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<\/a>Fast rail is hardly unique to China, but the scale is. So far there are 17,000 miles of fast rail in China, aiming at 24,000 by 2025. The United States couldn\u2019t finish the environmental impact statement as quickly. The Shanghai maglev line reaches 267 mph. Click to enlarge<\/p><\/div>\n
Over the last decade, American wages have stagnated and U.S. productivity has consistently been outpaced by China\u2019s<\/a><\/strong><\/span>. The U.S. government has responded by engaging in a trade war and imposing stiff tariffs in order to penalize\u00a0China for what the White House deems\u00a0unfair trade practices<\/a><\/strong><\/span>. China\u2019s industries are said to be propped up by the state and to have significantly lower labor costs, allowing them to dump cheap products on the U.S. market, causing prices to fall and forcing U.S. companies out of business. The message to middle America is that Chinese labor costs are low because their workers are being exploited in slave-like conditions at poverty-level wages.<\/span><\/p>\n But if that\u2019s true, how is it that the great majority of Chinese families own homes? According to a March 2016 article in Forbes<\/strong><\/span><\/a>:<\/span><\/p>\n \u2026 90% of families in the country own their home, giving China one of the highest home ownership rates in the world. What\u2019s more is that 80% of these homes are owned outright, without mortgages or any other liens. On top of this, north of 20% of urban households own more than one home.<\/span><\/p>\n Due to their communist legacy, what they get for their money is not actually ownership in perpetuity but a long-term leasehold<\/strong><\/span><\/a>, and the quality of the construction may be poor. But the question posed here is, how can Chinese families afford the price tag for these homes, in a country where the average income is only one-seventh<\/strong><\/span><\/a> that in the United States?<\/span><\/p>\n Some commentators explain the phenomenon by pointing to cultural differences. The Chinese are inveterate savers, with household savings rates that are more than double<\/a> <\/strong><\/span>those in the U.S.; and they devote as much as 74<\/a>%<\/a><\/strong><\/span> of their money to housing. Under China\u2019s earlier one-child policy, many families had only one heir, who tended to be male; and home ownership was a requirement to score a wife. Families would therefore pool their resources to make sure their sole heir was equipped for the competition. Homes would be purchased either with large down payments or without financing at all. Financing through banks at compound interest rates doubles the cost of a typical mortgage, so sidestepping the banks cuts the cost of housing in half.<\/span><\/p>\n Those factors alone, however, cannot explain the difference in home ownership rates between the two countries. The average middle-class U.S. family could not afford to buy a home outright for their oldest heir even if they did pool their money. Americans would be savers if they could, but they have other bills to pay. And therein lies a major difference between Chinese and American family wealth: In China, the cost of living is significantly lower. The Chinese government subsidizes not only its industries but its families\u2014with educational, medical and transportation subsidies.<\/span><\/p>\n According to a 2017 HSBC fact sheet<\/strong><\/span><\/a>, 70% of Chinese millennials (ages 19 to 36) already own their own homes. American young people cannot afford to buy homes because they are saddled with student debt, a millstone that now averages $37,000 per student and will be carried an average of 20 years before it is paid off. A recent survey found that 80% of American workers are living paycheck to paycheck<\/strong><\/span><\/a>. Another found that 60% of U<\/strong><\/span><\/a>.<\/a>S<\/a>.<\/a> millennials<\/a><\/strong><\/span> could not come up with $500 to cover their tax bills.<\/span><\/p>\n In China, by contrast, student debt is virtually nonexistent<\/strong><\/span><\/a>. Heavy government subsidies have made higher education cheap enough that students can work their way through college with a part-time job. Health care is also subsidized by the government, with a state-run health insurance program similar to Canada\u2019s. The program doesn\u2019t cover everything, but medical costs are still substantially lower than in the U<\/strong><\/span><\/a>.<\/a>S<\/a><\/strong><\/span>. Public transportation, too, is quite affordable in China, and it is fast, efficient and ubiquitous.<\/span><\/p>\n The disparity in incomes between American and Chinese workers is misleading for other reasons. The \u201caverage\u201d income includes the very rich along with the poor; in the U.S., the gap between those two classes is greater than in China<\/strong><\/span><\/a>. The oversize incomes at the top pull the average up.<\/span><\/p>\n Even worse, however, is the disparity in debt levels, which pulls disposable income down. A survey<\/a><\/strong><\/span> after the 2008-09 credit crisis found that household debt in the U.S. was 136% of household income, compared with only 17% for the Chinese.<\/span><\/p>\n Another notable difference is that 70% of Chinese family wealth<\/a><\/strong><\/span> comes not from salaries but from home ownership itself. Under communism, all real property was owned by the state. When Deng Xiaoping opened the market<\/strong><\/span><\/a> to private ownership, families had an opportunity to get a home on reasonable terms; and as new homes were built they traded up, building the family asset base.<\/span><\/p>\n Deng\u2019s market liberalization also gave families an income boost by allowing them to become entrepreneurs. New family-owned businesses sprang up, aided by affordable loans. Cheap credit from state-owned banks subsidized state-affiliated industries as well.<\/span><\/p>\n All this was done with the help of China\u2019s federal government, which in recent decades has pumped massive amounts of economic stimulus into the economy. Unlike the U.S. Federal Reserve\u2019s quantitative easing, which went straight into big bank reserve accounts, the Chinese stimulus has generated new money for productive purposes, including local business development and infrastructure. Sometimes called \u201cqualitative easin<\/strong><\/span>g<\/a>,\u201d this \u201cquantitative easing with Chinese characteristics\u201d has meant more jobs, more GDP and more money available to spend, which in turn improves quality of life.<\/span><\/p>\n Chongqing. One of China’s fast growing modern cities. Click to enlarge<\/p><\/div>\n The Chinese government has done this without amassing a crippling federal debt or triggering runaway inflation. In the last 20 years, its M2 money supply has grown<\/strong><\/span><\/a> from just over 10 trillion yuan to 80 trillion yuan ($11.6T), a nearly 800% increase. Yet the inflation rate of its Consumer Price Index (CPI) has remained low. In February of this year, it was just 1.5%<\/a><\/strong><\/span>. In May it rose to 2.7%<\/a><\/strong><\/span>\u00a0due to an outbreak of swine fever, which drove pork prices up; but this was a response to shortages, not to an increase in the money supply. Radically\u00a0increasing the money supply has not driven consumer prices up because\u00a0GDP has increased<\/a><\/strong><\/span>\u00a0at an even faster rate. Supply and demand have risen together, keeping consumer prices low.<\/span><\/p>\n Real estate prices, on the other hand, have skyrocketed 325% in the last two decades, fueled by a Chinese shadow banking system that is largely beyond regulatory control<\/strong><\/span><\/a>. Pundits warn that China\u2019s housing is in an unsustainable bubble that will pop, but the Chinese housing market is still more stable than the U.S. subprime market before 2008, with its \u201cno-doc no-down\u201d loans. Chinese buyers typically put 40 to 50% down<\/strong><\/span><\/a> on their homes, and the demand for houses remains high. The central bank is also taking steps to cool the market, by targeting credit so that it is steered away from real estate and other existing assets<\/a><\/strong><\/span> and toward newly-produced goods and services.<\/span><\/p>\n That central bank intervention illustrates another difference between Chinese-style qualitative easing and Western-style QE. The People\u2019s Bank of China is not trying to improve banking sector liquidity so that banks can make more loans. Chinese economists say they don\u2019t need that form of QE. China\u2019s banks are already lending, and the central bank has plenty of room to manipulate interest rates and control the money supply. China\u2019s central bank is directing credit into the local economy because it doesn\u2019t trust the private financial market<\/strong><\/span><\/a> to allocate credit where local markets need it. True to its name, the People\u2019s Bank of China seems actually to be a people\u2019s bank, geared to serving the economy and the public rather than just the banks themselves.<\/span><\/p>\nThe Misleading Disparity Between U.S. and Chinese Incomes<\/strong><\/h2>\n
\u201cQuantitative Easing With Chinese Characteristics\u201d<\/strong><\/h2>\n
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<\/a>Time for More QE?<\/strong><\/h2>\n