Don't judge the Chinese and US economies just by the figures - Unfortunately United States has NO economic policy
Johnson Choi-1008 01/01 76935.0/1
Don't judge the Chinese and US economies just by the figures - Unfortunately United States has NO economic policy
Steven Keithley says to properly assess the economic realities in China and the US, we need to see beyond the 2014 headline data and instead review the policy decisions of Xi and Obama.
As 2014 came to a close, the economic figures from our world's two superpowers cut a stark contrast. For the United States, the recession appeared to finally be ending, as the Commerce Department announced a third-quarter gross domestic product increase of 5 per cent - exceeding expectations and marking America's strongest quarter of growth since 2003.
Meanwhile, on the other side of the Pacific, China spent the latter half of the year hurtling towards its own milestone. GDP growth rate is expected to fall below the 7.5 per cent target, the first year since 1998 that Beijing would be unable to meet its target rate.
Given these reports, it might look as if 2015 could have the potential to be a turning point, one in which the commercial paradigm of our time, that of an ageing American eagle and a soaring Chinese dragon, could change.
While such a conclusion might appear straightforward, it would be naive and misleading. As any seasoned entrepreneur would espouse, it is not what a company or organisation has that matters, but rather what they make of it. And nations are no different, as current economic realities are better reflected not by percentage changes in GDP but by capitalisation - by how China and the US deal with the circumstances they face. Under that metric, Beijing is immensely better off.
Making assumptions from a slew of disappointing statistics would ignore the extraordinarily aggressive menu of economic policies and reforms President Xi Jinping's government enacted or announced last year, all of which actively work to solidify China's economic foundations and ensure at least some degree of prosperity over the long run.
Last February, the People's Bank of China allowed a decline in the value of the renminbi that led to three record-setting trade surpluses last year. Last November, the PBOC cut interest rates for the first time since 2012, which not only sent Shanghai's stock market on a run, but should also be effective in easing refinancing costs and debt loads for Chinese companies and bringing China one step closer to long-awaited interest rate liberalisation.
Finally, in December, the PBOC announced it would change the calculus for loan-to-deposit ratios, a decision which analysts said would be equivalent to injecting an additional 1.5 trillion yuan (HK$1.9 trillion) into the banking system.
This proactivity extends far beyond monetary policy. Xi's proposed Asian Infrastructure Investment Bank, due to launch this year, is emblematic of Beijing's newfound role as a global lender of last resort, a position that comes with expectations of loyalty, support and, most significantly, future trade and investment from aid recipients.
Furthermore, the already revolutionary changes Xi made in July to the governance of state-owned enterprises, designed to reinvigorate the bloated state monopolies that dominate the Chinese economy, are likely to be dwarfed as policies are developed this year in each of the nine broad areas for reform announced following the Central Economic Work Conference in December.
And then, of course, there is Xi's ongoing anti-corruption crusade, an effort that has everything to do with economics, as the removal of corrupt officials not only directs money to more optimal use, but also reinforces support for Xi's market reforms.
Contrast these major developments with those in the United States where, despite record GDP numbers, stock market highs and rock-bottom oil prices, President Barack Obama and other leaders have done little to secure long-term economic growth by capitalising on existing opportunities. If anything, Washington has its attention on other issues and the recent economic success is entirely dependent on the invisible hand - a force that is just as likely to deliver a bust as it is a boom, especially given the theory that the current figures are merely the result of a soon-to-end rebound from last winter's storm-induced economic paralysis.
What best illustrates US inaction is the fact that Washington's most notable economic move of 2014 was December's omnibus spending bill. While massive (at over US$1 trillion), it was nothing more than a way to keep the government running until next September. Although components were altered of the Dodd-Frank Wall Street Reform and Consumer Protection Act - the tool created to regulate the banking industry following the financial crisis - no major economic relief programmes were funded or created.
Other, more substantive, efforts to guarantee commercial prosperity have been unsuccessful. A vote on the Keystone pipeline, billed as a way to create jobs and expand the US energy sector, was defeated in November. Votes on the Trans-Pacific Partnership have been blocked. Efforts to reform or extend tax credits have either been defeated or indefinitely delayed.
As any examination of contemporary American politics will illustrate, this trend is far from uncommon. Thus, despite strong GDP growth and other impressive statistics, inaction continues and, accordingly, issues below the surface, such as chronic underemployment, stagnant wages and the sluggish housing market, will persist.
In sum, not only is economic policy not a major priority of the US, but any economic measure of note seems to be fated to become a casualty of Washington's partisan divide. Even if Obama or other leaders in Congress wanted to pass groundbreaking legislation to capitalise on this current economic high, their efforts would have only a slim chance of realisation. This could be different with the new Republican majority in power, but fractures within its leadership and its obsession with hot-button social issues make such an outcome very unlikely.
When such stagnation is compared with the incessant action of Beijing, one can understand why caution must be exercised when presented with year-end GDP figures. While it is certainly worthwhile to celebrate the positive numbers from the US or lament those from China, it may be even more important to remember our Shakespeare, because, after all, "all that glisters is not gold".
Steven Keithley is a graduate student at the University of Virginia, an alumnus of Georgetown University's Asian Studies Programme, and a former researcher for Pulitzer Prize-winning columnist George F. Will at The Washington Post
