Tuesday, December 10, 2013

The Chinese Economy in Perspective

There has been a rising expectation for the last ten years or so about the rapid rise of the Chinese economy, along with fears that it will soon overtake our own.  A splendid symbolic example is this Reuters photo showing the growth of the Pudong financial district in Shanghai between 1987 and 2013:

        Shanghai 1987-2013, with the new Shanghai Tower building on the right (Reuters/Carlos Barria)
 
But it is best to study the trend as best we can through the lens of the dismal science.  I always think of Truman's quote about how, if all the economists in the world were to be laid end to end, they would still be pointing in all directions. 

Derek Scissors of the Heritage Foundation provides a more Cassandra-like contribution, written as of 2011.  He cites the US unemployment figure then at 9%, just before we were entering what was to be the third "summer of recovery", and it is now lingering at around 7%.  (The press would like you to disregard the wailing about the US economy under Bush when it rose to 4.9% – make no comparisons, nothing to see here, move along…)
One of the most surprising developments resulting from the financial crisis is the belief among ordinary Americans that China has become the world's leading economy.  This view appeared in the roughest times of 2009 and has persisted even though the impact of the crisis has begun to ebb.  US media have frequently conveyed the same belief.  But it is patently absurd. 
Buried within the report is a quick but cogent comparison to the Japanese stagnation, now entering the 23rd year of its "lost decade", with a chart that lays out how Japan's GDP growth increased by 444% between 1971 and 1991, but has increased only 3% since.
Tokyo repeatedly chose fiscal stimulus over reform.  The outcome has been unpleasant.
Indeed, "fiscal stimulus".  The Japanese invented the term "quantitative easing".  There are some other factors to be sure – there always are – such as the fact of Japan's aging population, a situation that the US won't equal until 2035 (with the maximum effect starting to show on the same people expected to put more money into ObamaCare now).  But in general, how has that worked out for Japan, and how successful have we been in implementing the same efforts, despite such inane media drivel such as Chris Matthews simpering about the "amazing economy" under Obama? 

The Japanese notwithstanding, Scissors presents a detailed look at the Chinese management of their economy, from the significant market reform begun in 1978 – experimentation with a capitalist economy under a Chinese Communist leadership – until the party leaders sought to increase its intervention in the market in 2003, fearing an increasing loss of control.  He ends with some sharp recommendations:
Limit federal control of lands to defense needs and preservation of natural and cultural phenomena.
Immediately and sharply cut the federal deficit.
In particular, reduce subsidies of every kind./
Ensure a well-educated and growing labor force.
Last March, even CBS in its 60 Minutes provided a glimpse behind those Potemkin façades in the sparkling new yet empty Chinese cities:

Zhengdong New Area, central district (BI)

1 comment:

  1. Scissors is a good name for an economist but his recommendations will never cut paper let alone rocks under a Democrat regime and probably not a Republican one, either, even if the Tea Party takes them over (big if).

    As far as I've ever heard, the Chinese economy depends to a large extent on American consumers. If we don't buy the cheaper American goods made by the Chinese, their economy would be seriously hurt---which gives the lie to the idea that we have to fear war with them.

    Interestingly, perhaps, was Austin's own Potemkin business district in the 90s when several high rise office buildings were built downtown and then stood empty for several years until business tenants were found.

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