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China is Going to Get Wealthier: That’s a Good Thing
China may be having a hiccup in the economic rise it has been experiencing over the past decades. But should China wind up as comparable in economic status to the United States, it might be a good thing all around.
China has had it rough economically for a long time. It was defeated in the two Opium Wars with Great Britain and split between the Spheres of Influence of the Great Powers. The disastrous Taiping Rebellion further disgraced the Qing Empire in the Victorian Era. It was immediately followed by China’s humiliating loss of Korea to the Japanese Empire in the First Sino-Japanese War. This led to the collapse of the Qing Empire, the creation of a republic, and the outbreak of civil war between forces loyal to the Kuomintang-led government and forces loyal to the Communist Party of China. Meanwhile, decades-long Japanese imperial policies matured, prompting Japan to instigate the Second Sino-Japanese War in 1937 and hastening the onset of World War II. The Communists won the Civil War and Mao Zedong came to power, a series of catastrophes in itself.
This century-long period of political depravity clearly doomed the Chinese economy. But following Mao’s demise, China began to slowly to thaw. It began experimenting with free markets in such arenas as farming and businesses, leading to the expansion of its private sector economy. The Party didn’t interfere so long as it didn’t threaten the state sector. Ronald Coase and Ning Wang tell the story of China’s economic transformation in an essay based on their book, How China Became Capitalist.
http://www.solarfeeds.com/how-long-can-china-sustain-mega-growth/
The result of political stabilization and market reforms was an explosion of economic growth. China held a mere 2.42 percent of world GDP in 1980. Now it holds 17.24 percent.
This massive expansion caught the world off guard. Many in the United States have begun to think of China as our new rival.
Despite its recent stutter, China will continue to grow economically. I argue that a nationalist, tough-on-China stance predicated on fear of their vaulting economic growth would be the wrong approach.
There’s a widespread perception that China’s economic growth is bad for the United States, and amounts to them “winning” against us. But in truth, China is destined to be an economic superpower, and that’s fine. China is very large (slightly larger than the United States); it is very fertile, with the largest population in the world; and it is a fairly homogeneous, with an ancient history and culture. Together, this gives China the greatest economic potential of any country on the planet. China failed to expand until recently only because its potential was unmet. It was unmet because its political situation was dire. Recently, political stability and economic reforms have allowed China to begin reaching its potential.
Too often, Americans look at this growth and assume China will outpace the United States and make us poorer in the process. The reasoning is fallacious. It is grounded in the assumption that China’s success must come at the expense of the United States.
But it is simply foolish to assume that China won’t grow, given its huge economic potential. The failure to understand that some countries are destined to be large and powerful is one reason we were startled by Vladimir Putin: We saw the Soviet Union’s collapse and thought Russia would stay down. We failed to appreciate that it was still the biggest country in the world, with a population of nearly 150 million. If American leaders had accounted for this, they would have predicted that Russia would sooner or later become a major world player again — meeting its potential — and their brains wouldn’t have been so readily scrambled by Putin’s behavior.
China’s Economic Growth is Good for the United States
The argument that the success of a foreign nation can have a positive effect on every other nation contradicts the competitive, zero-sum view of most nationalists. But it’s just common sense.
When China grows, economically, it produces more. When it produces more, it can sell more goods abroad, specifically to the United States. Increased supply lowers prices, lowering our cost of living and reducing the amount of capital required to start certain businesses, too. This does not result in lost jobs. To the contrary, it frees up resources that previously would have been used to produce these goods and allows them to be spent on other industries, ones in which we have a competitive advantage. Increased Chinese production opens a new market from which Americans can choose to buy products. This means Americans can then use their saved resources to produce things Americans are better at producing than they are at producing the product they bought from China. Of course this helps China, too, because the same thing happens to them when we begin to produce in arenas where we have a comparative advantage and begin supplying more of China’s demand for those goods.
You understand this principle if you shop at a supermarket. You could produce your own silverware by going into the woods and spending a week sharpening stones. But the silverware manufacturer has a comparative advantage at producing silverware because he has a factory. So it’s better for you to concentrate on your own work, instead — your work being the area of your own competitive advantage. You trade your hour of work for the silverware — and this is a better deal for you than spending a week in the woods. The mechanism by which this happens is money and a vendor at the market, but it’s still the same concept when we trade overseas. You benefit if the silverware manufacturer gets rich by inventing a new machine that produces silverware twice as fast, because it means you can now buy the same silverware at a much lower cost. And more people will be able to afford silverware.
This means that China’s recent economic growth should be welcomed. Not only is it lifting more than a billion people out of poverty in East Asia, but it makes our lives better in the United States, too.
But What About their Military?
The only potential downside to China’s increased economic power it also funds the People’s Liberation Army. This raises the odds that they could be successfully aggressive. This threat is real. It is wise for the United States to remain in East and Southeast Asia to defend the region militarily.
But to maintain peace in the region, it might well be shrewd to encourage the transformation China’s seen since the death of Mao Zedong. China’s shift toward market freedom has led to massive economic growth. If China continues to discover the benefits of capitalism and continues to prosper as a result, history suggests that economic opening will result in political opening, too. Capitalist countries are much less likely to go to war with each other than socialist countries.
The best way to make this happen is to trade more with China without reducing our military defenses, and to accept all economic opportunities cordially. This will benefit both countries and make China less hostile to the West.
More Chinese prosperity means more Chinese liberty and freer Chinese markets. Free people and free markets mean a less hostile China, making Western fears of a Red Blitz across Asia less acute.
One such fear is that in 2047, Hong Kong’s “One Country, Two Systems” agreement with the mainland will expire, allowing the CCP to foist a communist system upon Hong Kong. But by that point, if the West is wise and economically open to China, we may well see Hong Kong conquer the mainland for capitalism instead.
Published in Foreign Policy, General
Don’t get me started on the artists & intellectuals of Weimar times, who used all their influence to bring down the regime & any possible decent order…
The sanctions caused the gov’t to destroy the currency & crash the economy in ’22, remember? & they still voted Hindenburg in ’32!
And when the Great Depression hit, they stopped voting altogether.
Perhaps they would have kept Hindenburg-Minded-People if they weren’t so devastated by the economic implications of the Versailles Treaty.
With the discussions of WWI / WWII and Germany, I sense a Fawlty towers moment coming:
China’s need for more land and more natural resources makes it a threat to all of southeast asia. It’s leaders eye all its neighbors as potential targets. They are not a benign ideology. Proxy wars work for them in Africa securing a lot of what they need. They have a finger in the pie of the mideast hoping for an invite by the Russians into the Syria mess. They have ties with Iran. Capitalism only currently works for them, it’s not a long term solution they embrace. They are building their military at a tremendous rate. They are commies.
I don’t think I have ever disagreed with a post on Ricochet as much as I disagree with this one.
China wants to becomes the dominant power, and make the United States an insignificant spec on the global stage. In the dream of the Chinese leadership, the lives and deaths of American citizens are no more important than the lives and deaths of refugees on television to the average American.
Even if China were to remain peaceful, its mere act of performing open market operations via its central bank would disrupt and worsen the standard of living of everyone else in the world, particularly the United States. Consider for example the actions of the Federal Reserve relative to the rest of the world, particularly in this economic climate. The Fed’s raising of interest has the potential to cause a credit crunch in smaller economies. Recall the Asian Financial Crisis of the 90’s, when the raising of interest rates by the United States caused a credit crunch throughout Asia, due to money leaving East Asian assets into US assets. If China’s economy were to become large enough, this could happen, with the US being helpless and unable to effectively control its own monetary policy.
Let’s not also forget the effects on the climate and pollution throughout the world, as well as the effect of making commodities more expensive, and thus lowering the standard of living for US citizens.
The resources they need can be acquired one of two ways. Territorial Expansion, or Trade.
The point is that increased antagonism towards their growth, and escalating a “Trade War” with China, will only make it more likely they turn to the military option.
I do believe you have a point. The culture of China does not lend itself to individual decision-making. It is a deontological system. Rules based, not morals based. Collective versus self realized.
This short-coming is not homogeneous nor monolithic, but it is prevalent. And it pervades so much. It is the reason for much of the corruption, diffusion of authority, and spiritless compliance.
These features inside an authoritarian/free market system are fatal to efficient resolution (just as massive government intervention retards efficiency everywhere).
Obviously, the experience of last summer and the past week confirm that the authoritarian side cannot tolerate the free information flow essential for a free market to flourish. The Chinese authorities are jailing financial journalists, hedge fund managers, bankers, etc.
While I think Naudious’ trend is right, the pathway is blocked by many obstacles, not the least of which is the system, hailed as some as an alternative to the West’s liberalism.
The military implications fascinate.
(cont. from #35)
Luckily, their economy has stalled right now, and independent estimates (the link leads to an analysis by Citigroup) of China GDP growth put the true growth rate at 4% or less (and that is one of the high independent estimates).
The military thing is inevitable.
Explain to me how China increasing its supply of goods makes those goods more expensive? That’s just Econ 101.
Again, you miss the point that the World isn’t a Zero-Sum game, where China’s success can only come out of America’s success.
Remember, they can’t force us to trade with them, so any harm they do to us must be accounted with the benefits they provide us. Consider the Credit Crunches you mentioned. Would the alternative be better for these nations? That is, no investment in the first place.
Again. Chinese growth means they are worse off and we are worse off.
Cheering Chinese Economic stagnation is like cheering that your local Walmart might shut down. It just means there are less options available for you to improve your own life.
As evidence of this, most estimates say that same stagnation you mention, could cause a worldwide recession. That helps nobody.
I challenge that it is more inevitable, and more dangerous, if we become economically antagonistic.
You don’t rapidly expand a military force and not use it. We have spent the last forty years using ours at every opportunity. Just sayin…
And I didn’t say we should drop our South-East Asia Military Defenses.
China knows they can’t win a war in the region, at this time. I contend that opening trade with China will make it more likely they will curb their political ambitions in the long run, since they will be able to fulfill more of their needs with trade.
Short term it is convenient for them to trade but remember they have the other ideology not unlike Islam and consider theirs superior to ours. As our “light” continues to flicker before it goes out the big test on the world stage will be Islam vs Communism. Don’t think trade will be an issue between those two.
That’s an entirely unqualified statement.
Hong Kong shares a culture with China, and is a very successful Capitalist nation. Taiwan is the same.
It may seem easy to assume that Eastern Cultures are not suited for Western Ideologies like Capitalism. But remember that Marxism is German. Before Imperialism, China was just as Market oriented as Europe at the time. Remember the Silk Road and Marco Polo.
Indeed, Adam Smith was very laudatory of the Chinese Economy in the Wealth of Nations. They certainly have a healthy market culture, after all, they made these market reforms so far out of their own intuition.
Western mindset thinks money trumps everything (no pun intended). It isn’t so in other parts of the world. Ideology is the driving force. Trade is useful to prop up economies but agendas of world domination are the ultimate goal, it underlines everything they do. America has become useful idiots helping to keep these evil doers afloat. We live in dangerous times. Lots of nukes in countries that don’t like us. One false move and it will get nasty real quick.
I’d say, these people running China are not communists. They are a very dangerous oligarchy. Almost all Communist regimes ended that way. This was the only one willing to murder however many it took to retain power. The new ruler, Mr. Xi Jinping is both building a personality cult & a anti-corruption campaign to strengthen rule so that the astounding corruption of China makes for fewer of their never-ending always-quashed protests & revolts.
But racism & war may be stronger when it comes to keeping Chinese people together. & the way the government is acting especially in maritime matters are sure to make peace impossible for civilized countries-
Again. Your statements are not qualified by reality.
You mean they are unqualifiedly true?
I agree, war will come probably by accident.
This piece is excellent.
Highlighting the essential conservative notion that economics is not a zero sum game is important in our current political climate.
Is it worth emphasizing at the expense of the really essential conservative notion that the people determine the country & the country the economics? It’s not a zero-sum game is an awful message when you have to worry about war, isn’t it? What if some similarly excellent piece had argued for greater market freedom because trade & economics are going to bring the world together in the teens or thirties or fifties to look only at the last century? Would not that man had fed peaceful people’s most disastrous delusion, that everyone can just get along?
Who exactly is arguing that people do not determine the country & its economics?
I think the chances of China going to war with its largest trading partner are unlikely.
I don’t know quite what you’re saying here, but trade makes enemies into friends faster than any other force in the world. The reasons behind WW1 and WW2 had less to do with trade than it did various treaty obligations.
Let’s take foreign policy first: If you’re saying, at the greatest level of globalized trade in world history up to that time–& until recently–governments & peoples in the most advanced countries in the world in all modern things would rather go to slaughter & suicide than keep getting richer trading–do you know what you’re saying?
Now, to the domestic policy business: I would say the entirety of the piece is an elaborate exercise in concealing the domestic problems in China. While saying that China is destined for greatness, consigning the horrors of China, as well as its troubles, to silence. Show me which part of this excellent piece, as you call it, shows any interest in talking about why China is destined for greatness–which you suggest you believe it does, because of its concern with the people in China & how they determine their situation & doings? I would say, that is no concern at all for the piece. It is a fantasy entirely devoid of politics.
No. In a Socialist Society its People –> State –> Economy (though it always ends up State –> People; State –> Economy)
But in a Capitalist Society it is People –> State; People –> Economy.
And the point is that transitioning China from a Socialist Country to a Capitalist Country makes them much richer, and that is good for everyone.
“Free people and free markets mean a less hostile China, making Western fears of a Red Blitz across Asia less acute”
I think this used to be the thinking in much of the State Department and through much of the late Clinton years right on through the Bush years. The explosion in economic growth in the early 2000’s led to an influx of jobs and new industries, but the party remained in charge. Now that growth has halved and the stock market is shaky, the central control reflex is back. You can see it in internet censorship, pressure on news outlets to ignore certain topics and military belligerence in the South China sea.
I am with you though, a more liberal China is better for the world and particularly Asia. Until the Communist Party is overthrown and replaced, I don’t believe the people are really free and I don’t think the Chinese (maybe the Uighurs) are angry enough to do it.
What is your evidence? Your argument from history seems utterly ridiculous. Things may turn out as you promise. You’re free with words like destiny. But the notion that you know what China’s going to be doing five or ten years from now is extremely laughable. Things may turn out for the worst.
If capitalism means anything like America rather than the European powers that wiped each other out–then there is no way in hell China can transition to that. Maybe something like Japan? What is your fantasy exactly? There’s no such thing as a ‘capitalist country’, is there? Or if there is, wouldn’t most of them have been involved in the slaughters I mention & which you piously ignore?
I recommend you read the piece.
But to return to Free Trade and Peace. The period of time with the greatest amount of Free Trade was the Victorian Period. Note, it is also called the Pax Britannica. Which is Latin for Era of British Peace. It started when the British Corn Laws were repealed in 1846, and ended when the British re-instituted tariffs in WW1 (Britain being the biggest Empire, and trading nation on the planet, and leading the world in this regard). There were only 2 or 3 major wars during this period. The Civil War being the worst.
Compare this with the 20th Century, when nations returned to protectionist policies and trade wars. Or before the 1800s, when war was almost a given.
The Classical Liberals had a saying: “When Goods cannot cross borders, Soldiers will”. One of them, E.L. Godkin wrote at the end of the 20th Century that the world would eventually come back around to Classical Liberal ideas, but only after “international struggles on a terrific scale” (See: 1900s)