Regulatory Uncertainty In China

In China, this sort of thing can happen at a moment’s notice:

Around 2000 people have been arrested, and nearly 5000 businesses shut down, as Chinese authorities try to force their food industry to improve its safety standards. …

The central government has also strengthened food safety laws. The penalty for some infringements that formerly carried fines have been increased and now carry the possibility of imprisonment. Last month, the state-run news agency Xinhua reported that one man was even given a suspended death sentence for producing and distributing clenbuterol, which speeds muscle growth in pigs but is poisonous to humans.

Foreign direct investment in China has not been growing as fast as it had been in the recent past, but it’s still accelerating:

Actual FDI rose 2.83% in June from a year earlier to $12.86 billion, according to the ministry’s data. Growth was down from the 13.43% rise in May, when FDI totaled $9.225 billion. … China attracted actual FDI of $105.7 billion for all of last year, up 17.4% from the previous year.

Republicans desperate to blame negative economic conditions on Pres. Obama often cite “regulatory uncertainty.” Sometimes, in support, they can even cite a person or two who rants about the government. But what they can’t do is make an empirical or historical argument in support of their case.

The problem with the economy is low demand and low growth. It’s a massive problem, much bigger than any politician, even any president.

Every economist knows that the proper response is for the government to borrow at the extraordinarily low rates currently available, and inject that money into the economy to boost demand. (As Bush Jr. CEA Chief Economist Andrew Samwick recently wrote, “At present, the U.S. government can borrow at ridiculously low levels.  We should do so, as needed, to support investment that will boost output, employment, and productivity in the future.”).

But the discussion among political elites is all about the long-term debt problem.

It’s a bad situation, and we’re not going to make it any easier on ourselves.


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