Will China's Economic Model Prevail? 13 comments
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Here are a couple of things that tie together and that you’re liable to hear a lot more about in the coming months and years.
From the Telegraph.co.uk”
In April, China’s purchasing managers’ index hit 53.5, its second month above the crucial 50-level and fifth successive monthly rise. Loan growth is running at 25pc annually – with banks extending $280bn (£188bn) of new credit in March. What a contrast with the Eurozone, where credit is still shrinking.
Chinese car sales spiked 30pc last month and house prices were up 9pc. More homes were sold in Shanghai than in any month since 2007.
From mid-2009, China’s economy will regain its rapid momentum, says the World Bank. Annual growth will “slow” to 6.8pc, but China is the “bright spot in the global economy”. Shanghai is the world’s top-performing stock market – up 30pc since the start of the year, with the main Western share indices down 5pc to 10pc.
Pretty impressive isn’t it? Particularly for a country that’s controlled by the Communist Party and subject to a great deal of central planning.
Now consider this from the Economist:
I recently heard a well-known capitalist make a shocking claim. He speculated that the Chinese economic model has been proven more effective than the American laissez-faire model. Do recent events and the extraordinary growth of China prove quasi-capitalism with lots of government manipulation work best?
The Economist goes on to dispute the idea that China’s performance is the result of a superior model and instead credits the country’s economic performance to American consumer demand and currency manipulation. They go on to say:
A major source of the extraordinary growth in China can be attributed to an influx of capital and the mobilisation of labour. For any economy, if you add more capital and labour, you’ll experience growth. But capital and labour each face diminishing returns, so at a certain point adding more does not result in more growth.
The only source of sustainable growth is technology, and so far China has been importing much of their technology from the West. Unless that changes, at a certain point Chinese growth rates will look more like Western rates. It remains to be seen if the Chinese market, as it currently operates, can provide the incentives and support for useful innovation.
Fair enough and I would agree with their analysis. But, don’t expect that to be the final word. If the Chinese recovery sustains itself, there will be more arguments advanced in favor of mixed economies. As the U.S. government is going to find itself at least for the next few years with a significant say in the financial system and the auto industry arguments in favor of a mixed system are going to proliferate (particularly if that involvement results in improvement in the relative performance of those sectors) that is likely to be the initial result given the troubles both are currently experiencing.
Whether or not the U.S. is drawn into further direct involvement in the economy is going to depend largely on the political class. Assuming that Chrysler gets back on its feet and the financial sector recovers to some degree, then more intervention is likely to be an easy sell. The early results can be quickly grasped by the electorate while the arguments against the model long term are much harder to communicate.
Here’s hoping the politicians decide to keep hands off.
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Bottom line: it's all about the bottom line. Capital is simply chasing cheap labor. However, in the case of China, the labor pool is so vast, and the transfer of wealth so immense, that politicians around the world are getting antsy. If China were to achieve the living standard of, say, South Korea, it would suddenly become the biggest kid on the block by far, and that has everyone nervous - everyone but the Chinese.
I'm sure no one here has heard of Adam Smith (the 18th century writer) -- his ideas endure. Economic wealth is created from 3 components: land, labor and capital. The Chinese didn't have much in the way of land (at least arable land) or capital (at least for the last 2 centuries). What it is always had is its 'secret': the people.
You have a country with pervasive graft, governement intervention to the higest degree, misinformation and market manipulation. Now, how on earth is that susposed to sustain itself for the longterm?
The only hope for the long term would be some radical change that may not be in the cards for a culture of oppression that goes back since the beginings of time.
On May 04 10:26 AM coreopsis wrote:
> Every response here except Banks is not only superficial, but inaccurate.
> Judging from the comments in the US and UK press, the Chinese ought
> to have great confidence that they are keeping the secret of their
> economy as effectively as they kept the secret of making porcelain
> for almost 600 years. The 'secret' of the Chinese economy is one
> that could never be emulated because of the unique position of that
> country.
>
> I'm sure no one here has heard of Adam Smith (the 18th century writer)
> -- his ideas endure. Economic wealth is created from 3 components:
> land, labor and capital. The Chinese didn't have much in the way
> of land (at least arable land) or capital (at least for the last
> 2 centuries). What it is always had is its 'secret': the people.
> One question: >
> You have a country with pervasive graft, governement intervention
> to the higest degree, misinformation and market manipulation. Now,
> how on earth is that susposed to sustain itself for the longterm?
>
>
> The only hope for the long term would be some radical change that
> may not be in the cards for a culture of oppression that goes back
> since the beginings of time.
Hardwood floor's been planked again: this is a discussion about China, not the US.
mwhodges.home.att.net/...
Today's government consumes 45% of the economy by its spending, plus another 13% of the economy via its un-funded regulatory mandates - - leaving less than half of the economy to the free-market private sector.
"45% of our economy today is dependent on government spending & control."
Slow, gradual government expansion over time is not recognized by the masses which gradually become dependant upon it. This leads to serfdom to the state. America is more a socialistic nation, and less a free-market economy, then ever before in its history, because our total economy has become significantly more government-dominated and dependent.
Look at the following video to see how our system has most recently been corrupted with the big bank bailouts:
abcnews.go.com/Video/p...
Our entire democracy has been perverted by an ever expanding government which is controlled through bribes by the U.S. financial oligarchs, who in turn monopolized and cannibalized the economy. The taxpayer is becoming a slave to the state and the financial oligarchs.
Most of the populus think that we have a free market in the U.S. We don't:
"Hayek won the Noble prize in economics for showing that government-established central banks like the Federal Reserve are an intervention into the free market. They are destabilizing, not stabilizing. And by tampering with interest rates and the free market system they cause entrepreneurs and consumers alike to commit massive errors that eventually hit the economy in the form of a major bust."
www.hayek-institut.at/...
mises.org/
www.baxterbulletin.com...
"Obama’s core explanation of all the destructive behavior leading up to today’s crisis is that the market was too free. But the market that led to today’s crisis was systematically manipulated by government.
Fact:
This decade saw drastic attempts by the government to control the housing and financial markets--via a Federal Reserve that cut interest rates to all-time lows, and via a gigantic increase in Fannie Mae and Freddie Mac’s size and influence.
Fact:
Through these entities, the government sought to “stimulate the economy” and promote homeownership (sound familiar?) by artificially extending cheap credit to home-buyers.
Fact:
Most of the (very few) economists who actually predicted the financial crisis blame Fed policy or housing policy for inflating a bubble that was bound to collapse.
The fundamental solution to our problems is to disentangle the government from the markets to prevent future manipulation. It would mean considering pro-free-market remedies such as letting banks foreclose, letting prices reach market levels, letting bad banks fail, dismantling Fannie and Freddie, ending bailout promises, and getting rid of the Fed’s power to manipulate interest rates.
But it is not genuine understanding the Obama administration seeks. For them, the wisdom and necessity of previous government intervention is self-evident; no matter the contrary evidence, the crisis can only have been caused by insufficient government intervention. Besides, they are too busy following Obama’s chief of staff’s dictum, “Never let a serious crisis go to waste,” by proposing a virtual takeover of not only financial markets, but also the problem-riddled energy and health-care markets--which, they conveniently ignore, are also already among the most government-controlled in the economy.
www.opposingviews.com/...
And don't forget the communist government hangs to power by a thread. They blocked YouTube so that anti-government opinions wouldn't spread. They have no problem with 'death-trap' working conditions. They are 50 years behind reasonable environmental standards.
Would you want to live there?
a few corrections...
1. they have been censoring for 6 decades now. its business as usual for the chinese gov.
2. they DO care about working conditions. they, no less than YOU, are humans and care about the well being of their friends, relatives and neighbours. working conditions are poor by standards of the 1st world, but they are in fact improving.
3. most developing countres ARE 50 yrs behind in enviromental standards. what is your point?