By Wing-Gar Cheng and Grant Clark
Aug. 8 (Bloomberg) — Gunn-Rita Dahle got a taste of
Beijing’s smog at a race last year that left her fretting over
the defense of her Olympic mountain-biking title.
“It’s probably the most polluted place I’ve ever
competed,” says the 34-year-old Norwegian. “Your mouth and
throat dry up because of the dust. It’s not good for the
system.”
While the Chinese government is spending $13 billion to
clear the air in time for the 2008 Olympics, national teams are
preparing for the worst. The U.S. plans to base its athletes in
Korea, and the Australian team will be accompanied by an asthma
doctor for the first time. The games begin one year from today.
“There is nothing we can do to stop the pollution or
improve the air quality, but we can be prepared for the effects
of it,” says Juan Manuel Alonso, medical director of Spain’s
Olympic track and field team. “We have to make sure the first
aid box is well-stocked.”
Air pollution is choking Beijing as economic growth of 10
percent a year drives a building boom and increases demand for
cars. Construction spending increased 13 percent last year, and
new car sales jumped sixfold in the past five years, according to
government statistics.
The U.S., which won the most medals in each of the past
three Olympics, will base athletes in South Korea, 75 minutes
away by plane, so they spend as little time as possible in
Beijing, says Randy Wilber, senior sports physiologist for the
U.S. Olympic Committee.

Parachuting In

Most U.K. athletes will stay in Macau, 2,200 kilometers
(1,365 miles) to the south, says Marco Cardinale, a doctor for
the British Olympic Association.
“You don’t want to acclimatize to air pollution, you want
to avoid it as much as possible before you compete,” Wilber
says. “Some of our strategies and equipment are, quite frankly,
top secret.”
Beijing’s air contains the second-highest level of tiny
particles that can trigger asthma attacks, according to a ranking
of 20 Asian cities in the United Nations Environment Program’s
2006 Year Book. Only New Delhi had worse air quality.
In 2005, Beijing’s air contained an average of 145
micrograms of particles per cubic meter, almost three times the
World Health Organization’s recommended maximum, according to the
State Environmental Protection Agency.
Concerns about air pollution also clouded the buildup to the
2004 Athens games, only for the event to go ahead without mishap.
Particulate levels in Maroussi, where many events were held,
breached the WHO standard on 47 days in the Olympic year.

Beijing Optimism

Beijing officials say pollution is manageable. In a trial
run to cut vehicular emissions, the city may take 1 million cars
off the road for two weeks this month. Beijing’s biggest steel
plant will move out of the city before the games, and builders
will be asked to stop work during the event.
“We’ve invested vast sums of money over the past few years
to tackle the issue,” says Deputy Mayor Ji Lin. “Although some
problems still exist, the conditions are improving.”
The city targets 245 “clean-air days” in 2008, compared
with 241 in 2006 and 100 in 1998. Still, the Chinese threshold
for particulate matter is three times higher than WHO guidelines.
Endurance events such as cycling may be postponed if
pollution levels are too high during the games, said
International Olympic Committee President Jacques Rogge, speaking
on Cable News Network on Aug. 7.
“We are going to put the athletes first, we’ll have
contingency plans,” Rogge said.
Endurance athletes such as runners and cyclists are pre-
disposed to asthma because heavy training damages their airways,
says Karen Holzer, an asthma specialist who will travel with the
Australian team.

Seconds From Glory

About 27 percent of U.S. athletes at previous Olympics
suffered from respiratory problems, and the incidence will be
higher in Beijing, Wilber says. In response, all American
competitors will get facemasks and have lung tests to see if they
need asthma drugs.
“It’s all about identifying athletes who are at risk with
asthma and making sure they have strategies in place to minimize
the impact of pollution on their airways,” Holzer says. “Mild
asthma results in a drop in lung function of about 10 percent.”
Such margins may be the difference between winning gold and
sporting oblivion. Just 11 seconds separated the first two places
in the 2004 women’s marathon.
Pollution also threatens athletes’ performance in other
ways. Sinus, throat and nose problems suffered by water polo
players and track and field athletes at last year’s World Junior
Games in Beijing were probably the result of bad air, says Peter
Baquie, Australia’s chief team doctor.
Dahle, the Olympic mountain-biking champion, says she plans
to stay in Beijing for the shortest time possible. She rues the
decision to award the games to Beijing.
“I’ll minimize the amount of time spent in the city and
will stay as much as possible inside the hotel,” Dahle says.
“There would have been many far better alternatives than
Beijing. It goes against all common sense when it comes to doing
sports.”

–With reporting by Dan Baynes in Sydney, Bob Bensch in New York,
Alex Duff in Madrid, Robin Wigglesworth in Oslo and Sam
Sheringham and James Cone in London. Editor: Pritchard (wsm)

Better than all of the money being invested in the Shanghai stock market/real estate bubble. But note that the an entire sector of the housing market has collapsed and there is not blood in the streets. Part of the reason is that the US market is big enough to withstand these shocks.

bsester: china may be buying an MBS, but it hopes to trade the $ it gets from a US household for goods and services that can be used in china. and the us hasn’t exactly taken out debt recently to invest in future tradables produciton.

jkh has pointed out one problem with this assertion. I’ll add to this by mentioning that a persist current accounts deficit and permanent investment in the US makes a lot more sense once you move out of pure economics and into political/military realms.

One impact of Chinese purposes of US debt is to keep oil sea lanes from Saudi open. The political/military aspects of the US-China relationship are very relevant and tend to be ignored. Thirteen aircraft carrier battle groups are as much an economic capital investment as a factory.

As far as the analogy with US states, I don’t see what difference it makes if private flows are financing the deficit or if a central bank is, unless one wishes to argue that private flows result in more effective capital allocation (which may be the case).

that said, i was making a broader point that taking on external debt to finance homebuilding, consumption, fiscal deficit and LBOs (financial engineering) is different than taking on external debt to finance an expansion of tradables production — and the current expansion of the us net debt position (offset by gains on the equity side) doesn’t seem to be financing investment in tradables, which likely implies larger losses for the united states creditors than otherwise would be the case.

guest — i have argued that but for chinese intervention in the fx market, china’s trade would move back towards balance, and that the combination of china’s huge external surplus amid an investment boom is strange. and i have argued that the US global trade deficit needs to move back towards balance to stabilize the us external debt position/ reduce US dependence on central bank financing. but i don’t think i have argued that either should necessarily always have a zero trade deficit/ surplus, or that the bilateral us-chinese trade should balance.

I wonder about this. The outstanding claims of surplus nations on deficit nations represent a distribution of claims on global investment. Global investment is a growing and renewing entity in its entirely and to that extent permanent in characteristic. Global financial claims on investment (domestic and international) in aggregate therefore are similarly permanent.

You wrote a paper several years ago on the sustainability of international deficits where an equilibrium position can be attained if the current account deficit ultimately grows less quickly than GDP (probably implying a near 0 trade deficit or trade surplus). This allows for a permanent and growing debt position, while achieving stabilization of the debt to GDP ratio at some future point (this is my recall – maybe not exactly correct).

Given this scenario possibility, it implies that a particular nation’s debt or surplus position can persist for a long time (i.e. forever) without debt being converted to exports.

While the broad classification for such international imbalances is debt, it might just as well be described as international equity. When viewing an international balance sheet in isolation, the logical balancing item to a surplus nation’s net asset position is positive (international) equity, and the balance to a deficit nation’s net liability position is negative (international) equity. These equity positions can be added to the respective domestic positions to arrive at the consolidated equity positions of individual nations (e.g. US household wealth equals domestic wealth minus the net international liability position.)

(I’m assuming by ‘external debt’ you mean broadest generic category of net international liabilities including both debt and equity claims on the US. I would define ‘external equity’ in the same way).

Whatever the future outcome, I see some other constraints apart from this math. The desire for foreign diversification of US dollar surpluses is already evident. But given the requirement for global surpluses and deficits to balance, this really means that surplus nations with ‘excess surpluses’ must exchange their unwanted dollars for something else from more balanced nations in order to diversify. Second, if the US sustains a current account deficit path toward some future equilibrium, it will become increasingly constrained in providing non-bank financial assets sufficient to absorb those flows. This is why I’ve said before that the eventual result could be some sort of dollar glut in the international banking system, resulting from a shortage of viable alternative assets in aggregate. The banking system is ‘surplus absorber’ of last resort, given that that’s where the money starts.

That said, I suppose the model whereby China (or the rest of the world) would target a permanent growing investment in the US without necessarily receiving any future payback in term of net imports would seem to be an insane objective. But it seems achievable apart from the constraints I mention. Also, it would not preclude continuing diversification by a country like China in swapping US asset positions for the asset positions of other countries, which then could be switched for imports from those countries. China thus could become a global distributor or ‘dealer’ for the capital account offset to a permanent US current account deficit.

the big lie? the hegemon never lies.

A: it prolongs the illusion that the US is AAA… so when the eventual realisation comes about, dislocations will be that much more severe as the US is ‘marked to market’ by the RotW.

but hasn’t one of your central arguments been that it should?

i don’t see much evidence the us will deliver a better real return on the debt china has bought than it delivered on the debt some europeans bought in 2000 and 2001 …

on your other point, there is no reason why trade between the us and china should balance. but it also is qualitatively different than trade between two us states. the state of kansas doesn’t have a central bank that finances the much richer state of new york. trade deficits between us states are financed entirely by private capital flows. that isn’t the case for the us and china.

I think it was Keyes who said that at some point we are all dead.

The problem with this argument is that it’s not clear to me that equilibrium in trade balances is going to be result in maximum economic productivity. The reason that people exchange good and services with debt may be that the US has the economic infrastructure to invest that debt and insure higher longer term returns than would be available in the absence of that debt.

To take this argument further. If you look at economic trade balances between different states, some states are running trade surpluses and some are running trade deficits, but there is no particular reason to think that a zero trade balance between individual states is a good thing.

What I really haven’t found is a good argument *why* a balance of trade between the US and China is the state that maximizes standard of living. It seems to me frankly to be an exercise in making the world fit a theoretical model.