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Tag Archives: growth

Today, American business pages are full of reports about the shrinking jobs market in the US. Just when many economists were expecting positive news about employment, unemployment rates have grown back to 9.2%, and that is not including underemployment and the large numbers of people who have dropped out of the workforce.

While you might think the concern should be for the unemployed, the focus of most articles is the negative effect on growth, and the problems it presents for Obama’s re-election.

Economists were stunned. They had been expecting job growth to strengthen in June as oil prices eased and supply disruptions caused by the Japanese tsunami and earthquake receded. Instead, the government’s monthly snapshot of the labor market showed that several industries, including construction, finance and temporary services, shrank. At the same time, leading indicators like wages and the length of the average workweek, which tend to grow before employers begin adding more jobs, actually contracted.

Most analysts are not yet forecasting an outright slide back into recession, but at a time when President Obama and Congress are focused on spending cuts, Europe is in financial crisis and even China’s growth is slowing, there is little expectation of anything other than a prolonged slog for the United States economy.

Recent debates in the US Congress have focused on the huge public debt and how to address it, raise taxes, cut spending, or both. If you are concerned about employment, it does not look like a good time for worrying about debts, but recent political battles have focused on the debt limit and whether to increase it.

Budget strains were evident in the public sector as the federal government slashed 14,000 jobs, and state and local governments cut an additional 25,000. Nearly three-quarters of the job losses at the local level came in education.

Clearly, further cuts in government spending need to balanced by expansion in the private sector. That takes time, and the priorties may be different, but some are still optimistic.

For hopeful signs, some economists pointed to more recent data showing a pickup in retail sales at chain stores and a rise in an index of business hiring. In manufacturing, analysts expect an increase in auto production in the fall, partly because disruptions in supply will have diminished and partly because of built-up consumer demand.

Daniel J. Meckstroth, chief economist of the Manufacturers Alliance, a trade group, said consumers who had been delaying purchases of cars, washing machines, refrigerators and other big equipment that breaks down over time would eventually start buying again as they paid down debts.

“Spending was severely cut during the recession,” Mr. Meckstroth said. “Now, the longer you wait, the more pressure there is to make purchases. You can’t postpone some things indefinitely.”

Others believe this thinking is overly optimistic.

This article is of interest for me because it is about Tianjin, my home for the last year and a half. It seems we are building a Wall Street wannabe in the Binhai district. The site is called Yujiapu, and the plan is to build the world’s largest financial zone over the next ten years.

Although not about to supplant Shanghai, home of China’s main stock exchange, Tianjin has been racing to hone its credentials as a financial hub. In the past three years alone, it has opened the Bohai Commodity Exchange, the Binhai International Equity Exchange, the Tianjin Climate Exchange and the Tianjin Ferroalloy Exchange.

Tianjin’s economy grew 17.4 percent last year, the fastest of China’s 31 provincial-level areas. While that would have been cause for celebration in the past, the local government has been modest in trumpeting its achievement.

Much of the article discusses China’s problems in trying to moderate its tremendous economic growth, hoping instead for consistent growth over the long term.

Fuzzy as it sounds, the concept is well understood in China to mean a more sustainable economic model: slower industrial investment, less pollution and a fairer distribution of income.

During the National People’s Congress this month, China will unveil a detailed policy blueprint for the coming five years. Hu and Wen will try to enshrine their agenda by setting an official goal of 7 percent annual growth from now until 2015, well down from the 11.2 percent average of the past five years.

Provincial governments are pushing for higher growth rates than the central government has targeted, and they have been successful, discounting the foreign perception of China as a very centralized economy.

“It’s quite clear that the central government will not be able to realize its goal,” said Yang Zhiyong, an economist in the Chinese Academy of Social Sciences, a top government think-tank.

Outsiders often assume that Beijing is omnipotent in governing China, bending far-flung cities and villages to its will. The reality is different.

Growth continues and the threat of loan defaults and a slow-down are ignored for now.

At least a couple of times, I have written about the terrible traffic problems here in China. Now there is a story about just how bad it can get.

Triggered by road construction, the snarl-up began 10 days ago and was 100 kilometers (60 miles) long at one point. Reaching almost to the outskirts of Beijing, traffic still creeps along in fits and starts, and the crisis could last for another three weeks, authorities say.

In this instance, most of the traffic is trucks rather than passenger cars. That means resources for production are being delayed for very long periods. Some are transporting food that is rotting and will have to be trashed.

The article does mention some small measures sometimes being taken to reduce traffic. In Inner Mongolia drivers are only allowed to drive every other day, based on the license plate number being odd or even.

The tone of the article is that this is a natural result of China’s strong economic growth. I am trying to think this through, but it seems to me that proper planning and design should allow us to avoid such problems.

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Some of this story about the Chinese bullet trains is really impressive.

The Chinese bullet train, which has the world’s fastest average speed, connects Guangzhou, the southern coastal manufacturing center, to Wuhan, deep in the interior. In a little more than three hours, it travels 664 miles, comparable to the distance from Boston to southern Virginia. That is less time than Amtrak’s fastest train, the Acela, takes to go from Boston just to New York.

Even more impressive, the Guangzhou to Wuhan train is just one of 42 high-speed lines recently opened or set to open by 2012 in China. By comparison, the United States hopes to build its first high-speed rail line by 2014, an 84-mile route linking Tampa and Orlando, Fla.

OK, bragging rights over the US are one thing, but the really impressive part is the economic stimulus this investment provides for both short term and long.

Of course jobs are being created now with the construction of the trains and tracks, but the new, fast transport will also improve the mobility of labor and other resources needed in an expanding economy.

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This story–China’s growth accelerates to 10.7 percent in 4Q–creates some curious reactions in world markets. Asian stock indexes went down, and the US dollar rose to a five-year high. The funny part is that the good news also brought renewed expectations that China would raise interest rates and tighten money supply growth. Inflation is feared, apparantly more than a reduction in the rate of growth.

Strong Chinese growth could help to drive a global recovery by boosting demand for foreign oil, consumer goods and other imports. It also might give Beijing confidence to ease currency controls and allow its yuan to rise against the dollar, which could boost imports by making them cheaper for its consumers. China has kept the yuan steady against the dollar since late 2008 to keep its exporters competitive abroad.

But that progress could be derailed if a burst of inflation saps the spending power of Chinese families and forces the government to clamp down so severely on credit and investment that it slows the creation of new jobs.

So the expected increase in interest rates explains the lower spending expectations in the rest of Asia, but that would normally make the currency stronger against the dollar. Must be that the “confidence to ease currency controls,” is seen as a stronger influence.

Myself? I doubt it. For years China has been able to keep the Yuan relatively low through currency purchases, and still manage inflation domestically. Like mentioned later in the article, most of China is still a developing country.

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chinaascendingThe NY Times reports that Asia’s Recovery Highlight’s China’s Ascendance. This is something I predicted when US and China’s stimulus packages were introduced, and the statistics are coming out now. Though the US economy is still three times the size of China’s, it is China and the rest of Asia that is leading the world out of the global recession.

One question mark remains about China’s recovery, and that is whether Chinese consumers can make-up for the lost demand in exports to the US and Europe. One positive sign,  Chinese banks lent a record 1.1 trillion dollars in the first half of 2009. Another positive sign, US and European companies still find China a more affordable production location, and worker training has improved. As long as trade barriers do not become too popular, I think China will continue to lead the world out of recession.

Do you agree?

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George Selgin wrote an interesting piece called End the Fed? A not-so-crazy idea. It does sound a little bonkers to me. Selgin thinks it might be a good idea to return to a totally privatized banking system, and he gives some historical data to back-up the argument. Still, his examples come from over fifty years ago when–really–people knew less about how money and a national economy are interdependent. Of course the Fed has made mistakes, but I would argue that–as time goes by–US Central Bankers are better and better prepared to do their job well.

Even more frightening, and a more realistic possibility, is that Congress will succeed in taking some control over Fed policy. That would be a disaster. One easy argument–compare congressional policy over the last fifty years with Fed policy. The Fed’s independence has allowed them–mostly–to follow money policy that encourages growth and discourages inflation. To put them under the control of Congress puts them under the control of big business.

Nothing personal, but I agree with this guy–Jim Rogers–on the relative optimism to be felt regarding China’s economy compared to the US.

Adam Smith and the Wealth of Nations made great contributions to our understanding of how a markets can be efficient without control; and, during the cold war, growth in the more authoritarian economies was unable to keep pace with the less authoritarian, but times have changed and perhaps China’s steady and strong growth over the last dozen years gives the world a new model to emulate.

The sermon of free trade has–finally–been accepted by most of the world. As predicted, it brought us a long period of significant growth. Now we find ourselves unable to climb out of a deep recession, largely due to a lack of control over financial markets, and global wealth disparity is probably worse than ever, maybe one reason that bail-out policies are not adding much to optimism.

The first year I taught in China, I worked with a local guy who described the China model as “the Bird-Cage Model.” The market is free within certain limits, but there are barriers within which we have to work. I need to learn more about what the barriers actually are, but one noticeable thing is that all enterprise comes within a master plan that originates with government.