He is one of the few who writes genuine articles, while most of the media's economics reporters, economists, and economic pundits merely present the Ministry of Finance's views.

2021/4/6
Hideo Tamura, a Sankei Shimbun editorial board member, regularly publishes economic articles under the title "Economic Correctness.
He is one of the few who writes genuine articles, while most of the media's economics reporters, economists, and economic pundits merely present the Ministry of Finance's views.

A new coronavirus pandemic in Wuhan, China, has raised the prospect that China's nominal gross domestic product (GDP) will surpass that of the United States to become the world's largest by 2028.
Should we take it seriously? 
The Japan Center for Economic Research (JCER) in Japan and the Center for Economic and Business Research (CEBR), a British think tank, have predicted that China will be number one in 2028. 
The average annual growth rate of nominal GDP in China from the ten years after the Lehman Shock to the 19 years before the Coronation was 10.9%, while the U.S. growth rate was just over 4%.
Considering recent trends, the future growth rate of the United States and China is set at 8% for China and 4% for the United States. The preliminary GDP of China in 20 years is $15.54 trillion (about 1700 trillion yen). Based on the US GDP initial figure of 20.93 trillion dollars, China's GDP in 2016 will be 28.7 trillion dollars, and the U.S. will be 28.6 trillion dollars.
But wait a minute.
Isn't that too rough for an economic forecast?
Since the GDP estimates are converted into dollars, they vary greatly depending on the exchange rate.
In Japan's case, 1995 was amid the bursting of the Heisei bubble, but the dollar-denominated GDP scale reached 71% of that of the United States because the yen was so strong that it was less than 80 yen per dollar.
In 2019, by contrast, it will be only 24%. 
It also depends on the inflation rate. 
If prices rise, it will boost nominal GDP, but if there is chronic deflation, as in Japan, it will shrink. 
The economic growth rate is also affected by the increase or decrease in the working-age population from 15 to under 65 and the growth rate of labor productivity.
In the U.K., Capital Economics, an economic research firm, analyzed in February this year that China's economy will have difficulty surpassing that of the U.S. even in 50 years.
China's age structure is getting older, and its productivity growth is much lower than that of the U.S.
It is understandable since China is a command economy run by the Communist Party central government and is dominated by state-owned enterprises that ignore productivity. 
In my essay, I will focus on the limitations of China's unique monetary and financial system.
The People's Bank of China, controlled by the Party, provides yuan funds in response to the influx of dollars.
When foreign exchange reserves expand due to trade surpluses and increased foreign companies' investment in China, quantitative monetary expansion becomes possible, and rapid growth becomes more accessible. 
Still, if foreign reserves do not increase, issuing additional yuan becomes impossible, and the economy's growth rate declines. 
The graph shows the year-on-year rate of change in China's nominal GDP, foreign exchange reserves, yuan fund issuance by the People's Bank of China, and its outstanding external financial debt. 
The slowing nominal growth rate trend started in 2013 when the Xi Jinping administration started.
The rate of change in yuan fund issuance and the rate of change in external debt are highly linked. 
Both were negative in 2015 and remained at deficient levels from 2018.
The central bank's issuance of funds is essential to supporting nominal economic growth, including inflation, in any country. 
Still, fund issuance's growth rate in China has been below the nominal growth rate since 2017. 
Without the supply of growth capital, economic growth will be constrained. 
In this light, the prediction that China's GDP growth rate will remain about twice that of the United States and surpass the United States in terms of GDP size by 2028 is too optimistic.
More than anything else, foreign currency constraints will come into play. 
The foreign exchange level is picking up recently, but there is a trick to it.
It is the increase in foreign financial debt.
Compared to the end of 2013, when the Xi administration took office, the foreign exchange level at the end of 2020 has decreased by $600 billion, but financial debt has increased by more than $1.5 trillion.
Since the People's Bank of China buys up all foreign currency that comes in through foreign borrowing and counts it as foreign exchange, the foreign exchange level's maintenance is the reverse of a sharp increase in foreign debt.
Against this backdrop, the Xi administration is scrambling to attract foreign investment. The main instruments are stocks and government bonds.
With Hong Kong, the international financial center, under its sway, it has listed a series of emerging Chinese growth companies on the stock market to attract financial capital from Japan, the United States, and Europe.
The Hong Kong market is directly linked to Shanghai and Shenzhen's stock markets, so the foreign currency flows into the mainland. 
Besides, interest rates on Chinese government bonds are set much higher than in Japan, the United States, and Europe to attract Western institutional investors.
Japan's largest institutional investor, the Government Pension Investment Fund (GPIF), is also in the condition of considering investing in Chinese government bonds. 
The U.S. administration of President Biden is working to form a Western encirclement network against China.
Still, without financial sanctions, it would have been impossible to suppress the Xi administration's growing impudence. 

2024/4/7 in Kyoto