The patient American
By Nathan Green September 19th, 2006Henry Paulson’s speech on the eve of his departure to the G7 Summit in Singapore should be compulsory reading for anyone interested in China’s growing role in the world economy.
Unlike previous bluster from the Treasury throne, Paulson takes the tone of a concerned parent. Yes, China is still growing, but it is old enough and big enough now to take responsibility for its actions. Those actions do affect the wider economy, and it is no longer immune from the repercussions of its actions.
Discarding the usual aggressive “revalue or face a backlash” stance of his predecessors, Paulson displays a nuanced understanding of the China miracle and, more importantly, the challenges that remain.
Sure China is now big and powerful, but it is also incredibly fragile. Its financial system is a mess, failing to fulfill its basic function of distributing savings to the most productive economic players, its social safety net is stretched so thin that Chinese consumers are scared to shop, undermining efforts to introduce balance to the country’s investment- and export- led growth trajectory, and its massive trade surplus is something the other kids in the playground are obviously not going to take lying down for long.
Where Paulson diverges from his predecessors - and the current China hawks filling up the airwaves with threats and ultimatums - is that he has dropped the “reform or we will launch a backlash” line and replaced it with “reform or we won’t be able to prevent a backlash” argument.
As Paulson knows, a protectionist backlash against China will benefit no-one. He also knows that a rapid appreciation of China’s currency will benefit no-one. The solution to the undeniable problems besetting China are much more subtle. But they are tied to reform, liberalization and a market-based exchange rate.
But China also knows this. Gentle reminders to take off the training wheels are the best way to encourage China to take the right path to reform. Who knows what path China will veer down if they are removed by force or threat.
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September 30th, 2006 at 7:10 pm
Financial reality and progress
Well! Much publicity is given to the US\’s views about the low currency of the YUAN and Henry Paulson got some assurances for being patient and understanding with China
It is noted that Yuan will be given the leeway to raise up to 5% per annum. Economics have a funny way of approach and hence, I point this notion to the viewers
Last year, it was reported through Deutsche Bank Research House that the global economy was US$188 trillion. The US companies and individuals control about one third of the global wealth. US economy being the biggest in the globe is 5 times stronger than Japan which is already number two largest economy. You may have known that Japan is the most advanced nation in Asia and have been excelling in their Research & Development since the early nineties. Japan\’s economy is ten times stronger than China and for a population of 120 million people versus China\’s 1.3 billion people, one can imagine the disparity and unbalanced growth as we have witnessed inside China
Will China overtake Japan? Many learned industrialists, politicians and financial advisors claim they will do so by early 2020. I have many reservations and doubts. If one can understand basic mathematics, if you are still trailing 10 times below your opponents and have ten times as many mouths to feed, you will need some extra talents and systems to get things to be better managed. We have not known the excellence traits of any Chinese company that can match and still be part of Dow Jones Sustainable Index
China has a long way to go for social reform and skill development. For a huge nation, it is tough to govern and create specialized trade school for all common people. As you know, corruption and cronies have been part of the Asian culture for centuries. will it be changed? I doubt it either and of course, it may over the next one hundred or two hundred years. It is rather an attitude and value driven on morally. Definitely not to be driven through greed but through common belief that each nation can help another to prosper
Looking into the world as it is, can capitalism solve corruption, crime and cronyism? A reform on today\’s education and changing the course of poverty no matter where the nation lies can give hope and faith for the young to embrace the change of positiveness rather than indulge in the circle of deceit
For a nation to do well, it is the people\’s attitude of being honest, kind, proper and good social behavior that are far more important than counting on numbers that do not make much sense
It is the quality of value rather than the monetary figures, I beg to differ
CJamesTay
cjamestay1@gmail.com
October 10th, 2006 at 3:15 am
China’s economy may well overtake the United States in a couple of decades, at least in terms of aggregate GDP. But with 1.3 billion mouths to feed, the world’s largest aggregate GDP won’t make China the world’s most powerful economy. Real economic strength comes from a fully convertible currency and a lot of disposable income, the kind that funds R&D and FDI. By the time China’s aggregate GDP equals that of the US, its per capita GDP will reach about 20% of the US level.
With reference to its currency restrictions and lagging reforms, the Chinese carefully watched Russia’s economic implosion when it privatized its state-owned industries too quickly (just as the Western countries advised it to do) resulting in chaos, poverty, and an economy run by the mob. Capitalism is not a magic wand that you can wave over society to produce Western-style prosperity overnight. Russia is now recovering from its disastrous experiment with microwave capitalism, but it is doubtful that Chinese society could survive similar tumult.
The West is in a much stronger position than it realizes. Let China take its time.