Chinese Econ Policy Analysts Debate it Out and Tim 'Cooks' Up a Tale
Covering Chinese chatters (discourses, narratives, policies and rhetoric) on external events and actors, military and security issues, economy and technology, and bilateral relations with India.
Econ Weekly: Views on China’s Economic Policy
By Amit Kumar
Chinese Premier Li Qiang announced the GDP target on March 5, and the week since then has had the media abuzz with commentaries on economic policy options for the country. Highlighting China’s economic woes, Christopher Tang, distinguished professor at UCLA, discusses two resources that China should capitalise on to stabilise its economy. He writes:
As the US devises strategies to lessen its dependence on China, Beijing must increase its self-reliance. At this critical juncture, the Chinese government should implement a substantial stimulus plan to boost consumption, fortify hi-tech production and augment exports.
Tang opines that whatever the outcome of the US Presidential election, there is a bipartisan effort to curb China’s economic rise. Despite rhetoric, Biden has only continued Trump’s economic policies. And Trump has vowed to further slap 60% tariffs on Chinese goods, if elected.
He continues, “in addition to the trade downturn with the US, China’s post-pandemic economic recovery has been slower than anticipated. But, despite these obstacles, Beijing has the resources to stimulate growth.”
The first policy decision he argues that the government should undertake is a bold fiscal stimulus. He says:
First, China should boldly augment its fiscal stimulus by issuing more bonds. It has plans to issue 1 trillion yuan (US$139 billion) worth of ultra-long special treasury bonds this year, and more in coming years. This is the fourth such initiative in 26 years but many experts believe it is insufficient stimulation for the economy. China’s unique circumstances mean it requires more stimulus than previously, such as the 4 trillion yuan used to combat the 2008 global financial crisis, when overseas orders plummeted.
The government should invest more in subsidies. This would stimulate consumption and prompt Chinese manufacturers to increase production, boosting the economy and creating more jobs. The time is ripe for a substantial subsidy programme. Chinese households accumulated a record US$2.6 trillion in bank deposits in 2022 and there has been an uptick in the consumer confidence index this year. All the signs suggest a massive stimulus plan can encourage Chinese consumers to increase their spending.
The second policy option he suggests is issuance of bonds to strengthen the manufacturing and domestic technology sectors to sustain global competitiveness. He says:
China is well positioned to expand its exports to countries beyond the US. For all the evolving dynamics of global supply chains, China has remained the world’s factory.
China’s supply chains are difficult to replicate, with India, Vietnam and Mexico continuing to depend on Chinese-made components to manufacture their products for the US market. Additionally, China dominates the mobile phone markets in many developing countries.
Another piece on SCMP sought to debate the pros and cons of China’s Industrial Policy. In the piece, Amanda Lee writes that China’s industrial policy, which has of late come under sharp criticism from the US and Europe after China recorded huge trade surpluses, has also divided policy advisors at home.
She writes:
Some of those advisers contend that China’s industrial policy works to its advantage amid intense competition with the US in advanced technologies. In the midst of weakened domestic demand post-pandemic, they see state-led investment as an effective path to steady growth.
However, others warn that Beijing’s broader trade relations with the West are at stake, and that the government needs to consider carefully the global impact of pumping massive funds into strategic sectors – some of which have already become awash with overcapacity.
Cautioning against the over-reliance on such a policy, Huang Yiping, a former advisor to China’s Central Bank and the Dean of Peking University’s National School of Development, said that a balance needs to be struck between expanding domestic consumption and increasing government investment. Huang, while speaking at a forum held by China Macroeconomy Forum, a think tank associated with Renmin University in Beijing argued:
We have enough investment to create new production capacity, but it is also best to have corresponding demand to absorb such newly added production capacity. This kind of economic growth is sustainable.
Huang added that China shouldn’t underestimate the ramifications of its industrial policy and the corresponding response from the US and Europe, which have already stepped up their own investments to reduce reliance on China in the supply chain.
We need to take situations like this seriously, because if it really turns into a relatively common wave of trade protectionism against Chinese products, it may actually be detrimental to our next stage of development, especially in innovation.
Seconding the position, Lu Feng, a Professor at Peking University’s National School of Development, while speaking during a forum arranged by the University on Wednesday, said:
China’s trade surplus in industrial products had reached an “unprecedented” scale of US$1.5 trillion to US$1.7 trillion in just the past few years, accounting for 30 per cent of the country’s entire industrial output value.
A substantial increase in exports requires goodwill from foreign countries, which is not unconditional. And the same goes for China. When more foreign countries export to China, we will also be under pressure.
However, taking a contrary position, Liu Yuanchun, President of the Shanghai University of Finance and Economics, said:
The model still has a certain “vitality” to it, and that there are ways to reduce inefficient spending. But overcapacity is not a reason for giving it up.
To observers belonging to Liu’s camp, a more pressing concern is “the debate over where state investments should be prioritised. A property market crisis and debilitating levels of local-government debt have sparked credit curbs in construction over the past few years.”
Xu Gao, chief economist at Bank of China International, said that channelling government funds into manufacturing will always lead to overcapacity. He said:
Investment in infrastructure and property is a necessary step to stabilise growth before the country can introduce reforms that aid in the distribution of wealth to the people.
Such reforms obviously take time. Before substantial progress has been made in the reform of income distribution, suppressing investment [in construction] is self-defeating and would shake our foundation in our great battle with the United States.
Tech Weekly: Apple Was Once Sued
By Anushka Saxena
A lot of reportage from the past couple days is informing us that Apple has chosen to settle a US$ 490 million class-action law suit filed by the Norfolk City Council in 2019. The lawsuit was filed over the fact that the Norfolk pension fund administered by the City Council lost money due to Apple CEO Tim Cook’s “misleading” comments surrounding how well iPhone sales were doing in China in FY 2018-19.
Even though this case was first filed by the US City of Roseville in 2019, the Norfolk City Council assumed the role of “lead plaintiff” in 2020.
BBC reports on Tim Cook’s misadventure:
He told investors on 1 November 2018 that there was “sales pressure” in some countries but he “would not put China in that category.”
However, two months later, on 2 January 2019, Apple downgraded its quarterly revenue forecast, citing tensions between China and the US - leading to a sharp drop in Apple's share price.
Within that two-month window, reports emerged that Apple had told its top smartphone assemblers to “halt plans for additional production lines” for the recently released iPhone XR.
This was apparently a downgrade valued close to US$ 9 billion – that is by how much Apple missed its revenue guidance that quarter. Naturally, all claimants in this class-action were investors that had purchased Apple shares in the two-month period between Cook’s initial assurances from November 2018, and the announcement downgrading Apple’s quarterly forecast in January 2019. Now, it has been reported that Apple’s lawyers have disclosed the proposed settlement in a request for judicial approval filed on March 15 in federal court in Oakland, California.
These developments have led analysts to throw up the opaque nature of Apple’s disclosure practices. For example, speaking to FT, Nicholas Rodelli at CFRA Research, pointing to Apple’s decision to stop disclosing iPhone unit sales in 2018, said: “Apple has a pattern of increasingly non-transparent disclosure practices, and we rate them worst in class in terms of quality of disclosure among the major tech platforms.”
At the same time, some others highlight how such lawsuits impact business practices. Speaking again to FT, Gene Munster at Deepwater Asset Management said: “I think at the end of the day it’s a win for a small number of investors and a loss for the whole market.”
Of course, interesting times lie ahead for US businesses operating out of China, as the very real possibility of a Trump re-election hangs over their heads. On the other hand, as China faces economic headwinds domestically, it might just be prudent for American businesses to re-assess their revenue targets vis-a-vis the Chinese market.
Latest from the Indo-Pacific Studies Team:
As the clock goes tik-tok on ‘TikTok’ in the US, Manoj Kewalramani, Chairperson of the Takshashila Indo-Pacific Studies Programme and Fellow, China Studies, appears for a video interview on TRT World to discuss implications. Hear his thoughts via YouTube, using the link below:
In their latest Op-Ed for 9DASHLINE, Manoj Kewalramani and IPSP Research Analyst Rakshith Shetty discuss the recently released ‘History Learning Regulations’ of the CPC.
Eye on China is a weekly newsletter curated by the Indo-Pacific Studies Programme at The Takshashila Institution, a public policy think-tank based out of Bengaluru, India.
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