CCTV News: US Stocks and China’s Farm Economy
Last Thursday I was on CCTV News BizAsia offering my regular commentary. Due to the holiday weekend (Christmas isn’t an official holiday in China, but it’s become a big night to go out), there was a delay in posting the video onto their website, and only the full show is available, rather than smaller clips. You can access it here.
In my first Q&A session, at the 4:02 mark, I talk about the recent rally in U.S. stocks, as well as oil and other commodities. I note the market’s performance reflects a widespread feeling of confidence among investors that the recovery is finally and solidly on track. However, a minority of critics argue that the Fed’s quantitative easing policy, which has injected new money into the economy, is fueling a bubble.
Anyone who has been following the inflation story in China might want to check out the second interview segment, at the 20:55 mark, which concerns a recent high-level government meeting on China’s rural economy. Chinese policymakers, I point out, are in a big of a bind here. On the one hand, they want to ease mounting food inflation by expanding the supply of agricultural goods. The problem is, absent productivity increases, that means squeezing farmers — keeping their incomes flat in the face of rising prices for other goods. On the other hand, the government wants to boost farmer’s incomes. Usually that’s done by restricting supply. The two goals are at odds with one another. Perhaps China can square the circle by boosting production and paying farmers subsidies to make up the difference, but that’s not a long-term solution.
The real solution, I point out, is to increase productivity in the farm sector, by allowing larger scale of operation and greater mechanization. Traditionally, the Chinese government has been reluctant to push in this direction. Partly its reluctance stems from ideological reasons — the regime’s roots in Mao’s peasant-based revolution that broke up large landholdings. Partly it’s due to practical concerns about employment. Half of China’s population still works on the farm, often in subsistence agriculture. Modernizing the farm sector, many worry, would leave many farmers without a job, flooding the urban labor market (that’s why I’ve always maintained, by the way, that China is nowhere near running out of cheap labor, at least not on the low-skill end of the market). Nevertheless, policymakers are increasingly coming around to the view that modernizing China’s farm sector needs to be a priority, if food supply is going to keep up with ever-rising demand.