The writer is a finance professor at Peking University and a senior fellow at the Carnegie-Tsinghua Center
Will China double the size of its economy by 2035, as President Xi Jinping proposed at a Communist party conference three weeks ago? To do so, the Chinese economy must grow annually by just over 4.7 per cent on average for the next 15 years. It grew by 6.1 per cent last year, and by 6.7 per cent annually over the previous five years.
In that context, 4.7 per cent a year seems quite manageable. But while the calculations may seem straightforward, there are economic and demographic constraints that are not.
Every country that followed the high-savings, investment-led growth model that China adopted in the early 1990s — such as Japan in the 1970s and 1980s, or Brazil in the decade before — has gone through three distinct stages. The first stage, characterised by heavy investment in badly-needed infrastructure, delivered many years of rapid but unbalanced growth. In that stage, debt grew in line with the economy because when debt mostly funds productive investment, gross domestic product grows faster than debt.
In the second stage, as each country sought to rebalance demand away from investment, typically with little success, growth remained fairly high, although now driven increasingly by non-productive investment. When this happens, total debt in the economy must grow faster than GDP. So the debt burden rose.
Finally in the third stage, the country either reached its debt capacity limits or a worried government took steps to prevent debt from rising further. Either way, the economy was forced finally to rebalance away from investment and towards consumption amid far slower, sometimes even negative, growth.
China today is clearly in the second stage. Between 1980 and 2010, Chinese GDP doubled four times, but debt levels were low and rose slowly. However, between 2010 and 2020 when GDP doubled again, China did so by tripling its total debt burden to $43tn, so that it now stands, officially, at over 280 per cent of GDP.
Assume conservatively that the relationship between debt and growth doesn’t change, and China’s debt-to-GDP ratio will have to rise to over 400 per cent by 2035 if it is to double GDP again. This is a level that would be unprecedented in history. Everywhere else, growth collapsed long before debts reached levels close to this.
China can in principle reduce its dependence on debt by shifting domestic demand from investment to consumption, as Beijing has long proposed. Yet this requires that the household income share of GDP rise from roughly 50 per cent today to at least 70 per cent.
Beijing has long wanted to do this but with limited success, despite a decade of trying. There is still little to suggest the party is willing to tackle the institutional implications of the large wealth transfer from local governments and elites to households this entails.
There is also a demographic problem. From the late 1970s, China benefited from a rapidly rising working-age population, but this reversed around a decade ago. In fact, over the next 15 years, while China’s population will grow by an estimated 1.5 per cent, its working population will decline by an astonishing 6.8 per cent, and will continue to decline for the rest of the century. To put it in context, while today there are 4.7 Chinese of working age for every equivalent American, by the end of the century there will be only 2.4.
This has economic implications. Achieving GDP growth of 4.7 per cent with a declining working population requires as much productivity growth per worker as 5.2 per cent GDP growth with a stable working population. Growth in Chinese labour productivity has in fact fallen steadily since 2010. Looking ahead, a declining working population requires that the pace of this decline in productivity drops by nearly two-thirds if China is to double GDP by 2035.
None of this means that Mr Xi’s goal is impossible, but we must recognise the constraints. Absent China discovering an entirely new engine of economic growth to absorb the huge amount of debt-financed spending that now goes into non-productive investments, China can double GDP by 2035 only under one of two conditions.
Either there is in effect no limit to China’s debt capacity, or Beijing boosts consumption by managing a massive redistribution of income to ordinary households. History suggests that the former is very unlikely, and that the latter will set off substantial and unpredictable political and social change. Either way, it is an unlikely bet.
U.S. economy gains just 245,000 jobs in final report of 2020 as recovery stalls with Covid surging – NBC News
The U.S. economy added 245,000 jobs in November, as the unemployment rate fell to 6.7 percent, according to data released Friday by the Bureau of Labor Statistics. Economists had predicted the economy would gain around 440,000 jobs.
Amid a fresh surge in coronavirus cases and a new round of shutdowns, Friday’s figure represents the fifth straight month of decelerating job gains. It is by far the lowest monthly total since the economy started its halting recovery.
“Today’s report is both a wakeup call and a warning,” said Nick Bunker, Indeed economic research director. “Coronavirus cases are surging throughout the country and several federal relief programs are set to expire this month. Progress in the labor market has slowed at the worst possible time. We might be optimistic about the spring, but the winter could bring another round of economic pain.”
BLS unemployment data is collected on or around the 12th of the month, but more recent metrics underscore how vulnerable the economy is to a “super-surge” of coronavirus infections around the holidays that could send people back into their homes and shutter businesses.
“This surge in cases has the potential to significantly slow down overall economic activity and therefore employers’ desire to hire,” said Nick Bunker, director of economic research at Indeed.com. “The pullback from those households could slow consumption and therefore overall economic growth,” he said — a major risk given that consumer spending fuels some two-thirds of economic activity.
The BLS data came two days after a lackluster report on jobs growth by payroll processor ADP in conjunction with Moody’s Analytics, which found that employers added 307,000 private sector jobs last month, in contrast to the 475,000 expected among economists surveyed by Dow Jones.
“ADP’s employment report was somewhat disappointing,” said Julia Pollak, labor economist at ZipRecruiter.com. “Ideally, we’d be adding 2 million a month and really climbing out of this recession.”
Two of the past three weekly jobless claims reports showed increases, reversing a months-long trend of improvements — but seeing how many people are losing jobs is only part of the equation, said Dan North, chief economist, North America at Euler Hermes.
“It does not tell the other half, which is the number of people becoming employed. You would expect with the increase in lockdowns, you would see fewer people becoming employed as well.”
Data bears this out: According to Glassdoor.com, job openings fell by 2.5 percent on a month-to-month basis and are still down by more than 10 percent from pre-pandemic levels.
“It is instructive that this decline has been very broad, which points to a repeat of what we saw in the spring, but on a smaller scale,” said Daniel Zhao, senior economist at Glassdoor. “Basically, every major group except for health care has seen job openings fall,” he said.
Since job openings are a forward-looking metric, economists are looking ahead with some trepidation to the December jobs report, which will be released just after the new year.
“Ultimately, the virus is in the driver’s seat. The virus is what determines the trajectory of the recovery,” Zhao said.
The profound distortion in usual hiring patterns that typically take place around the holidays will make forecasting difficult, North said. “There has been much less holiday hiring than the seasonal adjustments would normally account for, so that would hold the December… jobs numbers down as well,” he said.
Although the promise of a vaccine has raised the hopes of investors, public health officials warn that a large-scale rollout sufficient to protect much of the population could still be months away.
“It’s hard to see exactly when the recovery can really start,” Pollak said. “The start of vaccination is not enough. We need people to feel totally safe gathering in large numbers.”
5 Strongest Growing Provinces and Territories in Canada
Canada’s economy (Gross Domestic Product) increased at an annual rate of 1.9 % in 2018.
- The Yukon Territory takes the top spot for Economic Growth with an increase of 8.0 % in 2016.Government expenditures account for almost half the territorial GDP. Infrastructure investment has helped bolster the territory, and exploration of resource assets continues.
- Alberta saw the 2nd largest increase with a 6.1 % increase in 2017. Strong oil prices and foreign demand triggered the growth. Activity in the energy sector increased demand for related machinery and equipment, and the influx of workers increased demand for services.
- British Columbia supplies wood products for the Canadian and US homebuilders. They benefited from the tide of heightened residential construction in the North American market. Investment growth was strong with home building experiencing double digit growth in three of the last four years. British Columbia’s Gross Domestic Product increased at a rate of 2.6 % in 2018.
- Saskatchewan saw an increase of 3.9 %. Strong foreign demand contributed to higher exports of potash and fertilizer. Saskatchewan’s oil-patch, much smaller than Alberta’s, struggled in terms of volume, but the healthy prices ensured an ongoing profitability and higher corporate profits
- Ontario growth was down slightly to 2.8 % in 2005. The increase in commodity prices hampered production in Ontario. The export driven economy felt the pinch of a rising Canadian dollar and the impact of higher fuel costs. Demand for the cars and trucks being produced by Ontario remained strong, but overall the province below the national average of 2.9 %
Canada as a whole experienced an economic growth of 1.9 % in 2018. In 2002 much of Canada’s growth was due to investment and manufacturing in the Eastern half of Canada. In the years following a shift has become notable, the growth in the economy is shifting west. Due to the increase in energy and commodity prices the oil-patch in Alberta, Saskatchewan’s wheat fields and mines and British Columbia’s forests all profited from increased export demand.
Exclusive: China comfortable with yuan rises for now as economy recovers, sources say – The Journal Pioneer
By Kevin Yao
BEIJING (Reuters) – Chinese policymakers are comfortable with the yuan’s rise to two-and-a-half-year highs as a rebound in the world’s second-biggest economy accelerates and the central bank gives the market greater leeway in setting the currency’s value, sources said.
But the central bank might take action if further rises in the closely managed currency, especially if they were rapid, were to hurt the country’s exports, the sources involved in internal policy discussions told Reuters.
Amid broad expectations for further yuan gains and more prolonged weakness in the dollar, the PBOC’s acceptance of the currency’s rise runs counter to recent market speculation that the bank might take steps to stabilise the rising yuan.
“Yuan appreciation is supported by China’s economic fundamentals,” said Yu Yongding, an influential government economist who previously advised the People’s Bank of China.
“We don’t need to intervene as we haven’t seen any shocks from big capital inflows or outflows,” Yu told Reuters. “The exchange rate is mainly driven by the current account.”
The yuan, which closed at 6.5302 to the dollar on Friday, has gained about 6.6% against the U.S. currency this year, although that is largely explained by a nearly 6% decline in the dollar’s value against a basket of currencies.
The yuan is on course to post the biggest annual rise since its 6.8% appreciation in 2017.
Some policy advisers think the yuan may strengthen to 6.4 per dollar next year, a further 2% rise. The authorities could still take steps to brake a rapid rise if Chinese exporters were to feel the pinch or speculative “hot money” were to flood in, the sources said.
The PBOC has recently taken some technical steps that analysts read as a willingness to allow some weakness in the yuan but are not aimed at actively depressing the currency.
The relatively light approach to a stronger yuan may reflect the PBOC’s efforts to give market forces a greater role, part of longer-term reforms to make the yuan a more international currency, insiders said.
The central bank did not respond to Reuters request for comment.
EXPORTERS IN MIND
Policymakers believe this year’s yuan climb is supported by the sharp recovery from the economic damage of COVID-19, which emerged in China a year ago.
Beijing countered the disease with aggressive lockdowns and the downturn with a raft of stimulus measures. China’s economy is expected to grow 2.1% this year, the only major economy to expand – although at its slowest since 1976 – then surge by 8.4% in 2021, a recent Reuters poll showed.
Still, policy insiders do not expect the PBOC to tighten monetary policy any time soon, as domestic demand remains weak, a new wave of coronavirus infections could cloud global recovery prospects and tensions with the United States may not ease in the near term.
Also supporting the yuan are solid exports, fund inflows and a widening gap between Chinese and U.S. interest rates.
“We should not worry too much about yuan rises,” said a policy insider.
“The yuan is still within a normal range and there is no big deal if it rises a bit further,” this source said. “There could be some impact on exports going forward, but the impact is not big now.”
Further gains, are indeed, expected.
Bullish positions in the yuan were at their highest in almost three years, according to the latest fortnightly Reuters poll of analysts and fund managers.
The dollar is likely to keep weakening for at least six months as investors continue to shift to risky assets and seek higher returns, a Reuters poll of currency strategists showed on Friday.
A source close to the commerce ministry, a staunch defender of Chinese exporters, said those companies might be hurt if the yuan strengthens beyond 6.5 to the dollar, but other insiders believe greater official tolerance over yuan gains.
A major concern would be the speed of further gains.
“We cannot let it rise too fast,” one insider said. “The main concern is exports. It could also affect market expectations and lead to more hot-money inflows.”
(Reporting by Kevin Yao; Editing by William Mallard)
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