Platt Perspective on Business and Technology

China and its transition imperatives 28: rethinking China’s economy and the Party and government policy that shapes it 4

Posted in macroeconomics by Timothy Platt on February 4, 2016

As I noted at the start of Part 27 of this series, I have been writing about China in this blog for almost as long as I have about anything here. And I continue that pattern with this new installment to what by now has become an essentially open ended narrative (see Macroeconomics and Business, postings 154 and loosely following, and that directory’s Page 2 continuation, posting 201 and loosely following for other regular and supplemental installments to this series.)

I focused in Part 27 on the environmental impact of China’s industrial and economic policies as shaped and controlled by their one allowed political party: the Communist Party, and by their government – which is in effect an operational arm to that Party. And then at the end of that discussion, I summarized a core point that I had been arguing a case for, China’s environmental challenges serve as a window into Xi Jinping’s world and the real limitations that he faces in reshaping it as titular leader of both Party and government there. And then I added at the very end of that installment that I would continue from there in this next one, by addressing “economic factors again such as industrial production and trade balance issues.”

I am going to do that, but before delving into those issues I am going to at least briefly return to the issues and challenges of pollution and environmental degradation that China faces. And I do so because of some very specific events that have transpired in Beijing, and I add other parts of China as well since I first wrote Part 27 on November 25, 2015.

I noted China’s ongoing reliance on coal fired electrical power plants, and on inefficient ones that in large part burn low quality, high sulfur content coal for fuel, which is particularly polluting. And I noted in that context that even as their Party and government are taking strides in finding and developing more environmentally friendly alternatives to these older technology power plants, they are actively building 155 new coal fired plants – which for their impact would more than offset any environmental gains that their forays into wind and solar and other clean power might bring.

• China has been able to claim that even at its worst it still does not have the most dangerously polluted air in the world; India has held that dubious honor – until now.

China’s government has been forced by events it cannot hide to declare code red alerts twice now for the air quality in their nation’s capital, and within a span of just over one week (see Smog So Thick, Beijing Comes to a Standstill.) Code red is the highest air pollution warning level that China’s government uses and until these two events it had never been declared even once.

• China exerts tremendous effort at tremendous cost, to control their citizens and what they can know, and what they can share with others of what they do know. They can and do control a great deal of the information flow that is publically accessible, and they control much of what their citizens can add to that and both online and by more traditional means.
• But neither their Golden Shield Project (their Great Firewall) with is online content filtering,
• Nor their direct and seemingly all-pervasive control over their press and other public news channels,
• Nor any other such measure that they might deploy can prevent their people from directly experiencing and knowing about the air quality challenges that they and their families face and every single day.
• The ongoing existence of their country’s environmental challenges cannot be hidden or masked with news filtering and censorship or through spin doctoring public relations.

This is crucial, and both for direct environmental and quality of life considerations, and for the impact of all of this on China’s economy and how its peoples perceive it. And this brings me directly to the issues of industrial production and trade balance, and directly to macroeconomic considerations that relate to them.

Xi Jinping and his government recently achieved one of their most cherished and long-sought goals: bringing their Renminbi to a level of international acceptance for it to gain recognition as a major global currency. But that has, as a perhaps Pyrrhic victory consequence, meant that China can no longer artificially manipulate its currency’s exchange rate value as a means of controlling its economy and their global image as an economic power, and certainly in the ways that they have up until now.

China has continued to see their currency drop in value against major exchange rate currencies globally. And their new international recognition there is likely to cause continued valuation fluctuations and with the Renminbi showing both up and down valuation shifts that would collectively lead to the opposite from what Xi and his government have intended: an appearance of currency strength and stability.

China’s air quality, and in Beijing and other major urban centers and through large tracts of their country – and certainly in their industrial heartland, have now reached the top of their charts for crisis conditions. Historically, air pollution levels in China and particularly in their cities and industrial areas, have peaked in colder winter weather months. So their air quality might be expected to improve at least some by late spring, and into the summer months. But pollution levels have been trending upwards and across China for quite some time now. What will happen when their air quality index approaches and reaches their code red crisis level and even in more favorable times of the year?

Code red air pollution levels prompt immediate and severe mandatory cuts in both gasoline and diesel powered transportation, with for example vehicles banned from use on alternate days according to whether the last digit on their license plates are an odd or even number. But perhaps more importantly for purposes of this discussion, this level of air pollution also triggers mandatory cuts in industrial production, to at least cut back on new air pollution being generated during these peak crisis periods. The goal there is literally to keep their air breathable.

China’s Renminbi is weak, currently, when compared to all of the other major global exchange rate currencies (e.g. the US dollar, the Euro and the rest.) This should be a boon to their economy by making Chinese goods less expensive in their foreign markets, and by giving China a solidly positive international trade balance. This should be creating work and jobs for their citizens. But when you look to electrical power plant and productive industrial plant pollution levels and their essentially immediate impact upon China’s air quality, can this be sustainable?

Ultimately, any discussion of China’s environmental crisis, and of the quality of their air, and I add their ground water and agricultural lands, is a discussion of their economy too, and of their capacity to manufacture and both for export and for meeting their own people’s needs. And any discussion of their economy or of their industrial production of necessity has to include consideration of pollution and their environment too.

I fully expect to have more to say on these issues in my next installment to this series. And I will finally turn to address the macroeconomic policy and practice of quantitative easing there too, as initially promised several installments ago in this series. And China being China, I will probably find at least one or two other, newly high-prioritized issues to delve into there too.

Meanwhile, you can find this entire series and all of its postings at Macroeconomics and Business as postings 154 and loosely following for Parts 1-12 and for a supplemental posting: Part 12.5. And see Page 2 to that directory for subsequent main sequence and supplemental installments to this. You can also find other, China-related postings and series at those directory pages, and at Ubiquitous Computing and Communications – everywhere all the time too. (Note: I wrote this posting for uploading to the server on December 22, 2015.)

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