance, but this, too, could turn out to be a dangerous miscalculation,’ writes Joe Nye of the Harvard Kennedy School.

  • ‘It is equally dangerous for Americans to over- or underestimate Chinese power, and the US contains groups with economic and political incentives to do both.’

2 | Xi Jinping Seeks a Balanced Assessment of the U.S.

Xi Jinping seems to be aware of the danger of miscalculation.

Chris Buckley of The New York Times reports in ‘ “The East Is Rising”: Xi Maps Out China’s Post-Covid Ascent’:

  • ‘Xi Jinping has struck a confident posture as he looks to secure China’s prosperity and power in a post-Covid world, saying that the country is entering a time of opportunity when “the East is rising and the West is declining.” ’

‘But behind closed doors, China’s Communist Party leader has also issued a blunt caveat to officials: Do not count out our competitors, above all the United States.’

  • ‘ “The biggest source of chaos in the present-day world is the United States,” Mr. Xi said, a county official in northwest China recounted in a speech published last week on a government website.’
  • ‘He quoted Mr. Xi as saying: “The United States is the biggest threat to our country’s development and security.” ’

‘That warning, echoed in similar recent public comments by senior officials close to Mr. Xi, reinforces how he is seeking to balance confidence and caution as China strides ahead while other countries continue to grapple with the pandemic.’

  • ‘His double-sided pronouncements reflect an effort to keep China on guard because, despite its success at home, it faces deep distrust in Washington and other Western capitals.’
  • ‘Although China is growing stronger, Xi has said, there are still many ways in which “the West is strong and the East is weak,” officials have recounted in speeches recently issued on local party websites.’

3 | The U.S. Seeks a Balanced Assessment of China

The U.S. seems to be going through its own reevaluation of China.

  • Nye points out:

‘Balances of power are hard to judge.’

  • ‘Those who proclaim Pax Sinica and American decline fail to take account of the full range of power resources.’

‘Even if China surpasses the US to become the world’s largest economy, national income is not the only measure of geopolitical power.’

  • ‘The US will retain some long-term power advantages that contrast with areas of Chinese vulnerability.’

And on the heels of Dr. Nye’s essay comes ‘China Is Not Ten Feet Tall: How Alarmism Undermines American Strategy,’ by Brookings’ Ryan Hass: ‘China, the story goes, is inexorably rising and on the verge of overtaking a faltering United States.’

  • ‘Among the most eager purveyors of this story line are China’s government-affiliated media outlets. Projecting self-assurance, they have also gone out of their way to contrast their own achievements with plentiful examples of American dysfunction.’
  • ‘ “Time and momentum are on our side,” Chinese President Xi Jinping declared in a speech at the Communist Party’s Fifth Plenum last fall. In January, Chen Yixin, a top security official, told a Chinese Communist Party study session, “The rise of the East and decline of the West has become a trend.” ’

‘Authoritarian systems excel at showcasing their strengths and concealing their weaknesses.’

  • ‘But policymakers in Washington must be able to distinguish between the image Beijing presents and the realities it confronts.’
  • ‘For all the obstacles facing the United States, those facing China are considerably greater.’

‘During the Cold War, Secretary of Defense James Schlesinger cautioned against “ten-foot-tall syndrome”: the tendency among U.S. policymakers to view their Soviet competitors as towering figures of immense strength and overwhelming intellect.’

  • ‘A similar syndrome has taken hold in the United States today, and the harms are not just analytical.’

‘Concentrating on China’s strengths without accounting for its vulnerabilities creates anxiety. Anxiety breeds insecurity.’

  • ‘Insecurity leads to overreaction, and overreaction produces bad decisions that undermine the United States’ own competitiveness. Seeing China clearly is the first step toward getting China policy right.’

‘Washington’s bipartisan move in recent years to a hard-line approach to China has been driven above all by Beijing:’

  • ‘Chinese leaders have grown more impatiently aggressive in the pursuit of their ambitions and have increasingly leaned on nationalism, particularly as ideology and economic performance have become diminishing sources of social cohesion.’

‘But much of the shift in Washington has also been driven by a growing sense of panic about China’s strengths, leading to a bout of American insecurity.’

  • ‘Such panic is unlikely to prove constructive: an alarmed focus on degrading China’s strengths risks causing the United States to focus too little on the more essential task of bolstering its own.’

‘The United States has good reason to be confident about its ability to compete with China.’

  • ‘Self-confidence should foster a steady, patient, and wise response to China’s rise—one that can attract broad support at home and abroad.’

4 | U.S. Politics Nixes Any Balanced Assessment of China

But the need for this kind of calm assessment of U.S.-China balance of power runs headlong in U.S. politics.’

  • As Bill Reinsch of the Center for Strategic & International Studies wrote in ‘Double Feature’:

‘Speaking of China, the recent Conservative Political Action Conference (CPAC) in Orlando has produced an “I told you so” moment that is too good to ignore.’

  • ‘Behind the gold statue of Trump, who appears to be wearing American flag boxers, are no less than six panels discussing China on topics like “China Subverts America” and “Corporate America Surrendering to China.” '
  • ‘Featured speakers, most of whom are already running for president in 2024, are trying to outdo each other in their hostility to China and in their accusations that Democrats in general, and President Biden in particular, are soft on China and busy selling out our country.’
  • ‘As I predicted in multiple past columns, the hysteria has begun and is not going to end anytime soon.’

‘Unfortunately, what we heard at CPAC and are likely to hear from Republicans over the next four years is attacks on the fecklessness of U.S. companies that do business with China and on the Biden administration for not sufficiently punishing China.’

‘This is the politics of blame.’

  • ‘Rather than engage in a thoughtful debate about the best strategy, it simply identifies the guilty parties and attacks them along with the Chinese.'

‘Biden’s task is complicated by Congressional Democrats who yield to nobody in their ability to maintain high dudgeon.’

  • ‘The biggest difference between the parties is that the Democrats at least put more of the blame where it belongs—on the Chinese rather than the president—and spend more time talking about how to implement “running faster” solutions.’

‘Since all parties want to take a hard line, it makes sense to stop chest-beating about who is the toughest and instead work together to fashion a bipartisan strategy that will actually accomplish something rather than just produce sound bites for the next election.’

  • ‘This is too important for hysteria.’

As if that matters.

More

CHINAMacroReporter

February 16, 2021
'Is China experiencing an advance of the state sector?'
‘The value-added produced by state-owned enterprises has usually been in the range of 25-30% of China’s GDP. And what’s really striking about those numbers is that they just haven’t changed very much over the past 25 years. The share of China’s economic output being produced by SOEs today, under Xi Jinping, is not significantly different than it was under Hu Jintao, or even in the later years of Jiang Zemin.’
keep reading
February 16, 2021
‘China Blocked Jack Ma’s Ant IPO After Investigation Revealed Likely Beneficiaries’
‘Behind layers of opaque investment vehicles that own stakes in Ant Financial are a coterie of well-connected Chinese power players, including some with links to political families that represent a potential challenge to President Xi and his inner circle. Those individuals, along with Mr. Ma and the company’s top managers, stood to pocket billions of dollars from a listing that would have valued the company at more than $300 billion.’
keep reading
February 14, 2021
How to Keep U.S.-Chinese Confrontation From Ending in Calamity
'The two countries need to consider something akin to the procedures and mechanisms that the United States and the Soviet Union put in place to govern their relations after the Cuban missile crisis—but in this case, without first going through the near-death experience of a barely avoided war.'
keep reading
March 6, 2018
'E-commerce' is rapidly evolving into 'New Retail.' Jack Ma, Alibaba
Ed Tse, founder of the Gao Feng consultancy and the leading expert on Chinese innovation, introduced me to New Retail in a recent conversation. You will find his explanation of New Retail below, along with a couple of videos showing New Retail in action - as amazing today as Minority Report seemed years ago. Perhaps even more amazing is the China business strategy, the 'Third Way,' that made things like New Retail possible. Ed explains the Third Way in Part Two of our discussion that I will be posting soon. Chinese do do things their own way, as the Third Way again demonstrates. For now, have a look at the future today. And, stay tuned for Part Two for Ed's explanation of the Third Way that made New Retail possible.
keep reading
March 1, 2018
'Trump's tariffs just first shot—the big China action is Section 301'
Leland points out that President Trump's really big trade move against China yet to come, that is, Section 301 penalties. If you aren't up to speed on 301, you will be after you read and watch Leland's comments. As Leland says, with Section 301, 'regardless of how Section 232 steel and aluminum tariffs end up in the next few days - you're seeing the beginning, not the end, of Trump's aggressiveness on trade.' 'And, I don't think people have prepared themselves yet for the fact that 301 is coming.'
keep reading
February 22, 2018
A world of debt mortgages our economic future
Irresponsible borrowing by the US, China and India imperils global growth: What is not natural is China’s bad track record on debt: according to the Bank of International Settlements, every measure of debt — consumer, government and corporate — has risen as a share of GDP for the past decade. China went from a low-leverage country in 2007 to having a worse debt position than the US in 2017, despite the fact that the US itself has borrowed heavily.
keep reading
February 16, 2018
China's Crisis of Success
Here are five key points, each corresponding to a section below. "The Rise of China: How Economic Reform Is Creating a New Superpower" by Bill Overholt, published in 1993, was called 'nonsense' and 'too optimistic.' How did that work out for the reviewers? Now, almost three decades after "The Rise of China", Bill believes that China's future has become 'much more uncertain.'
keep reading
February 12, 2018
2017 China Property Report
One of the highlights in our recent 'In Pursuit of Patterns' series of client notes, showed that the land sales growth had tended to lead the price growth and a significant increase in land sales would lead, with a lag, to the subsequent correction in prices.
keep reading
February 9, 2018
The extraordinary power of China's corporate 'mega ecosystems'
Besides Alibaba and Tencent, companies like Ping An Insurance Group, Baidu and JD.com are building out mega ecosystems with incredible speed and intensity. Even some traditional manufacturers are moving in this direction. Zhejiang Geely Holding Group has gone from producing entry-level cars to selling premium models with the help of foreign acquisitions and has been the first Chinese carmaker to move into on-demand mobility services. It has also been experimenting with connected intelligent vehicles, shared ownership programs and flying cars, together assembling a sprawling transportation services ecosystem.
keep reading
February 8, 2018
China's trade surplus up, RMB weaker
[China markets update with TRACK's Bob Savage ] 'The RMB did not like the trade data at all, and it weakened immediately - over 1% today.' 'Overnight, the world has moved a little bit away from its U.S.-centric obsession about equity volatility in the United States and around the world to what's going on in China,' says Bob Savage, CEO of TRACK and member of the soon-to-be-launched China Analyst Network.
keep reading
February 7, 2018
What we import from China
But he can’t keep saying China is ripping us off and he’s going to stop it unless the US targets the biggest imports. The trade deficit with China is bigger than with the next eight countries combined. NAFTA? The trade deficit in cell phones and computers alone with China is bigger than the trade deficits for all goods with Mexico and Canada combined.
keep reading
February 3, 2018
China's RMB oil futures exchange—the 'story of the year'!
‍The Shanghai International Energy Exchange:blowing up more than oil : There's a lot to follow in China. And, I had missed reports about the opening of the Shanghai International Energy Exchange or INE, likely this quarter. But, during my interview with Bob Savage, the well-respected analyst of global markets and CEO of TRACK, he told me the INE could be the 'story of the year.' That's a big - and interesting - claim about something that seems like one more ho-hum Chinese entity. Bob explained that the INE will create the an RMB-denominated oil futures contract. The first such contract in a petrodollar world, where China is largest crude oil importer. If RMB oil contracts - even just for trade with China - catch on, then the whole global oil trading regime will change. And, given the massive size of the global oil trade, a shift from dollars to RMBs will both erode the dollar as a reserve currency, and push the RMB closer its goal of becoming a full reserve currency.
keep reading
January 10, 2018
'China goes private'—from financial reform to the Belt Road Initiative
[Malcolm Riddell's conversation with Harvard's Tony Saich] The State & Party's technical prowess is somewhat limited.
keep reading
January 10, 2018
What Hiring Activity Says About Firm Valuations in China
How does an obscure factor like hiring practices impact firm valuation? That was the question posed by Deutsche Bank’s quant strategy group in a 2015 whitepaper titled, “Macro and Micro Jobenomics.” The report concluded that online job postings could be used to predict U.S. macroeconomic statistics and equity market returns. This piqued my interest – I wondered whether a similar process could be used for valuing A-share companies in China.
keep reading
December 31, 2017
December 2017: Is China Actually Deleveraging? Yes and No.
China Deleveraging Insider tracks the status of China’s financial de-risking initiatives and the state of deleveraging.The most recent data from the PBoC and the CBRC show that bank asset growth hit a fresh all-time low in October. That means China is actually deleveraging – a little. It’s slow and slight, and done with a bit of trickery, but the debt load has shrunk in comparison to the size of the economy.
keep reading
December 18, 2017
What are the policy implications for China's economy from the 19th Party Congress?'
Pieter Bottelier—top China economist, former World Bank head in China, and stalwart CHINADebate expert—set the theme today: the crucial albeit unsung importance of elite technocrats in guiding China's Economic Miracle.
keep reading
November 27, 2017
Is China's Economic Power a Paper Tiger?
The People’s Republic of China has surely seen faster GDP growth than the United States for most of the past forty years. It's the value of that growth that's questionable. : The Chinese economy is strange in many ways. Not only is it a hybrid between private capital and state control, but very few people directly invest in the mainland — and yet everybody is interested in how the second largest economy in the world is going to develop. That’s because Chinese demand determines the prices of world commodities, and the operations of multinational companies in China impact earnings. When the yuan falls, markets across the world get jittery. China watchers accept the fact that official Chinese data is severely flawed, and often simply fabricated, yet they still use it to analyze the Chinese economy and markets because there are few alternatives. One alternative, however, is the China Beige Book International (CBB), a research service that interviews thousands of companies and hundreds of bankers on the ground in China each quarter. They collect data and perform in-depth interviews with Chinese executives.
keep reading
November 22, 2017
Will Chinese Commodities Derail The Global Reflation Trade?
[Leland Miller and Derek Scissors on why investor excitement over Chinese capacity cuts this winter is oversold, and the serious implications for the global reflation trade.] For over a year, commodities bulls have feasted on China. In the aftermath of the recent Communist Party Congress, many investors are now drooling over the prospect the boom will continue, based on Beijing’s promises to supercharge its campaigns against overcapacity and pollution this winter. If such pledges are fulfilled, the thinking goes, substantial chunks of steel, aluminum, and other refining capacity will be taken offline, rebalancing markets and providing rocket fuel to already frothy prices. 2018 could prove to be an even more amped-up version of 2017.
keep reading
November 8, 2017
Novel Data on China's Auto Loans - An Inefficient Market
The continued growth of China’s auto sales has relied increasingly on consumer credit, according to the WSJ; but, granular data is hard to come by. So, we created a process to collect, clean, and structure data from online auto loan offerings. Our findings imply that the auto loan market, like many credit markets in China, runs on two parallel tracks, and is woefully inefficient.
keep reading
October 19, 2017
'Inside China’s quest to become the global leader in AI'
'The RMB did not like the trade data at all, and it weakened immediately - over 1% today.' 'Overnight, the world has moved a little bit away from its U.S.-centric obsession about equity volatility in the United States and around the world to what's going on in China,' says Bob Savage, CEO of TRACK and member of the soon-to-be-launched China Analyst Network.
keep reading
October 11, 2017
Novel Data on China's Mortgage Loans
China’s banks are directed by the state, without irony, to “vigorously promote reasonable home ownership.” Their most recent annual reports repeatedly bury in the notes this line, or some variant of it, as an explanation for the explosion of mortgage lending over the previous 12 months. Granular mortgage data however, is hard to come by – so we created a process to collect, clean, and interpret that information.
keep reading
September 12, 2017
China’s property market risks are rising, says data expert
Price trends in China’s housing market are unsustainable, according to Real Estate Foresight chief executive Robert Ciemniak who worries that excessive leverage among homeowners could lead to a crisis. Real Estate Foresight founder and chief executive Robert Ciemniak has made it his business to gather and interpret real time data on China’s residential property market. He gives his thoughts on what’s to come in China’s housing market.
keep reading
September 1, 2017
The father of business consulting in China knows why eBay failed there
In the early 1990s, when China was still struggling to shrug off the straightjacket of its planned economy, the man appointed to lead the first business consulting firm allowed in the nation was immediately confronted with the scope of the challenge ahead.
keep reading
August 30, 2017
Is china prematurely declaring victory in its reforms?
At the heart of China's economic take-off during the last four decades is a fragile equilibrium between economic reforms and one­ party rule. The communist party has demonstrated pragmatism and adaptability - but just at a time when China seeks to fully enter the knowledge economy and participate in global markets, it has put the brake on further reforms.
keep reading
August 29, 2017
China's unsolved liquidity risk
The question we should ask ourselves is, how many of China’s corporate borrowers are paying off existing debt with new debt?
keep reading
August 22, 2017
Predicting Chinese stock returns
[The Largest Single—Factor Study of China’s Stock Markets] Outside observers paint China’s stock markets as a casino, where picking stocks requires as much skill as roulette, and investors avoid the country in their portfolio allocations. Patterns exist, however, if you know where to look.
keep reading
August 2, 2017
Leland Miller on Pressing China Issues
Leland Miller, the founder of China Beige Book, spoke with The Epoch Times about which investors and companies are interested in China, the latest developments in the currency, U.S.-China relations, overcapacity problems, and the One Belt One Road Initiative. : The Chinese economy is strange in many ways. Not only is it a hybrid between private capital and state control, but very few people directly invest in the mainland — and yet everybody is interested in how the second largest economy in the world is going to develop. That’s because Chinese demand determines the prices of world commodities, and the operations of multinational companies in China impact earnings. When the yuan falls, markets across the world get jittery. China watchers accept the fact that official Chinese data is severely flawed, and often simply fabricated, yet they still use it to analyze the Chinese economy and markets because there are few alternatives. One alternative, however, is the China Beige Book International (CBB), a research service that interviews thousands of companies and hundreds of bankers on the ground in China each quarter. They collect data and perform in-depth interviews with Chinese executives.
keep reading
July 19, 2017
China Cause America's Trade Problems?
[Malcolm Riddell's conversation with Yukon Huang] 'America's trade problems are not the consequence of China's policies.'
keep reading
July 19, 2017
Siri: 'Can The iPhone Prove President Trump's Wrong About U.S.-China Trade?'
[Malcolm Riddell's conversation with Yukon Huang] 'America's trade problems are not the consequence of China's policies.' 'How much of that $650 iPhone - which adds to China's trade surplus with the U.S. - actually originates and stays in China? — Only $25.'
keep reading
July 2, 2017
China Doesn’t Have A Real Estate Bubble.
Prices spike in a city. The government puts the screws on the market, and prices go down. Investment then switches to a city with lax policies. Housing prices spike; regulations tighten; prices go down. Investors move on. And so on, and so on.
keep reading
June 28, 2017
Will 'One Belt, One Road' Tank China's Economy?
'My fear is that Xi will see this initiative as an alternative to economic reform.'— Pieter Bottelier : But, the biggest threat in the near term is that Xi Jinping will see OBOR as an alternative to completing the economic reforms promised - but not delivered - in 2013's Third Plenum.
keep reading
June 21, 2017
China's stock markets—are there any patterns?
'I find evidence for dramatic size and momentum effects; that is, small stocks and recent winners are the top performers in China’s stock market. Additionally, I find that high-beta stocks modestly underperform low-beta stocks.'
keep reading
June 7, 2017
China's higher rates don't matter, yet
In fact, high yields still haven’t filtered down to borrowers. Using industrial enterprise economic indicators data, I estimated the actual interest rate paid by Chinese borrowers. Over the past six months – as corporate bond yields, SHIBOR, and WMP yields all rose dramatically – the actual interest paid by China’s industrial enterprises fell to an all-time low.
keep reading
May 29, 2017
Why A Trump–Kim Jeong Eun Summit Could Work
[Malcolm Riddell's conversation with Bill Overholt] 'If it would be appropriate for me to meet with him [Kim Jong-un], I would absolutely. I would be honored to do it.' — President Trump — May 2017:'What President Trump has done is to signal we are willing to move away from this formula that the North Koreans have to give up everything in their nuclear program before negotiations - only then we'll talk with them. I admire our U.S. negotiators, but that formula is simply absurd.'
keep reading
May 17, 2017
A new framework for china's debt problem
In fact, high yields still haven’t filtered down to borrowers. Using industrial enterprise economic indicators data, I estimated the actual interest rate paid by Chinese borrowers. Over the past six months – as corporate bond yields, SHIBOR, and WMP yields all rose dramatically – the actual interest paid by China’s industrial enterprises fell to an all-time low.
keep reading
May 3, 2017
An inflection point in china's systemic risk
Additionally, given the incentives of regulated institutions everywhere, it is likely that risks have simply begun to migrate to new and more opaque parts of the balance sheet. As China watchers, we should prepare for yet another game of financial risk whack-a-mole.
keep reading
April 26, 2017
Clearing up a few misconceptions on China's capital flight
Last year, I debunked a popular measure of trade misinvoicing as the culprit for China’s capital outflows. Today, let’s scrutinize two other misconceptions bouncing around the China commentator echo chamber.
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.