THERE'S LOTS WE COULD LEARN FROM CHINA
It seems to be all the rage these days to blame China for our ills. Supposedly, China is stealing our jobs. It is using unfair currency manipulation.
These attacks are especially loud in the U.S., where accusing political opponents of being soft on China became an election weapon. But you can also hear such accusations here.
China is an especially easy target because its economy is now back to blasting along at a growth rate close to 10% per year, while much of the rest of the world suffers though this recession. It is tempting to paint China as using evil tricks to grow its economy at our expense.
Tempting, but inappropriate. I would argue that China's growth is simply part of a much bigger picture which should give us hope for the future of the world. China is also benefiting from some smart policy decisions by its leaders at the beginning of the current crisis.
The big picture of which China's rise is a part is well captured in the words of economists Diego Puga and Anthony Venables: ...development takes the form of countries being drawn in turn out of the poor group [of countries], and taken through a process of rapid development into the rich group.
This pattern has become obvious since the end of WWII. After the "western" nations, Japan was the first country to industrialize and make this rapid transition from poor to rich. It was followed by Hong Kong, Taiwan and South Korea. The countries of Southeast Asia came next, and are now well on their way.
China and India are just the latest countries to start this transition. Because they are both so big, the effects are more noticeable. But they will surely not be the last.
Right now, they are still poor and labour there is still cheap, but that will not last forever at current growth rates. As labour becomes more expensive in these countries, labour-intensive industries will start locating elsewhere, starting other countries on the road to industrialization.
A few countries at a time, the "third world" is disappearing through this serial industrialization process. That is nothing to mourn.
The other reason that China is back to its rapid growth is simply that its leaders handled the economic crisis of 2008 very well.
Initially, the country was hit hard by the sudden drying up of its export markets, on which it was very dependent. For a while, all the news from China was of factories closing and people leaving the cities for their old homes in the countryside.
But that was short-lived, due to a massive, timely stimulus package. The package totalled 4 trillion yuan, almost 15% of China's 2008 gross domestic product. The stimulus packages of other countries, including Canada, were rolled out much more slowly and were typically only about 2% of GDP.
Part of China's stimulus went to the sort of public works projects other countries used. But much was also spent on subsidies for consumer purchases. China's retail sales rose 18.7 percent year on year in May according to Xinhua.
This effective policy response meant that China's recession was short-lived, and it also helped its neighbours and trading partners.
There are plenty of things about China to criticize, including its human rights record, its lack of democracy, its treatment of Tibet, and its threatening posture over Taiwan.
While the long-standing policy of keeping the value of its currency down by buying U.S. government bonds probably aided the country's growth in its initial stages, I think China should wind that policy down now. It hurts other poor countries and also leaves the Chinese people worse off than they could be.
But much of the criticism of China's economic policies is highly misplaced. Other countries would do well to learn from those policies.
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