Does China Need a New Miracle?
I doubt that many Spend Matters readers know how desperate the situation is in China now for millions of people. If you're curious to get a first-hand account, it's worth reading this recent Time Magazine article on China that describes the plight of those who are not making the evening news, including the "hundreds of migrant workers waiting to start the long journey back to their home provinces" every day at a single train station. Summing up the article is simple: "China needs a new economic miracle -- and the trajectory of the global economy may depend on whether one can be conjured up." But prescribing the right solution is not. As Time puts it, "the next miracle may be harder to pull off than the last one." While I'd never bet against the hard Chinese work ethic -- especially compared with the same ethic in other developing countries -- I can't help but wonder if we're watching the limits of centralized planning collapse as quickly as they were built up.
- Jason Busch
- Jason Busch
As much as I think America is going in the wrong direction, against free market capitalism, I do think we still have a freer economy here than in most other industrialized nations. That gives us an edge in adapting to change, in developing our economy and in weathering the current financial downturn. Now if we could only knock out our debt addiction, and bring some manufacturing back here, we'd be in a much better position.
The weakening dollar may help with that ...
I have been covering this for months over at All Roads
Where I see China's real issues is that there are essentially 4 separate economies that must be managed in parallel. not all of them have to grow, but in aggregate, they must:
1) Export economy
2) Government spending economy
3) Domestic consumption economy
4) Rural economy
Now, I am NOT an economist (even though Martin Soong just said I was), and I realize that some may argue with the above, but if you look at how China's economic policies are formed it is very much with these four things in mind.
Where the real problem exist are
1) China does not control the export economy in a recession. It can compete head on with India in the good times, but in the bad times they are 100% reliant on the ability of buyers to buy.
2) Government economy - same as anywhere else. Will the government spend (ahem.. invest) the money in the best manner, through their investment be able to catalyze the economy, and spend it in a way that has LONG TERM BENEFIT
3) Domestic consumption economy - China has a very low rate of consumption, 1/4 of their US and Western EU counterparts, and the world is a better place for it! Short term, there is a nice pop here economically, but there is no long term sustainablilty in spurring consumption. None.
4) Rural economy - This is the pot of gold, and where the government can find the greatest opportunity for LONG TERM - SUSTAINED growth. It is here that government INVESTMENT will become critical, and through the reduction of taxes, improved land ownership rights, and improved environment (win, win, win), this can be achieved... over the long term.
In the end, where I think the Chinese model will succeed where the US will flail is that they have time on their hands. Right now, the leadership in China is very concerned about the economy, but they are not as worried about their own entity. Simply put, it is not their fault that things are going bad for the economy... it is an external event.
r
www.allroadsleadtochina.com
The article and your observations are correct. Current situation has certainly created lot of misery for people who were dependent on export economy in variety of ways.
Worst off are the people who have helped to power this economy - at possibly subsistence wages all these years. These people are not likely to have a lot of potential for savings or buying goods - whether made in China or anywhere else in the world. Hence the vast Chinese population will really be unable to support or carry demand for sustaining all the production capacities.
High rate of Chinese savings is possibly through the upper middle class there and through the state or other companies. They have not modernized or put in measures to improve value contribution of Chinese goods. Chinese economy has relied mostly on being a low cost (Cheap?) mechanism to supply to world.
China certainly needs to address number of issues. Major issues like concentration of development and economy powerhouses in eastern board are well known every where. People who have been watching China know it too well that Chinese economy seriously lacks good managerial, financial and other talent - which can make their industry stand on their own. At present every thing seems to hinge on Government and implied absolute power there.
Dealing with genuine business issues and economy at individual business level is a serious challenge. China has plans to generate massive infrastructure assets. That will most likely keep the current unemployment in check. It will also generate better business for people in hinterland. But managing this behemoth at macro scale is still a major bridge that China has to cross.
One major asset of China as a nation is that the rulers are not hampered by a little inconvenience called Democracy. They will be able to keep the dragon turning but heading all the smaller units and achieving overall good is still a major task.
For the good of Chinese people - and in turn for every one else in this world, let us hope and pray that China succeeds - at a very fast clip.
But unfortunately Hope cannot be a strategy.
Shashank
The fact is, however, that China is not the country which has suffered the biggest blow from a political standpoint, but the US, where the paradigm of monetarist policies and laissez faire style economy is currently resting on very shaky grounds. The kind of nationalization of the US market is in itself a manifestation of market failure.
The problems in China is not a result of China itself, but rather a result of the interdependencies in the global economy, and an over-dependency on the US economy.