China: All that glitters…?

My friend Dror has put up an interesting post on Thomas Friedman’s controversial column that I wrote about yesterday. Dror fears that many of us, dazzled by gushing reports of China’s success a la Friedman, will get a distorted picture of a country that’s not really doing quite as spectacularly as Friedman would have us believe.

As Ian Buruma points out in a recent article, ‘China’s economic success is convincing too many leaders that citizens… want to be treated like children’. This ideological shift is already showing itself in the calls for increased government planning in the US, as well as the shift of geopolitical power towards China. Taiwan, for example, recently announced that it will not apply for a UN seat this year, for the first time in 17 years. We can expect to see more and more political and ideological deferral to Chinese interests as we progress deeper into the crisis.

All this has happened before. In 1929, American pundits were mourning the failure of capitalism and listing the achievements of central planning in other countries. Back then, commentators were impressed by the Soviet Union’s high employment rate, and its incredible environmental and infrastructure initiatives. These included the Dnieprostroy hydroelectric plant (the largest of its kind in Europe), the 950 mile Siberian-Turkestan railway, and the Volga-Don water canal. Other achievements of that period included Nazi Germany’s 100% employment rate, Hitler’s autobahn (highway) projects, and Fascist Italy’s train system and efficient cooperation between government and business.

(Go to Dror’s post for the many links he incudes to back up is argument.)

Dror and I have had an ongoing argument for months about how strong China’s economy actually is, and how it stands up to America’s. I tend to think China is in better shape than he does. If you are watching its behind the scenes maneuverings, like shoring up its natural resources by cutting deals with Iran, Iraq and African countries, or its nearly silent investment in gold, you can’t help but see that they do have a blueprint for wielding the kind of global influence that for decades we imagined only the US could. China and the US are both pulling out of their recessions, but the US is going to get pulverized by the next wave of home foreclosures and the ticking time bomb of CDOs, all of which must (not might) pull down the dollar and weaken our financial system. China, while faced with its own staggering problems, is relatively unaffected by America’s mess, especially as it quietly moves away from the dollar.

China’s economy is so fragile, making predictions about it is dicey at best. I do think it’s safe to say that its global influence will continue to expand as America’s contracts, and it will be increasingly better poised than we are to cut deals, win friends and influence people. And yes, I know the huge problems China faces. But it’s faced many of these problems for the past 30 years (and some for far longer) and has continued to move ahead, or at least to plod along. And China has what we don’t – money in the bank. And nothing else talks like money. Maybe they will screw it all up and go crashing down. But for now, I see them as having the upper hand. Which, considering how America’s fallen, doesn’t really say very much, but still….

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Richard Burger is the author of Behind the Red Door: Sex in China, an exploration of China's sexual revolution and its clash with traditional Chinese values.

The Discussion: 65 Comments

Final say: I can buy dirt-cheap produce here, I can buy dirt-cheap electronics. I can buy dirt-cheap PCs and clothes, too. Even though the standard of living and wages here are among the world’s highest. Then there are certain things, specifically cable TV and broadband, where something goes haywire. I cannot buy these things at competitive prices, because there is no competition to speak of. Countless articles have been written about the relative high cost of broadband in America and its relative slowness compared even to markets where it is considerably cheaper. Anyone who has lived in Asia is aware of how much more affordable broadband is there compared to here, even while many other products and services are much closer in price, like going to a movie theater or buying a high-end digital camera. This point may seem obvious, but despite China’s far lower wages, most things foreigners are likely to buy actually cost more in China than in the US (wine, Western food, real brand-name clothing). Likewise, cable TV is not a product bought by those below middle class. And yet cable TV, especially the expat packages with HBO and CNN, etc., are wonderfully cheap – but not really. They seem cheap only because what we pay in America is so artificially inflated due to lack of competition. Unlike shopping for a PC or a car, the broadband/cable TV market in the US is rigged and offers wretched options.

But this was just one example I cited of an industry where we would be better served with more, better regulation. My simple point was that regulation can be very beneficial, and this is also an example of Dror’s scenario of a government-backed cartel that can run roughshod over the public. It’s an example of where good regulation is called for, the kind that stops price fixing and allows all sorts of competition.

September 15, 2009 @ 4:50 am | Comment

Fascinating blog from Andy Xie

Some stuff relevant to Dros Richar post fest.

“Many now argue that what’s happened in the US and in developed economies shows the bad side of market economy and, hence, China should not move further towards market. This is drawing the wrong conclusion from the current crisis. Market remains the best tool for motivating businesses to deliver the best products at the lowest possible costs. All other systems have failed in delivering prosperity. Markets, however, need regulations to function properly. For example, food safety standards need to be there for the industry to function properly. The main purpose of regulation should be to enable market to function more efficiently rather than to replace market.
Some economies like the US or UK deregulated too much a decade ago, which laid the foundation for today’s crisis. China’s economy, however, is excessively regulated and controlled by the government. The lesson from the today’s crisis has little bearing on China’s policy forward. China still has a long way to go before its market may become ‘too free’.”

More stuff can be found here.

To can subscribe with Google reader, use this
http://xieguozhongblog.blog.hexun.com/rss2.aspx

Then you can see which entries are in English. Most in Chinese.

September 15, 2009 @ 6:18 am | Comment

For lazy eyes, most interesting points.

“Market remains the best tool for motivating businesses to deliver the best products at the lowest possible costs.”

“Markets, however, need regulations to function properly. ”

“The main purpose of regulation should be to enable market to function more efficiently rather than to replace market.”

“Some economies like the US or UK deregulated too much a decade ago, which laid the foundation for today’s crisis. “

September 15, 2009 @ 6:21 am | Comment

Ecodelta, well said!! In loving memory of the 2008 GOP national convention slogan, I propose our nation’s new slogan: “Regulate, baby, regulate!”

September 15, 2009 @ 6:29 am | Comment

I lost you guys on the broadband discussion. How did we get to this topic?

@Richard: “a clown and a conscious, persistent, relentless falsifier of fact” – I know many people, including leading economists, who would say this about Paul Krugman any day. I am glad that you trust him to reinforce your existing world view on a daily basis. I am sure he has been delivering.

However, it is the same Krugman who has been preaching quantitative easing, bailouts, socialized healthcare, and deficit funding. He also has the audacity to write about the failure of America’s “free” market without mentioning – even in passing – the role of Fannie, Freddie, and the Fed in creating this crisis. Of course, he also writes about how bad it is that we are in debt, that banks do whatever they want, etc… but he fails to see how it all relates to the same policies that he has been preaching for the last 20 years.

He is great at pointing out symptoms, but the medicine he prescribes is non sequitur.

You know it’s true Richard: Krugman is dying to get a seat on Obama’s team, or to be Chairman of the Fed (Bernanke also came form Princeton…). He makes some important points, but he does not have the balls and integrity to tell it like it is, especially not when Democrats are in power.

September 15, 2009 @ 7:29 am | Comment

Dror, I just made a passing reference to it as an example of a badly regulated industry – actually, a great example of what you describe as a government-enabled cartel. Another commenter then got the thread caught in the minutiae of Singapore’s broadband pricing. Apologies.

Maybe I will someday see the light, but I have to say, I am – and am proud of being – an old-fashioned New Deal democrat, a believer in help for the workers who don’t have the advantages corporations do, a believer in government playing an active role in stimulating the economy the way Krugman does, which is based on traditional Keynesian principles. He is not two-faced about our debt – he says the country can handle the debt and that it is not unprecedented. You may not agree, but this is not radical, and i don’t find any hypocrisy there. I find him remarkably consistent, actually, in his advocacy for healthcare, Medicare and Social Security, employing consistent arguments for years about how they work better than most of us realize. Anyway, no need for us to argue each point, as we know where the other stands. Just remember the bottom line: Krugman rocks. He has shown courage from day one supporting unpopular causes and I admire him, with no embarrassment for doing so.

September 15, 2009 @ 8:07 am | Comment

How about his consistency concerning debt? How come 2 trillion for Bush is something we cannot live with and 11 trillion for Obama is not a big deal?

And the New Deal was a disaster. So much of the perceptions we have today of the Great Depression are wrong. I am writing something on this as well…. lot’s of work these days! The battle against tyranny is heating up.

September 15, 2009 @ 8:50 am | Comment

lot’s=lots

September 15, 2009 @ 8:56 am | Comment

I am not convinced debt under Bush would have been 2 trillion and that Obama somehow moved that number to 11 trillion. Under both presidents, Krugman’s position was exactly the same – a radically large program of stimulus spending.

I know that the New Deal has been romanticized and that it was WWII, not the New Deal, that put America on its feet. But I am still a New Deal Democrat, believing in government that watches out for the mass of working people, the nation’s backbone, the majority, the people government is there for.

September 15, 2009 @ 9:00 am | Comment

When Bush’s projected 10 year deficit was 1.8 trillion, Krugman said that it is a disaster and that the “the fiscal train wreck is already under way”. When Obama’s projected 10 year deficit is 9 trilliion, Krugman said that everything will be ok and it’s not a big deal.

In summary:
– Krugman 2003 [deficit at 3% of GDP, 10-year deficit projection $1.8 trillion]: “I’m terrified … we’re looking at a fiscal crisis that will drive interest rates sky-high … the conclusion is inescapable … the task is simply impossible … the fiscal train wreck, is already under way.” Or,

– Krugman 2009 [deficit at 11% of GDP, 10-year deficit projection $9 trillion]: What’s to worry? The Ozzie & Harriet era of government finance will be easy enough to bring back. Just stabilize the debt in terms of GDP and be happy!

I encourage you to read his original articles and here. Interesting, isn’t it?

Your political slogans are very nice. Now, please tell me: Is the current US government, led by a Democrat, with full control of both houses, “watching out for the mass of working people”?

Last time I checked, the Obama’s administration was overseeing the biggest heist in history. Correct me if I am wrong.

September 15, 2009 @ 10:54 am | Comment

Now, please tell me: Is the current US government, led by a Democrat, with full control of both houses, “watching out for the mass of working people”?

Not as much as I’d like, but certainly far more than his predecessor Clinton. I wish Obama were more liberal; he is a moderate verging on conservative, and ever so cautious.

About Krugman and that site you linked to: let me see what he’s basing it on.

I accidentally screwed up one of your links in the comment above when I tried to fix the URL – sorry.

September 15, 2009 @ 11:02 am | Comment

The links are:
http://www.nytimes.com/2003/03/11/opinion/11KRUG.html
and
http://krugman.blogs.nytimes.com/2009/08/28/the-burden-of-debt/

You are being very generous with Obama. So far, he has been a true servant of all the wrong people and worked hard to exacerbate both the causes and the symptoms of America’s problem by giving more power to the banks, debasing the people’s currency, encouraging reckless spending, and discouraging choice and personal responsibility. Sad but true.

September 15, 2009 @ 11:25 am | Comment

And by the way – I am not trying to convince you to support anyone other than Obama. There are no alternatives within the current US left/right paradigm. That’s part of the problem. But before we think about alternatives, we need to get an understanding of our current state.

September 15, 2009 @ 12:10 pm | Comment

@ Richard

“but because it is the safe haven investment during times of economic uncertainty in general and inflation in particular.”

Gold has had an assumed value but is just another commodity. Its value is purely psychological, not practical.

September 15, 2009 @ 2:29 pm | Comment

Hopfrog, this is now spam. Please stop. We aren’t here to argue about Singapore’s broadband price. If it has gone up since I went there, fine. Please stick to the topic – I let it go far enough. Thanks a lot.

September 16, 2009 @ 3:02 am | Comment

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