A reader (Alice) recently emailed me a rather interesting claim, that China is well on its way of becoming a $123 trillion economy. Alice links to a MarketWatchpiece that repeats some of the same flawed myths that Michael Pettis and others continually debunk. Pettis for example argues convincingly in his latest piece (not up yet on his site) that China today is more like Japan in the late ’80s and thus will be growing at much smaller percentages in the future.
In contrast, the MW piece essentially says:
1. China grew ~8-10% annually over the past three decades
3. China continues to grow ~8-10% for infinity plus one
The MW piece in turn quotes from a slightly older Foreign Policypiece, written by Robert Fogel, whom argues a very bullish case for China based on five criteria.
The first of which, Fogel notes that educational investment pursued by Chinese policy makers will somehow reap large dividends. Par for the course, a recent WSJ article notes that the US and UK spend the most per student and that Chinese policy makers are trying another top-down approach to overtake the US in this metric as well — by pumping out ever larger numbers of graduates. Yet ceteris paribus, quantity of graduates does not equal quality. Or in other words massive state funding does not necessarily equal to (!=) massive gains in worker productivity. Their approach is indirectly debunked at the WSJ (here) and by a piece I recently wrote.
Fogel’s piece also suggests that there will be continued, substantial contributions from the rural countryside. While there is no doubt that Chinese subsistence farmers (~45% of the population) that average roughly $1,100 in earnings each year will probably continue to be measurably productive and generate wealth, it does not follow that they will somehow generate massive GDP multiplier coefficients. If that were the decisive case then rural-heavy, developing countries like India, Indonesia and Pakistan are all up for double & triple digit trillion dollar economies soon as well. [Keep reading…]
Several prominent libertarians, such as Peter Schiff have gone on record suggesting that China is more free-market than the US. Others such as Jim Rogers (2010 Schlarbaum laureate) has stated that “America is more communist than China” (video) and that “China isn’t communist” (video) and that “China is not going to be communist ever again” (WSJ).
What evidence do they have of this utopic land of milk and honey? Or as Carl Sagan would say, extraordinary claims require extraordinary evidence.
My current employer is within the EFL industry and has a number of offices here in Shanghai. It is both privately owned and independently run (e.g. not a JV with a local SOE). I was recently sent a copy of a new employee handbook and found something of interest to those who buy into the belief that classical liberalism is alive and well in the middle kingdom:
For the last 30 years, private citizens in this southeastern China metropolis have largely taken over one of the least questioned prerogatives of governments the world over: infrastructure.
Driving down the cluttered and half-constructed streets of this 3-million-strong boomtown requires frequent U-turns and the patience of Buddha, but every road eventually leads back to a factory. Each factory is in turn surrounded by a maze of roads filled with hundreds of small feeder shops selling spare parts, building materials, and scraps. Every haphazard street in this town seems to have an economic purpose….
The official channels of financing and investment are routinely bypassed, replaced by local institutions with their own governance and lending rules. It all works, if a bit haphazardly:
Gray-market lenders are often established, though technically illegal, financial institutions that lend primarily working-capital loans at rates as high as 10 percent a month. Contacts often modify interest rates based on how well you know them. Forms of repayment enforcement differ. Weng points out that in a community so dependent on guanxi—relationships—defaulting on a contact’s loan could blackball you from future business opportunities….
Lending also takes place through a number of formal lending institutions that have become informal depositing institutions. Pawnshops in Wenzhou are very different from those in the West. The shops can give out loans of millions of dollars backed by property and stocks, and they can pay depositors interest rates three to four percentage points higher than the official lending rate at banks.
It’s a vivid example of what can be achieved when the central planners are too far away to have much influence and local bureaucrats learn to simply get out of the way. If only U. S. bureaucracy was so ineffective!
I agree most part of your point of view about China. I believe that after the bust of the current housing bubble and high inflation, there will be much more unrest. The costs to maintain a “stable” social order have exceeded the cost of maintaining the army. Great changes may occur after the Xi Jinpin administration. But democratization will probably make China more socialist, for reasons explained in Hoppe’s Democracy: The God that Failed. There are just too many mobs here. And many social democrats are controlling the media, preaching democracy and equality instead of liberty. Fortunately, some influential media have libertarian-leaning editors or columnists. We also have libertarian and classical liberal university professors. We are trying our best to have a greater influence.
Also, regarding the libertarian perspective on intellectual property and my anti-IP article that he translated, he said:
They [the Chinese libertarians] debated for a while, and now, most libertarians in China are anti-IP.
However its influence is limited since we are just circulating it in our circle, and posting it on websites. Most people in China don’t know what libertarianism is, and they may not capable of catching the idea in the article.
… You know, something nice is that those who control the internet here don’t know what libertarianism and the Austrian School are; thus, most of those sites are not prohibited. The Austrian School does have some influence in academia here, albeit mainly Hayekian.
Another example, in a long line of abuses, of how “the law” is really only to be exalted so long as it serves the purposes of the government. When the state finds itself losing the legal battle, it can always find or invent new uses for laws to get around such pesky impediments. In this case, the homeowner won court battles to protect his home, but the city simply called his property a “blight,” and not only demolished his home, but will likely send him a bill for it. The most immediate parallel which comes to mind is China’s policy of executing people, and billing the family for the bullet.
Interesting how the talking head can say that there are two sides to this story and avoid laughing. There are two sides to this story in the same way that there are two sides to an armed robbery.