China, Schmina
To the steady drumbeat of China's rising! China's taking over the world! comes another, contrarian view. From Foreign Policy magazine, writer Michael Pettis suggests:
for all the recent excited commentary, there's less cause for baijiu toasts in Beijing than they might think. That's because China's economic growth has followed what's sometimes called "the Japanese model." In Japan and other Asian countries, this model has proved extraordinarily successful in the short term in generating eye-popping rates of growth -- but it always eventually runs into the same fatal constraints: massive overinvestment and misallocated capital. And then a period of painful economic adjustment. In short: Beijing, beware.
The parallels with Japan are clear:
For a worrying case study, one need only look to Japan, which grew very rapidly thanks largely to very high rates of investment forced through the banking system. For a long time the problem of misallocated investment -- which was whispered about in Tokyo but not taken too seriously -- didn't seem to matter. Everyone "knew" that Japan's leaders could manage a transition easily. After all, they were extremely smart, with a deep knowledge of the very special circumstances that made Japan unique, with real control over the economy, with a strong grasp of history and penchant for long-term thinking, and most of all with a clear understanding of what was needed to fix Japan's problems. Sound familiar?
The trouble is, Japan is a staunch ally of the United States. Japan has no territorial ambition in East Asia. Japan is a democracy. So when Japan faces another Lost Decade, nobody really worries about the place going haywire, about a troublesome, ambitious, anti-American government trying to take the heat off of itself and onto its trading partners. Even in Japan's heyday it didn't hold $850 billion in US Treasuries.
So it's unclear which is worse, from an American perspective. A faltering, stagnant China with a blue-water navy, or a growing China knit more closely to the world economy.
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Jun '10
Re: China, Schmina
I like Mark Steyn's line: "China will get old before it gets rich." A look at the country's demographics supports that conclusion.
Jun '10
Re: China, Schmina
Now that China desperately needs to increase consumer spending, to avoid economic collapse, they're going to wish those girl babies had survived. I'm not trying to be flip about it. Women are the driving force in building a personal infrastructure. Mothers need things to run a family. Single men need a TV and a refrigerator.
Jul '10
Re: China, Schmina
I don't care about all that stuff.
I just want my iPhones and cheap spatuala's.
And Snuggli's.
May '10
Re: China, Schmina
Rob clearly remembers the finale of Newhart (got some old LP's of his, incidentally). China has never been that powerful, even in it's heyday. Though we are staring in the face of our own Lost Decade, thanks to gummint. The economy is resilient, and bounces back within a year. Except when folks like FDR "save the economy" in ten years (wanted to use an expletive there).
Edited on Aug 24, 2010 at 12:23pmMay '10
Re: China, Schmina
This is a pretty accurate take. China is neither the Red Commie ogre bent on world domination nor the unstoppable leviathan swallowing everything up with its economic war machine. It is a developing country transitioning from "developing" to "first world", and one that has natural nationalistic tendencies directed toward its geographic sphere of influence.
Large economic growth spurts are easy to generate when you throw stimulus fund showers larger than ours out there and the total economic base is a lot smaller than ours, at the same time as you peg the currency to generate exports. Especially if the exports are all dependent on low wage labor and low margins.
But they have population problems worse than ours- they are aging rapidly, the growth and development is heavily in a few cities, and energy is a challenge. The woman shortage is slightly less disastrous than our conservative news organs suggest, because outside of the core urban areas, people violated the one-child bans with relative impunity. You had the second or third baby and paid a fine. Then raised the kids. Christianity is growing rapidly.
You really ought to have Ross Terrill do a couple of guest posts on China.
Jul '10
Re: China, Schmina
I'd say it's developing into a "first world-friendly" country; we'll see about the next steps.
Kenneth: I don't care about all that stuff.
I just want my iPhones and cheap spatuala's.
And Snuggli's. · Aug 24 at 9:25am
If you want cheap spatulas there's only one place to go: Spatula City, of course.
http://www.youtube.com/watch?v=2XbCWmY0eqY
That is, by miles, the greatest post-title in Ricochet history.
Re: China, Schmina
Palaeologus
That is, by miles, the greatest post-title in Ricochet history. · Aug 24 at 6:23pm
Many many thanks.
Re: China, Schmina
Duane Oyen:
Large economic growth spurts are easy to generate when you throw stimulus fund showers larger than ours out there and the total economic base is a lot smaller than ours, at the same time as you peg the currency to generate exports. Especially if the exports are all dependent on low wage labor and low margins.
You really ought to have Ross Terrill do a couple of guest posts on China. · Aug 24 at 12:26pm
I ping-pong between optimism and pessimism on this issue, Duane, but I'm always glad to read some smart, cautious optimism from you.
We'll have to investigate getting Terrill to join us as a guest contributor.
Jul '10
Re: China, Schmina
If you want to compare China's economic future to Japan's economic present, you're jumping the gun, Mr. Long. First, shouldn't we take a look at South Korea, who has exercised a copycat model of the Japanese post-war recovery and is much farther along the road to industrialization (as they've fully reached it) than China? If South Korea falls into the Lost Decade trap of Japan (Japan is now entering it's third Lost Decade, mind you) then we can say with some confidence that China can expect the same if they remain on the same course. Though looking at the Japanese model, they will have to be at least three decades into their rapid economic growth period and start building artificial islands the size of Trinidad before the bubble bursts.
Edited on Aug 24, 2010 at 8:54pmRe: China, Schmina
That's a really good point, Humza. I hadn't thought about the South Korean model. The trick I guess is to manage the scale of it -- when China spends money and top-downs its economy, it's like a tidal wave. What's interesting is that no one, to my mind, ever tried to sell us on the idea of the smarter, better South Korean Way -- something they all did years ago with Japan, something they do now with China.
May '10
Re: China, Schmina
Japan suffered from MITI preserving the favored export players for years; Peter Drucker told everyone in the '80's that the Japanese crash was coming at the same time as US media was all stories about the fearsome Nipponese Colossus.
South Korea largely avoided that problem because 1) it is not a small, land-locked island with a stagnant population where real estate speculation could go haywire and 2) the chaebol crash occurred earlier in the cycle and was allowed to resolve itself instead of being propped up (remember the North Korea Hyundai payoffs scandal?).
China has characteristics of both situations. Ross Terrill has written quite a bit about the three alternative future scenarios for the PRC.
Jul '10
Re: China, Schmina
Duane Oyen: Japan suffered from MITI preserving the favored export players for years; Peter Drucker told everyone in the '80's that the Japanese crash was coming at the same time as US media was all stories about the fearsome Nipponese Colossus.
South Korea largely avoided that problem because 1) it is not a small, land-locked island with a stagnant population where real estate speculation could go haywire and 2) the chaebol crash occurred earlier in the cycle and was allowed to resolve itself instead of being propped up (remember the North Korea Hyundai payoffs scandal?).
China has characteristics of both situations. Ross Terrill has written quite a bit about the three alternative future scenarios for the PRC. · Aug 25 at 3:21pm
I'll concede your broader, economic points, mostly out of ignorance. But I'm confident that there's no such thing as a "land-locked island."
May '10
Re: China, Schmina
Palaeologus
Duane Oyen: Japan suffered from MITI preserving the favored export players for years; Peter Drucker told everyone in the '80's that the Japanese crash was coming at the same time as US media was all stories about the fearsome Nipponese Colossus.
South Korea largely avoided that problem because 1) it is not a small, land-locked island with a stagnant population where real estate speculation could go haywire and 2) the chaebol crash occurred earlier in the cycle and was allowed to resolve itself instead of being propped up (remember the North Korea Hyundai payoffs scandal?).
China has characteristics of both situations. Ross Terrill has written quite a bit about the three alternative future scenarios for the PRC. · Aug 25 at 3:21pm
I'll concede your broader, economic points, mostly out of ignorance. But I'm confident that there's no such thing as a "land-locked island." · Aug 25 at 7:23pm
;-0 Great point, Palaeo! The point I was so feebly attempting to make was that Japan is a land-poor island.... and conflated that with being locked out of real estate growth.
I think I must be getting to old to..... think, comment, whatever.
Jul '10
Re: China, Schmina
As I mentioned, The "South Korean Way" was very very closely modeled on the Japanese export-led development model, and while China is also getting rich off exports, there are fundamental differences between the Japanese approach and the Chinese. I agree that scale is a very big factor, and I don't think anyone was afraid of the big, bad Korean giant because, well, Korea is stuck between two even greater giants.
I'd love to see more of these kinds of discussions on the site. Who's for adding a regular contributor that is a trained economist, someone like Larry Kudlow?