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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: LLLefty who wrote (22000)	3/23/2002 2:27:18 AM
From: Doc Bones	Read Replies (1) \| Respond to of 281500

China's Economic Facade [Wash. Post] washingtonpost.com By Arthur Waldron Thursday, March 21, 2002; Page A35 According to the Financial Times of London, Chinese Premier Zhu Rongji recently told a television audience in his country that the Chinese economy would have "collapsed" in 1998 without the state stimulus spending that is currently taking Beijing's government debt to record-high levels. Zhu Rongji is someone who chooses his words carefully, which makes the term "collapse" alarming, although not perhaps, in retrospect, surprising. Officially, China has for some time been claiming growth rates of 7 percent or more. But information casting doubt on those figures has long been available. Visitors see lots of rural people camped out at urban railroad stations or on sidewalks: Clearly they have nothing to do where they come from, or where they have arrived. Block after block of abandoned construction projects in cities suggest someone has run out of money (as does the recent proposal that money be raised for the Three Gorges Dam by selling stock). Almost daily protests by workers, many violent, are also a clue that all is not well. Moreover, even the official figures don't make sense: How can it be that energy use is falling in a booming economy? And unemployment rising (as the official statistics show)? This is unprecedented in economic history. Finally, the state borrowing for pump priming to which Premier Zhu refers has always been public knowledge. Why, if the economy is burning up the track, has stimulus been necessary? Once again Chinese officialdom has put one over on Western observerdom. The shining exception is Prof. Thomas Rawski of the University of Pittsburgh, who over the past year or so has been making thoroughly empirical and highly persuasive presentations across the United States on China's economy, based entirely on open Chinese sources, comparisons with other fast-growing economies and some solid economic analysis. He argues that China's economy may actually have been contracting since 1998. There are a number of prime candidates for the red-faced list, including the CIA and others in the U.S. government who appear to have been clueless; the high-priced reports of the Economist Intelligence Unit (which did pick up Rawski's work as it became known, but whose own work was very much consensus) and others in the premium newsletter trade, plus all the major media in the West and in Asia. How could so many people miss something that, in retrospect, was so obvious? Because of the chronic pathologies of China watchers: groupthink (in the academy and government), fear of Chinese reaction, job pressure (in the intelligence community and the media) and greed and wishful thinking (in the case of business). Once again, we look like gullible fools to the Chinese. The reason is that once again we have taken our cues not from our own observations and deductions but from China's official self-presentation. We hear "economic reform" constantly proclaimed, but fail to observe that it is not really being practiced, at least not consistently and thoroughly. The only way China can possibly create enough jobs for its immense population is by adopting a free-market entrepreneurial economic system, in which the state's role is limited to the provision of justice and arbitration according to clear and legitimate rules. In such a system, however, no place exists for a Communist Party, whose justification, in theory, is its skill at guiding the economy and the society. (And whose current reality is its existence as a lawless elite, looting China in the interests of its members.) So the necessary economic reform is out of the question without political change. Still, something had to be done after Mao's death to prevent the total impoverishment of the country, and it was done -- but not the whole required package. The result is that today China's economy is dysfunctionally bifurcated. One side is very much consumer -- i.e., demand -- driven. That demand should elicit and mold supply, but not in China. Supply is still largely determined by the Communist Party, which allocates scarce resources to state enterprises manufacturing things people don't want and won't buy. These enterprises are kept afloat by "loans" (never repaid) from the massive savings the Chinese people have entrusted to the state-controlled banks. Their rule of thumb seems to be: If you are state-controlled and losing money, you qualify for big loans. If you are private and growing, you do not. That is a recipe not for growth but for economic collapse. This risk-laden charade cannot continue indefinitely. Zhu's words may mean that the Party has decided to get serious -- but don't bet the farm on that. Meanwhile, for the rest of us, it is time to rethink a lot of comfortable assumptions and begin taking more seriously China's large potential downside. The writer is director of Asian Studies at the American Enterprise Institute and Lauder Professor of international relations at the University of Pennsylvania.

To: LLLefty who wrote (22000)	3/23/2002 10:02:22 AM
From: JohnM	Read Replies (1) \| Respond to of 281500

I can't pull up the piece--it's by Arthur Weldron of AEI (don't hold that against him, John M; he's an academic as well) but in effect he says: Ah, always nice to be remembered. As for the piece, Doc Bones, as I'm certain you saw, posted it. That's all new to me. Should my wife and I now sell our Qualcomm shares? (g) Twill be an interesting story to follow. As for the AEI, it's possible to have an appointment there and have interesting views. Barely (g). Rarely (g). Whatever. It's also possible to be at Brookings and be reasonably incompetent (g).

To: LLLefty who wrote (22000)	3/23/2002 7:15:17 PM
From: Maurice Winn	Read Replies (1) \| Respond to of 281500

LLLefty, <... China's economy is one disfunctional mess, the elites are looting the country, urban idle are growing, workers are protesting almost daily, energy use is falling and the economy very well may be shrinking. In all, it's a charade and, once again, "we look look like gullible fools to the Chinese."...> The Chinese economy is not shrinking. Look at all the products for sale with Made in China written on them. The quantity of stuff with that label is now overwhelming. I think it might be true that "we look like gullible fools to the Chinese". Certainly the fools part of it. I have some sympathy with that point of view, but I'd add "hypocritical" and some other labels too. Workers are protesting not only almost-daily but every-daily in the USA, Kiwiland and elsewhere. I'm protesting too! Maybe you mean in some special Chinese way? <Urban idle are growing>. Fatter? More of them? Being urban idle myself, I think that's a desirable state of affairs. If the total population could be urban idle, that would be ideal. We could have machines and computers doing the hard work. Some people consider the USA, Kiwiland and other economies to be dysfunctional too - some consider Japanese and USA economic collapse imminent. I happen to disagree, but China's economy seems to me to be one which is anything but dysfunctional. Growth rates for decades of 10% is not a bad performance. If energy use is falling, some consider that a good thing. If it's due to improved efficiency, then it's definitely a good thing. I try to save energy [and everything else]. Entropy and waste are inherently bad. Where do you think all the Made in China items come from? Major Paradigm Shift has Happened in China. You should review your half-century-old ideas. Mqurice