A very good article by Michael Wines in the NY Times should put to rest the notion that China is a growing capitalist society. The communist government owns the majority of the economy, and almost exclusively owns the companies in the major sectors. The trade deficit funds the Chinese government just like our energy consumption funds unfriendly dictatorships.
[The Chinese government] never relaxed state control over some sectors considered strategically vital, including finance, defense, energy, telecommunications, railways and ports.
China’s accession to the WTO was designed for a free market trajectory on their part. It did not happen. The WTO cannot handle state-managed economies, and our Congress cannot even figure out what they are.
While currency manipulation is a major issue, deserving of our response to neutralize that problem, the fact is the Chinese government controls many industry/economic sectors which are of high volume and high strategic importance. And they favor their own in many ways that the WTO cannot or does not touch. Even if technically private, the result is the same.
The biggest private companies often get their financing from state banks, coordinate their investments with the government and seat their chief executives on government advisory panels.
If there was an argument that China was progressing towards economic openness, that argument is gone now.
Mr. Wen and President Hu Jintao are also seen as less attuned to the interests of foreign investors and China’s own private sector than the earlier generation of leaders who pioneered economic reforms. They prefer to enhance the clout and economic reach of state-backed companies at the top of the pecking order.
The Soviet Union was fully centrally planned. China is centrally planned, but is a hybrid. That confuses our policy makers in the U.S., and they simply can’t deal with the fact that the geopolitical risk is the same.
But others argue that officials had always intended to create a vibrant state sector that would tower above the private sector in important industries, even as they sold off or shut down money-losing state enterprises that drained capital from the government budget and banking system.
State ownership of oil assets means that our energy consumption funds dictators in unfriendly oil-rich countries. We finance both sides of the war on terror.
Imagine if we had a massive trade deficit with the Soviet Union back in the day, the result would be U.S. funding of Kruschev and his war machine.
Our trade deficit with China funds their government and their politboro.
“In 2009, there was a huge expansion of the government role in the corporate sector,” Huang Yasheng, a leading analyst of China-style capitalism at the Massachusetts Institute of Technology, said in a telephone interview. “They’re producing yogurt. They’re into real estate. Some of the upstream state-owned enterprises are now expanding downstream, organizing themselves as vertical units. They’re just operating on a much larger scale.”
And they don’t tell the truth. Remember May of this year, China was going to let their currency float within a limited range. One blip of movement occurred after the announcement. One blip. That’s all.
Take telecommunications. Upon joining the World Trade Organization, China committed itself to opening its communications market to foreign joint ventures for local and international phone service, e-mail, paging and other businesses. But after eight years, no licenses have been granted — largely, the United States says, because capital requirements, regulatory hurdles and other barriers have made such ventures impractical. Today, basic telecommunications in China are booming, and are virtually 100 percent state-controlled.
China is our main global military rival. Our trade deficit means we send them gargantuan volumes of dollars for the government to build their military. This is supplemented by technology theft, offshoring of sensitive manufacturing, and their systematic hacking of our computer networks.
This is why I sometimes use the term “wacko free traders.” They are in a different world that does not exist, because they assume – against all evidence – that this is a free trade world and the U.S. is not alone. Maybe they should be called “dangerous free traders.”
The quote below shows who is really successful in this era.
Yet it is hard to argue with success, other economists say, and China’s success speaks well of its top-down strategy. Asian powerhouses like South Korea and Japan built their modern economies with strong state help. Many economists agree that shrewd state management can be better than market forces in getting a developing nation on its feet.
Yet our government leadership has not even acknowledged this problem, much less proposed a solution.