Red Flags: Why Xi’s China is in Jeopardy

Author: David Marsh, Chairman, OMFIF

First published: OMFIF Bulletin October 2018

 

GEORGE Magnus’s book on China will meet scepticism in Beijing, but will be widely read there – and in many other places where the world’s No. 2 economy is a subject of mystification, veneration or concern. Red Flags – Why Xi’s China is in Jeopardy focuses on the inescapable signs that China can no longer ratchet up seemingly never-ending economic growth.

In a sense, Magnus’s book tells us what we know already. He highlights China’s anonymous ‘authoritative source’, who stirred debate in May 2016 with an interview in the People’s Daily. A person widely believed to be Liu He, a close adviser to President Xi Jinping, fulminated against a dangerous debt-fuelled economic model. At a time when China was battling capital flight, renminbi weakness and a 40% fall in the Shanghai stock market, the article raised widespread attention – and provides a framework for Magnus.

As befits a celebrated financial analyst, the former chief economist of UBS applies a pitiless lens to China’s development and perspectives. The country’s sense of historical purpose and quest for achievement appears in many ways to be on a collision course with reality. Magnus rails against western China-watchers whom he accuses of naivety or sycophancy in neglecting less positive aspects of China’s rise. ‘Fawning and awe’, as he calls it, play along with China’s own carefully constructed self-enhancing narrative.

Consciously or not, Magnus aligns himself with the relentlessly questioning spirit guiding President Donald Trump’s pursuit of a more equitable balance in the Sino-US trade, investment and technology relationship. US unilateralism appears to buttress China’s opportunities to enhance geopolitical power in a leaderless world. Yet Trump’s eagerness to open a trade war exacerbates further what Magnus terms China’s ‘four traps’: over debt, the renminbi, demography and its move to middle-income status.

Magnus well depicts the conflicts behind the renminbi’s rise to intentional reserve status. China’s emphasis on currency stability will come unstuck unless Beijing implements compatible monetary and credit policies. It will not have a truly global currency unless it relaxes capital controls and allows foreigners greater access to the renminbi capital market. The renminbi’s inclusion in the International Monetary Fund’s special drawing right was part of a quid pro quo with the US under which China stood to gain prestige while enhancing financial liberalisation. By running current account surpluses and restricting renminbi flows, Magnus believes Chinese polices will solidify  monetary hegemony. Yet his recommendation that China should run trade deficits to allow foreigners to accumulate its currency is unconvincing. That would surely exacerbate China’s exposure to the international monetary pressures that Beijing wishes to keep in check.

Xi’s potential pitfalls result from a juxtaposition of circumstances hardly foreseeable in 2012 when he embarked on his path to the presidency. By cancelling constitutional term limits, Xi has strengthened his domestic grip but exposed himself further to the inherent contradictions of authoritarian rule. He is trying to reap the benefits of a liberal world trading order just at the time when the US president is doing his best to dismantle it. A Chinese autocrat backed by the all-encompassing Communist party faces an American autocrat supported by US geopolitical and monetary might. Instruments such as the Belt and Road initiative and a burgeoning renminbi zone among clientele countries designed to buttress China’s world power may end up undermining it. Xi’s apparent omnipotence hides brittleness.

Red Flags: Why Xi’s China is in Jeopardy

Author: Russell Whitehouse

First published: International Policy Digest 24/10/2018

George Magnus writes about the dangers of the Middle-Income Trap in the Middle Kingdom, among other issues, in Red Flags: Why Xi’s China Is in Jeopardy. President Xi’s face adorns the book cover, with his name looming above. Fitting, seeing as China has removed presidential term limits; China’s fate is thus likely to be tied to the decision making of Xi for the next couple decades. Read on…https://intpolicydigest.org/2018/10/24/book-review-red-flags-why-xis-china-is-in-jeopardy/

Red Flags: Why Xi’s China is in Jeopardy

Author: Isabel Hilton

First published: New Statesman 10/10/2018

In September, the Chinese prime minister Li Keqiang stepped on to the stage in a conference centre in Tianjin to address the attendees gathered for the World Economic Forum’s annual China meeting. The offer of reassurance to the Davos crowd may be becoming a habit: Xi Jinping did it in 2017, in the aftermath of Donald Trump’s election. His message was that China will not abandon multilateralism; that China supports globalisation; that China will progressively open its economy. In Tianjin, however, Li Keqiang was obliged to address fresh anxieties: how fragile is the Chinese economy, overburdened with debt? Will the long-promised reforms to China’s market ever happen? Will China respond to the growing chorus of complaint about unfair trading practices, and will Trump’s trade war bring down the whole house of cards? Read on …..https://www.newstatesman.com/culture/books/2018/10/making-china-great-again-xi-jinping-s-troubled-nationalist-revival

Red Flags: Why Xi’s China is in Jeopardy

Author: David Smith
First published: Sunday Times 30/09/2018


Red Flags: Why Xi’s China is in Jeopardy

Author: Richard McGregor
First published: Financial Times 29/09/2018


(Reviewed jointly with Kerry Brown’s The Culture of Chinese Communism and the Secret Sources of its Power)

Magnus’s Red Flags is more straightforward, though he is dealing with a similar conundrum, of whether China can continue to keep all its balls in the air as it tries to reconcile the needs of a market economy with the strictures of a one-party state. Like Brown, Magnus is not dogmatic. We should not “rush to judgment that autocratic states are doomed to fail,” though he comes close to suggesting this one will, unless the party changes course. His book Red Flags looks at the four traps that the party is trying to skirt — debt, currency, demographics, and being caught as a middle-income economy with no foreseeable path to a richer future. Magnus is particularly acute on the renminbi, and Beijing’s pretensions to turn it into a global currency on par with the dollar. By running trade surpluses and restricting capital outflows, in the name of the catch-all credo for Chinese policymakers, maintaining “stability”, Beijing has in truth opted out of a contest with the US altogether. “Far from threatening the role of the US dollar in the global system,” he says, “China is a willing party to the status quo.” Red Flags lands with exquisite timing. Chinese officials are now debating the need for further stimulus to the economy, to keep up high growth and offset President Donald Trump’s trade tactics. In Magnus’s view, more pump priming is a dead end for China. He advocates the opposite course, of a “growth hiatus” to draw down debt to sustainable levels. Beijing cannot have it both ways, he says, of continuing to pursue speedy growth and simultaneously reducing the risk of financial instability. Like Brown, Magnus could have looked above the parapet more often, to put the voluminous detail he has assembled on to a grander stage, in his case, of economic history. In the end, Magnus emerges as cautiously pessimistic, comparing Xi’s outward omnipotence with the brittleness displayed throughout the Chinese system. “That places Xi’s China in jeopardy,” he writes. By running trade surpluses and restricting capital outflows, Beijing has opted out of a contest with the US The reader in me would have liked starker, more dramatic judgments from both books about China’s future. The analyst in me, however, respects the authors’ caution. As both books make clear, the party is charting its own course. Once that is clear, you can see communist China for what it is, a real time, empirical experiment on the end-of-history thesis, testing whether an authoritarian state can surpass liberal democracies. That so many intelligent observers of China should be cautious about predicting the outcome of the contest of the century tells you, on its own, about how close this competition is.

 

Uprising

Author: Jane Fuller
First published: Financial World, 12/12/2010


Reading this as the G20 summit in Seoul reached its predictably fudgy conclusion, the reflex action was to cheer this book’s call for a “benign hegemon” to show global leadership.
George Magnus’s choice of the US as the candidate for this role also has appeal, not least because it is unfashionable. He presents a welcome reality check on the view that the “long-awaited decline of the west” is in full swing.
This is not to deny the economic “uprising” of emerging markets, in particular China. He is far too subtle for that and too good an economist, with decades of country-watching under his belt at UBS and its forerunners. He simply points out that making and exporting lots of stuff is not enough. The quality of institutions – notably the legal system and the related enforcement of property and contractual rights – matter.
Cue a refreshingly sceptical view of China….. more

 

Uprising

Author: Bill Hayes
First published: The Finance Professionals’ Post, 10/12/2010


Currently money is flowing to the emerging markets. Many see China and India as the future, America and Europe as the past. A thoughtful and sophisticated look at these popular conclusions is presented by George Magnus in his new book, Uprising: Will Emerging Markets Shape or Shake the World Economy. He is well positioned for this analysis as a senior economic adviser at UBS Investment Bank London, having previously served as chief economist at UBS.

The author warns against the extrapolation of current trends, which is creating a “euphoria about emerging markets” and …… more

 

Uprising

Author: Alan Wheatley
First Published: International Herald Tribune, 22/11/2010


Wait a Bit to Write Off the West

Developing economies now account for about half of global growth. Thanks to a brisk recovery from the financial crisis, their import demand is growing twice as fast as that of advanced markets.

In a powerful symbol of such shifts in the world economy, the manager of the euro zone’s financial rescue fund said he could quickly raise money to bail out Ireland by turning to Asia.

“We are confident that we can raise the necessary funds from institutional investors, central banks and sovereign funds, in Asia in particular,” said Klaus Regling, chief executive of the European Financial Stability Facility.

So is it game over for the Old World? Not so fast, argues George Magnus, senior economic adviser at UBSInvestment Bank in London.

In his book “Uprising: Will Emerging Markets Shape or Shake the World Economy?” Mr. Magnus cautions against writing off the West, especially the United States.

Given America’s proven capacity to reinvent itself, the epitaph R.I.P. being prepared for it should perhaps stand for “Renewal in Progress” instead of “Rest in Peace,” he says…. more

 

Uprising

Author: Stefan Wagstyl

First published: The Financial Times, 21/11/2010


A world stirred but not quite shaken

It is not often these days that an investment banker takes a sceptical view of emerging markets. Such has been the rush to put money into China, India, Brazil and the rest that caution has often been thrown to the wind.

Even before the sluice gates have opened on the flood of money that the US is planning to pour into its ailing economy, the financial engineers are preparing to channel the funds into the emerging world.

Their projections almost invariably show the emerging economies – headed by China – seizing an increasing share of global economic and political power. In their charts, the 2008-09 crisis appears as little more than a brief tumble in an economic ascent set to span decades.

Not so fast, says George Magnus,….. more

 

Uprising

Author: Howard Davies
First published: Management Today, 01/11/2010


Books on China, and especially on the Chinese economy, come thick and fast these days. Uprising, in spite of its subtitle referring generally to emerging markets, is essentially one of those. So the time-poor reader struggling to choose between this and Wayne Rooney’s autobiography for her commute, needs the answer to two questions. What is the author’s comparative advantage: his USP, in the language of marketing? And where’s the beef? In other words, what is his distinctive point of view?

As for the first question, Magnus writes from the perspective of an economic adviser to an investment bank –UBS, as it happens. So while he focuses much of his attention on politics and the macroeconomy, he is also interested in the implications for investment strategy. Is it smart to place a heavy bet on the growing dominance of Chinese companies or will they struggle to succeed against global competition? There are many other books which would tell you more about the Communist party or the residual influence of Confucianism. You pays your money and you takes your choice.

Uprising is, however, distinctive in the somewhat sceptical position it takes on the China miracle. For the most part, George Magnus is not an enthusiast of the straight-line extrapolations so beloved of the BRIC-makers of Goldman Sachs. He does not regard the relentless rise of China as inevitable. He believes there are many…more

 

Age of Aging

Author: Father John Flynn LC
First published: Zenit, 01/03/2009


Boom and Bust

Aging’s Impact on the Economy

Concerns over the environment have given birth control advocates a new lease of life. Paul R. Ehrlich’s 1968 book “The Population Bomb” sparked off a wave of neo-Malthusian pressures to lower population growth, but as the years passed, and the foretold disasters failed to eventuate, enthusiasm for population control waned.

A new wave of concern is being stoked, however, by ecology activists. In England Jonathon Porritt, who chairs the government’s Sustainable Development Commission, said that families should be limited to two children, the London-based Sunday Times newspaper reported, Feb. 1.

According to the article, Porritt will be lobbying environmental pressure groups to persuade them to make population a focus of their campaigning.

His remarks came on the heels of comments by James Lovelock, who was the author of the Gaia theory, which posits the Earth as a self-regulating single organism.

In an interview published in the Jan. 23 issue of the New Scientist magazine Lovelock made the apocalyptic forecast that due to global warming by the end of this century around 90% of the world’s population will have died in what he termed, “a cull.”

The clamor of green activists tends to receive widespread media attention, while a more worrying situation — that of an aging population due to a …more

 

Age of Aging

Robin Blackburn
First published:  New Statesman, 22/01/2009


Glad to be Grey?

With the ageing of the world’s population, the numbers of those aged 65 and over is due to double in the next 25 years in most countries. The most rapidly expanding age group will be those over 80 years of age, which will multiply sixfold by 2050. The ageing effect will, of course, be greater in countries, such as Japan, that have low birth rates and little immigration. Japan’s population is expected to shrink from 130 million to fewer than 100 million by mid-century.

Such population forecasts have to be treated with care, as they project current trends. Forecasting the numbers of a population cohort, where its size today is already known, relies on fewer assumptions than forecasting what proportion of the overall population it will comprise. After nearly half a century of increasing life expectancy and falling birth rates in a large number of countries, some aspects of the ageing trend are unavoidable. The over-65s and over-80s I have referred to are already born – and, equally, the smaller size of younger age-group cohorts is a given. Because only cohorts yet unborn could be larger, it would still take three decades or more before a sharp increase in the birth rate began to enlarge the labour force. Although the ageing trend is most pronounced in the developed world, it is a global phenomenon.

The rise in life expectancy has extended the trend by two years in each decade, reflecting …more

 

Age of Aging

First published: 30/12/2008, The Economist


Greying Globe

EVERY age has its big demographic scares. In 1798, when the world’s population was about 1 billion, Thomas Malthus published his “Essay on the Principle of Population”, predicting that, thanks to mankind’s enthusiastic procreation habits, by the middle of the 19th century there would no longer be enough food to go round. In the event, people happily continued both to multiply and to eat.

Indeed, in the early part of the 20th century, when the world’s population had grown to double that at Malthus’s time, fears started to run in the opposite direction: that people were having too few babies and mankind was in danger of dying out. The super-abundant baby-boomer generation after the second world war gave the lie to that. But by 1972 the argument had come full circle again. The Club of Rome, a global think-tank, produced a doom-laden report, “The Limits to Growth”, which claimed that within less than a century a mixture of man-made pollution and resource shortages would once again cause widespread population decline. What the think-tankers had not reckoned with was the green revolution. By the start of the new millennium the world’s total population had reached 6 billion. It is now expected to rise to nearly 9 billion by 2050.

But from the early 1990s the World Bank and others began to issue dire warnings about an entirely new scare, soon christened the “demographic time bomb”. Thanks to a …more

 

Age of Aging

Author: Chris Cook
First published: 22/12/2008, Financial Times


The red flags raised by a grey world

Demography is the senior social science: churchgoers this week will be reminded that Jesus Christ was born in the midst of a census two millennia ago. George Magnus’s The Age of Aging is an account of the great population transitions currently under way around the world. Magnus is a renowned City of London economist, now at UBS, and his new book is a guide for the general reader on how the greying of the world will change everything, everywhere.

Demographic cycles are immensely powerful, and move just fast enough to cause occasional outbursts of panic. The western world intermittently gives in to fears about population extinction and Malthusian famine. The 1930s brought us titles such as The Twilight of Parenthood , while the 1960s gave us The Population Bomb . The new terror for the west is a large, aged population: the popular literature frets that future generations – usually Americans – are already doomed to penury because of the rising costs of medical bills and pension payments.

Magnus’s account avoids the hysteria that often affects this genre. He level-headedly discusses the west’s ageing problem with an explanation of the developing world’s demographic conundrums. For readers who are new to the topic, some of the chapters are useful primers on these crucial issues.

Longer lives and changes in the birth rate have conspired to make the developed world become very old very quickly. …more