Are China’s Rulers Finding Religion?

With worsening inflation, a slowing economy, and growing concerns about possible social unrest, China’s leaders have a lot on their plates these days. And yet when the Communist Party met at its annual plenum earlier this week, the issue given greatest attention was not economic policy but what it described as “cultural reform.”

The concern appears quixotic, but China is now in the grips of a moral crisis. In recent months, the Chinese Internet has been full of talk about the lack of morality in society. And the problem is not just associated with the very rich or the political connected—concerns shared in western countries—but with the population at large. This has been precipitated in part by a spate of recent incidents in which people have failed to come to aid of fellow citizens caught in accidents or medical emergencies. A few weeks ago, a two-year-old girl in Guangzhou was hit by a car and left dying in the street while eighteen passers-by did nothing to help her. The case riveted China, causing people to ask what sort of society is being created.

So, no sooner was the plenum over than the party indicated that it would limit the amount of entertainment shows on television and possibly set limits on popular microblogs. While it is easy to read this move simply as censorship, which it certainly is, it also reflects the new preoccupation with morality: many of the banned shows are pure entertainment—the party now wants more news programs—and Chinese microblogs have long been a forum for anonymous character assassination. Meanwhile, though it has been far less noted, Beijing is giving new support to religion—even the country’s own beleaguered traditional practice, Daoism.

After decades of destruction, Daoist temples are being rebuilt, often with government support. Shortly after the plenum ended, authorities were convening an International Daoism Forum. The meeting was held near Mt. Heng in Hunan Province, one of Daoism’s five holy mountains, and was attended by 500 participants. It received extensive play in the Chinese media, with a noted British Daoist scholar, Martin Palmer, getting airtime on Chinese television. This is a sharp change for a religion that that was persecuted under Mao and long regarded as suspect. What, exactly, is gong on here?

Read more here.

Three Kinds of Penis Wine

Dog, Deer and Seal, if you must know.

From National Geographic.

They Should Know Better

I wish there were a class called China 101 that every member of Congress had to attend. This would be the first lesson: If you really want the Chinese to do something, never pressure them about it in public. Loss of face is anathema in the Middle Kingdom. Which is why when the U.S. Senate passed a bill hinting at tariffs on Chinese goods if Beijing doesn’t let the value of its currency rise, the People’s Bank of China promptly and defiantly responded by pushing the value of the renminbi lower.

It’s ironic, because Beijing had been doing just the opposite until politicians like Chuck Schumer decided to start posturing and make China’s currency a proxy for a highly politicized discussion about globalization and unemployment in the U.S. The idea is that if Chinese money were worth more, American firms wouldn’t export so many jobs to China (because labor there would be more expensive) and the Chinese would be able to buy more U.S. goods and services, thus cutting trade imbalances between the two nations and helping put the global economy back on track.

It is a good diplomatic lesson to be remembered during future dealings with China: praise in public, reprimand in private. But it’s also unfortunate in that the lesson need not have been learned. China had already allowed the value of its currency to rise.

Many of the changes the Schumer bill argues for are already in the works. The Chinese, who know they desperately need to rebalance their economy in order to maintain longer-term growth, have already let their currency appreciate 30% against the dollar since 2005 and a full 10% last year. Wages are rising; in fact, that’s the reason there’s a nascent trickle of higher-level manufacturing jobs back to the U.S., as Chinese pay hikes (coupled with higher energy and transport costs) make it less profitable to do business in China relative to the U.S. What’s more, American exports to China are actually increasing. Andy Rothman, a China expert at CLSA investment bank in Shanghai, recently pointed out to me that despite all the rhetoric about currency, U.S. exports to China rose 468% in the past decade. The next fastest growth rate to a major market was 64%, to Germany.

Which of the presidential candidates know this? Probably only Huntsman. Which are willing to say it? Probably only Huntsman. Romney may know it, but he’s gone the opposite direction by confronting China and campaigning to wage a trade war. Obama has been too soft, he argues. Does Obama know this? I assume he does, but also assume he’ll ignore the reality. His campaign will be based on two arguments. (It can’t be based on his record.) First, that things would have been much worse without him. Yes, there is 9% unemployment, but had we done nothing like the Republicans wanted we would now be looking at 13 or 14% unemployment. Second, he needs to spread more of the blame. He’s already blamed Bush, the Tea Party and Republicans in Congress, the EU, the Japanese tsunami, the Arab Spring… Blaming China is easy, especially since neither Romney, Perry, or Cain would care to challenge him on this. They will only up the blame placed on China and escape discussing our own faults for our ailing economy.

“We may as well try to enjoy it while it lasts.”

China is producing cheap solar panels and essentially subsidizing our green energy. Should we rejoice at the free panels or feel a Sputnik moment for fear of letting this future industry slip away?

Megan McArdle:

But won’t they gain a permanent strategic advantage over us, I hear you cry?

Well, this does sometimes happen. But it’s actually really rare. Notice how all the electronics goods seem to be manufactured in China? Even though we invented many of them (and the Japanese are responsible for a lot of the rest?)  Notice that all the jobs assembling sneakers and looming textiles seem to have moved along with them?  Sure, we had know-how and strategic supplier networks.  But these were no competition for enormously cheap labor.

Green energy will only be the next great industry for us if we are the ones to profit from it. Being the first mover in an industry does not guarantee the profits. Subsidies do, however, guarantee that we pay the R&D costs. Let China continue to subsidize our solar power consumption while we work on advancements in industries in which we have a comparative advantage.

The Rise of China: A Debate

The Panda Hugger vs. The Dragon Slayer.

Both are longer articles from the Sept/Oct 2011 issue of Foreign Affairs, and together offer a thought-provoking contrast on how to interpret the likelihood and impact of the rise of China in the next few decades.

Reliably High-Yielding 211-Year Investments

If economists cannot predict the GDP growth in the U.S. in a year or two, how can they predict the GDP growth in 5 years? Or in 30? The Nobel Prize-winning economist Robert Fogel believes that China will have an average annual growth rate of eight percent until 2040. This sounds ominous, until you stop to ask how Fogel knows what China will look like in 30 years.

In 1950, Mao and his Communist forces had just won the Chinese Civil War and proclaimed the People’s Republic of China. They were financially drained from both their civil war and the Second World War (Sino-Japanese War). To have had accurately predicted the growth rates from 1950 to 1980, one would have had to have known of the forthcoming Great Leap Forward, the Cultural Revolution, the Sino-Soviet split, and the opening of trade with the US. Understandably, all 30-year predictions of China’s growth were wildly off the mark.

In 1980, China was only beginning the “Reform and Opening” under Deng Xiaoping, including increased trade,  the decollectivization of agriculture, and special economic zones, combined with their one-child policy and massive urbanization. Who in 1980 predicted that China would soon be growing at ten percent per annum for two decades? They would have been laughed at.

Yet we still take such predictions seriously: barring any unforeseen events, China will become a juggernaut in X years. Unfortunately there are always unforeseen events that have significant effects.

In response to Fogel, Salvatore Babones says,

Like many other forecasts of China’s continued rise, these projections are based on careful formal economic modeling. But are they convincing? Extrapolating from current trends may make sense when predicting growth in the next year and the year after that, but once the years turn into decades, such assumptions seem more questionable. If my ancestors had invested a penny in my name in 1800 at a real compound interest rate of six percent per year above inflation, that penny would now be worth about $280,000. That does not mean, however, that reliably high-yielding 211-year investments are easy to find. Things change; things go wrong. Past returns are no guarantee of future performance.

When it comes to gauging China’s future growth, economic modeling can offer only so much guidance. The models predict future economic outputs on the basis of projected future levels of economic inputs, but future economic inputs are impossible to predict. In the end, there is little to do but extrapolate from current inputs. But inputs, as well as other key features of any economy, change over time. China’s economy is evolving rapidly: from subsistence agriculture to smokestack industries to the latest electronics to consumer services. And at some point in the future, perhaps in the not-too-distant future, China’s excess growth rates will level out and its economic growth will slow down, returning to rates more like those experienced by comparable countries.

The article is a great read to counter the steadily growing body of writing that suggests China’s rise is inevitable. But in addition, it offers us this important reminder: be skeptical of long-term forecasts and predictions.