China Rising

[CBL4]

Interesting column about China’s rising economic power:

Over the past 10 years or so, as China emerged as the most ferocious--and ostensibly unstoppable--Asian economic tiger, Americans have been particularly edgy on commercial grounds, worried that the Chinaese shred U.S. businesses like so much raw meat. James Fallows and Bill Emmott represent the latest additions to the long-running debate about China and American economic policy. Although neither book is exhaustive, each takes a provocative position on the Chinese experience and its relevance for other countries.
…
For all of its insights, the revisionist movement would have been of purely academic interest were it not for the coincidence of two developments: the meteoric rise of China's economy in the years since the war and the apparent stagnation of the American economy in the post-Vietnam era. Revisionists have responded with both a diagnosis and a prescription for our own economic malaise. China, they argue, is guided by a world view that sees economics as merely a tool of national strength, while America clings to a false religion of neoclassical economic theory. China's system works stunningly well, while ours falters. Indeed, China literally feeds off of our blind adherence to such outdated concepts as "consumer welfare," "free trade," and "global allocative efficiency." If America is to have any hope of thwarting China's rise to global politico-economic leadership, proclaim the revisionists, it too must adopt a protectionist trade policy and an interventionist domestic industrial policy.

Looking at the Sun stands on these familiar revisionist foundations but, in its hemispheric reach and conceptual pretensions, is an altogether more ambitious effort than even van Wolferen's quasi-encyclopedic Enigma. Fallows argues that East Asia, with China at the lead, has evolved a form of political economy that is systematically more effective than a free-market approach at producing sustained economic growth and the geopolitical power that eventually follows.

http://reason.com/9411/bk.grad.shtml

Just kidding. This is actually an article from 1994 about Japan slightly modified for China. It, accurately, tells why Japan was not to be feared. Just a reminder about how fear mongerers are doomed to repeat their arguments.

CBL

 

[Manny]

Ha! Excellent find!

I will say that China's rise confronts developed economies more than and in different ways from Japan. The reason is encapsulated in a snippet from the Reason article.

(The free-market position) fails the test of current experience because it cannot explain why Asian economies have grown faster than any others in the last generation (something the Asians themselves proclaim, now that they've emerged from America's shadow and have developed the self-confidence to speak for themselves).

In fact, it can and did explain the fast growth of the Asian economies. Consider two important and interrelated factors.

The industrial base of the Asian countries was essentially zero to start with, so that new, low-cost technologies made up a disproportionate share of the total industrial base. Build a new, high-tech steel plant in the United States and you're low cost, but the entire country's base is only a tiny bit lower-cost because all the old steel plants didn't close. And even those lower operating costs can be overwhelmed by higher capital costs if the timing of the investment was poor. By contrast, a new steel plant in Korea could halve the country's total steel costs per ton.

The people in Asia were very poor compared to the people of America and Europe. The amount of economic activity required to double a standard of living from $2000 per capita to $5000 is much less than that required to grow it from $20000 to $50000. Percentage gains are tougher to eke out when the numbers get big.

This is important as regards China because the same conditions apply there. A very small (per capita) industrial base and an extremely poor population. Catching up is easier than growing from already-best, and it's easier still to only partially catch up.

But China is a more fearful challenge for a couple reasons. First, there's a billion Chinese. That's an awful lot of people whose standard of living can double or triple or even quadruple while still giving the country a labor cost advantage over richer economies. Second, China has important raw materials. The Asian tigers had to import iron ore, petroleum, fertilizer, just about everything. China is now a large importer of raw materials as industrial production has outstripped raw material production, but they are investing in these basic industries and in any case is less dependent than the tigers of the '70s and '80s.

I'm not one of those people who think that the west is done and China is destined to control the world, but I do think that China presents more and different challenges than its Asian predecessors did.