Modernization
Modernization
UPDATE: While pundits not long ago were debating China’s rise, the emerging consensus is now heralding an end to the ‘China miracle’. China’s old model of credit-fuelled, investment-driven growth has been severely undercut by the real estate crisis, as well as weak consumption and export demand. But recent data suggests that recovery has regained momentum.
Chinese modernization itself has global significance because only by achieving Chinese modernization can a new path for modernization be created for non-Western countries, Jin Canrong, associate dean of the School of International Studies at the Renmin University of China, said on Saturday when addressing the 2024 Global Times Annual Conference.
A new report from Nikkei says Chinese chipmaker SMIC is developing 3nm fabrication processes despite key equipment difficulties occasioned by US sanctions. The chipmaker has been prevented from accessing advanced chip production equipment from US vendors.
Unequal exchange theory posits that economic growth in the “advanced economies” of the global North relies on a large net appropriation of resources and labour from the global South, extracted through price differentials in international trade.
Defying the ‘end of China miracle’ myth
By Yan Liang
While pundits not long ago were debating China’s rise, the emerging consensus is now heralding an end to the ‘China miracle’. China’s old model of credit-fuelled, investment-driven growth has been severely undercut by the real estate crisis, as well as weak consumption and export demand. But recent data suggests that recovery has regained momentum.
China’s real GDP growth rate in the first three quarters of 2023 reached 5.2 per cent year-on-year. Solar cell, service robots and integrated circuits production increased by 62.8 per cent, 59.1 per cent and 34.5 per cent respectively in October 2023. Infrastructure and manufacturing investments expanded by 5.9 per cent and 6.2 per cent in the first ten months, offsetting the 9.3 per cent contraction in real estate investment. Outside of the real estate sector, private investment grew by 9.1 per cent.
Consumption also saw a strong rebound, though exports fell by 6.4 per cent year-on-year in October 2023, marking a six-month consecutive decline in line with weak global demand and the trend towards deglobalisation. Still, China’s automobile exports will likely exceed four million units by the end of 2023 — a milestone in China’s industrial upgrading and its move towards the higher end of the value-added chain.
The real estate crisis has raised concerns about the Chinese economy, revealing the necessity of restructuring the highly leveraged and speculation-fuelled property sector. Beijing’s 2020 ‘three red lines’ policy aimed to accomplish this, with the current slowdown in the housing sector a deliberate policy choice.
While this adjustment will produce financial losses for investors and creditors, the financial risks will likely be contained for four reasons. First, direct bank financing for real estate developers accounts for 2.5–3 per cent of total bank loan balances, home buyers account for 80 per cent of housing related debt and the historical default rate for mortgages is only 0.5 per cent. Second, real estate prices are monitored by the government and housing price decline has been limited.
Third, unlike Japan in the 1980s, Chinese companies have not extensively used real estate as collaterals and unlike the 2008 US subprime mortgage crisis, China’s real estate industry has not experienced large-scale subprime lending or financialisation. Finally, as a large proportion of the real estate industry’s debt is domestic debt in renminbi, the People’s Bank of China and state-owned asset management companies can provide necessary liquidity or capital to support banks when needed.
The real estate sector’s balance sheet has shrunk by 1.7 trillion yuan (US$240 billion) — a mere 1.4 per cent of GDP. It is unlikely that the real estate sector will trigger a widespread financial crisis.
Going forward, the real estate sector will stabilise thanks to both supply and demand side policies. On the supply side, credit is selectively being directed to real estate developers to complete unfinished housing projects. On the demand side, recent relaxations in down payment for second or third properties, reduced mortgage rates, and a new property sales tax rebate are incentivising home buyers.
But the real estate sector will remain subdued due to slowing urbanisation and population growth. The challenge is to find alternative growth engines to replace the outsized investment in the real estate sector.
China must continue to invest in research and development and produce productivity-driven growth. China is now leading in many strategic technologies, such as new energy vehicles, artificial intelligence and 5G. As investment in the real estate sector falls, credit has been directed to the industrial sector to continue financing industrial production and innovation.
China must also continue to boost household consumption. Final consumption expenditure has contributed to 57 per cent of GDP growth in the past decade, though COVID-19 and property market readjustments have dampened consumption demand.
To encourage household consumption, China first needs to provide conditions for the private sector to create more jobs and raise wages. The Central Committee’s July 2023 31 Point Plan to promote the private economy’s growth may reassure entrepreneurs that the government will continue to provide them with financial resources and market access.
The central government should roll out a job guarantee program where jobs are created at the local level and funded by the central government. These jobs could hire youth and provide skills training to meet private sector demand, transitioning participants into private jobs when available. This will alleviate youth unemployment and bolster consumer confidence as income is secured.
The central government should also enhance financing support for local governments. While local government spending plays an important role in economic stabilisation, they continue to struggle with crippling debt due to the economic slowdown and limited land sales. The central government should consider significantly raising fiscal transfers to local governments to enhance their ability to spend counter-cyclically and manage debt. The recent issuance of one trillion central government bonds for fiscal transfers to local governments is a good first step, but the magnitude needs to be much larger.
Despite facing various challenges, China’s economy is still growing steadily and the government has multiple policy tools to guide and support the economy. It is premature at best to fan the flames of a ‘collapsing China’ narrative.
Yan Liang is Kremer Chair Professor of Economics at Willamette University, Oregon.
Read more here.
Chinese modernization has global significance
By GT staff reporters
Chinese modernization itself has global significance because only by achieving Chinese modernization can a new path for modernization be created for non-Western countries, Jin Canrong, associate dean of the School of International Studies at the Renmin University of China, said on Saturday when addressing the 2024 Global Times Annual Conference.
Jin stated that modernization began in the West, and even after more than 300 years of industrialization, the success rate of modernization for non-Western countries remains low. He said that out of the current global population of nearly 8 billion, only about 1 billion people have truly achieved modernization, which mainly refers to the 1 billion people in Europe and the US. This means that seven eighths of the global population have not realized modernization.
Jin said that he studies development economics, and [understands that] all Western development theories prevent developing countries from developing. Once developed countries have climbed the ladder of industrialization, they won't let you develop.
"The hope now lies in China, but this statement cannot be absolute. There are a few non-Western countries and regions that have squeezed into modernization, such as Japan and the 'Four Asian Tigers', but there are costs to squeezing in," Jin said.
Japan and South Korea, one country of the "Four Asian Tigers," are "semi-colonies" of the US, strategically subordinate to the US, and in terms of economic division of labor, they undertake the work that Europe and America are unwilling to do. Therefore, Jin believes that China can only follow the path of Chinese modernization. If China succeeds, there will be hope for other non-Western people.
Another expert, Huang Jing, professor at Shanghai International Studies University said at the 2024 Global Times Annual Conference that the relationship between countries in international diplomacy is largely defined by the relationship between China and the US, as China-US relationship has a decisive impact on the global landscape.
Huang noted that the US' rise on the international stage has gone through three major competitions: the first with Hitler's fascism -- a struggle for survival; the second with the Soviet Union-- a competition of victory or defeat; and now, the third competition with China, which Huang sees as a struggle of strength and weakness.
In this competition with China, the US has invested the most effort, endured the most hardship, and paid the highest price in the economic field, Huang pointed out.
The concept of "de-globalization" is essentially "de-Sinicization," and the idea of "small yard and high fence" is actually "precise decoupling." However, China's rise as a peaceful force has resulted in its integration with the rest of the world, with close economic ties with Europe and the US. The US, driven by Cold War mentality, wants to engage in a fundamentally confrontational "zero-sum game" with China, but the essence of economic and trade relations is positive-sum competition, Huang stressed. Therefore, the US faces a dilemma, he said.
What we see now is not just the rise of China, but the rise of the Global South led by China, he noted.
Cui Hongjian, professor of Academy of Regional and Global Governance at Beijing Foreign Studies University, also stated at the Saturday's annual conference that the concept of Chinese modernization is not an answer or a conclusion, but rather the beginning of a new journey for exploration.
"Our focus should not only be on major powers. It is not as simple as saying that if China's external environment improves right away, and Chinese modernization will immediately proceed smoothly, once China-US relations get better. I disagree with such a simplistic interpretation," Cui said.
Jin stated that for China, currently internal and external challenges simultaneously exist. He believes that internal challenges, such as the economy and population issues, should be addressed first, while external challenges such as the competition with the US can be dealt with later. Jin concluded by saying that if Chinese modernization is achieved, it will provide a path for non-Western people to follow, which is remarkable. However, this path will not be smooth, but that China would certainly be able to handle it.
Read more here.
SMIC 3nm process success
By Jed John Ikoba
A new report from Nikkei says Chinese chipmaker SMIC is developing 3nm fabrication processes despite key equipment difficulties occasioned by US sanctions. The chipmaker has been prevented from accessing advanced chip production equipment from US vendors.
SMIC is reported to have developed its 2nd-gen 7nm-class process technology that can be used to produce smartphone processors. The new report states that SMIC is pursuing research on 5nm and 3nm-class process technologies. The research is being carried out in-house by the company’s research and development team. The team is led by co-CEO Liang Mong-Song, a renowned semiconductor scientist. The team leader has had stints at TSMC and Samsung. He is rated as one of the most brilliant minds in the semiconductor industry.
The news is quite instructive that the US sanctions regime has not been able to completely halt the progress of SMC in developing advanced chips beyond the 7nm process. It may have seriously slowed down the company, but a combination of factors is working in its favor in overcoming the challenges.
SMIC is currently the fifth-largest contract maker of chips in the industry. It lost access to leading-edge wafer fab tools that severely limited its ability to adopt new process technologies. As a result of the sanctions, SMIC was unable to get extreme ultraviolet (EUV) lithography tools from ASML. It however relied solely on deep ultraviolet (DUV) lithography for its 2nd-gen 7nm-class node.
The ASML Twinscan NXT:2000i lithography machines are the best tools available to SMIC currently. They can etch up to 38nm production resolutions. The level of precision is adequate for printing 38nm metal pitches using double patterning for 7nm-class nodes. Metal pitches shrink to 30-32nm at 5nm and 21-24nm at 3nm, according to AML and IMEC.
Multi-patterning is another option for achieving ultra-small feature sizes that can omit the use of EUV. It is a complicated process that lengthens the cycle times and can affect yields, as well as wear down the fabrication equipment. The cost implications for multi-patterning is also quite high. SMIC is using triple, quadruple, or sometimes, quintuple patterning to achieve lower resolutions. The design of a DUV-only 3nm-class fabrication process is a significant milestone for SMIC. It remains to be seen how the chip will perform in products.
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Imperialist appropriation and unequal Exchange 1990–2015
Highlights
Rich countries rely on a large net appropriation of resources from the global South.
Drain from the South is worth over $10 trillion per year, in Northern prices.
The South’s losses outstrip their aid receipts by a factor of 30.
Unequal exchange is a major driver of underdevelopment and global inequality.
The impact of excess resource consumption in the North is offshored to the South.
Unequal exchange theory posits that economic growth in the “advanced economies” of the global North relies on a large net appropriation of resources and labour from the global South, extracted through price differentials in international trade.
Past attempts to estimate the scale and value of this drain have faced a number of conceptual and empirical limitations, and have been unable to capture the upstream resources and labour embodied in traded goods. Here we use environmental input-output data and footprint analysis to quantify the physical scale of net appropriation from the South in terms of embodied resources and labour over the period 1990 to 2015. We then represent the value of appropriated resources in terms of prevailing market prices. Our results show that in 2015 the North net appropriated from the South 12 billion tons of embodied raw material equivalents, 822 million hectares of embodied land, 21 exajoules of embodied energy, and 188 million person-years of embodied labour, worth $10.8 trillion in Northern prices – enough to end extreme poverty 70 times over. Over the whole period, drain from the South totalled $242 trillion (constant 2010 USD). This drain represents a significant windfall for the global North, equivalent to a quarter of Northern GDP. For comparison, we also report drain in global average prices. Using this method, we find that the South’s losses due to unequal exchange outstrip their total aid receipts over the period by a factor of 30. Our analysis confirms that unequal exchange is a significant driver of global inequality, uneven development, and ecological breakdown.
Download the PDF here.