Global News November 04, 2016

  1. Bloomberg News
  2. Global News November 04, 2016

Bloomberg Business

-“Is China Repeating Japan’s Missteps?”

Beijing may seem dynamic, but it’s heading down a path we’ve seen before.

China and Japan may seem to inhabit alternative economic universes. After more than two decades of stagnation, Japan is a fading global power that can’t seem to revive its fortunes no matter what unorthodox gimmicks it tries. By contrast, China’s ascent to superpower status appears relentless as it gains wealth, technology, and ambition.

Yet these Asian neighbors have a lot in common, and that doesn’t bode well for China’s economic future. The sad case of Japan should serve as a cautionary tale for China’s policymakers. Beijing pursued almost identical economic policies to Tokyo’s to generate its rapid development. Now China’s leaders are repeating the missteps the Japanese made that tanked Japan’s economy and thwarted its revival.

“Just like Japan, we believe China will eventually face a period of much slower growth,” Goldman Sachs investment strategists said in a report earlier this year. Analysts at ratings agency Moody’s, writing in May, warned that China could suffer “a prolonged period of sub-optimal economic growth and persistent deflationary pressures, or possibly even economic stagnation.” James Chanos, founder of fund manager Kynikos Associates, has compared China’s trajectory to Japan’s “on steroids.”

Some may disregard these warnings as the same predictions of doom that China has shrugged off time and again. But recall that 30 years ago, few foresaw the decline of Japan, either. Japan was the East Asian giant poised to overtake the U.S. as the world’s top economy. Driving that ascent was an economic system that many considered superior to laissez-faire American capitalism. By fostering close, cooperative ties among the state, big corporations, and banks, Japan’s policymakers encouraged investment and guided a national industrial strategy. Bureaucrats in Tokyo interfered with markets to a degree unthinkable in the U.S. by protecting nascent industries and directing financing to favored sectors and companies. Backed by such support, Japanese companies burst onto the world stage and pushed their American competitors to the wall.

But even as Japan appeared destined for greatness, its economy was, in reality, starting to rot. Those clubby ties among finance, business, and government misallocated capital and led to wasteful investments. Growth was given a boost by cheap credit in the second half of the 1980s, but that also helped inflate debt levels and stock and property prices. When this “bubble economy” burst in the early 1990s, the financial industry was flattened. Japan has yet to fully recover.

China could be hurtling down a similar path. The methods Beijing employed to generate rapid growth—directing finance, nurturing targeted industries, and promoting exports—are replicas of Japan’s. And since the state in China’s “state capitalism” plays an even larger economic role than Japan’s officious bureaucracy does, the Chinese government interferes with markets to a greater degree.

In China, the chummy government-business-banking triumvirate has led to excess steel mills, cement plants, and apartment blocks on a staggering scale. And Beijing’s policymakers have responded to overbuilding with a massive influx of easy cash to keep the old, sputtering growth engines spinning. The flood of yuan has fueled unstable spikes in asset prices, as it did in Japan. Last year stock markets in China escalated to nosebleed levels, only to deflate in a panicked crash. Now property prices in Shanghai, Shenzhen, and other major cities are rising so quickly that officials have stepped in to control them.


CNN Money

-“U.S. economy: Last glimpse before election”

1. American economy is good, but not great

The U.S. economy has recovered a lot since the Great Recession ended in 2009. The unemployment rate today is around 5%, half of the painful 10% rate it had hit in late 2009, when the country was hemorrhaging jobs. Since then, the economy has created 13.7 million jobs.

However, it has been a long and slow slog to dig out of the recession.

And lately, even job growth has slowed. It’s expected, since the economy is at the point that many economists consider fully employed. It’s hard to keep adding loads of jobs forever. Last year, America added 2.6 million jobs, one of the best years of gains since 1999.

To keep the unemployment rate where it is now, economists estimate that America only needs to add 50,000 to 100,000 jobs a month. So October’s gains should be healthy enough.

2. Trump says the jobs numbers are bogus

Trump has consistently tried to discredit the official jobs numbers published by the Bureau of Labor Statistics, a wing of the Labor Department.

«The 5% [unemployment] figure is one the biggest hoaxes in American modern politics,» Trump proclaimed in August.

Trump’s team also likes to say the «overall unemployment rate» is 9.7%, not 5%. But what he cites is a different, broader measure of employment than what the Labor Department reports.

That measure, called the «U6 rate,» has never been used to describe the country’s overall unemployment rate and economists say it is misleading to characterize it as such.

A letter signed by 370 economists from around the nation this week urged voters not to vote for Trump and their first reason was that Trump has tried to discredit the country’s fundamental institutions like the Labor Department.

3. Wage growth is picking up slowly

Americans’ paychecks were one of the last things to turn in the right direction since the Great Recession.

Wage growth has been sluggish — in the last four years, average wage growth was just above 2%.

Wages are expected to grow 2.6% in October, according to CNNMoney’s survey, and so far this year wages have growth at an average of 2.5%. That’s not huge, but it’s better than what it has been.

Remember, as unemployment stays low, employers looking to hire have fewer available workers to choose from and are forced to offer competitive wages to recruit or retain employees.

4. People are jumping back into the job market

People who were laid off and disappeared from the labor force because they were disheartened about not finding one, are now coming back to give job searches another try. It’s a positive shift.

Since the recession, there has been a high level of what economists call «discouraged workers.» The participation rate, a key measure of whether people are coming back into the job market, has inched up this year. It’s increased significantly for Americans between ages 25 and 54 years old — the people who are generally supposed to be working.

The pick up in «working age» participation shows people feel more confident about finding work.

5. We’ve come a long way since the Great Recession but there’s still plenty of problems

No doubt, the economy, especially the job market is in much better shape since the recession. America has added jobs for 72 consecutive months — six years of gains.

But let’s be real. Wage growth is still too low for too many Americans. Six million Americans work part-time jobs but want full-time work. And these part-time jobs can really hold people back and harm their careers.

Many workers, particularly in manufacturing and mining, feel left out of the recovery, as America’s job creation has shifted towards services and away from production.