Communist China, the misbehaving superpower

On the back of the Google - China standoff, I am taking the liberty of recycling content from the oft brilliant Mark Anderson at SNS.  This is a short digest of the excellent article that you can find at: www.abrightfire.com.  Whilst I think we have to watch the Western tendency to take advantage of the rule of law when it suits our purpose but neglect it at other times (recent wars come to mind...), I do think this article raises the stakes on the China debate in a smart way.  Whilst China is trying to gain moral kudos and intellectual leadership on issues like global emissions (whilst sabotaging part of Copenhagen), it is healthy to take a slightly cynical view of who we are dealing with here.

Over to Mr Anderson:

It is time to look at China, not for what it says, but for what it does, and to judge it accordingly.  China, [which] Nobelist Paul Krugman calls “a misbehaving superpower", is not what we hope it could be. China is what it is.

Sloppy Western optimists assume that China is just a Big America, or a Big Vietnam, or a Fast India – or their Next Big Business Partner.  In fact, China has designed an economic model designed to gut its trading partners.

Although the politics of China remains communist, the economics might be called Advanced Mercantilist. China has taken the lessons of Japan and South Korea in dealing with the West and modified them with “Chinese characteristics.”

Basic tenets of the Chinese Model

1. Steal Intellectual Property.
2. Use Slave Labor Rates to Become the Low-Cost Producer of All Goods and Services
3. Sell Stolen IP Back As Global Exports
4. Industrial Policy: Subsidize Key Industries
5. Prevent (or Restrict) Unwanted Imports
6. Use Currency Manipulation
7. Price for Export, Suppress Domestic Consumption
8. Create the Appearance of Free and Fair Trade, Without the Fact. The global community somehow allowed China to join the World Trade Organization, although, in fact, China  has not signed off on all of the WTO requirements
9. Encourage Foreign Direct Investment – But Don’t Allow Controlling Ownership.

Does this combined policy set sound anything like free markets, or free trade? Not at all.  Is there any part of this that is legal in international terms, or that should be applauded by the world community?  Not that I can determine.

When will the world catch up to this kind of charade? The answer just might be: now.

The danger of a command economy in the modern world.

The global outcome of a fast-growing command economy has been the government-determined explosion of asset bubbles all over the world – not because China is growing, the cause assumed by most economists, but because the government is buying resources (and their future options) on the global market, forward for 5-20 years. The result: instant commodity asset bubbles, worldwide, and further destabilization for non-Chinese consumers of these commodities. Of course, if the Chinese play the bubbles wrong, they will lose even more as prices collapse.

Could the Chinese create a global catastrophe by commanding all of this leverage into the wrong assets at the wrong time, by deflating the value of high-IP goods, by forcing global competition against unsustainable cost bases, and destroying non-Chinese business infrastructure? Sure. In fact, this is almost a “when,” and not an “if,” question. What could possibly be more dangerous to the world than a command economic system run on a global scale?

Comments

[www.facebook.com/profile.php?id=589275504]

"What could possibly be more dangerous to the world than a command economic system run on a global scale?"

Uhm, meteorites? Rogue nukes? HIV/Aids, Malaria and TB?

But seriously, I think most politicians are highly aware of the Chinese Great Game. Two things to consider: the fine line of dealing with China for humanitarian purposes and not dealing with China for equally humanitarian purposes. From a perspective of not just total wealth creation but equitable wealth distribution, one could make a moral argument for engagement with China even under current explicit and implicit terms.

Secondly, it's clearly a nice game-theoretical problem. Some countries will deal with China no matter what (German foreign policy comes to mind - we don't care what SOB we sell to, as long as the guy pays on time). So you're effectively damned if you do and damned if you don't. The only resolution would be to globally regulate China's participation in capital markets to the extent that they keep manipulating their currency and FDI. But it's way too late for North Korea style restrictions given the amounts we're talking about here.

Best to engage with the Chinese on their terms and finance opposition wherever you can. Growing wealth, the universal human yearning for freedom and Chinese demographics (old before they're rich) will take care of the rest. So what if we have a copper and coal collapse? The future is "nucular!"

I hope this doesn't come across as totally foolish. But I remember when we were all scared the Japanese were going to buy the planet and the sun was setting on the West etc. Not to mention the "global cooling" scare of the 80s.

China ETF's are probably a good buy. So let's go and make some money and let the large problems solve themselves in time...

[Fred Destin]

Thanks Max, I agree with you, although this reminds more of USSR vs US than the rise of Japan.

The amount of assets and commodities these guys are amassing by recycling trade surplus outside of China does pose a significant threat in my view and probably increases the probability of conflicts. I am concerned about mixing expansionary china with distributed wars, terrorism, and a resurgence of militarism in the US in recent decades.

[Joel Lim]

You have given wrong comments about China. Chinese have high IQ levels and are hardworking. When they learn fast, you say they steal your technology. Isn't it ridiculous? Joel Lim

[David]

According to Lynch, the average IQ levels of Chinese is 105 but that of Caucasians is just 100. You can expect how fast the hardworking and intelligent people can achieve within just a short time without cheating or stealing any technology.

The only thing the Chinese miss at the moment is the freedom to worship God openly in true churches. (They do not know that the New Testament actually encourages people, including slaves, to be loyal to their government. They are not aware that the spread of Christianity will only help to stabilize their socialist and patriotic Chinese government.) That's an area in which they may be left behind.

The U.S. can never beat China again in future unless most Americans are back to trusting and worshipping God wholeheartedly again. If China also becomes a Christian country, then it will be even harder to beat (because they will have both economic and spiritual strengths to move forward in a very stable, harmonious and healthy way in the long term.

If more Americans move away from God and do not even attend churches, they can never match China in terms of human wisdom.

[Fred Destin]

Joel

Note that I started with a comment on the perils of taking the moral highground (particularly for Westerna democracies) before reproducing the SNS content.

To your question: "Is it ridiculous ?"

Firstly we should separate comments about "chinese" and the Chinese communist party.

Secondly I do not think the two are mutually exclusive; you can work hard and be smart and exist within a political system that sponsors violations of the law and personal rights.

I would be more interested in a structured critique of the article and the attack that it makes on the Chinese Communist Party, including the way it treats its hard-working and intelligent people. The point is that the Chinese Communist Party is not a benevolent democracy but a one-party system run on opaque rules used to unsavioury behaviour.