The China Thread

[Sheilbh]

Really fascinated on the Ozil story.

Yaya Toure basically tweeted at him that he should stay in his lane.

Shahid Afridi, former Pakistani cricketer, tweeted something in support of Uyghurs and asking Imran Khan to speak up (similar to Ozil's tweet which mainly seemed aimed at Muslim nations).

Chinese deputy foreign minister (and lots of netizens) reply that he's been misled by Western propaganda and the West is demonising China and exploiting the sentiments of Muslims. Also loads of Pakistani replies that he should shut up and know his place and China's Pakistan's closest friend now.

So he deleted the tweet - which is now being picked up by other people in Pakistan as an example of how they've moved from being a US "colony" to a Chinese "colony".

Really interesting to see if other athletes decide to say anything. For footballers there is a very real personal cost for their own commercial deals in China, but there'll be pressure even in sports that China doesn't care about.

[The Minsky Moment]

In 2016, the US exported $115.6 billion of goods to China and imported $462,420.   We don't have final numbers for Dec 2019.  But plugging in a monthly average would give annual numbers of $106.6 billion exports and $456 billion imports.

So basically after 3 years of bluster, threats and tariff impositions, the trade numbers remain almost exactly the same as they were pre-Trump.

That is a bit misleading, however, because economic activity in both countries has increased significantly in the last 3 years, so US-China trade as a proportion of overall economic activity has declined noticeably.  I.e. Trump hasn't moved the needle on the (irrelevant) trade balance that obsesses him, but he has suppressed trading activity overall.  The main consequence of the policy in the US has been suppressed agricultural sales as well as higher producer and consumer prices from taxation (tariffs).  To the extent the incidence of the tariffs falls on consumers it acts as a regressive tax; to the extent it falls on producers procuring inputs from China, it increases producer costs and makes them less competitive.

In short, the China trade policy to date appears to be a failure in terms of direct impact.  The question is whether it brings secondary benefit in terms of negotiating leverage which brings us to the agreement signed yesterday which will go in the next post.

[Threviel]

I really enjoy these analyses that you do. Please keep them coming.

[The Minsky Moment]

Which brings us to the Phase 1 deal.

+ The headline from the deal is the commitment by China to make billions in future purposes.  However, there is no real teeth to that commitment.  Also, if China believes that its ability to meet the commitment is affected by anything relating to the US, it is entitled to "consultations".  This looks something drafted for the purposes of a press release, not a meaningful trade accord provision.

+ Another component is commitments from China to ease barriers to US Ag imports.  While these seem potentially useful, the Phase 1 deal does not require China to cut tariffs on a range of ag products.

+ China makes various commitments ostensibly to strengthen its IP laws; however, most of those commitments seem to track provisions of a law that China enacted earlier this year.  In other words China is committing to enact legislation it already enacted months ago.

+ For the most part, existing tariffs remain in place.

Bottom line this looks like a political marketing documents more than a substantive accord.  It is designed to create the appearance of progress and it fit into press releases allowing each side to take credit for "victory"  It doesn't really move the ball on trade.

The best one can say from the US side is that it doesn't harm the US as compared to the status quo c. 1-14-20 and may provide a groundwork for future progress.  Problem is that the 1-14-20 status quo is not good so unless it generates momentum to a real deal, it represents a missed opportunity.

[Admiral Yi]

It's easy to fall into the trap of thinking because Trump is doing it, it must be wrong.  I thought the trade war is certainly disruptive, but could be worth it in the long run.  But only if they succeed in dismantling the system of subsides for SOEs and strengthen IP protection.  Instead Trump is framing victory as China buys a bunch of US stuff made by people that support him, at least for a while.

On a side note, oodles of commentators have been crowing about Tesla's big entry into the Chinese market, but my fear is it's all an elaborate plot to steal Tesla tech and hand it over to Chinese competitors.

[Josquius]

Doesn't Tesla already share their technology openly?

[The Minsky Moment]

It's easy to fall into the trap of thinking because Trump is doing it, it must be wrong. 

I agree. The deal is fine in itself.  It doesn't do much but it doesn't hurt either.  Same was true of the Mexico deal which was basically NAFTA redux + some stuff Mexico had already agreed to in the context of the TPP negotiations.  Problem is that Trump's case that tariffs will give him leverage to get big concessions has yet to be proven and I see no signs China intends to cave anytime soon.

[The Minsky Moment]

Doesn't Tesla already share their technology openly?

They opened up their patents to open source a few years back and the software is open source as well.
Musk would probably be thrilled if Chinese mfrs copied tech and succeeded and getting mass sales - that would drive build-out of charging and support infrastructure.  His business model is about driving adoption of electric vehicles and driving out gas powered. I'm sure his is confident he can still execute better and grab a nice share of the premium end of a much expanded electric market.

[Threviel]

It's also one thing to share tech specs and a whole other thing to actually implement them. If someone were to use Tesla specs they would probably need a lot of help from Tesla to implement them. In order to make a fully compatible vehicle and loading station I mean.

[crazy canuck]

It's also one thing to share tech specs and a whole other thing to actually implement them. If someone were to use Tesla specs they would probably need a lot of help from Tesla to implement them. In order to make a fully compatible vehicle and loading station I mean.

Tesla has enough trouble implementing its own tech.  The Economist edition on China last week noted there are 40 EV start ups in China.  Telsa would benefit from their tech becoming the standard.

[Savonarola]

CB and I saw a lecture last night by Wanfa Zhang, a professor at the Florida Institute of Technology called "Why Communist China Isn't Collapsing."  He recently co-authored a book on the subject.  His thesis was existing political science models don't adequately explain the Chinese system and he developed his own "Comcapitalism" model to explain its survival.

The inherent contradiction (in Western eyes) to the system, I think was best demonstrated in some pictures he had of the center square in his hometown of Guiyang; which had the red wall with communists slogans on one side, the giant statue of Mao on the other and two large glass pyramids in the middle which served as the entrance to the Walmart under the square.

The reasons that he thought the Communist party had survived is that China has experienced incredible growth (per capita GDP was roughly $800 in 1990, today it's about $9000); the party has recruited almost all of the elites in the country (including such unlikely members of the workers' revolution as Ali Baba founder Jeff Ma and Huawei founder Ren Zhengfei); there is a fair amount of social mobility; the party has been responsive to the needs of the people, and have been willing to sacrifice their own local grandees when problems arise in the provinces.  He also brought up that the failures of democracy (especially in the former Eastern Bloc countries, or in the Middle East; but even our polarization in the west) have been used as propaganda for the Communist party.  Finally he said that the Chinese view of self-restraint allowed for a system where the populace could have broad freedoms; but one in which they wouldn't criticize the government.  (Zhang's own book won't be able to be sold in China, since it is heavily critical of Xi.)

The lecture was a kind of community engagement event put on by the university.  The audience was amusing.  About half seemed to believe that the Cultural Revolution was still going on, and had a hard time accepting that there were bookstores that sold anything other than Communist propaganda and children's books.  The other half was deeply ashamed of our Western imperialism and had a hard time accepting that people were actually willingly lining up for Pizza Hut.

[The Minsky Moment]

It could be argued that the greatest single achievement of any government in human history is the success of the post-Mao ChiComs lifting hundreds of millions of people out of dire poverty into a middle class standard of living.  That buys certain degree of popular credibility.

[Josquius]

It's more than a Chinese thing I'd say. Japan alos by rights should have long since collapsed but it has a special approach to the rules which means it stays perpetually amongst the living dead. Korea also, hasn't hit decline yet but when it does its incestuous system should keep it afloat.

[Camerus]

Not only has the CCP enjoyed economic success over the past several decades on a scale unprecedented in human history, but they are a product of a population that has known only autocratic rule for 5000 years and has very different political and cultural values than in the west.

I'd argue that the post-Mao CCP is largely contiguous with the most significant cultural and governmental traditions of Chinese civilization, although Xi is arguably taking things in a new direction with his technologically driven surveillance state.

[DGuller]

The problem with autocracy is not that it's not capable of producing impressive results, but rather that these kinds of outcomes are brittle and are liable to be reversed at any time.  That said, those of us living in democratic societies in 2020 shouldn't be too confident that our system of governance is all that more robust.