China does not even fake central bank independence. That
2017-07-25 02:37阅读:
Nikkei Asia Review, 14 July 2017.
How China has defied the gravity of debt
The state is adding assets to its portfolio, not selling.
by Joe Zhang...
Four years ago, I was part of a chorus of analysts who predicted
that a wave of privatization would soon sweep through China. Our
sense was that the pressure of official debt, already then reaching
a scarily high level by global and Chinese historical standards,
would force local governments to sell off interests in commercial
ventures. Simply too much had been borrowed at interest rates of
more than 7% to build roads, bridges, office towers and sports
stadiums which were not generating enough cash flow to pay back
trust companies and other creditors.
We were all wrong. Although debt levels have almost doubled again
since 2013, there is no sign the government is about to unload its
vast array of state-owned enterprises. In fact, the state is still
building up its portfolio both at home and abroad.
Hardly a day pa
sses without a private entrepreneur succumbing to enticements from
the state sector. Among the more striking was the news last month
that Wang Shi, founder of
China
Vanke, the country's largest developer, will step down as
chairman and yield control to Shenzhen Metro Group, a city-owned
mass transit operator.
What is going on? The economics we have learned cannot tell us just
how much debt is too much or how economic theory will work in
reality under different sets of political institutions. Over the
past four decades, China has aggressively pursued inflationary
fiscal and monetary policy, growing its money supply by almost 20%
on a compound annual basis. This is despite a painful history of
hyperinflation, a key factor in the fall of the government of the
Kuomintang, or Nationalist Party, to communist forces in 1949.
Today, off an extremely high base, China's money supply is still
growing faster than 10% a year.
Despite high inflation over the past four decades, both the
government and the public are strangely adamant that a reasonable
rate of inflation is not only necessary but also desirable, though
no one can define what 'reasonable' is. While governments in a
number of developed nations are striving to produce even a bit of
inflation, China and most developing countries have only sad
histories to relate about inflation so more wariness might be
expected.
In theory, persistently high inflation should lead to the weakening
of the Chinese currency. But over the last two decades, the yuan
has been one of the strongest currencies in the world, offsetting
much of the depreciation seen in the two decades prior. This
suggests enormous erosion in the purchasing power of other major
currencies over this time frame and robust Chinese productivity
growth.
A crucial question economists have neglected to address is whether
China has grown its economy despite high inflation, or at least
partly because of it.
Questioning independence
For decades, China's policymakers have talked about the independent
central banks of the West with great admiration, although Beijing
has never wanted to give any independence to its own central bank.
To Chinese policymakers, independence would mean
inconvenience.
After the U.S. subprime crisis of 2008, the twists and turns of
American monetary policy plus extended congressional debates about
official debt ceilings have left Chinese central planners feeling
vindicated. Some are now loudly voicing doubts about the very idea
of independent monetary policy in the West, never mind independent
fiscal policy.
Four years ago when debt servicing started to bother China's
regional and local governments, Beijing promptly opened two new
fundraising avenues for them. One was public-private partnerships,
which effectively shifted state debt to the private sector and to
future generations. The other was to allow regional governments to
raise new debt in the public market. As a result of these new
channels, even the most heavily indebted regional governments have
not had to offload commercial assets.
Inflation has made inequality much worse in China, but as long as
the economy is still growing at a good pace, any social crisis
explosion will be delayed.
All over the world, a popular movement is challenging the accepted
wisdom of austerity and fiscal responsibility. For China's
policymakers, a united front coming from the West is amusing though
somewhat humbling. Western economic governance has long been held
up as a role model for China. But in areas such as the independence
of monetary and fiscal policy, China suddenly finds the West
converging with its own backward model.
Joe Zhang is chairman of payment services company China Smartpay
Group and the author of 'Party Man, Company Man: Is China's State
Capitalism Doomed?' He was previously chief operating officer for
state-controlled holding company Shenzhen Investment.