Battlepanda: Explaining the China Juggernaut


Always trying to figure things out with the minimum of bullshit and the maximum of belligerence.

Friday, June 17, 2005

Explaining the China Juggernaut

The United States is getting its hackles up trying to figure out how to contain a China that is increasingly becoming a force to be reckoned with. Meanwhile, Brad Setser asks, exactly how has the Chinese been able to be so successful thusfar? At first it seems like the answer is obvious -- a vast country with such an enormous population finally allowed to express itself economically is simply bound to leap, says the conventional wisdom. But Setser points out quite rightly that if things turned out differently and China failed leap, conventional wisdom would have been equally quick in siezing upon China's still-strong state control, say, and be equally satisfied by that explanation. He dug a little bit deeper, and came up with 4 potential explanations for China's phenomenonal growth:
1) State intervention in the economy (or certain forms of state intervention at certain stages in the development process) is less of an impediment that is often argued.
2) China's markets are far more flexible than they seem.
3) High savings rates and high investment rates can overcome a multitude of other sins. (note: This is the explanation Brad is leaning towards.)
4) High savings, high investment rates and undervalued exchange rate can overcome other sins.
Commentators added additional factors to the mix, such as a literate, relatively educated population, a strong cultural affinity for business, capital controls, and a stable government. Both the post and the comment thread is RTWT (Read The Whole Thing) material. It's fascinating stuff for many reasons, but I read it mostly as a slap in the face for the "Washington consensus", or the "IMF prescription", or whatever you want to call it. The countries that have submitted to this model frequently ended up as debt-ridden shells, while China, and to a lesser extent, Malaysia, defied the world's bankers during the Asian financial crisis and emerged far less ravaged than their neighbors.

A more disquieting thought occured to me as I read Brad's post. Could the astonishing rapid and sustained (thusfar) economic growth of China be a silver lining of it's repressive regime? We don't tend to think of strong states as an enabler for economic growth, but seldom do we see a totalitarian state like China, where the leadership is obsessed economic progress. The idealistic side of me would prefer to think that a democratic society would always have the economic advantage in the long run because of the greater suppleness, openess and innovation in such societies. But the cynical side of me can see how doing business might be easier in a developing country if you know the guys in power are going to stay there for the foreseeable future, and the government will bend over backwards to make your venture a success.