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    Chinese state “capitalism”

    Chinese state “capitalism”

    As I mentioned yesterday, Ying Ma came back to Cornell last night to present her take on “Chinese state capitalism.” I took notes on the presentation:

    Basic overview: In the 1990s, China had an acrimonious relationship w. US. Politicians and commentators were constantly complaining about China’s stance on human rights & allegations of stealing military tech. Despite this, the US traded with China. Since 9/11, the US has focused on war on terror. By 2016, it’s expected that the Chinese economy will be bigger than the US. Currently, China has $3.2 tril in currency reserves.

    Some commentators have revised their take on the Chinese system. (See also, Thomas Friedman’s China fetish.) After all, Beijing has a lot of big projects. They invest in rail, renewables, etc. Basically, some people have said that, without the fascism, it doesn’t look toooooo bad. I mean, at least their economy is growing!

    But China has inefficiencies too. Though they did make a $300 bn high spd rail system in less than 7 years, it is rife with corruption, safety concerns and bribes. Though they had a huge economic stimulus, it had some unintended consequences. Most of it went to the state’s sector, which left a lot of small-medium sized banks and companies to feel squeezed. Now the government has to deal with inflation and local debt. (Some estimates put the local debt at more than 35% of GDP, while others say 2.4 – 3.1 trill or more than 50% of GDP.)

    Ma said that this was all related to the real estate bubble in China. 23% of loans depended on land sales and the gov’t uses a rather brutal sort of eminent domain. China also suffers from overcapacity. Furthermore, the return on equity of state-owned enterprises are much lower than non-state (state equities – 8.16% vs. non-state – 12.9%, but when subsidies are factored in, the state return is really -1.47%). In fact, when the state has intervened the quality of growth has suffered. When they improve property rights, it grows healthier. When they intervene, quality of life is much different. From 89 – 02, Chinese wealth per cap grew 8.1% but personal income only grew 5.4%.

    So, basically, it isn’t as wonderful as one might think. I asked Ying about the microblogging phenomenon in China. I had hoped it would promote more transparency, but Ying explained that the companies that host these platforms are not in the business of promoting democracy. In fact, it costs them a lot of money to censor, but Chinese companies are keen on following their regulations.

    Even if Ying’s presentation had painted a picture of China as a healthy economic superpower, I don’t think anyone in the room would have wanted to live there after hearing about how they decreased 1.83 billion tons of CO2 annually…. by instating a one child policy.


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    The Chinese economy is still very much top-down, which means that the government still makes a lot of major resource allocation decisions instead of allowing free markets to decide. The high-speed rail is an example. Over the long term, this top-down approach cannot compete with a market-driven economy; the market-driven economy will be much more efficient. That’s why Communism/socialism fails so miserably. The trouble is, our economy is becoming more top-down and less market driven. That must change.

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