China As Economic Engine
This morning the New York Times has an editorial that gets on a bandwagon I’ve been on for some time, urging China’s leaders to cultivate an internal market, to consume more:
Over the last 30 years, China has hitched its economy to the industrial world, exporting cheap goods to the United States and other developed nations, building up an enormous trade surplus that will hit about $400 billion this year. As those industrial economies sputter, China is now in a position to pick up some of the slack: selling more of its own goods at home and buying more from the rest of the world.
China runs a trade surplus with virtually every trading partner. That’s not a sustainable condition and it’s such a large country that its longterm economic health depends on cultivating its domestic market but its leaders have been reluctant to do so.
Characteristically, the NYT proposes that the additional consumption be spurred by public works projects rather than relaxing its various forms of import restrictions:
To get China’s consumers to spend, the government will need to spend more at home, investing in public works projects and providing more social benefits — including health insurance and pensions — so its citizens don’t feel they have to save so much for a rainy day.
For example, China continues to have a policy of food self-sufficiency. Like all economic independence policies, its basis is xenophobic and it is dyseconomic.
China doesn’t have any form of universal social insurance nor does it have a sound banking or equities system nor a robust system of civil law to support either of the latter. The One Child Policy places the entire responsibility for supporting people in their old age on those single children.
Why doesn’t the Chinese leadership encourage greater consumption? Essentially, I think the answer is that they want to preserve harmony. They’re concerned that liberalizing trade within China and with its trading partners will foster development in new and unpredictable ways that are beyond their ability to control. The policy has been one of gradualism and the pace of reform, while no doubt breathtaking to the Chinese, appears glacial to us in the West.
While I agree with the NYT that more consumption in China would be good for China and good for the world, the trick is to get China’s leadership to agree to move in a direction in which their power is diminished. I’m afraid that will take more than editorials.