Spengler responds: When exactly do you think China will “fail”?

Waiting for China to fail is the single biggest mistake America could make.

Chinese family income rose 16-fold (1,600%) between 1987 and 2013, by far the greatest economic success in world history. China has moved 500 million people from countryside to city during the past 35 years, roughly the equivalent of all Europe from the Atlantic to the Urals. Chinese computation rivals Americas. China is about to become the dominant player in telecommunications equipment, with Huawei replacing Cisco as the global market leader (it spends three times as much as Cisco on CapEx already). China’s surface-to-ship missiles can sink US carriers within a few hundred miles of its shores. It graduates twice the number of STEM PhD’s as the US. Carly Fiona may dismiss the Chinese as uncreative; perhaps on average, the Chinese are less innovative than Americans, but there are plenty of Chinese innovators, and you only need a few good ones. Francesco Sisci argues that for ordinary Chinese, this dynasty is a “golden age.”

None of this looks remotely like Gorbachev’s Russia. There are no queues at Chinese stores, except when Apple introduces a new product. Ordinary Chinese are the main beneficiaries of the boom. China has huge problems, to be sure, among which pollution probably ranks first. Cleaning it up will take a point or two off GDP growth, but it can be done. My colleague Uwe Parpart observes that in Germany’s industrial heartland in 1960, the Ruhrgebiet, air quality was as bad as it now is in China, and the Rhine was a sewer. Now the air is clear and the Rhine is suitable for fishing.

China’s big economic problem at the moment comes from monetary policy errors of the sort that Winston Churchill famously committed in 1926 in restoring the prewar gold parity of the pound: real interest rates are the highest in the world, and the RMB real effective exchange rate has appreciated by 60% since 2009. Small and medium business pays too much for capital, and Chinese exports are priced out of the market (so much so that Chinese cotton mills are hiring in South Carolina). China’s central bankers and regulators have a lot to learn, to be sure. They have to maneuver into freer capital markets without encouraging the sort of abuses of free capital markets that brought about the US  2008 crash (massive leverage applied to housing and fixed income markets). They didn’t do a good job in controlling leverage in the stock market and now are putting out fires. But these are not problems unique to authoritarian political systems.

All Chinese dynasties fail, to be sure. Most failed because there wasn’t enough land for all the peasants; this dynasty cleverly removed the peasants from the land. Some failed due to foreign invasion, and that isn’t going to happen.

Just what does “Confucianism” mean? In Western terms, it means simply that there is no subsidiarity, to use the Catholic term, no civil society outside of the organs of government as such: the state is the extended family writ large. There is the Mandarin system, now the Communist Party, and nothing else. Churches could be a vehicle for a new kind of civil society in the future, but that is purely speculative. The old vehicle of anti-imperial resistance, namely countryside rebellions far from central control, can be ruled out. We will see many individual protests against government misbehavior, but no China-wide reform movement. And we will have to reckon with this dynasty over any practical horizon.

 

 



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