Economy

China’s Economy Has Picked Up Traits Reminiscent Of The Great Depression.

Published

8 months ago

January 22, 2024

China’s economy suffers many problems, and some are beginning to look like those that made it so hard for America to break out of its Great Depression in the 1930s. True, China has not experienced a stock market crash. That is different. What China does have in common with that historic America is the loss of confidence in the economy’s structures and in its future. For America, the crash destroyed confidence. For China the problem lies in the policies of now President-for-life Xi Jinping. Prospects are far from promising.

One key sign of this undesirable condition is the drop in bank lending. Always an indicator of business and consumer spending plans, Chinese demands for bank credit in December were, according to the People’s Bank for China (PBOC), 16% below year-ago levels and almost 20% below consensus expectations. This picture is all the more remarkable because Beijing has engaged in considerable stimulus spending on infrastructure, and the PBOC has reduced interest rates during the past year and lavishly provided markets and financial institutions with liquidity, increasing the broad money supply some 9.7%.

The most likely explanation why Chinese people and businesses have failed to take advantage of the infrastructure spending and this easy credit is that they see little prospect for gain. They have lost any sense that things will improve, at least that they will improve enough make the risk of going into debt worthwhile. According to Beijing’s National Bureau of Statistics, the nation’s consumer confidence index has fallen almost 10 percent from its high of last March and stands at a lower level than ever, even during the pandemic and the needless lockdowns and quarantines that followed it under Beijing’s zero-Covid policies. Business confidence has picked up slightly from late 2023 but remains depressed by just about any historic standard even going back to the early part of this century when data collection began.

This lack of confidence — this wariness of borrowing and spending – is what so resembles the problems the United States faced in the Great Depression. The great economist John Maynard Keynes explained the nature of the problem at the time. He noted how stimulus from Washington or a flood of money from the Federal Reserve can only get the economy moving if consumers and businesses have enough faith in the future to follow it. If their lack of confidence impels them to refuse, the stimulus will quickly run its course and the economy, after perhaps a brief improvement, will fall back into slow growth or decline. The same is true of monetary stimulus. No matter how much liquidity the central bank provides, a lack of confidence will prevent businesses and consumers from using it. He called it the “liquidity trap.”

Most of the blame for China’s problem comes not from a stock crash but rather from the policies of President Xi Jinping. He has made four crucial contributions to this mess. His first was his decision in 2019-20 to suddenly withdraw Beijing’s long-provided support for residential property development. That decision caused a collapse in this once-important sector in China’s economy and also a drop in property values with devastating effects on household wealth. His second mistake was to offer an at best tepid response to the unfolding economic troubles. From the first failures in 2021 until only a few months ago, Beijing pretended that matters, contrary to reality, required nothing of the authorities, which should instead have provided support for financial markets. Because of this lack of support, the problems of the property sector and household wealth metastasized throughout China’s financial system, further hurting the economy and eroding confidence.

Zero-Covid counts as Xi’s third contribution to China’s woes. That policy kept the Chinese economy under lockdowns and quarantines for at least 18 months longer than the rest of the world. His goal was the impossible one of eradicating the virus. And in pursuit of that dream, he held back China’s economy and created the sense among people that they could no longer count on a regular income and among businesses that there was little sense in expansion. If that were not enough, Xi also engaged during this time in rhetoric castigating private Chinese business, insisting that managers and owners give up the pursuit of profits to follow the Communist Party’s agenda. More than all else, this sort of talk made Chinese business owners wary of the future and unwilling to invest in hiring or expansion.

Despite these similarities to the root cause of the Depression in 1930s America, it would be too bold to forecast a Great Depression for China. It is not however too bold to forecast that circumstances will hold back China’s economic prospects for some time to come, especially if Xi and his colleagues in the Forbidden City fail to wake up to the need to change policy so that individual Chinese and business can recover confidence. Such a change may be a forlorn hope, but it is needed anyway.

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Economy

B.C.’s debt and deficit forecast to rise as the provincial election nears

Published

2 days ago

September 10, 2024

Anne Joseph

VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.

Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.

Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”

The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.

Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.

“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”

Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.

Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.

Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.

B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.

The election is expected to be called on Sept. 21, with the vote set for Oct. 19.

“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”

Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.

Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.

The premier said that now is not the time to reduce supports and services for people.

Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.

Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.

This report by The Canadian Press was first published Sept. 10, 2024.

Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.

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Economy

Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

Published

3 days ago

September 10, 2024

Anne Joseph

NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.

But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.

He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.

Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.

Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.

Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.

This report by The Canadian Press was first published Sept. 10, 2024.

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Economy

Nova Scotia bill would kick-start offshore wind industry without approval from Ottawa

Published

3 days ago

September 10, 2024

Anne Joseph

HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.

Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.

The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.

Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”

Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.

Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.

This report by The Canadian Press was first published Sept. 10, 2024.

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