On Why China does not have a Hard Landing; Do Vegetarian diets raise Heart Disease and Cancer risk?

From: aditya rana
Subject: On Why China does not have a Hard Landing; Do Vegetarian diets raise Heart Disease and Cancer risk?

Hi!,

Widespread expectations for a hard landing in China have persisted ever since the onset of the global financial crisis in 2008 – mainly in the western media and publicity seeking financial pundits (“a hard landing is practically unavoidable”-George Soros). However, the Chinese economy continues to frustrate such expectations by consistently posting respectable (albeit slower) growth numbers in contrast to many western economies which have been unable to avoid hard landings. What are the underlying reasons behind the ability of China to avoid a hard landing and to maintain a 6.5% growth target for the rest of this decade? Veteran China economic analyst John Ross, senior fellow at Renmin University of China, develops the reasons behind both these phenomena. To summarise the first part below (the second part to follow next week):

-The only real modern “hard landings” have occurred in “Western (i.e. capitalist) ” economies – for example the US after 2007, Japan after 1990 and Russia after the introduction of capitalism in 1990. Meanwhile China has not suffered a negative year of growth in over half a century.

-A serious “hard landing” has two variants: 1) an actual fall in output as in the US after 2008 and in Russia in 1991; 2) a prolonged period of economic stagnation like experienced by Japan after 1990 where real GDP growth averaged only 1%. The underlying reason was the same in all three cases.

-A common misunderstanding which is prevalent in the media is that because consumption is the largest component of GDP, a hard landing must entail a large fall in consumption. However, it is the fall in investment which causes large economic downturns, despite being a smaller portion of the economy, as apparent in the three cases identified above and analysed below.

-The US “Great recession” was the deepest economic downturn in the post WW II period, with GDP falling by 4% (using quarterly data). On the eve of the recession, consumption was 82.5% of GDP while investment was 17.1% of GDP – and while private consumption declined by 3% ($ 275 BN), private investment fell by a whopping 23% ($ 592 BN) – more than twice as much. Taking the government sector into account the numbers are even more disparate – US total consumption (private and public) fell by $59 BN while total fixed investment fell by $556 billion (almost ten times larger-see chart below).

-Looking at Japan during the 1990-2013 period (see chart below) , which has experienced a real growth rate of only 0.9% per annum, consumption increased by 41% (1.5% per annum) while investment declined by 16% (-0.8% per annum).

-Subsequent to the introduction of capitalism in Russia in 1990, it suffered the worst peacetime economic collapse since the industrial revolution, with GDP in 1998 falling by 39% compared to its 1991 level. Following a devaluation and default in 1998, and an ensuing commodity boom during the first decade of the 21st century, Russia’s economy recovered sharply but the average GDP growth rate from 1990 until 2014 was only 1.0% per annum.

-While the privatization of the Russian economy during the post 1991 period did improve efficiency as measured by the annual average growth in Total Factor Productivity (TFP) of 0.9% (higher than in any advanced economy), during the economic collapse from 1990-1998 its consumption increased by 1 trillion roubles while investment declined by 4 trillion roubles (inflation adjusted). Looking at the whole period, consumption increased by 8 trillion roubles while investment declined by 2 trillion roubles (inflation adjusted), resulting in a tepid 1.0% per annum growth rate.

-Like in the US and Japan, Russia’s initial economic collapse and prolonged economic stagnation was a result of declines in investment which overwhelmed the increases in productivity.

-The above data illustrates clearly that the large scale economic downturns in the US, Japan and Russia were driven by precipitous falls in investment. The reason why such falls are possible in “western/capitalist” style economies is because it is driven by the private sector and the state has no mechanism to prevent such a collapse in investment.

-However, in China, the state sector remains the dominant player despite diverse forms of ownership. The key role of the state sector was reaffirmed at the 3rd Plenum in 2013, and reiterated by Xi Jingping this year, while also emphasizing the side-by-side growth of the private sector.

-The state sector can be used by the government to raise investment to prevent a recession, and its dominant role does not arise from it being the majority of the economy, but rather from it being large enough to impact investment and therefore GDP growth. To illustrate the contrast between the US and Chinese economic systems, it is helpful to analyse at the post-2007 period (as illustrated by the chart below).

-During 2007-2009, using annual data US fixed investment fell by 22% whereas fixed investment in China rose by 35%, resulting in a 3% fall in US GDP and a 20% rise in China’s GDP. Over the full period, China’s investment rose by 105% which resulted in economic growth of 81%.

Interesting analysis which makes a persuasive case for China avoiding a hard landing for the foreseeable future. At the current stage of development, China can ill afford a hard landing and therefore a dominant state sector is likely to continue for the next several years. Of course, over time, the private sector is likely to continue to grow in importance (and thereby increase economic efficiency) making China eventually more vulnerable to hard landings like other market driven economies. China’s capacity to keep investment high for the rest of this decade (and beyond ) arises from its current low levels of public debt and interest rates providing ample room for public debt to grow. While growth rates are likely to decline over time, the 6.5% target for the rest of this decade is highly likely to be met for reasons to be outlined in next week’s note.

-Stay long Chinese equities as a long-term core position as stock market returns start to close the gap versus the GDP growth rate, built-up over the last 25 years. As analysis of other markets has shown, over the long term the two rates must converge but there can be long periods of divergence.

Do Vegetarian diets raise Heart Disease and Cancer risk?:

-Some of you might have recently seen media headlines proclaiming that a Cornell University study showed that vegetarian diets can make people genetically more prone to heart disease and cancer risk than non-vegetarians ( I received a quite a few emails from friends on the subject!) ? Really? As usual, Dr. David Katz, Director of the Yale University Prevention centre clears the fog relating to the media interpretation of this study:

Huff post, April 5, 2016:

-We get hyberbolic headlines about nutrition studies almost every week; it’s how we roll. We can come back to the reasons why we roll that way, and who profits from it, some other time. For now, it’s enough to note that the global spate of headlines saying things like “vegetarian diet raises risk of heart disease and cancer,” allegedly in response to a new study by scientists at Cornell, takes it to a new, absurd, stupefying level. Maybe this is all just tailor-made for April Fools’ Day.

-The headlines are making fools of the journalists and editors writing them, and anyone reading them. Maybe it’s all a joke. It’s certainly hard to take it seriously. The study does not report that vegetarianism increases the risk of heart disease, cancer, or any other bad outcome. Nothing of the sort. Not even close.

-The study, accessible here for the brave among you, is by some leading experts in fat metabolism at Cornell. The senior author, J. Thomas Brenna, is a friend and colleague known globally for just such expertise. I have written about Dr. Brenna’s work before.

In this instance, the team speculated that human beings might show adaptations to the fats in their diets over time. In particular, they hypothesized that vegetarian populations might display some known genetic variants that make them better at producing the fats they weren’t getting directly from their food.

-So, they compared genetic markers in a population of 234 primarily vegetarian Indians, to those in 311 Americans with fairly typical diets, and found, indeed, that the Indians had a higher frequency of genetic mutations that make them good at producing the fats their diet doesn’t provide. An example? Well, one is that vegetarians are better at converting plant-based omega-3 fat, notably one called ALA, into the long-chain omega-3’s often called “fish oil,” namely EPA and DHA. This is what the authors predicted.

-How did headlines about harm emanate from this? Well, the authors also found that among those adapted to the oils and foods of a traditional vegetarian diet, the imbalances of the modern diet might be especially harmful. The study did not suggest that vegetarian diets were harmful. Rather, it showed that traditional vegetarian populations might be especially prone to the harms of the modern diet. This might help explain, for example, why ethnic Indians seem so prone to type 2 diabetes when they transition to a diet of burgers, fries, and soda.

-A reasonable take-away, then, might be that traditional, balanced vegetarian diets are an excellent, healthful choice for anyone so inclined, but may be especially important for people from populations that have made that choice for a long time. They have a higher likelihood of being specifically adapted to it.

-As for the mechanisms by which the imbalances of oils in the modern diet can conspire against the health of all of us, and perhaps traditional vegetarians even more so, they are featured in prior work by Dr. Brenna and colleagues, and as noted, I cover them, at least nominally, in my prior column on that work.

-As for the current study, it looked only at gene frequencies. Not heart disease, not cancer, not death. Despite the insane headlines, the study had nothing to do with death, or disease. It was a study of gene patterns. We already know that good vegetarian diets prevent disease, even reverse it, and are in the mix with the most health-promoting dietary options on the planet. We know they are good for the planet as well.

– All of that is established. Designing a study to challenge that would be like conducting a study to see if maybe the earth is still flat after all. As for the general idea that creatures adapt to what they eat, just visit a zoo. It’s on rather flagrant display. Bamboo isn’t very nutritious food, but it works for the pandas. At some level, this new study is simply affirmation that we are creatures, too. We, too, adapt to our diets.

-That’s it, folks — really. Traditional vegetarian diets are very good for us, and the typical American diet, very bad for us. The specific contribution of this study is to note that the typical American diet may be especially bad for traditional vegetarians who haven’t evolved defenses against it. They have, in accord with prediction, adapted to thrive on their native diet.

Here’s to reading sensationalist media lines (whether they relate to diet or economics!) with a large pinch of salt and staying with a mainly plant based diet (even more so if your ancestors were vegetarian!).

Regards,

Aditya

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