China skepticism

by on February 28, 2006 at 7:33 am in Current Affairs | Permalink

How long will it take before China cracks up?

To most Western observers, China’s economic success obscures the predatory characteristics of its neo-Leninist state. But Beijing’s brand of authoritarian politics is spawning a dangerous mix of crony capitalism, rampant corruption, and widening inequality. Dreams that the country’s economic liberalization will someday lead to political reform remain distant. Indeed, if current trends continue, China’s political system is more likely to experience decay than democracy. It’s true that China’s recent economic achievements have given the party a new vibrancy. Yet the very policies that the party adopted to generate high economic growth are compounding the political and social ills that threaten its long-term survival…

The Chinese state remains deeply entrenched in the economy. According to official data for 2003, the state directly accounted for 38 percent of the country’s GDP and employed 85 million people (about one third of the urban workforce). For its part, the formal private sector in urban areas employed only 67 million people. A research report by the financial firm UBS argues that the private sector in China accounts for no more than 30 percent of the economy. These figures are startling even for Asia, where there is a tradition of heavy state involvement in the economy. State-owned enterprises in most Asian countries contribute about 5 percent of GDP. In India, traditionally considered a socialist economy, state-owned firms generate less than 7 percent of GDP.

Here is much more, and I will go on record in agreement.  More specifically, how about a bone-crunching, bubble-bursting, no soft landing, Chinese auto crash-style depression within the next seven years?  This is also my biggest worry for the U.S. economy, I might add.

If you are not convinced, raise your right hand and repeat after me: "China in the 20th century had two major revolutions, a civil war, a World War, The Great Leap Forward [sic], mass starvation, the Cultural Revolution, arguably the most tyrannical dictator ever and he didn’t even brush his teeth, and now they will go from rags to riches without even a business cycle burp."  I don’t think you can do it with a straight face.

Had I mentioned that Yana and I are going to Shanghai in April?  I’ll ask you all for tips when the time comes.  I hear MarginalRevolution is banned there…

signature103 February 28, 2006 at 7:43 am

I fear for China’s path to economic success. As it is they are living beyond their means. With such a large population economic growth will mean consumption growth – something this planet cannot take more of.

But it must be remembered also that China’s economic expansion ideals are basically a copying of Western neocolonial ideals, something Western observers do not want to see because it is to their benefit.

Pavel February 28, 2006 at 8:29 am

“If you are not convinced, raise your right hand and repeat after me: “China in the 20th century had two major revolutions, a civil war, a World War, The Great Leap Forward [sic], mass starvation, the Cultural Revolution, arguably the most tyrannical dictator ever and he didn’t even brush his teeth, and now they will go from rags to riches without even a business cycle burp.” I don’t think you can do it with a straight face.”

:-D

Laughing loudly throughout the open space where my desk is.

Seriously, there must be bumps on the road. Wasn’t China in a recession by the end of the 1990′s despite official (= fabricated) GDP figures?

Ted Craig February 28, 2006 at 9:19 am

Let’s not forget the potential for a significant Muslim fundamentalist uprising and a major flu epidemic.

Chris Stiles February 28, 2006 at 9:37 am

The same can be said – with only slightly less force – regarding India. The events are less dramatic, but the culture they’ve bred – one of pervasive beaurocratic indolence – is just as sticky.

Macneil February 28, 2006 at 10:14 am

Of course you can’t say it with a straight face. Between the teeth brushing, burps and the “[sic]” it’s just too funny. :-)

Dan Harris February 28, 2006 at 10:24 am

There are always going to be two main China camps: “The China is going to bust camp” and the “China is
going to take over the world camp.” Both are going to be true to a certain extent because China will have
its ups and downs. But in the long run, China is going to be just fine and within ten years we will have
moved on to another country to fret about.

Frew February 28, 2006 at 11:28 am

I was in Shanghai a few months ago and MR was visible.

weichi February 28, 2006 at 3:07 pm

I understand the point, but you could have written that sentence in 1980. Is there a good history of the subsequent years that explains how this total basket case managed to turn itself around?

Sandy P. February 28, 2006 at 3:25 pm

It starts breaking up, mfg. will come home.

We still need trinkets made.

Calvin February 28, 2006 at 5:25 pm

I’m in Shanghai. No problems accessing Marginal Revolution. Drop a line if you want tips or would like to meet up for coffee or tea to talk about China’s impending crises or lack thereof.

Banker in China February 28, 2006 at 8:09 pm

When you refer to state contribution to GDP you’re talking companies like Baoshan Steel, Petrochina, Sinopec, etc.

So the real question is: how crooked are the biggest H-share listed companies in China. I think they’re a vast improvement on old town and village enterprises and the like but they’re certainly not GE.

As for whether China can or will become belligerent remember that its population is ageing rapidly due to the one child policy and parents have generally 1 child and only one son – you can imagine the reception of a war where China put every family’s only son at risk.

Travelling there and having lived there for a while, the real challenge is keeping the place together.

Sandy P. February 28, 2006 at 11:17 pm

Via Lucianne:

Is ‘Made in U.S.A.’ back in vogue?
Insiders say a manufacturing boom is underway in
California as U.S. retailers look closer to home to
offset the challenge from “fast fashion” sellers like
H&M and Zara.
—–

CAFTA and delivery times are more attractive.

foobar March 1, 2006 at 2:54 am

I don’t know about Shanghai, but I’m reading this on a mobile device while riding in the back of a Buick minivan in Beijing. Ahh, globalization…

Kyle N March 1, 2006 at 6:18 pm

I am not sure that we will see anymore “bone crunching” depressions again (barring some sort of obscene catastophe, Nuclear war, black plauge ect).
The reason is that repressions happen all the time and are usually localized phenomena. Depressions are caused when a recession becomes worsened by government
action. In a Global Economy like the one we have now, imperfect knowledge is less of a factor, and capital can flow instantly any place in the world.
Supply and demand ensure that surpluses (in goods, or capital) can also flow to where they are needed.
IMO, we are past the stage of a world wide great depression ever happening again, unless of course, the Nations of the world turn toward protectionism.

Dave Meleney March 2, 2006 at 1:36 pm

So if we can’t say China’s amazing progress will continue without so much as a business cycle burp…. then we are consigned to the huge flock who proclaim China is headed to a “crack up”, and the only question is when?

This dire scenario (dire for us too, as you point out) seems to hang a lot on the amazing estimate from USB that no more than 30% of the economy is private… but few who do business in China would find that a plausable number unless one excludes the entire production of firms that are partly or slightly owned by governmental agencies.

Charlie Rose has some remarkable interviews this week from India (see his website) and the billionairs there attribute much of their “take off” to continued economic liberalization and getting their saving rate up from the low 20′s to the high 20′s.

Meanwhile China’s rate is about twice that and they introduce major new liberalizations several times a year!

Professor Cowen, you have so often celibrated the details of the continuing “Chinese Miracle” and the vision of really, really, poor people gaining access to the worldwide cornocopia…. what’s so different now?

Have you seen a single major change in the Chinese formula that suggests a larger role for the state than what has brought them to where they are? Is there even evidence that corruption is getting worse? Where is the dynamism in this pessimistic model?

Dave Meleney March 2, 2006 at 3:53 pm

How is it that if one can’t predict China’s amazing progress will continue without so much as a business cycle burp…. well then, we are consigned to the huge flock who proclaim China to be headed towards “crack up”… with the only question being when?

This dire scenario (possibly quite dire for us too, as you point out) seems to hang a lot on the amazing estimate from USB that no more than 30% of their economy is private. But few who do business in China would find that a plausible number unless one excludes the entire production of firms that are partly or slightly owned by various government agencies.

Charlie Rose has some remarkable interviews this week from India (see his website) and the billionaires there attribute much of their “take off” to continued economic liberalization and getting their savings rate up from the low 20′s to the high 20′s.

Meanwhile China’s rate is about twice that and they introduce new liberalizations several times a year!

Professor Cowen, you have so often celebrated the details of the continuing “Chinese Miracle” and the vision of really, really, poor people gaining access to the worldwide cornucopia…. what’s so different now?

Have you seen a single major change in the Chinese formula that suggests a larger role for the state than what has brought them to where they are? Is there any evidence that corruption is getting worse? Where is the dynamism in this pessimistic model?

ash March 3, 2006 at 5:15 pm

think postitive about china auto industry

japan to 40 years to become big in auto world
korea took 15 years to become big in auto world

china will take 5 years!!!!

http://www.chinacarforums.com

Hanyu Chuang March 6, 2006 at 2:12 pm

I think for all the ills and problems we read about, it really boils down to this question:

Can the government simply manage economy to simply outgrow the problem or is the various ills going to eventually catch up and overhelm?

To make an analogy, ideally it is better to eat right and exercise to stay healthy, but there are various diets that you can perform to keep the weight down. Incidentally there is as much debate about various pros/cons about diets as there is about Chinese economy.

Chao He July 18, 2007 at 2:25 am

Hi guys, I am a guy from China studying economics in US now. I happen to see fogel’s comments and then saw so many misunderstandings here. I wish my comments could serve to be a somewhat other side of the story.

First of all, little complaint: the war against Japan was merely defense, not caused by Chinese ourselves and the civil war ended pretty fast and not really devastating compare to the war against Japan. The following revolutions were indeed very very bad. But what do you expect a country so closed to itself thus fell behind the rest of the world and being constantly invaded for more than a century by foreign powers? People in China at the time were indeed ignorant at today’s standard and compared to the western world at that time.

Secondly, as I found in many Westerners’ comments: it seems that everyone in the western world think that the political progress is such an easy thing to do that the good political environment in the west now were there from the beginning. I was born in 1984, as I remember the living standard were in a constant and dramatic increase. To me and to many Chinese ,I think, political problems and economic problems are both important problems, but as people’s resourses and sinue and attention are limited, I would say economic problems deserve somewhat more weight on it. Besides, as I am now more familiar with the politics in US, I would say politically, China is on the right direction.

Thirdly, it is simply not the case that a country has to be politically perfect (say, for example has to be multipartied or 0 corruption) to foster a healthy economic growth. To my knowledge, well streat and washington were not so clean at the time when US economy took off after the civil war. And democracy is not all-heal medicine. Remember people in many democratic countries are not necessarily happier than those living in the not so democratic countries. CCP is not good, but it is not that bad as known among many westerners.

Lastly, please, please don’t presume people in another country is stupid. At least, due to the opening up to the rest of the world, and through more education (and internet for example) average Chinese are far more open minded and smart then you guys expect. And don’t try to speculate those, say, who invest heavily and continuously in China are just stupid to be fooled. In many case as I know, it is the local government who is fooled by some “investors”.

Personally I am confident in China’s development both politically and economically, though maybe not as confident as Mr Fogel. The above are some “other side of the story”, I hope you would find it somewhat interesting.

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tramadol October 22, 2010 at 9:09 am

The loss of topsoil in China is appalling. If those more than a billion people are going to eat more meat

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