An Open Letter to Beijing: Where's the Stimulus? (w/ Mark Blyth & Adam Tooze)
MARK BLYTH: We've mentioned China, but we haven't really gone there. So let's go to China. How do you read China coming out of this? Because in a sense, they're advertising to the world that they are coming out of this. But they're coming out into a very different world. And that's got to matter for China. How do you read the whole China growth project and governance project post Corona? ADAM TOOZE: It's a pretty stunning moment, again, because I was looking at the auto industry through this, because they seem like a good bellwether. They're a little old-fashioned, but nevertheless, big employer in a global manufacturing business too easily underrated. And it's a stunning fact about the world right now that the only factories, that BW, the largest car factory in the world has open, that are making cars that are being sold to actual customers are in China. So there is a-- MARK BLYTH: There's a there there. ADAM TOOZE: There's a real reality to the fact that they are coming out. Everyone else is all shut down, right? So that's clearly the case. The other thing we've got to do when we do these comparisons is get our scales, right? Because China is the size of Europe, the United States, and everyone else put together, really, in terms of the scale of its economy, not GDP. And if you look at Hubei province, Hubei province is still wrecked. Hubei's province is GDP, which is the equivalent of looking at Italy after all, because it's about the same population. That's by no means recovering. But in the rest of the giant organism of the Chinese economy, there's real recovery. And the thing for me that's really striking, the dog that hasn't barked, is where is China's stimulus? If you get really into the weeds, if you follow whatever Western sources that a non-Chinese speaker can follow on the PBOC, you know they're tinkering. They are twiddling all the different buttons on their dashboard, and they have a lot of different buttons to manipulate the Chinese credit system. But what they're not doing is saying-- they're not issuing one of those party directives the way they did in the fall of 2008, which is comrades, the future of the nation is at stake. We expect you to find an investment project and report to party headquarters next week on what it is and what you're going to do about making sure it gets built in the next month. That is not happening. That's what they did with the virus itself. The lockdowns were implemented as a party campaign. There is no stimulus equivalent. And so what's happened from 12 years on from '08, is clearly, China is a lot richer. It matters far more to the global economy. It doesn't rely on exports anywhere near as much as it did in '08, but it is also much more constrained. This is a kind of Michael Pettis theme, that we need to look at the way in which Beijing is actually at this point hobbled by three things, basically, by the fragility in its financial system. They simply don't know how much they can trust the banks to do the job of acting as a flywheel. There's too much investment for too long, and too much of it's unproductive. So their debt-to-GDP ratio is really flat to them, and they know it. And the third thing is the worry that with memory of 2015, 2016, when China experienced $1 trillion of outflow. And they really don't want to go back there. And the last thing the emerging market world needs as well is instability in the Chinese exchange rate. So for all of those reasons, Beijing is, for me, the dog that hasn't barked they've done the public health thing. So you would expect. Now the triumphant economic policy followup Not so far. They're required to-- spring week last week, not banging the one bell, one road drum meekly it seems basically going along with the rest of the G20 and doing debt relief-- no strong signs of heavy unilateral Chinese grand strategic project at that moment. So kind of a bit of a puzzle, really.