Some issues of China's economy

Comments on Peter Drysdale "Has China’s transition to ‘new normal’ growth stalled?" 7/07/2015

There is, arguably a measurement issue of total factor productivity in terms of inputs, particularly capital (investment). Some investment, for example, does not become capital immediately at the time of investment. Then there is a capital utilisation issue. Given Chinese government's structural adjustment/transition, some capital has been made idle or obsolete that should probably no longer be included as capital.

While clearly China has probably seen a limit on its labour supply, I remember that Professor Meng Xin mentioned at last year's China Update that there was still large amount of un-utilised labour in China, that cast some doubt on the argument of China has already at or past the Lewis point. If Professor Meng was correct, then one needs to look at the labour market in China differently and there is an issue for government policy to release idle or un-utilised labour into more productive use.

The more rapid increases in wage may be as much as the so called short supply in labour force as the Chinese government policy to force wage to rise more rapidly to ensure social stability.

Another point regarding the structural adjustment, there may, arguably, be a dynamic optimisation issue and whether the Chinese government's policies such forced closure of many plants of higher energy use or low efficiency ones, have been optimal or not is a question. For example, an alternative would be to more rapidly accelerate the service sector more as opposed to force a reduction in manufacturing activities.

But in China, the government is all powerful and much more powerful than most western countries' in terms of its relationship with the other agents in the economy.

Another point is the interpretation of the meaning of the "new normal" by the Chinese leadership. The simplest may be that it means a growth from high to "medium high" or "medium to high". Whether other adjustments are part of the "now normal" or not is a question, because one may interpret those adjustments as reforms under the "new normal" meant by the Chinese leadership.

Perhaps another way to put the dynamic optimisation in a more abstract form in terms of proportions is as the following:
when there is a structural imbalance: one adjustment is to reduce the excesses components to have the structure more balanced. Alternatively, another adjustment would be achieved through expanding the components that are in shortage, so the structure is moving towards to more balanced.

Wrong premise and wrong conclusions Mr George Megalogenis

Comments on George Megalogenis’ “Swan set for two-step shuffle”, The Australian, 9/05/2009, http://blogs.theaustralian.news.com.au/meganomics/index.php/theaustralian/comments/swan_set_for_two_step_shuffle/

Since there are already so many comments, I will only make a few very short points. First, the claim that the resources-led surge in revenue between 2003-04 and 2007-08 - crucially - won’t come back in the next recovery, is likely to be incoorect or false. Why, because:

We know that was caused by the mining boom associated with the development of Chinese and some other East Asian economies;
The current world wide financial and economic crisis should be regarded as abnormally low growth for the world and Chinese and East Asian economies;
The world, China and East Asian countries will return to more normal courses of their relevant growth paths;
That means the mining boom, will return for some years to come, albeit amybe a little less boomerous.

So the contributions of company tax and capital gains for a considerable period following the recovery will be higher than the current trough, although whether they will reach the highs during the heydays of 2007-08 is a question.

Secondly, the implications or conclusions following this false premise are likely to be wrong. They include for example:

The Coalition government left him with an unsustainable income tax mix that assumed too much from capital and took too little from labour;
This is why the budget was deemed to be in structural deficit: recovery alone wasn’t going to restore the surplus;
John Howard and Peter Costello must take most of the responsibility because they delivered what have now proved to be unfunded tax cuts and handouts between 2004 and 2007;
What is clear with hindsight is that the Coalition wrote cheques to the electorate that would bounce once the mining boom turned to bust;
It wasn’t the election tax cuts that broke the budget, but the combination of tax cuts and handouts in the final term of the Coalition.

I only argue why the last point is false and wrong. That election tax cuts showed Laobor was opportunistic and lack of its own leadership in managing the economy and the budget at least back then. In order to win the election, it matched the “reckless” tax cuts promise of the coalition, without asking seriously whether it would be sustainable. If the author argues that the coalition was wrong, surely labor was equally wrong. Further by not chanllenging the coalition on this, it falsely showed the public that those tax cuts were correct and sustainable.

Worsely still, if labor’s matching tax cuts promise was “excusible” due to election political dynamics, its two cash handouts since November 2008 were no excuse at all. They were completely under its control – not past election promises. Further, the coalition opposed them, though in very ineffectual ways – that was the coalition’s problem.

My point is that implications and conclutions drawn from false premises are most likely to be wrong. There might be some structural tax mix problems as a legacy of the coalition, they are by no means as serious as the author assumed. What is important at this point of time is not to provide false excuses for the government of the day to continue to make the same mistakes and/or new mistakes. Both the government and the media need to focus on the real game: what is the best ourse of action now, for all the available information and our best prjection of the future?