“Aussie, Chinese Officials urge Pandas to reproduce” ran the headline in this AP story from Down Under.
I haven’t talked to the pandas much myself, so I don’t know whether they were paying attention. The closest I’ve come to an exchange with a panda was at the circus in Shanghai where they had a panda trained to ride a bicycle and shoot a basketball. The panda was surprisingly communicative; it was clear that it liked playing basketball very much but that it hated the bicycle. I have to admit I felt it was shirking; when your species is endangered you really should be out there trying to breed, especially when panda females are only fertile for three days in a year and panda males are, perhaps not surprisingly, inexperienced and apparently rather ineffective lovers.
The only thing officials do regularly that seems as ineffective as telling pandas to be fruitful and multiply is to urge China to cut its current account surplus. China’s export-driven economy is growing at ten percent per year; that growth underpins China’s political stability as well as making well connected Chinese rich beyond their wildest dreams. Amazingly, China shows little indication of changing policies that are working this well; nor do the Chinese seem interested in economic policy suggestions from trade and political rivals who in any case are growing more slowly than China.
Ultimately even the Chinese know they have to make changes; it’s a matter of arithmetic. In the long run, the success of an exporter depends on the import markets; you can’t go on growing faster than your customers forever. China must either shift its emphasis to domestic markets or learn to live with slower rates of growth. Ultimately it will have to do both.
Right now, the only element in the situation that China really doesn’t like is that all it gets in exchange for its products is paper money, much of it dollars. It’s an interesting trade, when you think about it. Millions of Chinese work very hard for very low wages in factories that are often noisy, dirty and unsafe. Pollutants defile China’s rivers and poison its air. At the end, the products that result from all this toil are shipped in containers to the United States, where we (and our western friends and associates) go down to the Wal-Mart and pick them up cheap. In exchange, we send the Chinese beautifully engraved paper certificates, each one individually printed by the Treasury of the United States. The Chinese have dutifully stacked two trillion of these certificates in their vaults; sometimes they wonder whether this exchange is really working for them.
Americans usually think of the trade deficit as a sign of weakness. From a Chinese point of view it might look a little different — as if China were paying the United States a vast annual tribute of valuable goods, and getting nothing in exchange but decorative thank you notes from the Emperor’s treasurer.
This situation can’t last forever, and many observers (including me) believe that the imbalances between East Asian exporters led by China and western consumers led by the United States contributed materially to the recent financial crisis.
Nobody has the answer to this problem, but a recent paper from a Chinese economist at Peking University is surprisingly readable and surprisingly sensible on the subject. Yipang Huang argues that artificially depressed wages and capital costs account for the ‘producerist’ bias in China’s economy that has helped fuel the export boom. He suggests that a combination of financial sector reform, labor market liberalization and environmental measures could shift the Chinese economy toward a more sustainable path. Interestingly, he puts less stress on the two factors that many foreign economists and policy makers have stressed: China’s high savings rate and the defense of an unrealistically low currency value.
The savings rate, says Huang, was high even when China didn’t have a large trade surplus; as for the currency, he agrees that it is undervalued but believes that this is only part of a much larger capital subsidy. This is probably right, and it isn’t good news. If capital costs have been fundamentally and systematically distorted, unwinding the subsidies is likely to result in a prolonged period of slow growth with a strong potential for financial crisis along the way. That will not make a good political environment for the kind of labor market reform Huang seems to support.
It’s a smart diagnosis; I’m not sure it brings us much closer to a fix. The panda is riding a bicycle and it is increasingly unhappy. It will be one thing to persuade it to want to get down, and something else entirely to show it how.