Streetwise Professor

January 17, 2017

Didn’t Know China is a Beacon of Economic Openness & Political Freedom? You’re Not Worthy of Davos!

Filed under: China,Climate Change,Economics,Politics — The Professor @ 9:26 pm

The Davos set is in such a complete meltdown over Trump that they are desperate for someone to champion the cause of globalism and to fight against the growing tide of protectionism. And they found him! Chinese President Xi Jinping.

No. Really. The slobbering over his speech today praising globalization and criticizing protectionism was embarrassing, even by Davos standards.

Trump’s views on trade are utterly misguided, but to view Xi and China as some sort of avatar for an open society is not just bizarre. It’s perverse. Beyond perverse, really.

China’s economy is a Frankenstein of controls and state intervention. Vast swathes of the Chinese economy are strongly protected from foreign competition, and foreign investment is heavily regulated. The currency is also tightly controlled, and not freely convertible: that will happen in a decade, if ever. I am not saying that that the currency is currently manipulated downwards. To the contrary, at present the reverse is true. Chinese are looking for every way possible to get money out of the country, a sure sign of an overvalued currency. (Small illustration: visit a luxury car dealer in any major city in the US, and you’ll note how many of the buyers are Chinese.) The government  is doing everything possible to prevent it, and may be forced to go to hard capital controls. The point is that in the currency as in other things, the Chinese buy open markets a la carte, and only when it pleases them.

In brief, China is a heavily controlled mercantilist economy. Xi and the Chinese do things that Trump could only dream of in his greatest flights of mercantilist fantasy. To view Xi as the anti-Trump is utterly ridiculous, even by the clownish standards of the Davos dips.

Trump’s presidency and the environmental holocaust that it will supposedly bring has also led many to turn to China for leadership on climate. This is just as clueless, even if one overlooks the real pollution that chokes China–already this year, 60 Chinese cities have declared smog emergencies–and focuses on the far more speculative issue of CO2.

Yes, China has spent gazillions on wind and solar. But what has it received for its massive investment? This NYT article gives a great illustration:

On the edge of the Gobi Desert, the Jiuquan Wind Power Base stands as a symbol of China’s quest to dominate the world’s renewable energy market. With more than 7,000 turbines arranged in rows that stretch along the sandy horizon, it is one of the world’s largest wind farms, capable of generating enough electricity to power a small country.

But these days, the windmills loom like scarecrows, idle and inert. The wind howls outside, but many turbines in Jiuquan, a city of vast deserts and farms in the northwest province of Gansu, have been shut off because of weak demand. Workers while away the hours calculating how much power the turbines could have generated if there were more buyers, and wondering if and when they will ever make a profit.

“There’s not much we can do right now,” said Zhou Shenggang, a manager at a state-owned energy company who oversees 134 turbines here; about 60 percent of their capacity goes unused each year. “Only the state can intervene.”

China, the world’s largest emitter of greenhouse gases, has pointed to its embrace of wind and solar power and other alternatives to coal to position itself at the forefront of the global effort to combat climate change.

More than 92,000 wind turbines have been built across the country, capable of generating 145 gigawatts of electricity, nearly double the capacity of wind farms in the United States. One out of every three turbines in the world is now in China, and the government is adding them at a rate of more than one per hour.

But some of its most ambitious wind projects are underused. Many are grappling with a nationwide economic slowdown that has dampened demand for electricity. Others are stymied by persistent favoritism toward the coal industry by local officials and a dearth of transmission lines to carry electricity from rural areas in the north and west to China’s fastest-growing cities.

Then there’s this: “Wind power now accounts for 3.3 percent of electricity generation in China.”

And so how does China generate power? With dirty coal, mainly–as the choking smog in Beijing and other major cities testifies.

In brief, China’s renewables boom is a classic example of green hype, and of the grotesque malinvestment that has occurred in China in the past decades, especially post-financial crisis. Keep this in mind when you interpret Chinese economic statistics. These thousands of windmills that produce nothing contributed to measured Chinese GDP–but they contribute virtually nothing to its actual economic wealth or consumption. Much of measured Chinese GDP growth is due to the incurring of costs that confer no benefits, and is as economically meaningful as Soviet statistics. (Alas, allegedly smart people are as deceived today by China as they were by the supposed Soviet miracle.)

The article also contains this tidbit: “The tepid demand for electricity in an economic downturn has also exacerbated the troubles for renewable energy. Demand for electricity grew by only 0.5 percent in 2015, the slowest rate of growth since 1974.” But measured GDP increased 6.9 percent. It’s hard to reconcile those figures.

But the “elite” is so obsessed with Trump and the havoc that they are just sure he will wreak on trade and the environment that they embrace the leader of a mercantilist environmental disaster as their savior.

And it’s not just economics. The elites project every conceivable oppression fantasy on Trump, and portray him as a mortal threat to racial and religious minorities (including Jews–quick: Someone warn his son-in-law!), LGBTQXYZwhateveritisnowIcan’tkeepupandwillprobablyrunoutofletters, immigrants, and on and on and on. Yet they are lionizing a real oppressor, indeed, the leader of one of the most repressive regimes on the planet: what it lacks in rigor compared to North Korea, it makes up with in size. They ignore real oppression and get hysterical over oppression that exists exclusively in their imaginations.

I would say these people are not serious. I wish that were true. The problem is that these people are deadly serious.

They are also completely without a clue. Davos founder Klaus Schwab ostentatiously said that Trump was not invited. First, as if Trump gives a flyer–indeed, he probably considers this a compliment. Second, and more importantly, it demonstrates exactly why this lot was utterly blindsided by the events of 2016–most notably by Brexit and the election of Trump. Davos–and elite conversation around the world–is a carnival of confirmation bias, an impenetrable bubble of self-congratulation utterly cut off from the people they condescendingly claim that they want to help. People with way too much money and way too little sense.

At the risk of sounding like Tom Friedman quoting some cab driver, I will relate a story from today that illustrates the disconnect between those in Davos giving tongue baths to a mercantilist leader of a police state and the people who are toppling their heroes and putting their arch enemies in their stead. While getting a haircut, my barber–a Lebanese immigrant, by the way, not a member of Storm Front–said “I don’t pay much attention to politics, but I hope Trump tells the Chinese to go fuck themselves.” (Note: China had not been part of the conversation up to that point.)

But this is our world now. Due to the Trump derangement syndrome the allegedly liberal globalist elites heap praises on the leader of a protectionist, mercantilist, serial human rights violator. And all the while ignoring those with more common sense (like my barber), then wondering why they are losing.

 

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13 Comments »

  1. Fact is, even the CCP was competent enough to choose a leader that at least knows how to say the right words. This is something the US public has failed to do.

    Comment by aaa — January 18, 2017 @ 9:04 am

  2. “China’s quest to dominate the world’s renewable energy market”: what can that possibly mean? To use a vulgarism, the NYT can’t tell shit from shite.

    Comment by dearieme — January 18, 2017 @ 9:08 am

  3. Xi: There are no winners in a trade war.
    Trump spokesman: We’re gonna win this trade war!

    More golden moments from President Trump.

    Comment by aaa — January 18, 2017 @ 9:09 am

  4. @aaa-NO! That’s exactly the problem. We DON’T want someone who regurgitates back to the Davos Dips what they want to hear!

    The ProfessorComment by The Professor — January 18, 2017 @ 9:17 am

  5. @dearieme-It does illustrate their totally distorted view of how the NYT believes markets work.

    The ProfessorComment by The Professor — January 18, 2017 @ 9:18 am

  6. @aaa-As I said, Trump’s views on trade are utterly misguided. My point though, is that the Davos Dips are falling in love with Xi’s words, and totally ignoring his deeds. His speech is like a lecture on sobriety by Charlie Sheen.

    The ProfessorComment by The Professor — January 18, 2017 @ 9:20 am

  7. “even the CCP was competent enough to choose a leader that at least knows how to say the right words”

    Yes, because that’s how it works in China.

    Or maybe not.

    Comment by Fen tiger — January 18, 2017 @ 6:37 pm

  8. An acquaintance of mine was at that speech. He’s likable enough on a personal level but precisely what Davos doesn’t “get” — child of wealthy parents, educated at prestigious universities, started a non-profit change-the-world deal, and says the right things. He posted some anodyne comment about how great it was that China was taking leadership for globalization and that globalization is the sole driver of American prosperity, etc on social media.

    Comment by FTR — January 18, 2017 @ 7:10 pm

  9. Great! A paragraph on SWP that I actually know something about! 🙂

    The smog in Beijing doesn’t really attest to their use of coal – they are surely using electrostatic precipitators on their power stations (at least around politically sensitive cities – I doubt the provinces get such care!). As far as I know, the smog mostly comes from domestic and commercial combustion (vehicles, heating systems, industrial processses…). Nevertheless, the point remains true that China is hugely reliant on Coal for electricity generation.

    I read in the Economist this week that the Chinese are pioneering large, high-voltage, direct-current electricity transmission as a means of getting all this installed renewable capacity to where it is needed. I think that they will eventually put these assets to work – but like the Prof says, this is no way to run one’s capital investments.

    Comment by Hiberno Frog — January 19, 2017 @ 5:18 am

  10. I said it before and I will say it again – I LOVE national income accounting!!!!!

    Comment by Sotos — January 19, 2017 @ 11:28 am

  11. @sotos-Who couldn’t love something that counts costs as benefits.

    Various net product calculations could be interesting, if one calculated depreciation properly, to include economic depreciation (e.g., writing down the value of the windmills mentioned in the post to zero). But that’s a huge if. Particularly in someplace like China. They lie about C,I, and G, so incorporating depreciation just gives them another opportunity to lie.

    The ProfessorComment by The Professor — January 19, 2017 @ 12:02 pm

  12. As a believer in free trade and globalization, I’m desperate enough to welcome their advocacy from any quarter at this stage. Economic liberalism is under serious attack by both the left and right in the west. For the first time in my life, i fear that the world may regress in terms of becoming more free both ecomonically and politically.

    That leaves me in the uncomfortable place of not having the luxury of being able to turn my nose up at a speech like this just because it’s delivered by an authoritarian commie. P

    Comment by derriz — January 20, 2017 @ 6:35 am

  13. dear derriz

    I am sympathetic to your point, but if you believe for one second that free trade will not be thrown under the Peoples bus the SECOND it interferes with Party interests ( as indeed it already has on numerous occasions)there is a bridge you should look at. This speech is little more than the garment of virtue covering a truly mercantilist and autarchic soul.

    Comment by Sotos — January 20, 2017 @ 12:19 pm

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