Showing posts with label China. Show all posts
Showing posts with label China. Show all posts

Monday, December 02, 2013

Data Visualization -- China Plotting

I spent a good deal of time over the course of the past semester working on topics about Chinese development. A lot of it started from my work at MKM Partners over the summer in which I worked on topics of regional Chinese growth. This eventually turned into a sequence of Quartz articles: one on the growth potential of the inland provinces, another on the overall success of the high speed rail program (which was actually backed up by a later NYT article), and a third on boosting Chinese consumption through a social service led urbanization (which ended up being an important part of the 3rd plenum). I found it an engaging topic to research, and I will have an article in the next edition of the Milken Institute Review on these topics. If you have any thoughts about those articles, please share in the comments below and I'll try to get back to you.

In this process of working with Chinese data, I was faced with the task of analyzing a lot of spatial data about Chinese provinces, and in this process I had to write a lot of R code. After a while, I got annoyed by how long the process would take, and as a result I took the liberty of designing an R Shiny application to help do some of the heavy lifting. Fortunately, these applications are all hosted on the cloud, and you can find the China Mapping Application here:

To give you an idea of how it works, after you upload the csv file you will see a screen like this showing you the data:

You can go directly from there to see the map. This was done using the GADM databases for the shapefiles and then the spplot package to render the drawing. Spatial rendering is expensive, so this should take around 60 seconds to do:

And finally, you can go to the interactive bar chart and observe the distribution of your data. This was done using the rCharts package, which creates javascript visualizations using just R code.

If you want some data to play around with, you can take a look at the two dropbox links on China on my data page.

Anyways, I hope my fellow China researchers can enjoy the tool, and if anybody has any suggestions feel free to tweet me at @yichuanw or leave a comment below.

Edit: For those of you interested, the source code can be found here.

Monday, October 11, 2010

Why is Liu Xiaobo China's first Nobel prize winner?

Last week, Chinese dissident Liu Xiaobo won the Nobel Peace Prize for his work on
Charter 08, a document that calls for democratic reforms and greater political freedoms in the People's Republic of China. He is currently in jail for writing that document. When the prize was announced, China's state-controlled media and security apparatus began an all-out campaign to censor the story, blocking Web access to information about the award, arresting people who gathered to celebrate, and promptly imprisoning Liu's wife.

I should mention at this point that Liu Xiaobo is the first resident of China to win any Nobel Prize. Ever.

I cannot help but think that this is no coincidence.

Name a well-known piece of technology invented in China since the year 1400. Or name an important scientific discovery made in China since that year. If you can, you're a better Google hound than I, because I find absolutely nada. Nothing. In 600 years. China's technological and scientific underachievement is not a figment of Swedish/Norwegian bias.

What could cause a country with 20% of the world's population - twice as many as all of Europe! - to be the world's most spectacular scientific and technological dunce for six centuries?

Racist and Eurocentric theories that East Asians are less creative than Caucasians are patently false, as both historical and modern facts demonstrate. Japan, for example, has plenty of Nobel prizes and great scientific discoveries to its name, and is the birthplace of inventions such as (deep breath) the digital camera, the hand calculator, the floppy disk, flash memory, pluripotent stem cells, B-vitamins, the camcorder/VCR/VHS, and the compact disc (not to mention MSG, high-fructose corn syrup, methamphetamine, and karaoke). People of Chinese descent have made huge numbers of landmark contributions to science and technology...outside China. And, as everyone knows, pre-1400 China was the birthplace of paper, gunpowder, the compass, movable type, the horse collar, the astrolabe, compartmentalized ship hulls, and a long list of other awesome things that rivaled (and, during the Middle Ages, far exceeded) anything in Europe. It is clear that China's underachievement has been due to collective deficiencies, not individual ones.

Similarly, China's turbulent history in the 19th and 20th centuries, though undoubtedly a contributing factor, is hardly an excuse. Russia, which lost a far larger percentage of its population to wars and famines than did China during the same time period, and suffered under an equally blinkered communist regime, managed to put the first man in space and clean up plenty of Nobels. And the upheavals of the modern age cannot explain the so-called "Great Divergence" of 1400-1870, in which Europe took over from China as the locus of global innovation long before British warships showed up pushing opium.

Nor is this simply a case of China's inevitable catch-up. The U.S. was the birthplace of inventions like the steamboat and the airplane long before it caught up to European levels of per capita GDP. Even if China now starts to produce some innovations, it will still have 600 years of stasis to explain.

So what is China's problem? As I said before, I believe that the fact that China's first Nobel winner is an imprisoned dissident is telling. Liu Xiaobo is not the first Chinese citizen to be imprisoned by the state for calling for intellectual freedom; he joins a long and hallowed line of such persecuted thought-criminals, stretching back at least to Li Zhi of the Ming Dynasty.

Glib theories cannot easily explain the broad sweep of history, but my guess as to the cause of China's technological underachievement goes something like this: the act of trying to keep together a nation as large and diverse as China has come at the cost of intellectual, scientific, and technological progress. After 1400, as Mongol domination of China ended, the rulers of the Ming Dynasty soon found themselves in charge of an empire vastly more populous (thanks to new rice-farming techniques) than the earlier Han and T'ang dominions. Controlling and stabilizing this mega-nation required more government intervention in daily economic life than in most countries. China stayed together where European and Indian empires of comparable population crumbled, but the cost was constant suppression of potentially disruptive technologies.

The Ming began this unfortunate tradition by banning private shipping (just as European explorers were gearing up for world conquest), by purging science from the civil service examinations, and by sending a bunch of (basically) lawyers called the "Confucian Scholar-Gentry" into the countryside to regulate economic activity. Mechanical inventions comparable to, and centuries ahead of, the textile machinery that kicked off Europe's Industrial Revolution languished in obscurity and were forgotten.

European countries, of course, would have loved to do the same thing, but they couldn't. Although European nations were arguably more despotic than China during the Early Modern period, they were forced to fight each other in a series of endless wars; this not only spurred them to allow their scientists and inventors to do their thing (in order to gain a military edge over the neighbors), but it allowed visionaries like Columbus to shop around for patrons among the cornucopia of European rulers. China, with one Emperor - even a benign one - could afford to sacrifice progress in favor of stability. This is basically Jared Diamond's theory of "optimal fragmentation."

Even in the modern day, the absolute priority that China places on internal stability ("harmony," in their favored terminology) has contributed to the aforementioned bloody and chaotic history that delayed China's industrial revolution until 1979. The Chinese Civil War (really, wars), the Great Leap Forward, the Cultural Revolution, Tiananmen Square - all of these were overkill on the part of Chinese rulers desperate to keep the far-flung empire as a single, unified, homogeneous nation-state. Excessive government control of academia has led to a culture of fraud and fear that continues to hamstring Chinese science. Meanwhile, Chinese splinter nations Hong Kong and Taiwan, and smaller East Asian neighbors like Japan, Korea, and Singapore, sped ahead while massive, monolithic Mainland China languished.

Far from being the champion of the Chinese race, as it has always claimed, the Chinese Empire - and its successor, the People's Republic of China - has been the greatest force preventing 80% of East Asians from finding new and better ways to live.

If my theory is right, it is no surprise that China's first Nobel laureate is not a scientist, but a would-be reformer. China's high-speed economic growth primarily relies on foreign technology and on brute accumulation of physical capital; the people who are doing the most new and revolutionary things in that country are those who are trying to reform a society hobbled by 600 years of excessive government enforcement of "harmony."

I think there is great hope for China to change. Modern communications and transportation technology has made it more possible than ever to hold together a large, diverse nation without sacrificing intellectual dynamism - the U.S. and India are cases in point. But cultural change is no sure thing. It seems to me that until and unless China Liu Xiaobo's succeed in their attempts at societal innovation, China's scientists will continue to lag behind those of Japan, Korea, Taiwan, Hong Kong, Singapore, and the West.

Thursday, September 30, 2010

Why no one in the U.S. really wants to get tough on China

The House has
just passed a bill that would allow the President to impose tariffs on China in retaliation for China's currency manipulation. Although the traditional defenders of the currency status quo have been predictably shrill in their reaction to this "protectionism," cooler heads realize that the bill means nothing. The Senate is not going to pass the bill soon (and most likely never), and even if it passed, the bill only gives Obama permission to impose tariffs; remember, Obama has passed up the opportunity even to label China a currency manipulator. Chinese officials, for their part, are not overly concerned. Nor should they be: America is not going to get tough with China anytime soon.

The reason America is not going to get tough with China anytime soon is actually pretty interesting, since it involves a unique confluence of factors. Both of the two main political blocs in America want to avoid doing anything about China's currency manipulation, but for very different reasons.

For Republicans, it is because China is making them rich. In addition to a massive supply of cheap labor, China offers American business owners low costs via lax protection of property rights and the environment. Here's how it works: When a businessman in China wants to build a factory, he gives a kickback to a local official, who allows him to dump toxic waste in the river and kick as many peasants off their land as he wants. That allows the Chinese businessman to provide goods to U.S. multinationals at extremely low cost, boosting U.S. profits and forcing down the wages of U.S. workers. Naturally, these effects are exaggerated hugely by the undervalued yuan.

In other words, China has given America's capitalist class what they have long dreamed of: in the words of Hyman Roth from The Godfather Part II, "a real partnership with [a] government." This gravy train is probably the main reason why capital's share of income in the U.S. has reached record highs (and labor's share record lows). Note that the same has happened in China.

But there's more. China's currency manipulation requires that China's government buy lots and lots of U.S. debt. That lowers interest rates in the U.S.
, which in turn allows U.S. finance companies to borrow lots of money very cheaply, thus boosting their profits (which reached 45% of all U.S. profits in the early '00s). Although many contend that these artificially low rates were a big cause of the recent bubble and financial crisis, finance companies - who, despite what the Tea Partiers would have you believe, are big supporters of the Republicans - continue to depend indirectly on Chinese financing for their yearly bonuses.

But what about liberals? You'd think that soaring inequality and collapsing middle-class wages would have Democrats thundering for retaliatory tariffs, but no; for reasons all their own, liberals don't want to get tough on China either. Many, such as Brad DeLong and Matt Yglesias, fear that trying to force China to change its ways will start a new Cold War. That is something they really don't want. The first Cold War was a (temporary) disaster for liberalism - it boosted the power and importance of the U.S. military, encouraged red-baiting, and led to wars. A decades-long standoff with China might well tip U.S. culture back toward militarism. As a result, though Democrats have been perfectly willing to scuttle trade deals with small, weak countries like South Korea or the countries of Central America, China's great-power muscle has proven overwhelmingly intimidating.

Thus, although a few prominent figures (Paul Krugman among them) have urged the U.S. to take a harder line toward China, the bipartisan consensus is still overwhelmingly against taking any sort of action that would anger the Chinese. And the People's Republic, for its part, is prevented by its own domestic politics from correcting a currency policy that might soon cause dangerous imbalances. So the world's two superpowers will remain locked in an unhealthy, co-dependent embrace, until things get so bad that they force one or the other country to act. By then, of course, the cost of action will be much higher.

Update: Paul Krugman suggests that irrational fear of "protectionism," indoctrinated into Americans since the disastrous Smoot-Hawley tariffs, is a big factor in scaring Americans into not doing anything about Chinese mercantilism. A friend suggested this to me. I'm not sure how big a role ingrained fear of "protectionism" plays in all this, but my point is that irrational fear isn't necessary to explain why America refuses to resist Chinese mercantilism. Most people are simply too leery of the consequences (higher production costs, higher interest rates, and worsened U.S.-China relations) that resistance would entail. The mercantilism problem, big as it is, isn't yet big enough to spur people to action.

Update: More from Krugman, who is pretty angry about the situation:

So, why did Tim Geithner feel the need to declare,

We’re not going to have a trade war; we’re not going to have currency wars. I don’t know what that means, but people are saying that.

I suspect that he was trying to reassure the markets — but if we’ve learned anything lately, I hope it is that actions, not talk, matter.

And look, if China continues on its present course, eventually we will have some serious currency and trade conflict. Furthermore, we should.

All Geithner did here was signal to the Chinese not to worry, U.S. officials will keep making excuses for China’s behavior and doing nothing, regardless of provocation. Remember, this statement comes after China blatantly reneged on earlier promises about the exchange rate. They must take us for fools — because we (or at least some of us) are.

Thursday, September 16, 2010

China: it's tariffs or nothing

In the news today, I see another instance of Tim Geithner pretending to get tough on Chinese currency manipulation:
In his testimony, Mr. Geithner is not expected to rule out declaring China a currency manipulator, a finding that could lead to retaliatory trade measures. The administration has so far refused to take such a step, relying instead on persuasion, though with little success.
What? Geithner "won't rule out" a step that "could lead to" retaliatory trade measures? Hu Jintao must be quaking in his boots!

I mean...come on...Tim Geithner?! This is the guy who, during his time in office, has met with the CEO of Goldman Sachs more often than the Speaker of the House or the Senate Majority Leader. The guy is a creature of the shadow banking system, which depends on cheap Chinese financing (a.k.a. Chinese currency manipulation) for its super-profitable shenanigans. He is not getting tough on China now, and he never will. Instead, what he will continue to do is what he has always done: make vague rumblings in China's direction, in the hope that it will placate the red-meat protectionist crowd back home into accepting the status quo for another few months. This kabuki theater is, of course, obvious to defenders of the currency status quo, such as The Economist's Ryan Avent:
As always, I'll reiterate: promises that revaluation will eliminate America's trade deficit and create hundreds of thousands of jobs are overselling what appreciation without structural reform can accomplish...But there's an election on, and populism is ascendent, and the trade warriors in Congress will have their day. I just hope the legislature holds to its recent pattern of behaviour—all talk and no action.
Whether Congress will continue to play "bad cop" and ultimately take no action, of course, remains to be seen:

“There is no question that the economic and trade policies of China represent clear roadblocks to our recovery,” Senator Christopher J. Dodd, Democrat of Connecticut and the chairman of the banking committee, said at a hearing with Mr. Geithner seated before him.

“I’ve listened to every administration, Democrats and Republicans, from Ronald Reagan to the current administration, say virtually the same thing,” Mr. Dodd, who is not seeking re-election, said. “And China does basically whatever it wants, while we grow weaker and they grow stronger.”

He added: “It’s clearly time for a change in strategy.”

The top Republican on the banking committee, Senator Richard C. Shelby of Alabama, was even harsher. “There is no question that China manipulates its currency in order to subsidize Chinese exports,” he said. “The only question is: Why is the administration protecting China by refusing to designate it as a currency manipulator?"

Big talk, but we've seen a lot of big talk, and not a lot of action, on this issue. Past experience tells us that this is more of the same-old same-old, but there's always hope that we'll be surprised.

Meanwhile, as Paul Krugman reminds us, China's currency policy continues to screw us over:

Regular readers may remember that I’ve spent more than a year trying to knock down the idea that the United States dare not get tough with China, because we need them to keep buying our bonds; as I wrote way back in May 2009, given the fact that we’re in a liquidity trap, a decision by China to buy fewer of our bonds would actually be doing us a favor — it would weaken the dollar, and help our exports.

I’ve failed, despite repeated attempts, to get through with this point here — but the Japanese get it. They’re complaining to China about its purchases of yen-denominated bonds, which they argue — correctly — hurts Japan by strengthening the yen.

It's not just the speed of our recovery that's being impeded; Chinese currency policy contributes to inequality here in America by making manufacturing workers less valuable and finance workers more valuable. It also arguably contributes to asset bubbles, in particular the housing bubble we just witnessed.

It has been clear to me for years that the issue of Chinese-generated global imbalances will only be resolved with U.S. tariffs on Chinese goods. That is not the optimal solution; the optimal solution is for China to change its policy voluntarily. But it will not. Not now, and not ever, unless tariffs force it to do so. For this issue to be resolved - and it must be resolved, or our economy and society will continue to be dysfunctional - it is tariffs or nothing.

Sunday, August 22, 2010

When will China pass America?

Much is being made over the fact that China just passed Japan to claim the title of "world's second-biggest economy." Although this has provoked a spate of hand-wringing over Japan's decline (see
here and here and here, for example), more level-headed commentators point out that China has eleven times as many people as Japan; for 1.34 billion people to have remained permanently poorer than 1.27 million people would have been (and for a century, was) a human disaster of epic proportions. Sure, Japan has made a lot of mistakes, but those are most certainly not the reason for China's ascendancy.

The next question on everyone's lips, naturally, is: When will China pass the U.S. to become #1? The consensus in the media seems to be that China had better not get too confident; like Japan in the 80s, they argue, China's rapid growth has come at the expense of inefficient overinvestment, misallocation of capital, suppressed consumption, and the entrenchment of special interests that will not be easily dislodged when the boom finally runs its course.

And I agree: China does share many of Japan's weaknesses. Some of these, fact, seem far more severe in China than they did in Japan - the corruption, the pollution, the suppression of consumption, the state control of banks. These are the kind of things that raise a country's growth during the "extensive" phase, when all you have to do to grow is save, save, save, and invest, invest, and invest. But because the same people who received the cheap capital during the boom will continue to hold the strings of the state after the economy gets saturated with buildings and roads and machines, this growth model bakes inefficiencies into the economy. Growth goes faster, but crashes more abruptly and at a lower level.

That said, the sheer numbers involve make it HIGHLY unlikely that China will NOT overtake America in the near future. If China were twice as big as the U.S., I'd say there was some chance they'd never be richer than us. But they are 4.3 times as big.

To see how certain a thing this is, let's do some rough calculations in our heads. This is pretty easy, with the Rule of 70; to find out how fast something doubles, divide 70 by its percentage growth rate. Thus, if China is growing at 10% and America at 2%, China's economy will double in size relative to America's in 70/8 = 8.75 years.

Now, let's do some math. Japan's growth slowed when it hit about half of U.S. per capita GDP (in the late 70s). Same for South Korea in the late 90s. Assume for the moment that China's slows at around the same level. China's GDP per capita is now about 16% o...r 17% of America's. At a relative growth rate of 8% (the average for recent years), China will hit half of America's per capita GDP (and more than twice America's total GDP) in a little more than 15 years.

But perhaps China has more limitations than Japan and South Korea did; suppose that corruption, resource constraints, or China's size relative to its trading partners acts as a check on its growth. Suppose for this reason, China's growth slows when it hits 35% of America's per capita GDP (and 1.5 times America's total GDP). That's still 10 years of hyper-charged growth.

Now suppose that China's growth slows a little bit, so that the growth rate relative to the U.S. is only 6% (i.e. about how fast India is growing now). And assume China reaches only 35% of America's per-capita GDP before its growth slows even more. That's 14 more years of pretty fast growth!

Put this another way: for China to fail to overtake U.S. total GDP, they will have to stall out at 23% of U.S. per capita GDP - the average Chinese worker will have to less productive than an entry-level employee at Wal-Mart. This would mean that their growth would have to stall within 5 years (if we measure GDP in PPP terms, or if they allow their currency to appreciate) or 7 years (if we measure GDP in nominal terms, and they keep their currency undervalued forever and ever).

So, basically, unless China's growth crashes spectacularly and semi-permanently by the midpoint of this decade, their economy will be larger than that of the U.S. by the mid-2020s. That would be an unprecedented slowdown, MUCH more severe than what Japan experienced in the 90s, and at a far lower level of development. I doubt any reasonable China critic would predict such a Biblical disaster.

Thus, the inescapable answer is: China will soon be the world's largest economy, no matter how you measure things. This will happen in less than two decades. And GDP is a direct measure of national power. We must therefore prepare for a world in which the leading geopolitical hegemon will be a non-democratic country, a country with little stake in the existing system of international norms and institutions, a country with hundreds of millions of citizens still living in poverty.

How much of the world we knew in the 20th Century was dependent on the hegemony of free-trading democratic countries? How much of the seemingly unstoppable technological progress, the respect for international boundaries, the slow advance of human rights, etc. were dependent on the lucky fact that the U.S.-Britain-France alliance (and later, the U.S.-Britain-France-Japan alliance) had the most guns?

We're about to find out.

Wednesday, May 26, 2010

And the people are happy too!

Matt Yglesias is in China on a business trip.

Matt Yglesias appears to like China very much.

likes their bike lanes.

likes their intervention in housing markets:
[I]n the past couple of months the Chinese government has taken regulatory steps to try to cool things down including, most notably, requiring a 50% downpayment on any second’s a reminder that it’s not as if it’s impossible for regulators to notice that something funny’s happening and then change the rules in response. It’s just necessary to not have regulators possessed of an a priori belief that systemic market meltdowns are impossible.
He likes their government ownership of firms:
[T]he Chinese economic miracle is really a great deal less of a “free market” miracle than the conventional understanding in the United States would suggest...the really striking facts are things like the one highlighted by Tyler Cowen that “Of the 22 Chinese corporations listed on the Fortune Global 500, 21 are controlled by China’s central government or state-run banks.” The closest analogy it seems to me is probably to France, which I think is the western country to have been least-impacted by the neoliberal turn away from state ownership of firms. And somewhat like in France, the Chinese speak specifically about the idea that over the past thirty years their development has been enhanced by the creation of a better-educated better-trained bureaucracy and their aspirations to continue doing this in the future.

By the lights of the American conventional wisdom, this whole situation seems mostly like a warning sign—beware! you’re violating the terms of The Washington Consensus!—but nobody can doubt that they’ve had a great run for the past 20 years. What’s more, though the prevailing policy consensus in the United States would lead you to believe that a country with France’s policies would necessarily be a basketcase, France is itself a very successful and prosperous nation and society.
He likes their massive infrastructure spending:
It’s impossible to come to China and not be struck by the rapid pace at which infrastructure is advancing. Shanghai is criss-crossed by a series of new looking elevated highways that the city will almost certainly regret in 20 years, as well as by an impressively large Metro system that, as illustrated below, has grown at a pace that’s completely inconceivable for an American city...

The United States simply doesn’t try to invest on this scale. But that’s not because we don’t have the resources to do it. Our overall spending on the military in dollar terms is higher than what China spends on infrastructure, and it’s much higher on a per capita basis. And what we spend on health care for old people dwarfs anything China does in that regard. We, in other words, are perfectly capable of mobilizing major public resources for major public purposes, we just choose to do it for different things.
He is impressed by China's housing construction (but thinks it's less likely to be a bubble than our housing boom).

likes China's "internal ethnic diversity."

He likes China's version of democracy:
China clearly features a great deal of politics happening and a meaningful public sphere exists in which controversies play out and the authorities are responsive to it. This is part of what makes the system work but it also really undercuts the main arguments you hear about why democracy wouldn’t or couldn’t work.
He likes China's industrial mix and growth prospects:
This represents a very efficient use of the land in China, with the country reaping the world’s largest agricultural output out of less arable land than we have in the United States. But as you can see, it’s a very inefficient deployment of people relative to what you see in the other sectors.
So insofar as global demand for Chinese industrial products continues to grow, the Chinese economy will be able to maintain substantial growth simply by shifting people off farms and into factories even without moving up the value chain.
And he likes China's strong, active environmental policy:
These kinds of issues are leading Chinese authorities to get more serious about tackling pollution. Environmental laws have been on the books for years, but according to businesspeople here real action is something that’s only come in the past 18-24 months.
Meanwhile, he is not impressed with the U.S. pavilion at the Shanghai Expo, and declares the U.S. to be a "slowly sinking hegemon" that needs to hand off management of the world's issues to China pronto.


Now, these posts are not the starry-eyed glowing reports that one would expect of a self-hating American being Potemkined by an authoritarian empire. But, laconic and qualified as they are, there is no mistaking the one-sidedness of Yglesias' view of China as a country that can do everything we can't.

There is no mention of, say, the fact that China's housing market interventions have
failed to stop prices from skyrocketing. Or that their "get-tough" environmental policies, supposedly now with local leaders on board, have failed to stop the steady increase in particulate matter in China's air. Or that the people who get the Chinese government to actualy respond to their wishes are fewer in number than the hundreds of millions who get ignored and cheated. When making the infrastructure comparison, he only briefly mentions (and then dismisses) the fact that we already have much more existing infrastructure than China, or the fact that Japan's massive infrastructure boom in the 90s was mostly a waste of money (note: I support strong increases in U.S. infrastructure spending, but not to China levels!). And his optimism that China will eventually see the need to pull its weight on global problems seems as misplaced as his optimism that China would revaluate its currency in response to our entreaties (I remember confident predictions on Yglesias' part that RMB revaluation was just around the corner, followed by deafening silence when nothing happened).

Why does Yglesias give China so much love, especially when he compares it with America? After all, it seems like there's a lot for him to dislike. China's repression (look at how Yglesias has reviled Bush's erosion of civil liberties, and that's nothing compared to China!). Its staggering inequality, the way its currency policy generates inequality in the U.S. Its cynical embrace of capitalism spiked with a hefty dose of government corruption. The fact that all those green policies are a mild and very recent response to decades of growth-at-any-cost.

I don't know the answer to this, but I have several guesses.

One guess is that Yglesias is using praise of China to indirectly express his frustration with the very real political paralysis here in the United States. This is part of a time-honored tradition of liberals shaming their country into action by saying "Hey, look how good they have it over there!"

A second reason might be that Yglesias wants to minimize U.S.-China rivalry. He may believe, as Brad DeLong used to often say, that the U.S. future hinges entirely on how well we convince China that we are their friend (a kind of updated version of "better red than dead"). Or he might think that U.S.-China rivalry is just a big excuse for us to divert spending from domestic uses to military ones; hence, he might be using China praise to score points over U.S. conservatives.

Or it might simply be that Yglesias, like Tom Friedman (whose sweeping, uninformed, "of-course-it's-so-simple" theories Yglesias' posts have come to resemble more and more), is dazzled by displays of massive investment and rapid growth - he is impressed by The Future, and spins a thousand armchair theories based on his awe. The U.S. needs to change course. We need to do everything different. We need to emulate our rival and respect our rival. Everybody drop everything and prepare for the Age of Decline.

Which is probably all to the good. The U.S. as a whole has a tendency to overly freak out about potential rivals who seem to Have It All Figured Out (did anyone really think the Soviet economy could outperform ours, or that Japan could take all our jerbs?), but this tendency probably adds to our biggest advantage, which is adaptability. And liberal over-praise of other countries is probably good in the long run, since it compels us to add a little bit of every world system to our institutional mix.

But given how odious a regime still rules China, and given China's continued and even increasing bad behavior on the world stage, it's a little annoying to see our best journalists with their lips firmly affixed to that nation's rear end.

Update: The China love gets even more over-the-top, as Yglesias declares that China's staggering inequality is actually more equal than Sweden, and that China's housing bubbleboom is really great for poor people, who get two houses for every one they get kicked out of! I am almost willing to take back my statement that Yglesias hasn't been fully Potemkined...this is just getting ludicrous. As if most or even a substantial fraction of dispossessed Chinese homeowners get compensated. As if the threshold for "super-rich" in a country with hundreds of millions of subsistence farmers isn't substantially lower than in Sweden. Sigh.

Saturday, May 08, 2010

Noahstradamus makes a prophecy for 2025

I've written a lot on this blog about how, if a rising China challenges the global political order than has prevailed since WW2, it would entail serious costs for the entire planet. Now I'd like to make this warning a little more concrete, by predicting exactly when such a challenge is most likely to occur.

Specifically, I predict that if it comes, it will come in or around the year 2025.

Why? Well, after the midpoint of the next decade, China will have some serious issues to deal with.

The first of these issues is energy. China, like most countries, uses two main sources of energy: coal for producing electricity, and oil for transportation. Both of these will be in short supply after the mid-2020s. The International Energy Agency predicts that global oil production will hit a plateau in 2020 and start to fall in 2030; various studies put the peak of China's domestic coal production between 2020 and 2030 as well, and coal is difficult and expensive to import. Scarcer energy will seriously erode China's unbeatable competitive advantage in manufacturing (much of which was built on extremely profligate use of energy), and nuclear and renewable energy will even come close to making up the difference.

Now, you may be thinking: won't the increasing scarcity of energy make China more likely to mount a serious challenge to the global order (as Japan did in 1941 when its oil supply was cut off)? Well, yes, but China is not stupid, and will see (actually, has probably already seen) the supply crunch coming. If China wakes up and finds that its coal and oil supplies are dropping fast, it won't be able to do anything, because taking control of a large amount of foreign energy supplies requires using a lot of coal and oil. Wars take lots of fuel, and building a big enough military to supplant the U.S. in its system of global alliances takes a lot of fuel too. China's best move is therefore to take control of as much global fossil fuel supply as it can while it still has enough energy to spare; as many have noted, this is what it is already doing. If China waits til after 2030 or so to make its move, it will be too late.

China's second challenge is its population structure. The country is aging rapidly; the U.S. Census Bureau predicts that the population will begin to decline in absolute terms starting in 2026, and the dependency ratio (the ratio of non-working people to working people) is expected to rise sharply around the same time. Nations that age this fast run into all kinds of natural limits to growth, as children are obliged to spend most of their money supporting their parents and grandparents; in addition, a lack of surplus sons makes it fairly difficult to maintain a big army. Even easing or lifting the one-child rule will not be sufficient to boost China's fertility, so this rapid aging is essentially a foregone conclusion.

China's third challenge is another natural resource: water. China's most important farming region, the North China Plain, is experiencing rapid groundwater depletion, and global warming is playing havoc with the country's rivers and rain patterns. By 2030, these problems will force China to import a lot of food, and will throw a bunch of farmers off their land, causing social disruption.

Finally, China's biggest challenge is simply the dizzying speed of its own economic growth. According to the Solow growth model, the simplest and most widely used model in macroeconomics, countries that invest heavily in physical capital see diminishing returns to scale as their economy becomes saturated with this capital; their growth then slows, no matter how high their savings and investment rates. The experience of countries like Japan, Korea, and various countries in Europe suggests that this slowing happens when a country reaches about half of the per-capita GDP of the richest nations (i.e. the U.S.). If China keeps growing at its current rapid rate, it should reach half of U.S. per capita GDP (in PPP terms) by 2030. The slowing of China's growth will create internal political tensions, as people who had come to expect a permanent gravy train demand a bigger slice of a slower-growing pie. It will also leave less of an economic surplus for China to spend on things like war with other great powers.

So in the late 2020s, China will experience rising energy costs, rising food and water costs, a rapidly aging population, the shrinking of its workforce, and diminishing returns to investment. All of that will not make it impossible for China to challenge the U.S. and its allies for global dominance, but it will make it a much dicier proposition.

But of course, as things stand, China is still not powerful enough to displace the U.S. as global Top Dog. Our military technology is still significantly superior, our economy is still significantly larger, and we and our allies still control a very big chunk of global energy supplies. China's leaders are cautious; if they try to mount a major challenge to U.S. power, they will wait until the last minute to do so. Which brings me to my prediction of 2025.

What would such a "challenge" look like? To be honest, I don't know. In the past, it was usually a war, but nuclear weapons make that seem unlikely in this day and age. China might attack a U.S. ally, I suppose - conquer Taiwan, or seize the territory it still claims in India - but even that seems pretty darn risky to me. Some sort of geopolitical assertion of authority, backed up by the implicit threat of military force, seems more likely. They might simply move to somehow take de facto control of a big chunk of global energy supplies, but not being well-versed in these things, I'm not sure how they'd do it. Or they might stake a unilateral claim to the South China Sea, declaring that the U.S. rule of free ocean transport is over and done.

Or they might do nothing. It may be that in an age of dwindling populations and energy supplies, controlling the geopolitical order is just not worth it for any country, even one with China's oligarchic governmental structure and nationalistic sentiment. I hope that this is the case, and in fact I think it not unlikely that China will decide simply to live within the existing order after all.

But I wouldn't bet the farm on that happy outcome. And neither should the United States and our allies; we should be expanding and strengthening our alliances, maintaining our technological edge, and adopting sensible far-sighted economic policies. If the challenge does come, then the more ready for it we are, the less destructive and dangerous it will be.

Wednesday, April 28, 2010

THE geopolitical story

For the past 65 years, the world has experienced massive economic growth, combined with massive growth in world trade. Most of that trade is in the form of ships crossing the ocean. Therefore, it seems like not too much of a stretch to hypothesize that one of the biggest factors encouraging global economic growth since WW2 has been freedom of the seas. And freedom of the seas has been assured in no small part thanks to the dominance of the United States Navy and its allied navies of Japan and Europe. Pax Americana, in other words, is an enormously important public good, and is primarily a naval phenomenon (though ICBMs also probably help).

Thus, the biggest geopolitical story of the new century may be the rise of the first naval power since WW2 that has both the ability and the will to challenge the U.S. and all of its allied navies at the same time for dominance of a critical sea trade region. Here's a few articles reporting on this story:

China’s decades-long military modernization effort is paying off. After assembling a revamped arsenal of new ships, subs, planes, and missiles, the People’s Liberation Army Navy (PLAN) is showing that they can use all those assets together, in an operation far from its shores. This display of improved military capabilities have occurred in conjunction with messages to the U.S. indicating a more aggressive approach from Beijing on China’s claims over disputed waters of the South China Seas...

[Recent Chinese naval] exercises were conducted a few weeks after Deputy Secretary of State James Steinberg and NSC Senior Director for Asia Jeff Bader visited Beijing. As reported by the New York Times, they were told that the South China Sea is a “core interest” for the PRC. This is an important phrase for Beijing – it raises the South China Sea to the same level of significance as Taiwan and Tibet – and suggests a newly aggressive and provocative approach...

China has long claimed that the South China Sea is within its Exclusive Economic Zone (EEZ), and that the UN Convention on the Law of the Sea (UNCLOS) forces foreign militaries to seek permission from Beijing before they can transit through...[But] the United States has long identified EEZs as international waters through which military vessels can freely pass...

By labeling the South China Sea as a “core interest” and conducting these exercises just days later, China has issued its reply: China will aggressively back its claims with a robust military capability.

The other, more implicit, message from Beijing could not be more stark: China’s military is growing more capable, and the PLA Navy is now at the vanguard of China’s military modernization effort. By acquiring advanced military technologies and developing the ability to conduct complex operations far from shore, China is changing military balances throughout the region with implications far beyond a Taiwan-related scenario...

The South China Sea and the adjacent littoral waters off the coasts of Indonesia, Malaysia, and Singapore will be the most strategically significant waterways of the 21st century. Already, 80 percent of China’s oil imports flow through the Strait of Malacca, and Japan and Korea are similarly dependent on access to those waters...

China’s claims of sovereignty over the South China Sea, if left unchallenged, would make Beijing the arbiter of all international maritime traffic that passes through, which the U.S. cannot allow.

The Australian:
US officials have warned that Chinese naval expansion is happening much more rapidly than had been expected, with plans for new nuclear submarines and aircraft carriers giving Beijing the power to extend its military might far from its shores...

A new report by the Australian Strategic Policy Institute think tank warned yesterday that China's military expansion was designed to end the US Navy's domination in the region...

The Vancouver Sun:

Tokyo’s shock, horror and alarm at the sighting a few days ago of a flotilla of 10 Chinese warships off Japan’s southern Okinawa island is undoubtedly contrived.

It has been evident for the past two decades as it invested huge amounts of money, time and effort into military modernization that Beijing intends to be able to project military power that supports its growing economic and diplomatic supremacy.

Just a few days before the latest encounter, a helicopter from a Chinese warship “buzzed” a Japanese naval vessel that was keeping watch on the exercises.

And in the past few years there have been other incidents with an increasingly far-roaming and competent Chinese navy.

Last year a Chinese submarine collided with the sonar gear being trailed by the American ship USS John S. McCain near the Philippines.

In 2006 an undetected Chinese submarine surfaced within firing range of the aircraft carrier USS Kitty Hawk.

Indeed, the joint exercise 10 days ago off Japan involving two Chinese Kilo-class nuclear-powered submarines and eight surface warships, including two missile-armed destroyers and three frigates, is a harbinger of shocks yet to come...

Despite its efforts at obfuscation, Beijing’s evident determination to build and operate a navy capable of projecting power throughout Asia has worried China’s neighbours.

It has prompted an arms race in Asia, especially with the acquisition by China’s neighbours of submarines, which because of their stealth and multiple weapons systems offer great deterrent value.

India, which sees itself as Beijing’s main regional rival, is pursuing a massive naval expansion and modernization program designed to keep ahead of China.

Australia is doubling its submarine fleet to 12. Malaysia, Vietnam, Pakistan, Bangladesh, Singapore, Indonesia and South Korea are all in the process of acquiring or expanding their submarine fleets.

Without any apparent appreciation of the irony, Chinese military officers and associated academics have been warning at regional defence conferences in recent weeks that this arms race, especially the widespread acquisition of submarines, is inherently destabilizing in Asia...

Beijing’s claimed “maritime interests” include disputes with Vietnam, the Philippines, Malaysia, Taiwan and Indonesia over the ownership of islands and submarine resources in the South China Sea[.]

The Sri Lanka Guardian:
Since the beginning of last year, the Chinese Navy, which no longer makes a secret of its aspiration of becoming a Pacific naval power on par with the US, has been adopting a dual strategy...

Its assertiveness in the South and East China Seas is marked by repeated reiteration of its territorial claims in the area and its determination to protect its rights to fisheries, minerals, and oil and gas in the areas claimed by it. It is also marked by the expression of its readiness to use its Navy to protect its rights...

Simultaneously with its increasing assertiveness in the South China Sea, the Chinese have also stepped up their assertiveness in the East China Sea where their claims and interests clash with those of Japan...

Instead of being defensive and low-profile about the presence and assertiveness of the Chinese Navy in the South and East China Seas, the Government/Party controlled Chinese media have been openly asserting China’s readiness to protect its traditional rights and defend its territorial claims in the area through its modernized Navy. They project the increasing assertiveness as a message that a modern and powerful Chinese Navy has arrived on the Pacific scene as a force to be reckoned with...

The Chinese Navy is there to stay and grow and assert China’s claims and rights. That is the message loud and clear.

CNS News:
China’s Global Times, a state-run paper linked to the Communist Party mouthpiece People’s Daily, published an editorial Tuesday responding to the “fuss” in Japan and taking issue with those who see the PLAN as a threat.

“A stronger navy is a result of China's growing economic strength and ongoing modernization of its military power,” it said. “It is a strategic requirement of a big power, which must defend its interests to the best of its ability.”

The editorial conceded that the transformation of the Chinese navy would naturally bring changes to a regional “strategic pattern” that has lasted for five decades.

“But the transformation is positive. China does not hold an intention to challenge the U.S. in the central Pacific or engage in a military clash with Japan in close waters, though it is willing to protect its core interests at any cost.”

The editorial went on to declare that “the time when dominant powers enjoyed unshared ‘spheres of influence’ around the world is over.”

Call me a Mahanian, but it seems to me that when the naval balance of power changes, the geopolitical equilibrium undergoes a rapid breakdown. That balance of power has held at least since the Battle of Leyte Gulf, when the U.S. defeated the last major contender for naval supremacy. And it has been surprisingly robust; all the al Qaeda goons on the planet pose essentially no threat to Pax Americana and the explosion of globalization and wealth it has brought. But China's growing naval power, coupled with its desire to challenge the U.S.-led order, will make Pax Americana history in perhaps two decades.

That will interesting day.