China Skepticism
(I wrote this after my visit to Shanghai and Beijing in May ’10, as part of my MBA program at Duke. I originally circulated it around with friends and other readers with the title “China is at least 2 generations behind the rest”, but that was just needlessly provocative, and incorrect in many respects. Nevertheless, I remain quite a sceptic on China).
Flawed Economics
Firstly, China’s much vaunted economic growth is on very flimsy foundations. Yes, they were 173rd in world GDP rankings in 1978, and #2 today. But,the economic model in place is – keep currency low, have an unlimited supply of labor, and export to the US/Europe (‘capitalist’ nations). They earn dollars, and also have near total capture of all household savings, which are then funnelled back into the economy, mainly to just build infrastructure, and infrastructure only (there are highways in China, where one can drive for hours and see very fewr cars).
The success of this is based on trading with the world’s wealthiest capitalist country through the post-WW2 global trading system, and the US can significantly damage the trade by the stroke of a pen which forces them to revalue (or they close down trade doors, although this is hard for the US to do, given how badly off they are, in their own way). It leads to a ridiculously lop-sided economy, with not much going on (local consumption is almost negligible). The amount of ‘economic waste’ is unbelievable – nearly half of the skyscrapers in Shanghai are absolutely empty.
When, and it’s a question of when, and not if, the crash happens – which could be the collapse of exports, the internal property waste bubble bursting, the GDP will see a very severe contraction – which means lots of unemployment, wealth disappearing, and…
And that brings me to the most vexing part of the Chinese economic story – contrary to what the world thinks, there is a lot of poverty in China, the kind of degrading, dehumanizing type one associates with Africa, India, and South America, and in much larger numbers – 800 million of them. In interior China, people live on 1000-1500 RMB a year, which is about 200 RMB a month, or about a dollar a day.
Politics
The government in control – the communist party, get their legitimacy from the fact that they’re providing growth. Simple as that. So what happens when growth stops? Now, Shanghai and Beijing look grand, clean, and Shanghai in particular, is like downtown Manhattan times 100. Of course, it is all economic waste, since none of the skyscrapers are occupied. No forces of demand or supply, no consumption locally of the product (people can’t afford it).
And the way they’ve made it happen – any slums that were there get cleaned out, people get evicted. Picture that in Mumbai, think of what you could achieve. Nariman Point would be much more impressive. A lot of Shanghainese remarked that Shanghai was designed as a ‘showcase’, as ‘national pride’, and that once you step out, all the cities/towns look as ‘bad’ as any Indian tier-2 city.
Communist rule has destroyed every single institution that is present in a real society – media, government, judiciary, citizens organizations. Private industry cannot flourish – while 70% of China’s GDP is locally produced, it’s actually all government controlled, land is allocated by the government, and all resources/permissions are linked to the government.
The government owns everything, and the destruction of all institutions means that the common people have effectively been stripped of all and any means of rising, or of growing personally. A good example of this is in banking - banks exist, but the decisions on who to lend, where to lend, what to lend – nothing is in their hands. Beijing decides all that.
No media exists. At our hotel, there was a different newspaper for foreigners and for locals. Locals can’t move where they want, they need permits to move within their country.
(There is a broader philosophical issue of what is the point of living like this, but let’s leave that aside for now – as that can be flipped around and asked for India or any other country as well).
Society
This bit is the most ‘flaky’, but again, worth mentioning, it appears that communism has created a disjointed social network. There are lots of people who feel really rootless, with no grounding (although whether this is more inherent is an open question, as Nehru remarked when confronted how cavalier Zhou Enlai seemed with regards to an all out nuclear conflict between countries as large as China and India). You have a vast population that just lives as hawkers, peasants and workers, under tight-fisted control. And then you have a totally disjointed middle-class, which only cares about wealth, cars, apartments, and property. It’s very tangible, when you talk to the people, to see what has happened. By contrast, China, India even Dubai – seem to have a more connected local population.
It’s the combination of all these things – the weak economics, the political backwardness, and the skewed society, which makes me question the China story. And other emerging markets have very major issues and problems (and the less said about the developed markets the better), so its not as if China is in a club of one.
A quick note on the Olympics: it was a manifestation of all that is wrong with the model. The manic national pride and desire for global (mainly Western and Japanese) respect, and a desire to impress other developing nation trade partners made them embark on the thing, with no respect for the true social and economic cost (which would have happened elsewhere). The unlimited labour supply and total control enabled them to mobilize a large workforce to work, kick people out from places where they needed the land, and just pull it off.
(Cross posted on my blog).
Not sure what you are trying to achieve by this incomplete info for China.
Every country has to go through certain phases to get to the top. They are in transition now and who knows makes it to the top in near future. Tell me a country now which has less skewed economy now and are doing better than them. Please do not tell me India.
I advice you to go their again and look at the things more positively. On the politics and Government. USA, the most successful country on this planet, is the most corrupt as well (I mean the politicians. You name it and they have faked everything unimaginable from Moon landing to Guantanamo bay.
I guess you are one of those people you rely on TV for most of their information. Seeing is believing, but believing is not the reality. You can perceive things they way your mind is oriented. And in your case it is certainly not oriented to see positively so IT does not matter.
Comment by Emmett — October 27, 2011 @ 5:42 pm
Very good post. I agree with all of these items.
Comment by Ankan Kd — November 2, 2011 @ 6:30 pm
very good article….
Comment by kamala — November 5, 2011 @ 12:32 pm
This article is very useful for the economist as a good reference material.
Neeta Gundawar
Manjusha Karad
manishachemistry@blogger.com
Comment by manjusha — November 5, 2011 @ 12:34 pm
At least they’re better off than us Indians
Comment by Nishant Agrawal — November 5, 2011 @ 6:49 pm
Your article is good. But isnt it better to look at one’s own house before laughing at the plight of China. In India, the situation is worse in many ways. For example the organised employment has gone down over last several years. For more details, please visit http://lokkatha.com/150/index.php/economics/90-employment-in-organised-sectors-public-and-private-in-the-post-liberalization-period
Comment by Peeyush Sharma — November 7, 2011 @ 1:53 pm
This is quiet insightful – especially since you say that this was after visitng the country personally.
Similar views have been expressed by author Pallavi Aaiyar in her book ‘Smokes and Mirrors’ on China, its people and culture. The book has a detailed account of how the Government acted in a total dictatorhip way before the Olympics. I hope people read about the Governemnt power there, before making any comparisons of Chinese Olympics with the Indian CWG.
Comment by Rasika Gokhale Athawale — November 8, 2011 @ 2:25 pm
Amazing article!! perfectly captures the plight of china and reflects the idiom all that glitters is not gold.I am happy that I live in India and not in the place like china where you are a prisoner in your own country.
Comment by Prasad — November 8, 2011 @ 6:30 pm
You spent all your time wasting analysing the Chinese. It might be more appropriate for you to think where you are and What you are ! India, after all. This is whre an Indian uses his brain in. Finding fault on someone else. You can well find a bag full of wastages on your back
Comment by Aswin — November 8, 2011 @ 8:44 pm
As china economy is growing in a very unpredictable manner and today it is words second biggest economy, i am somewhat agree that a bubble is surviving in china’s economy and a burst in future can affect the whole Asian market .
China’s economy is no doubt growing but it hasn’t a solid base to maintain that consistantly.
Comment by Stock Tips Intraday — November 10, 2011 @ 4:35 pm
Nice post , very logical thinking you have added in the post. Nice one.
Comment by Ankan Kd — November 10, 2011 @ 5:24 pm
Thanks to RTI Act 2005
We are mantaining a Cash/Credit account with SBI with an limit of 50 lacs. Sorry for not disclosing the place and name of the business. The bank kept on increasing the rate of interest from time to time upto 16.5% pa without intimating us. So at last after giving mat verbal & written complains, we asked the bank under RTI Act 2005 regarding the detailed Interest calculation Sheet of my account on daily product basis with rates of interest applied and applicable from the beginning of my account to till date. Immediately the bank returned around Rs. 16000/- to my account stating that it was calculation mistake.
So please, it is a request to all the valuable citizens of India who had taken loan from SBI to go to RTI Act to review the detaiols of the interest taken by bank and avoid cheating.
thanks
Comment by shalu — November 12, 2011 @ 5:04 pm
Whilst some of what you describe might be correct, I think China has done a great job in many developmental parameters. I think it’s fair to say that if they have been able to grow consistently for such a long time they must be doing something right.
Comment by Pranav — November 16, 2011 @ 6:31 am
Nice Article !!
goldensilt.blogspot.com
Comment by Ashwini Damani — November 22, 2011 @ 2:11 pm
fentabulos!.quite good. i’ll keep in touch regularly. your post is appreciated.
Comment by home painting in chennai — November 25, 2011 @ 2:06 pm
This is a great inspiring article. I am pretty much pleased with your good work. You put really very helpful information. Keep it up. Keep blogging. Looking to reading your next post.
Comment by Stock Future Tips — December 2, 2011 @ 11:51 am
Good article!
Comment by Vishal — December 4, 2011 @ 4:43 pm
Every country has to go through certain phases to get to the top. They are in transition now and who knows makes it to the top in near future. Tell me a country now which has less skewed economy now and are doing better than them. However I am pretty much pleased with your good work. You put really very helpful information. Thanks!
Comment by Articles — December 9, 2011 @ 10:31 pm
I will not say that it is a best article. Because it shows few negativity on some points.
As a China record, they show better record than us in mostly every area. They import and exports their product with maximum of worlds country from a very long time rather Indians did not hear about them .
Comment by pratyush — December 10, 2011 @ 12:31 am
Very interesting. But is analysing poverty based on US dollars earning justified? I mean the living expenses in China is quite low compared to US or even India, right?
So what they have done is successfully controlling the prices of essential commodities to make it affordable to the majority. They have made laws to achieve this.
And about Olympics: I know a non-communist country forcefully moving a group of poor people from their living spaces because the city was hosting an international sports event. They wanted to make the city look modern and cultured. Take a guess: I am talking about the CWGames in Delhi.
Comment by Arun — December 10, 2011 @ 4:31 pm
Skepticism about China is nothing new and uncommon. It is true that there are so much ambiguity in the Chinese model of economics and development. And this at the same time true what it looks on the surface is different from what is there in behind the mirror. but we must think about the manufacturing sector and infrastructure of China. These two things are so good there. We here in India don’t have any of these two and now move to ahead we needs these. Unless we put these two in place we cannot go into double digit growth phase and for this we need learn something from them. I accept that China is very different country and society altogether. I am not saying we must follow them but we must learn to plan and execute infrastructural development in our country and promote manufacturing.
We have to evolve our own systems but also have to look at other to learn something that can help us.
Comment by Rajeev Upadhyay — December 22, 2011 @ 1:38 pm
You learn a lot from other’s success and failure’s if you are brave enough to look at yourself.
Comment by Fredg — December 28, 2011 @ 10:26 am
Very informative. This stands against popular belief. I take your word for it, since you say were there and saw it personally..
Comment by Krithika N Iyer — December 29, 2011 @ 9:02 am
really this article is very useful to economist as an source of information.
Comment by Intraday Tips — January 20, 2012 @ 2:12 pm
Excellent, very insightful.
Comment by Mihir Gadre — January 21, 2012 @ 3:54 pm
Tot agree with you… prosperity & growth are to be felt not just to be seen from a distance and admire…. You caouight me as I’m sure to come back here.. :)
Weakest LINK
Comment by rachit s. — January 24, 2012 @ 6:32 pm
I’m interested in your article that it is suitable for economists.
Comment by Need Know — February 1, 2012 @ 11:59 pm
Very nice article and be brave enough to look at yourself.
Comment by Deepak — February 2, 2012 @ 12:33 am
Whatever people say about China, its their personal views about the society and the way economy is being managed but none can deny some of the achievements that China is now talking about and those achievements are helping the Chinese economy. Today China is net exporter in the world economy, second largest in terms of GDP and this is not something common. Look on the infrastructure you will be surprised. India and China both got freedom in 1947 and 1948 respectively. India became champion of democracy while failed on economic front miserably and China became economic power house. and this is enough to garner respect. One must be able to accept what others are doing better and try to improve in that. and India needs to take a lesson or two from China.
Comment by The Inspired Insight — February 2, 2012 @ 7:12 pm
Great post . I especially found it useful where you stated …..
Comment by naveen — February 3, 2012 @ 4:18 pm
economy is power ………
Comment by Noori Khan — February 8, 2012 @ 11:33 am
China is following export led growth strategy. This policy is unsustainable in the long run to achieve higher economic growth. rather the country should start growth at domestic level.
Comment by shubhangi patil — February 10, 2012 @ 12:03 pm
Your article perhaps gives only one side of the picture. The problems which you referred exist in all economies irrespective of the countries. Sir, the problem is with the leaders leading us
- K Venkateswarlu
Comment by K Venkateswarlu — February 10, 2012 @ 12:04 pm
Nice Article
Academic staff college Mumbai Univ
Abhijit Padte
Comment by Abhijit — February 10, 2012 @ 12:04 pm
Well, the observation is good. Even though they have some internal issues, they are managing to grab the eyeballs of the world. Today their economy has lot of influence on the world market.
Comment by Pay2gain — February 10, 2012 @ 2:36 pm