Friday, 19 July 2019
The articles below, reproduced from the Australian Financial Review and the London Financial Times, show why the “weaponization” of the Han Chinese diaspora on the part of the Chinese Dictatorship will most certainly end up with a Holocaust of Han Chinese around the world that will make the Nazi experience look like breakfast at Tiffany’s. The reason is that the Dictatorship is co-opting its unfortunate subjects in its global kleptocratic practices that – just as they did with the Jews – will draw the genocidal ire of other peoples, from Europeans to Africans to Arabs and even South-East Asians, whose hatred of Han Chinese grows more virulent and violent and uncontrollable by the minute!
The fact is that this unfortunate race of worms is hell-bent on devouring the rest of the world – and the rest of the world will not stand there looking while these racist genocidal rats seek to enslave the planet! Contrary to what the IMF argues (see the second article from the FT) it is an utter and baseless lie to say that the Han Chinese rats have given up on their mercantilist practices and stopped exploiting their own people to accumulate personal wealth the world over. On the contrary, the apparent balancing of the current account is due precisely to the fact that Han Chinese Rats are investing more of their ill-gotten gains overseas! These are “investments”, not purchases of goods and services!! – Which is why we ought to be forgiven for saying that the IMF staff are a band of idiotic rotten dogs at best! Cheers.
At a fund manager’s conference in Boston I was surprised to hear one of the other speakers put a positive spin on the vexed topic of China’s current account surplus. He argued it was being eliminated because excess saving in prosperous provinces was now funding net investment in high-return developing regions. This would be good for China – profitable investment opportunities at home – and for the world with reduced deflation pressure.
There are critical investment issues here. The saving glut is an aspect of China’s excess capacity. China doesn’t consume enough of its own GDP and pushes cheap exports into other country’s markets, pushing down inflation – making life difficult for central banks. Excess saving forces down global real interest rates, distorting investment decisions and undermining pension fund returns. On the capital account side China stands accused of hoovering up assets that focus on sensitive technology – joint military and domestic applications – and forcing technology transfers from companies that are permitted to invest in China.
China’s merchandise trade remains in strong surplus. Bloomberg
So, the argument made by my colleague sounded like something quite momentous. China could come to depend on net Western investment to fund a current account deficit in the future. Market disciplines and profitable returns might follow, and trade and investment negotiations might better favour the global collective interest.
Furthermore, wouldn’t the current account switching towards a deficit mean that trade in goods and services is finally "evening up"? Wouldn’t these trends pull the rug from under Donald Trump’s trade wars, which would be seen to be damaging global relations unnecessarily? The president and his advisors would find themselves on the wrong side of history.
Not so fast. All is not gold that glitters.
Let’s clear one thing up right away. China’s current account may be falling, as measured, but its merchandise trade remains in strong surplus. This rose to record levels as growth and imports collapsed following the equity market crisis in 2015. This merchandise surplus declined once the stimulus package in 2016 sucked in imports and made all those mining stocks rally. Most recently, China has slowed once more: the trade surplus stopped falling.
So, what are we to make of the declining current account with a large merchandise trade surplus? Well the thing is, when economic numbers become political, there is an incentive for the way things are measured to somehow adjust.
Two things stand out in the chart. First, the current account decline comes about because the large services deficit offsets the merchandise surplus. If you are hoping this means the West has finally broken through and is penetrating the Chinese domestic market with its banking and other services, you will be disappointed if you read any further.
Second, travel is an important part of services trade for China. Statistics show the Chinese travel surplus of exports (what the rest of the world spends travelling in China) minus imports (what the Chinese spend travelling in overseas countries). These variables began to diverge from 2011 as travel imports rose rapidly, while exports remained flat. The widening travel gap explains virtually all the divergence between the trade balance and current account.
What are we to make of this? Well, one OECD-country statistical agency carried out a study and found a puzzling anomaly. It turns out China’s measurement of payments to them was more than 15 times larger than their own measurement of receipts from Chinese visitors. They are supposed to be the same: just measuring the consumption of goods and services by business, tourist and education travellers.
Chinese travellers are known to buy assets, including houses for students to live in and investment-related products. These things should be counted as investment, not imports. When credit card data and international remittances data from banks (used in the measurement process) include such investments, they are supposed to be reallocated to the capital account. The Ministry of Commerce (MOFCOM) would be responsible for doing this. But the issue is political and checking the information is difficult, particularly since China changed the way they measure travel in 2016 and backdated the data.
If things get classified as bilateral services imports (consumption), when in fact they are really investments, then large anomalies between receipts measured by an OECD country might differ significantly from the expenditure on travel recorded by China. If this is systematic, it will add up to a distorted services deficit.
The huge step up of Chinese travel imports from 2011-2015 corresponds with China’s relaxation of controls on capital outflows. This made it easier to get money out for investment purposes – and corresponds with the great acceleration of Australian and Canadian house prices. Stricter controls on outflows have been implemented since 2016, which slows down such investments. But the avoidance of capital controls to get money out has since stepped up (such as over-invoicing imports from Hong Kong and taking cash out from there).
So, I don’t agree with my colleague in Boston. If investment is wrongly classified as imports the underlying economics of China’s saving glut remains unchanged.
More generally, there is too much emphasis on the current account numbers. These are relatively small numbers compared to the large export and import numbers of which they are composed, and measurement problems on the service side abound. Nor does picking up on the current account improvement as "good news" stack up with the facts we observe around the world: on-going deflation pressures and low real interest rates.
The real problem is China doesn’t consume enough of its own GDP (53 per cent compared to 83 per cent in the United States). It’s very clear as to which country is causing imbalance in supply and demand in the world economy. You can’t be the second biggest economy in the world and hope no one will notice that this investment-to-export growth strategy is having negative implications for everyone. It may be that Trump’s "colere" isn’t misplaced in this area. It’s time for China to stop talking about more openness and just do it for the sake of the collective interest – but it’s unlikely they will any time soon.
Adrian Blundell-Wignall is a former director of the OECD, an adjunct professor at Sydney University and author of Globalisation and Finance at the Crossroads.
James Politi in Washington YESTERDAY Print this page53 China’s economic relationship with the rest of the world is roughly in balance, according to the IMF — a significant change after years of criticism from other countries that China posed a risk to the global economy. The country’s current account surplus has dropped to close to zero, the IMF reported on Wednesday; for the first time since 2012, when the IMF began reporting on the imbalances that afflict the world’s major economies. At just 0.4 per cent of GDP in 2018, China’s current account surplus declined by 1 percentage point year on year, according to the IMF. China’s “external position” is “broadly in line” with “medium-term fundamentals and desirable policies”, the IMF said. For years China’s current account had showed it to be a big net lender to the world, running a surplus as high as 10 per cent of GDP in 2007. But in recent years its economy has become increasingly reliant on domestic demand — as opposed to exports and foreign investments — and that has helped rebalance its trade position. “There’s obviously a lot more still to be done, but it’s important to recognise some of the things that have been done, including increased currency flexibility and reduced reliance on external demand,” Gita Gopinath, the IMF’s chief economist, told the Financial Times. “We want China to pivot towards more consumption-driven growth, while at the same time being careful about a further build-up in financial risks,” she added. Zhang Jun, head of the school of economics at Fudan University in Shanghai, said the trend was likely to continue. “Policy has been very clear that China will speed up opening the domestic market and increase imports,” he said, adding that current account deficits were possible in future due to the rapid growth in imports of services, of which tourist spending is the largest component. “The merchandise trade has not been able to create a surplus to offset the deficit from service trade,” he said. However, some economists believe that China’s current account surplus could rise again, because some of the factors driving the decline, like the recent fiscal stimulus, could wear off. The virtual elimination of China’s current account surplus means that trade imbalances are now mostly concentrated in advanced economies, the IMF said. Overall current account surpluses and deficits accounted for about 3 per cent of global GDP in 2018, half of their 6 per cent level in 2007 but only slightly lower than their 3.5 per cent share in 2013. The eurozone posted a current account surplus of 2.9 per cent of GDP in 2018, slightly narrower than 2017, as Germany’s surplus fell to 7.3 per cent from 8 per cent. Despite the improvement, the IMF still judged Germany’s external position to be “substantially stronger” than fundamentals, and called for more “growth-oriented fiscal policy” from Berlin. The US current account deficit was unchanged at 2.3 per cent of GDP, which translated into a “moderately weaker” external position, the IMF said. It suggested the US needed fiscal consolidation, structural reforms and the removal of recently imposed tariffs. The fund also said the UK current account deficit had deteriorated last year from 3.3 per cent to 3.9 per cent, and was expected to worsen further to 4.2 per cent of output this year. The IMF has warned that countries should not be tempted to use protectionist trade measures to reduce current account balances, as such policies could backfire. “Our position is, and has been, that tariffs won’t solve imbalances, but will come at the expense of domestic and global growth,” Ms Gopinath said. “This does not mean that there are not legitimate concerns about the multilateral trading system, which will need to be addressed for a durable resolution of trade tensions.” “If we want to close these imbalances they rest much more on macroeconomic policies and structural reforms,” she said. Next week, the IMF will update its forecast for global growth, which currently predicts an expansion of 3.3 per cent this year, accelerating to 3.6 per cent in 2020. In the report released on Tuesday, the IMF said that the world could expect a hit to growth amounting to 0.3 per cent of GDP next year because of recently announced and threatened US tariffs on Chinese products. That would come on top of the 0.2 per cent hit to global GDP caused by last year’s levies. Additional reporting by Tom Hancock in Shanghai