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Will Communism Save China's Economy?

So is China going to get pulverized by the economic downturn or will it escape bruised but unbowed? Two perspectives reveal a lot about what we know and don't know about China. One predicts that the Communist Party's capacity to meddle in China's economy is actually that nation's secret weapon.The other cautions that during downturns big exporters (like the United States during the Great Depression and China today) usually get hit harder than the rest.

In its latest edition, Newsweek has a piece on China headlined "Crisis Winners: Why China Works," which argues that China is uniquely situated to ride out the global economic storm partially for the very reasons that free-market economists usually ridicule: the capacity of the Chinese state to meddle in the economy. The piece quotes a series of China experts -- such as Andy Rothman of CLSA and Stephen Roach of Morgan Stanley Asia -- predicting that China's going to at least muddle through. "What we're seeing is that the Chinese command-and-control system can actually work more effectively than other market based systems in times of economic stress," the piece quotes Roach as saying.

The piece argues that China's leadership -- with its remarkable capacity to tolerate radical experimentations, learn from mistakes, focus on a target and pursue it unrelentingly -- will see China through this crisis. It's a compelling argument but it also leaves a lot of questions unanswered. For one, a political leadership can look downright brilliant when all the graphs are pointing up but since reforms began in China in 1978, China has never dealt with a world economy this depressed. Check out the latest lousy numbers out of Beijing here: exports falling at the fastest rate in 10 years.

If the Newsweek view is that China is going to dodge the bullet, the other view, presented in BusinessWeek, argues that the bullet is headed straight at China and other major exporting nations.

This piece makes the parallel between today's China and the United States of 1929 arguing that America's economic woes post-'29 were significantly more serious than Europe's because we were, at the time, the factory of the world. Citing research by economist Angus Maddison, the BusinessWeek piece notes that when it comes to real changes in GDP during the Depression, America took it in the teeth dropping 29 percent between 1929 and 1933, a lot worse than Germany (10 percent fall), France (9 percent), Italy (3 percent) and Britain (2 percent).

The piece argues that the US was harder hit because "it was a 'trade surplus' country--that is, a net exporter of goods. By contrast, Great Britain (for example) was running a sizable merchandise trade deficit in 1929, so cutbacks in spending would be felt more outside of Britain." Well, China is a "trade surplus" country, too, the piece notes.

"The question now," the BusinessWeek piece continued, "is whether China, and more generally the trade surplus countries of East Asia, are going to play the role of the U.S., as acted out in 1929 and the years that followed." This is an important question and warrants a lot of scrutiny in the coming months. (Other Asian "trade surplus" nations are getting creamed. Click here for bad news here on South Korea and Taiwan.)

There's a cottage industry in Washington and in investment banks around the globe (who have a lot of skin in China's continued growth) that China is going to make it. I am basically agnostic. No, contrary to some of the comments I get on the blog, I don't fantasize about dancing on China's grave. However, I think the "Washington consensus" on China (to purloin a phrase) is still marked by "irrational exuberance" (to pinch another one).

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Comments (31)

anakin1992 Author Profile Page:

if washington does not realize that we need china and its capital and allows its free fall if there were one, then we have yet seen the worst. without the buying our treasure from china, dollar will be just a paper.

29's US was not the same as 08's china. even though export stall might cause china to cough, with its hug reserve and saving rate, the worst china will see, i bet, will be similar like what happened to japan in 90's. also china's financial market is intact even though its stock market was almost wiped out. what caused 29's crisis just caused 08's burst, it is what financial sector has done to us. most other sectors are doing pretty good. the sign to the trouble we are seeing now is Enron. but neither policy maker nor academic took serious about it.

if we keep talking others' downturn without the consequence of mentioning ourselves, it would be foolish. US is facing something which might be surpassing that of 29's. right now, we can only hope others can do something better so we can lift us up. if every one dies, US will not see the light in the tunnel sooner.

sing1 Author Profile Page:

The topic should say "Would pragmatism save China/the world".
We have witnessed how idealism whether it is liberal democracy/capitalism/ liberalism/commumism fails in face of a changing world. Now, it is the turn of pragamtism.
Long live pragamtism.
We should enshrine the Deng's doctrine : " It does not matter whether the cat is white or black as long as it catches mice/rats".

Citizenofthepost-Americanworld Author Profile Page:

Additonal info. to consider, in this discussion.

"In the World Economic Situation and Prospects 2009, UN experts forecast China will achieve between 7 and 8.9 percent growth this year, with the most likely figure being 8.4 percent.

In contrast, the global economy is forecast to grow by just 1 percent, down from 2.5 percent last year.

The UN report, jointly prepared by the UN Department of Economic and Social Affairs, the UN Conference on Trade and Development and five regional commissions, said China contributed about 22 percent to the world's economic growth last year, and the figure is set to grow this year.

...

...with $1.95 trillion in foreign exchange reserves and a balanced government budget, the UN report said that China still has room to adopt more expansionary fiscal policies."

voter Author Profile Page:

TO HAWKSMOOR:

I am saying that the Chinese government should not censor any opinion or suggestion. An open forum is one of the best ways to interact with the public which is beneficial for both the governnment and the people.

Ideally, all news and internet access should not be censored. China's public is still relatively innocent to the open world and there is, undeniably, content on the internet which is harmful to children. And in news, any misinformation can also cause disastrous panic and chaos to the people. Having said that, of course the Chinese government has also been using this as an excuse to censor on purely what they disagree upon. I do believe that gradually there will be more openness and less censorship when they have more confidence in governing a more educated generation.

hawksmoor Author Profile Page:

Voter: Chinese government regularly censors news and internet access. Are you trying to say that even while they are blocking access from the people they read what they censor and gains some insight into popular opinion?

voter Author Profile Page:

CCK2008 made a good point on January 16 at 3.12 a.m. Another point to keep in mind is that the Chinese government cannot censor or persecute any opinion or suggestion whether agreed upon or not. Listening to opinion, whether from one voice or many, is an essential way to keep in touch with the common people in order to set the right policy.


ckk2008 Author Profile Page:

The young people in China have already kicked the communist mentality of relying on the States to provide for their immediate and future needs. What they expect from their government is prudent econonomic policy, well run state bureaucrat and a stable social environment for them to work hard and achieve something in life. All these aspirations are very Chinese.

usapdx Author Profile Page:

WATCH CHINA'S YOUNG PEOPLE FOR THEY HAD A TOUCH OF THE GOOD LIFE VRS THEIR PARENTS AT THE SAME AGE. THE CHINA GOVERMENT WILL HAVE A HARDER TIME TO CONTROL THEM TODAY LET ALONE TOMRROW. CHINA MUST PRODUCE SO MANY NEW JOBS TO KEEP EVEN. SO FOR SHORT, CHINA'S TYPE OF GOVERMENT IS IN A SLOW CHANGE. IF A REAL DEPRESSION TOOK HOLD, THE YOUNG PEOPLE WHOULD BE HARD TO CONTROL IN CHINA BUT IN THE U.S.A. TOO.

Davidlaoshi Author Profile Page:

Another historical analogy that could be relevant might be Japan during the Great Depression. They had a huge, early stimulus package which saved them from having a depression at all, just a bit of inflation was all. Of course, then they went and massacred a whole bunch of people...take from that what you will. In general, Japan is usually a better source of historical analogies for China than the US.

ckk2008 Author Profile Page:

Two modern religions have come int existence during the last 150 years.They are communism and democracy. Communism a political theory favouring collectivism in a classless society. Democracy a political system in which the supreme power lies in a body of citizens who can elect people to represent them.
In the USA, 2 political parties alternatively over the years have shaped the consciousness of the American citizens forging materialism, comsumerism and unbridled capitalism. The American foreign policy of today, the United States's interests first leading to thieving and plundering the world resources, murdering the others National identity such as Iraq to safeguard continuous supplies of oil to grease the American economy. All these are done by 2 dominant political parties over the years. So it is a belief system where the politicians are mindful of the demands of the citizens, through the one man one vote system. The consciousness of the people is the consciousness of the government in power.
Communism in China is all over, the belief favouring collectivism in a classless society is dead. What remain is the collective leadership ruling the masses.
Increasingly over time, the existing political system will also be subject to popular demands of the masses to stay in power, to deliver the goods. It has been able to do so for the last 30 years of reform. Its poltical command capitalistic economy is a model worth studying. Will it continue to perform? It is up to the Chinese to make it work and continue to prosper. Similarly, the consciousness of the Chinese people is also bound to the consciousness of being Chinese as an identity historically speaking and of another form of belief system.

johnLSS Author Profile Page:

You are running an interesting forum ,but blind on the truth of today.

The old industrialization days has gone,and also those economical and technical revolution died with all those theory,of modern finance and economic.

China as a country has never had a chance to be a country as your western textbook definition, and there is no communism,but pure monitoring and control over all the individuals,that is a dictatorship system.

This post title should be read as "Will Nazi Save China's Economy?"

The answer is Yes, it will save not only China but the world Economy.

Read Revelation 13:16,17. They already given mark to all Chinese, and an digitalized monitoring and control system is almost at its final stage of full application.

With this modernized mark,our Chinese ID card based system, our dictators can put everything UNDER its digital control,WHICH can be PIN-POINT ,individually accuracy.

I would like to call it The New Maoism.

A world as described at Aldous Huxley’s ‘Brave New World’ is coming.

An economy without freedom is nothing to be described as saved or not.

It is interesting to read a lots of theory about Why China performance good till today, and some economists even seems realized that it is the centralized control and centralized distribution of social resources saved China.

But no, it is not true.

Why there is few people realized that Chinese are not the same human being on earth ?

To be saved like China or Chinese, this is my formula:
1.The coming electronic Chinese ID card system , which evolution from Qin Dynasty ,and practiced at its most nice days during Mao's year in China.

2.1 child family plan policy,

3.education system with only 1 series text books and same examination for all the boys.

4.1 party system, 1 forever till death government as CCP.

5. Same media system as China.

.......

All those economy description of this world has gone,and The success of China's dictatorship system just proved one truth: there is nothing new under the sun !

Read Revelation 13:16,17, Anyone without mark, no buy and sell.

Remember, that beside of the huge trade surplus, there are 9,600,000 square KM land ,which is not been financially valued by economic theory in China.

Just give up your freedom as our Chinese, all of you will be saved like our Chinese,.........and do not forget take someone as our Mao ,or at least a figure like Chinese, CCP. or State to worship.

DavidZhuang Author Profile Page:

One simple reason why China will survive this storm:

China has a working plan and a working system.

US has a plan of not working and a broken system.

Donald2 Author Profile Page:

China is absolutely not a Communist country in its tradition defition. China exercises more central planning than US. Comparing to China, Canada is a socialist country.

The weakness of China's economy is that people do not have much cusion in income and relies much on exports. The switch to domestic consumption will determine the outcome.

voter Author Profile Page:

Thank you Mr. Pomfret, I always believe if you put aside your frustration you can write constructively for good dicussion.

This economic crisis is world-wide and every country's government deals with it according to their situation and circumstances. Since China opened its doors, it has learned through trial and error about capitalism and is more in tune on how to deal with the downturn.

The older generation of Chinese are still in the habit of being very conservative in their spending because of their earlier years of hardships just like the U.S. Depression generation. China will gradually shift to consumerism as the younger generation comes of age.

Lawrence2 Author Profile Page:

I was cleaning out old junks right after Christmas and just throw out my old Business Week magazines. Icannot help but wonder how ridiculous those so called finacial experts were. It is a good lesseon for everyone to go back three or four years and read all those predictions and trend spotting by those "experts". They cannot be more off marks :-). So if I had to choose, I would trust Newsweek more than Business Week, as the latter has far more a herd mentality, which means doom for everyone today ;-).

infantry11b4faus Author Profile Page:

if communism worked there would still be a ussr.

dahuanzhou Author Profile Page:

Communism is the remote goal, not the reality.
For a long time, China's statesmen were busy at arguing which road to take, capitalism or socialism .Now we understand that, capitalist country also need economic planning which they called it as budgets, while the socialist country also need to draw capital for development. I don't know why some people describe China as "communist" country. China currently is only at the elementary stage of socialism, the economic structure is mixed economy, with both state-own enterprises, private enterprises, foreign enterprises existed at the same time. For the last 30 years, China made economic miracles, not because which road to take, but the correct policy of peaceful development.

Citizenofthepost-Americanworld Author Profile Page:

At last, a Pomfret piece which presents something of substance to consider and to discuss… and in a tone that is not outrightly antagonistic. It should be noticed that immediately, the discussion rises a notch or two above crude anti-Chinese discourse, something I am sure we can all be thankful for.

This is neither the 20’s nor the 30’s. This crisis is rightly considered as unprecedented, both in kind and in depth. That needs be analysed first, but is not. Here, we have the US bent on self-destruction, led to ruin by greed and corruption; responsibility and accountability are no more. Newsweek: “(In China) the ruling engineers preside over a system that is highly process-oriented and obsessed with performance metrics…. leaders who don't meet internal performance standards are, more often than not, held accountable, and do get sacked, which is still unusual in many developing economies... Clear performance targets are part of an efficiency ethos.” – I believe such leadership qualities are, and will continue to be key to China’s success.

For decades now, the US basic problem has been one of growth, genuine growth, as opposed to virtual, imagined, speculative, artificial bubbling, amounting to no growth, no real wealth.

Newsweek: “At a recent Chinese business conference in Barcelona, Xu Kuangdi, vice chairman of the advisory body to China's Parliament, and President of the Chinese Academy of Engineering, mocked the "virtual" products sold over the last decade by Western bankers: "They had Ph.D.s in physics inventing tools that the banks themselves couldn't understand or regulate. Investors listened to their stories and were told how wonderful all this would be, how much better it was than producing real goods. Everyone was working in a dream."”

If it is to grow for real, the US needs others; it needs globalization, and it needs China.

Associated Press: “The visiting president of the U.S. Chamber of Commerce appealed to Beijing to resist pressure to respond to the downturn by trying to block imports. "We're bringing a message here to this government: Be patient, continue to work very hard to avoid protectionism at home as we are doing in an environment where, as economies get tough and unemployment goes up, people are very inclined to figure out how to close the door," said Thomas Donohue in a speech to members of the American Chamber of Commerce in China.”

« Fantasize about dancing on China's grave »? The US would more likely agonize, die and rot on China’s grave. T.S. Eliot: “This is the way the world ends/Not in a bang, but a whimper.”

simplesimon33 Author Profile Page:

Communism will definitely save China’s economy. Not only that, China will replace US as dominant economic power as a result of current financial meltdown enveloping the world. China will remain world’s workshop, ultimately becoming chief financier of US government by preventing its bankruptcy. US will be so grateful to China for the bailout that US news media will sing ballads to the generosity of Chinese Communists. Communism will stop being a ‘dirty’ word in this good old US of A. And Nixon will turn in his grave for US singing praise to Chinese style Communism.

thmak Author Profile Page:

China has the capability to handle the recovery better than USA because China can use her surplus to fund her recovery while USA has to borrow deeper into her debt. USA government finance is like a gigantic Ponzi scheme, taking in money continuously by borrowing to pay for unproductive promised expenditure. The only difference between USA government ponzi and public ponzi is that the government has the authority to increase her borrowing capbility while the public cannot. So when crisis happens, the public ponzi fails while the government ponzi survives.

dummy4peace Author Profile Page:

What will save China is their appreciation for science and engineering, while these fields are often the last choice of our high school graduates. After their first year in college, more than half of these students quit science and many switch to business. That's why we need the Chinese foreign students in our university labs and each foreign student requires at least $40,000 of annual budget to keep for all universities.

Japan used to copy us in the 80's. I can foresee that China will pass their copying stage and sail into hi-tech much faster than the US after we train all their young talents in the US.

One reason why more than half of students interested in science would drop out after one year is that our universities tend to use less experienced instructors to teach the first course in science in a large lecture hall. We babied our students too much in high school and they have a hard time being thrown into a large university without the same attention they had before. The other reason is that our high school math education is a failure. Math is the language of science. Without it, no matter how well the instructor can communicate, it's hard to convey or grasp the abstract ideas. That's why we badly need HS science teachers trained in the field they teach. Communications has its limit. We spent too much education budget on fluff and not on substance.

I believe China will survive well, not by communism, but by their dedication to education and appreciation for science and engineering.

reader8288 Author Profile Page:

Although the trade surpluses seem to be similiar, present-day China is in many aspects absolutely different from America in the 1920s and 1930s. It has a much more effective macro-economic control system which had been in place long before the world financial crisis. Government decisions to bail out the economy are much quicker than USA then and now. Besides, saving rate is much higher, give both the government and the people better potential to fight economic downturns. Taking these factors into consideration, I feel it too simplistic to base the judgment on a single factor.
What is more, China had before the crisis already planned to shift its economy growth from depending more on export to more on domestic consumption. The financial crisis, though a challenge in the short term, will also strengthen decision-makers' determination to push forward the shift, the success of which means a much healthier economy and much brighter future.

malagasy Author Profile Page:

I don't know whether "Communism" and "command economy" are the right descriptors for China today. I know a lot of American observers (and especially those who don't speak Chinese well) instinctively reach for the "Communism" (or softer "Socialism") label as a way to differentiate China from the supposedly "free" West. Yet China's economy right now is mixed, with some command-and-control elements and an awful lot of freewheeling capitalism.

Most of all, China's economy right now is built on savings, R&D and capital production, while the Chinese government has managed to stay out of foreign wars and military overexpenditures-- a much more solid foundation for a global economy than the debt-driven, hypermilitarized model in the US and Britain. (And even with our military expenditures, we still lose wars-- Iraq, Afghanistan, whatever else we become embroiled in.)

Moreover, the problems for China's economy caused by the decline of export markets, are more than offset by the reductions in commodity prices.

This is why China continues to grow at a slightly reduced, though still very firm clip, while the US and British economies enter catastrophic decline. Our economies are built far too much on debt, militarism and a ridiculous financial system in which overleveraging and loan-sharking interest rates are par for the course. It's not a sustainable way to run an economy, as our national debt levels among other things demonstrate.

pkperez Author Profile Page:

There are huge diffences in how our system runs and the Chinese and I believe China has yet seen the bottom of their current fiancial woes. They will pump money into jobs and projects that will line their party members pocket regardless if it will add any significant value in the future. Oh wait that sound a lot like our current government trying to approve a mob museum, a slip and slide park etc.... The real difference is that we have the ability through social discourse to prevent these pork procurements to an extent but the Chinese do not have that built into their system. We also tend not to use violent means to curb social unrest. This behavior in the end will be their doom once the majority of their people tire of this inmoral behavior. What happened in Tiananmen Square will only be a fraction of what is yet to come. I pray that a non-violent measure is taken to secure the human rights of the chinese people but I will not bet on it. There's 1.4 billion people and souls that I hope will come together in peace and harmony but the recent past does not bode well.

philipp1 Author Profile Page:

I am very sceptical of the abbility of governments to stear the economy in the "right" direction, and of state intervention.

The Chinese government in the past applied in a way some kind of lassez-faire policies and gave busineses space to experiment. I think that explains a lot of Chinas success.

Concerning the American experience during the GD one should not forget the Smoot-Hawley Tariff Act. After the USA raised its tariffs to record levels at the beginning of the 30s to protect its industries, other countries did the same. That in turn then really hurt the US economy.

So I hope for China and the rest of the world that the protectionists of all countries won't succeed this time.

Aprogressiveindependent Author Profile Page:

China's economic system seems to no longer merely be a command and control system as during the 1950's, 1960's and most of the 1970's. The United States government is showing itself fully as capable as the Chinese government "to meddle in the economy." Some persons are describing Bush as the first socialist president in this country. With the huge federal government bailout, unprecedented policies by the Federal Reserve Board and the soon to be enacted big economic stimulus bill, the supposed free market system is playing a distinctly secondary role in helping the economy recover.

The outcome described in the "Newsweek" article is probably more likely to occur. The Chinese economy is likely to have to deal with its greatest challenges since the beginning of economic reforms in 1979. The United States economy will have to cope with its biggest economic problems since the early 1980's or late 1930's. The national governments of both countries seem determined to use necessary monetary and fiscal to prevent greater damage to their economies than would occur without such massive government intervention. So most likely the governments in China and the United States will muddle through, while a lot of money is spent, some money wasted, millions are unemployed until there is a general economic global recovery in two or three years.


generalyuefei Author Profile Page:

Here comes our commie boat,
Hey Ho! Hey Ho! we row and row.
Don't tell my people they are my boat.
To the Communism together we row.
Marx and Engels pointing our road,
And dear Sunrise Mao is great we troll!
Hey Ho! Hey Ho! We troll and troll.
People's own labor is their own hope.
Beat down the empires and die for your home,
be your own master so no slave is born.
Hey Ho! Hey Ho! Rowing your boat!
If you refuse then I trample you into hellhole.
Your leaders are right, your papa and your hero.
Don't doubt them and just row your boat!
Hey Ho! Hey Ho! We row and troll!
To where our party goes, they know where's home!
Hey Ho! Hey Ho! There we go!
There goes our commie boat.

hawksmoor Author Profile Page:

These two examples reveal just how subjective a discipline Economics really is. I recall learning in an econ class that even now there are still conflicting interpretation of the effectiveness of FDR's New Deal. One the one hand people said it prevented the economy from tanking even further while others point to evidences that the massive governmental interventions actually prolonged the effect of the great depression.

Seems every time there is an economic crisis, these so called economists/experts are just as shocked as the rest of us and yet afterward they point to a plethora of evidences and evidences that shows just how obvious the signs are.

However, even given my limited (some would say nonexistent) understanding of economics, it seems like the Businessweek article focuses only a one aspect in its comparison between United States in '29 and China today - that they are both net exporter, ignores too many other variables and circumstances compared to the Newsweek article.

to Benkgee:

When the KMT fled to Taiwan, they took with them the entire gold and federal currency reserve to the much smaller economy of Taiwan. Along with them also went the academic and industrial elites from the most prosperous part of China. Simply put, they then utilized the resources of the entire country to jump start the economy of Taiwan, a small province. So it's really not accurate or fair to make the comparison with CCP and mainland China.

generalyuefei Author Profile Page:

To Benkgee,

Please explain how our communist party 'give the Chinese people stable government'?

By guns or by political system?

Is our government defending outsiders or their own people?

How many westerners in China protesting?
How many our Chinese, those who lost job poor people protesting?

Our government protect a few themselves from their own people.

You think they are protecting us from Americans? English? French? Japanese? or 1.3 billion Chinese?

Benkgee Author Profile Page:

Does anybody realize that the KMT ruling party of Taiwan, is as much involve in the economy of Taiwan as the Communist Party of China? Oversea Chinese generally do well, does the Communist Party helped them too? All the Communist Party has to do is give the Chinese people stable government, the people will do the rest.
However, a strong government with strong financial backing can be a great help.

generalyuefei Author Profile Page:

I like two words:
Meddle, Muddle

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