China: Which is Which?

By Erick San Juan

In the recent meetings of world leaders in various summits, one can easily notice how China finds its way in trying to dominate the summit with its soft power, specifically at the APEC.

Taken from the report of Helga Zepp-LaRouche of the Executive Intelligence Review: “President Obama’s economic strategy, which had just caused a resounding electoral defeat for the Democrats in the mid-term elections, had actually been that the Trans-Pacific Partnership (TPP), which excludes China, would dominate the APEC summit, and the Chinese version, the Free Trade Agreement for Asia and the Pacific (FTAAP), which would be open to all, would not even be discussed at the summit, and neither would the Asian Infrastructure Investment Bank (AIIB) or the New Silk Road. Instead it was the inclusive FTAAP—which even the by-no-means pro-Chinese Peterson Institute in the United States had referred to as the superior model—that turned out to be much more attractive to the APEC states.

What China is offering with its various economic initiatives—the New Silk Road; the Maritime Silk Road; the Silk Road Development Fund, for which it has put up $40 billion in capital; $20 billion more in loans at low interest rates, which China extended during the subsequent ASEAN conference in Myanmar for projects of the Maritime Silk Road; and above all, the increased economic integration of the BRICS countries, and their cooperation in high-technology areas such as nuclear energy and aerospace—all this has far outstripped the U.S. policy, which offers nothing more than to be the “partner” that forces increased military spending for geostrategic alliances, and a policy in the interests of the banks.”

This may look so good knowing that China is at very close second to the United States when it comes to economics but there is another view why is this so.

In a private conversation with Francesco Sisci, Robert Mundell said that “political economy is politics with numbers; that is, if there are numbers without politics, this is just been counting. The point of the AIIB and the new fund for the Silk Road is to transform China’s huge cash reserves into real credit, and this is the practical challenge awaiting China in the next weeks and months. And the “soft power” China is rightly hankering after starts only with success in making its credit (as opposed to “money”) available in Asia.”

Reality check dictates that China had to find another way to deal with its domestic economic problems even if its projecting a sound economy to the rest of the world. From the article ‘Is China building a mortgage bomb?’ by William Pesek (Bloomberg), he cited that “the first Chinese interest-rate cut in more than two years is a stark recognition that the world’s second-biggest economy is in trouble.”

After years of piling even more public debt onto the national balance sheet, it makes sense to have the People’s Bank of China take the lead in propping up gross domestic product. Yet while today’s benchmark rate cut should help stabilize growth, the move also adds to worries about looser credit that could pose risks to the global economy. The case in point: mortgages.

Earlier this year, Chinese officials took several stealthy steps aimed at stabilizing the property sector and bolstering GDP growth. The China Banking Regulatory Commission loosened lending policies. Even before cutting the one-year lending rate to 5.6 percent and the one-year deposit rate to 2.75 percent today, the central bank had cut payment ratios and mortgage rates, while prodding loan officers to ease up on their reluctance to approve borrowers without local household registrations. Pilot programs for mortgage-backed securities and real-estate investment trusts got more support. Incentives were rolled out to encourage high-end buyers to upgrade properties.

There’s good news and bad in all this. The good: It marks progress for President Xi Jinping’s efforts to recalibrate China’s growth engines. In highly developed economies like the U.S., the quest for homeownership feeds myriad growth ecosystems and offers the masses ways to leverage their equity for other financial pursuits. And China’s debt problems are in the public sphere, not among consumers. The bad: If ramped-up mortgage borrowing isn’t accompanied by bold and steady progress in modernizing the economy, China will merely be creating another giant asset bubble.”

Like in the US bubble after bubble has started to blow and the only way to deal with it is to create an outside enemy or to continue with its global war on terror (a.k.a. perpetual war) among sovereign states and in the process finding minerals (like oil and gas) when militarization completed its task and had to remain in the ‘occupied’ country via peace-keeping operations. It’s actually a win-win solution through its so-called military modernization among its allies, arms race will fuel their ailing economy via the military industrial complex.

Meetings of the world’s leaders through summits may be tricky. Most of the times by using a lot of rhetoric and if one will not be wary, they can be taken easily for a ride and will end up as part of a scheme and actually be shortchanged in the process.