China’s Car Dealers and the threat from R-Money: A Clear and Present Danger

I didn’t get to this yesterday, but The New York Times reminded us why, for all the justified scorn that can be heaped upon much of its Op-Ed team and the occasions when the Village consumes its straight journalism, it remains essential.

You just don’t get this kind of article without a large, well-resourced commitment to sustained coverage.  It tells us something we simply wouldn’t know — in any kind of broad public way — without their effort.

And the piece offers a model that the Village itself would do well to study:  it provides a strong basis of fact with which to think about broader problems, and it suggests without dictating where that focus of interest might reside.

The piece, you see, is about something that sounds kind of mundane:  an inventory overhang in China’s domestic market.  A huge one:

The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.

The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government — all part of an effort to prop up confidence in the economy among business managers and investors.

But the main nongovernment survey of manufacturers in China showed on Thursday that inventories of finished goods rose much faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Markit survey, had been set in June. May and July also showed increases.

Now, China hands — some of them, at least, including folks I talk to — have been arguing for some time that China’s economy and society are much more vulnerable than some popular accounts have suggested.  The social/political sensitivity of exactly this problem — the need to keep growth roaring to prevent the uneven distribution of the new China’s rewards from inciting real anti-government action — is likely as much why the central leadership has been hiding the numbers as any attempt to boost business confidence.*

There are lots of implications one may draw from the underlying circumstances reported here.  China, as the article’s author, Keith Bradsher, notes, has been one of the few functioning economic engines pumping during the Great Recession. Significant problems there, Bradsher writes,

…give some economists nightmares in which, in the worst case, the United States and much of the world slip back into recession as the Chinese economy sputters, the European currency zone collapses and political gridlock paralyzes the United States.

China is the world’s second-largest economy and has been the largest engine of economic growth since the global financial crisis began in 2008. Economic weakness means that China is likely to buy fewer goods and services from abroad when the sovereign debt crisis in Europe is already hurting demand, raising the prospect of a global glut of goods and falling prices and weak production around the world.

There is, as suggested above, another reason to pay close attention to this story.  For example, if you credit  the argument/research [pdf] advanced by my MIT colleague Yasheng Huang, China after Deng Xiaping has seen a growing gap in rural vs. urban wages, and a shift away from the incredible burst of local and rural entrepeneurship that Deng’s government engendered in the ’80s.  Huang’s work suggests that the long-running theme in Chinese history, center-periphery tension, is experiencing increased strain right now.

While I haven’t heard anyone predicting significant political/social disruption in China is imminent, the risk of destabilization in China is something to be watched.  It’s a country trying to do something very tricky indeed — maintain political structures within a context of enormously rapid economic change and social re-stratification.  It’s a country with which we very heavily engage on a lot of axes, not just economic. Bradsher and theTimes here help their public grasp some of what that readership — us — ought to be paying attention to.

So props to the Times, and do go read this story; as the processes it describes play out, this may have as much impact on our material well being as anything Congress may do quite a while.

And now to my headline:  why does this story reinforce my view that Mitt Romney represents a serious danger to America and the world?

Simple:  he’s an blustering foreign policy ignoramus completely unprepared to deal with the kind of complexities stuff like this pose.  Ryan’s as bad, possibly worse.  Seriously.  This is the weakest foreign policy ticket of my lifetime.  Neither man has any serious time abroad, except for Romney’s mission years in France, which do not  in my view count for much.**  Neither man has done anything in his life that requires navigating complicated intersections of interests across language and history barriers.  Both have had sheltered and shielded lives.  Neither have made a study of any significant international or foreign policy tangle.  They don’t know sh*t. So they rely on advisors — the same crew, for the most part, who performed with such notable skill during the Bush-lite years.

Which is why you get easy braggadocio like this:

If I am fortunate enough to be elected president, I will work to fundamentally alter our economic relationship with China. As I describe in my economic plan, I will begin on Day One by designating China as the currency manipulator it is.

More important, I will take a holistic approach to addressing all of China’s abuses. That includes unilateral actions such as increased enforcement of U.S. trade laws, punitive measures targeting products and industries that rely on misappropriations of our intellectual property, reciprocity in government procurement, and countervailing duties against currency manipulation. It also includes multilateral actions to block technology transfers into China and to create a trading bloc open only for nations genuinely committed to free trade.

Why does Romney think that the last several presidents of both parties have not done this sort of thing?  Lots of reasons.  The multilateral actions proposed are fantasies, for one.  The unilateral ones assume that we face no consequences for such actions.  Not exactly a safe thought.  And finally — moves that at this moment pushed a struggling Chinese economy into worse shape, as Bradsher’s article helps one to grasp, have plenty of unintended consequences that would make most leaders think hard.

Romney is not most leaders.    he is through both life and professional experience astonishingly unprepared for the job he seeks.  When you actually stop and think about what it would mean to sit him opposite the Chinese leadership, your first reaction should be terror.

Of course he does look the part.***

So that’s OK then.

*For one thing, business folks can generally look out over their own car lot/warehouse and kind of see the excess supply themselves.  They talk to each other too…which all reminds me of this true classic of a Doonesbury strip

**Why not?  Because of what he was trying to do in France:  evangelize. The conventional purpose of a Grand Tour or junior year abroad or some such is to expose yourself to the way a culture not your own does things.  Mission activity attempts to express the desirability of your own culture as a replacement for that in which you travel. Very different mental/emotional circumstances.

***Read: white, older, tallish, male, good hair.  He is, to reuse a tired by still marvelous on point phrase, someone to be taken as potential leader only through the subtle bigotry of exceptionally low expectations.

1:  Yes, I am old enough to have read on its first release a comic from Nov. 10, 1973.  What pleases me, lo these many years on, is that I am not so old as to be unable to remember doing so.😉

Images:  Evert Collier, Newspapers, Letters and Writing Implements on a Wooden Board, c. 1699

Ma Yuan, Dancing and Singing (Peasants Returning from Work), before 1225.

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