China's Economic
"Rebalancing"
By LARRYROMANOFF – September 27, 2020
One
category contained in the flood of US anti-China propaganda is the current
emphasis on how China must 'rebalance' its economy to imitate that of the US,
most particularly in the area of increased consumer demand. The Americans offer
an unending stream of negative commentary informing us that China's program of
capital investment in infrastructure, production, and social welfare is
"unsustainable", that China must cease this travesty against
capitalism and reorient its economy to immediately stop all further development
and turn the population into wanton spendthrifts like the Americans. We are solemnly
told, with appropriate biblical references from the high priests at AmCham,
that an economy blessed by God must be driven by consumer spending instead of
investment and that China can no longer be "addicted" to exports. So
much nonsense in this story, it's difficult to know where to begin.
Let's
first eliminate the foolishness about "unsustainable", which phrase
has become so over-used that it no longer carries any meaning. The dictionary
tells us that if something cannot last forever, it is unsustainable. No problem
there, but not everything attempted by man is meant to be perpetual. If I am
having dinner, my eating is a process which terminates on completion, and never
intended as a permanent action. It is the same with China's economic
development. The nation will, for many years yet, require additional investment
in infrastructure, in advanced production facilities and in social services.
Like all processes, this will not last indefinitely into the future but will
progress until all national needs have been met, at which time the country's
attention will be directed to other matters. If a country has insufficient
electricity generation or telecom infrastructure, to label its investment in
those areas as unsustainable is nonsense.
The Americans, envious of China's rise and
progress, want to derail further development by attempting to pressure China
into abandoning further economic development, especially in infrastructure, and
turn instead to consumption. But the entire argument is a fiction that will halt
China's development at its current level and plant the country firmly in the
jaws of a trap from which it might never escape. China's infrastructure
investment will indeed slow with time, but investment in advanced production
facilities should never cease. Consumer demand will no doubt one day assume a
greater proportion of China's economy, but there is no reason to anticipate
this will ever be as high as that in the US because the American economy is
structurally unsound and headed for eventual collapse. The Americans are
telling us that China can succeed only by emulating the same practices that are
causing the US to fail.
We
are told that China's manufacturing and exporting form too high a percentage of
the nation's GDP, but on what law is this based? If China wants to permanently be the world's factory, why can it not do
that? Germany has been the world's
high-quality manufacturing base for at least the past 100 years with no signs
of impending destruction so far, so why cannot Germany continue forever?
After the end of the second world war, with most nations and their industrial
capacity having been bombed to rubble, the US
manufactured about 50% of all products made in the world, this
manufacturing supremacy ceasing only from the introduction of neo-liberal
economics that resulted in the evisceration of American industry for the sake
of trillions in profits for the 1%. But
being the world's largest manufacturer and being literally "addicted to
exports" wasn't morally wrong for the Americans when they were doing it,
so why is it wrong for China now? The US once had massive current-account
surpluses, and it sure wasn't morally wrong for them then, so why is it morally
wrong for China today? There was a time when Americans saved money rather than
spending; it wasn't wrong for them then, so why is it morally wrong for the
Chinese to save money today? The US
position, in its entirety, is hypocrisy, a deranged display of self-interest
and greed cloaked in the Americans' infuriating brand of moral superiority.
The pressure on China to restructure its economy is designed only to help
American firms cannibalise and plunder China as they have done to virtually
every other nation. The forceful push to
dramatically raise consumer demand as a percentage of GDP is there only because
the Americans hope to flood China with their products. There cannot be
anyone in the world so naive or foolish as to believe the Americans would push
China to increase domestic demand if only Chinese firms would benefit. There is
nothing in the American position that would be to China's benefit and, just as
with all the prior pressure on the RMB, would serve only to derail China's
progress, kill the country's development, and leave the Americans supreme in
their dream of world domination.
There is little evidence
that China has any need to rebalance its economy in the sense demanded by the
Americans, to forsake investment and development and
strive deliberately to increase domestic consumption to anywhere near the level
existing in the US. It is the American economy that is strikingly unbalanced,
badly in need of reform, and unsustainable. An economy that manufactures almost nothing but weapons, where domestic
consumption forms almost 75% of the economy and financial services are 50% of
its GDP, is operating on an economic philosophy that has disaster and collapse
as its only outcome. There is nothing intrinsically wrong, morally or
economically, with China's consumer demand at 35% of the economy. Each nation
has its own culture and traditions and has a full right to continue them.
The
American economy's 75% dependence on consumer spending is an artificial entity.
It did not develop naturally, it did not occur because it is a universal value
or represents the natural yearnings of all mankind, nor because it was the will
of God, and certainly not because it made any economic sense. This artifice was
created entirely by the American gods of marketing who were looking for
improved ways to loot the nation's bank accounts and accelerate the already serious
income disparity, and is based entirely on fabricated values that are unnatural
to thinking human beings and do not exist in any other nation. The American
capitalists and their marketers eventually penetrated the educational system to
the point where Americans are taught virtually from birth to borrow and spend,
yet today they present this shaky artificial construction as the natural order
of things, as the ideal economic state of advanced nations. It is no such
thing. It is a dangerous and reckless condition that is both foolish and
unsustainable.
Americans
surpass the entire world in their amount of useless consumption, having long
passed the point where it can be deemed pathological. As one measure, that of
shopping mall space per capita, Germany has 2.7 sq ft per person, Japan has 3.9
and the UK has 5. For every American shopper there are 24 sq ft of mall.
The
Chinese are not spendthrifts as are the Americans; why would this
characteristic be promoted in China as a universal value to emulate? The
Chinese traditionally save a much higher percentage of their incomes than do
Americans. Why is this wrong? Why should China permit the Americans to bully it
into encouraging useless consumption? The Americans are pushing for increased
consumer demand in China, not from moral or philosophical superiority nor from
good economic sense, but simply because US multinationals are salivating at the
thought of emptying all those Chinese bank accounts. Why would the Chinese
government participate in such a 'rebalancing' strategy against the welfare of
its own citizens? It is not in any way good for China, but only for the
Americans. One American wrote this comment:
"What
is the source of the foolish statements that the health of the world economy
depends on a consumer society? That's something only an American can write. The
proposition that turning China into a nation of over-consumers will bail out
economically mismanaged nations such as the United States is fallacious and
insidiously misleading. So we broke capitalism and are expecting China to fix
it by doing what we did to break it in the first place. That's good American
thinking."
For
unknown reasons, some economists refuse to accept that retail consumption is a
result of economic growth, not a cause. Consumption of consumer goods and
services is a natural outgrowth of economic progress and prosperity. It is the
fundamental expansion of an economy that produces higher disposable incomes and
greater retail spending. It cannot be any other way. An economy such as the US
that is dependent for 75% of its life on consumer spending, is on its way to
the Third World.
For
the past several decades China has managed its economic development not only
appropriately but brilliantly, and has increasingly become a model to the
world, giving light and hope to all undeveloped nations while the US presents a
stark model of greed-induced self-destruction. Besides China, there is one
other nation that has a sound economy today and has survived and thrived
precisely because it has fiercely ignored US pressure and followed essentially
the same economic, industrial and social path as China's. That nation is
Germany. It has not deindustrialised, deregulated or financialised itself, but
instead has maintained its well-trained workforce, manufacturing skills, its
export volume, and its economic strength. The percentage of the German
workforce in manufacturing is more than three times that of the US, with much
higher wages and benefits. Not having financialised themselves, German companies
can ignore the stock and bond markets and generate investment internally or by
borrowing from banks. German firms function much more like China's SOEs than
like US public firms in that shareholders, stock markets, hedge funds and
investment managers are largely irrelevant. As Harold Meyerson noted, because
Germany practices a brand of capitalism in which employees and communities
still matter, Germany has been able to subject itself to the same forces of
globalization that faced the US, while maintaining incomes. Unlike the US,
Germany invests heavily in education and training, with government protection
for its skilled workforce. By contrast, the US model has by design destroyed
its worker base and incomes for the sake of short-term profits for the top 1%.
Germany's largest employers
are high-wage companies like Daimler, Volkswagen, BMW, Deutsche Telekom, Bayer,
and Siemens. The three largest employers in the US today are low-wage, dead-end
companies - Wal-Mart, KFC and McDonald's. What else do you need to know about
the economic brilliance of the Americans?
Almost
all of America's management, its economic policies, and its financial
capitalism are toxic. They are toxic to America and the American people and
they will be equally toxic to China, if China permits the Americans to infect
the country with its so-called "best practices". These practices are
deeply anti-social and lead only to the destruction of the public welfare of a
nation as we are seeing with America today, and they will lead to the same result
in China, benefiting only the wealthy few at the expense of the entire nation.
American practices, if permitted to take root and spread, will destroy the
economy and social fabric of China just as they have done in the US.
Some
Americans still blindly persist in their conviction that China is merely on the
road to Westernisation, but many others feel an existential threat to their
political-capitalist religion when facing the prospect that China may progress
very much farther and persist indefinitely while still remaining essentially
Chinese and not Western. Americans particularly may have to face the fact that
their system of so-called universal values is more a dysfunctional impediment
than path to glory. Tom Malinowski, the Washington director of Human Rights
Watch, said
"This
is the first time in several decades that we have seen a great power that
stands for and promotes an alternative vision of how states should relate to
their people, and that poses a threat ..... to a whole set of values and norms
that underpin the international system the United States helped build."
I
discussed elsewhere the American conviction that no peoples or economies could
succeed without adopting the full spectrum of American institutions and values,
but all will be compelled to eventually admit that China's version of
capitalism has proven far more successful - and human - than that practiced by
the West. A few years ago, John Gray wrote a review in the New Statesman of
Martin Jacques' book 'When China Rules the World' in which he made the point
that China's detractors struggle mightily with "the awkward fact"
that China's industrialisation, which is
the largest in the history of the world, has been achieved entirely
indigenously and was based on a rejection of Western values and advice. He
tells us that the China skeptics ignore evidence that doesn't fit their
world-view, and insist that China will inexplicably be compelled to Westernise
at some point. He claims, and he is correct, that they overlook the fact that it is Western capitalist Neoliberalism that
has collapsed, and not Chinese capitalism.
He
raises the issue, as does Jacques in his book, that China will most likely
continue its development by following the same path and remain as different
from the West as it has always been. To
the Americans particularly this is "a terrifying scenario" since it
would confirm that Westernisation (and, of course, "democracy") do
not ensure economic or any other kind of success, and that they may, if anything,
be an impediment to development as many authors have already pointed out in
comparisons of Hong Kong and India. Gray tells us that China's great
development success and inexorable rise may be due precisely to the fact that
China is so different from the West, which of course produces a peculiarly
American hysteria stemming from the religious mythology that no nation can
progress without adopting the full slate of American values and ideology. But China is not America, and Americans will
have to learn to live with this fact.
Of
course the Western world, led by the US and its gaggle of international
bankers, levy the same criticisms toward and make the same attacks on Germany
as they do on China, denouncing Germany for its export-driven economy and current-account
surplus, claiming this creates "a deflationary bias" in the European
and global economies. Of course, it does no such thing; instead, it simply
keeps Germany's economy viable in the same way as China's policies do for
China. Germany strongly denounced the US Treasury criticism as it should have
done, claiming its healthy economy contained no imbalances in need of
correction and that its current-account surplus was no concern.
While
the US once again mounts its morally righteous white horse to ominously rate
Germany and China as "problem economies", it is in fact the US that
is the world's largest problem economy with severe structural defects that
place great strain on other nations and that will one day have to implode.
Germany, like China, sees no particular need for dramatic increase in domestic
consumer spending. And it is the US that desperately needs massive spending on
neglected infrastructure to prevent the physical collapse of the nation. It is not China or Germany where bridges
are collapsing from 60 years' lack of maintenance. In addition to
constantly lecturing the Europeans on ways to painlessly reflate the US
economy, the Americans continue to push Europe for more financial access and
deregulation that would permit even more potential for destruction than they
experienced by following the US in 2008. Unsurprisingly, the Americans are
having an increasingly difficult time obtaining receptive ears in Europe.
Then we have the IMF, one of the main chapels
of the Western capitalist church, adding its contribution to ease China's way
into the blessed economic hereafter by pronouncing that the best way to succeed
is to fail. The IMF warns that China's
economic growth could slow to as little as 3.5% unless China takes immediate
steps to slow its growth to 3.5%. Of course this makes no sense, but then this
is religion, not economics.
The
IMF is urging China to "promptly" carry out financial and economic
reforms which include severely reducing
investment, cutting exports, taxing real estate and strongly encouraging
consumer spending, to say nothing of revaluing
the RMB. The IMF recognises these steps would have "some short-term
adverse implications", apparently without recognising the even greater
long-term implications. The theory seems to be that reducing economic growth to
near zero would give China "a chance to work out its toughest
problems".
I
fail to see how. China's toughest problems are entirely from Western meddling
in China's affairs, but Alfred Schipke,
senior resident representative at the IMF, claimed that if China officially
reduces its growth target, this would be "a strong signal that you are
moving ahead with your reforms". I have a better idea. Cancel Schipke's
visa and deport him from China, as "a strong signal that China is losing
its patience with Westerners interfering in China's internal affairs". And
for the record, real estate taxation is a Western model, not a Chinese one. It
is a Western solution to an Eastern problem which, if implemented, would affect
Chinese society and economy in hundreds of large and small ways, with echoes
that would reverberate for decades and cause unpredictable upheavals. It may be
that China should one day tax property, but that day is not today and
absolutely cannot be even considered as a response to Western pressure. China really needs to rid itself of the
foolish delusion that Western 'advice' has value to anyone but the West.
We
also have George Soros jumping into
this fray, contributing the same brand of believable wisdom as he did in
claiming that the world had lost faith in gold as a store of value. Soros is mouthing the same neocon agenda as
the US Treasury Department, claiming China needs a shift from exports to
domestic consumption if it wants to continue growing, but is long on empty
claims and awfully short on justifying facts. The real incentive is related
entirely to Soros' political agenda where he claims - again, with no
justification - that this "new growth model" which China so
desperately needs (at least, according to him), will produce "a
fundamental change" in China's political model. And that's where we really
are. All Western criticism of China inevitably resolves to America's political
ambitions which require the dismantling of China's governmental system.
Soros
is not only politically ambitious for his team, but rather dirty in his
methods. His assessment of the hoped-for political destruction of China and his
hopeful opening of China to external political control, was to suggest only two
choices for the country. One would be "political reform that would give people
(primarily Americans and Jewish financiers) greater influence over political
decision-making" in China, and the second was that China would resort to
internal "repression" or would "seek external conflicts to
maintain the cohesion of the country". You don't have to be very smart to
see that Soros' observations are complete rubbish. It would be a fantastic
economic model indeed where buying more refrigerators automatically unleashes a
genetic impulse to create civil instability, and even more surreal that the
only way for a nation to prevent this outcome would be to launch regional wars
with its neighbors. Soros is actually telling us that if the Chinese people
begin buying more things, this will automatically challenge "the cohesion
of the country" in a way that only sustained repression or all-out war
will prevent. Well, if increasing consumption will result only in repression
and war, why is he so strongly recommending it for China? Soros' entire
position is deranged bullshit. The man needs to be told to shut up and mind his
own business. Either that, or somebody should burn him at the stake as a witch.
Then
we have Michael Pettis, a finance
professor at Peking University and a Senior
Associate at the Carnegie Endowment for Perpetual War. Pettis wrote an article
for the Wall Street Journal in which he told us China "urgently needs to
rebalance" its economy (offering no reasons because none exist), and
offered several options for "fixing China". One was to substantially
appreciate the RMB, which he correctly acknowledges would destroy domestic
manufacturers, but then tells us this would "disproportionately help urban
households for whom import costs tend to be important". Considering the
small amount of China's household spending that goes toward imports, and comparing
this to the devastation that would result in the manufacturing sector, Pettis'
statement is merely stupid. Saving 0.5% of a household budget hardly
compensates for 40 million unemployed workers. Pettis also neglects to mention
that RMB appreciation helps primarily the currency speculators and the US
government which wants to kill China's threat to its quest for global hegemony.
And in any case, there is no evidence that China's currency is appreciably out
of line, so this is a dead issue.
But,
according to Pettis, "the best way" for China to rebalance is to
commit economic suicide by raising interest rates during a worldwide recession.
He goes on to tell us that "If the government hikes the cost of capital,
the winners will be every saver, whose higher income will then allow him to
consume more". So much rubbish here, it's difficult to know where to
start. First of all, the Chinese don't want to consume more; they want to save
their money because they have better things to do than buy overpriced US-branded
trash. And besides, consumer spending is an American pathology, not a world
religion. High interest rates would of course cause the RMB to rise, rendering
China's exports less competitive, damaging an already suffering sector and
causing substantial unemployment. It would also increase the flood of hot money
into China, thereby further exacerbating the exchange rate and adding
substantially to domestic inflation which would increase the prices of domestic
goods by far more than the minor depreciation in the prices of foreign goods,
leaving all Chinese much worse off. Pettis
ignores the prospect of killing investment in infrastructure, plant and R&D
which are so vital for China's continued development, but he salivates at the
thought that the largest losers in his scheme would be China's state-owned
enterprises whom he disparages as having "for too long treated the banks
as ATMs". Not that it's any of his business.
Interest
rates would have to rise by heavy margins before they translate into higher incomes
for China's general population and translate further into increased
consumption, and the small resulting increase in consumer demand would be
overwhelmed by the severe damage to China's companies that so badly need
increased capital for both operations and investment. Given the fragility of
the world's economy, a sharp increase in domestic interest rates would serve
only to add China to the long list of basket-case economies. The truth is that China is doing it right,
and sure doesn't need the advice of its enemies on how to "fix"
itself. Pettis are beginning to remind me of Gordon Chang - always wrong,
but never in doubt. I hope nobody believes this man's ideological drivel.
It worries me that Pettis is
filling the minds of Chinese students with a disastrous ideological heresy
containing precisely those elements so useful to the destruction of China's
economy. I sincerely hope this man is being employed
by Peking University only to serve as a bad example. And my congratulations to
the Wall Street Journal for publishing this piece of ideological rubbish.
China
has a long list of so-called foreign professors hopelessly infected with
American capitalist pathology and it worries me that their influence can
corrupt an entire generation of Chinese students who don't yet possess the
experience or breadth of vision to challenge their foolish claims. I will deal
with this subject in detail elsewhere, but for the moment I would express the wish that China's university officials would pay a
bit more attention to the class content of these professional seditionists.
And
then we have Chinese so-called "economists", who probably received
their education at either AmCham or Caixin, Westernised drones like Li Yining and Wu Jinglian, who solemnly tell us China's economic "new
normal" is "a more proper development method", and that China's
previous rapid growth was "excessively fast" and that such
"improper speed cannot be sustained". Li further tells us that
China's former pattern of "high speed with huge investment" should be
abandoned because a slow speed is, according to him "more efficient".
Li also claims that "China should bid farewell to excessively fast
expansion with annual growth around 10 percent", because "such
improper speed cannot be sustained." And what exactly would be the
definition of "proper"? This
is not economic theory; it is a moral judgment that results only from
indoctrination by Christian-Zionist Americans. But according to these two
geniuses rapid growth and large infrastructure investment should be abandoned,
meaning that China should essentially cease its growth and development, leave
things as they are now, and focus on consumer spending to drain all the cash
from the economy and put it into the hands of a few American multinationals.
The way god wants. Then, in a bafflingly unintelligent non sequitur, Li tells
us that "Economic declines are inevitable", but we don't have to
worry much because "the downturn would be acceptable". Acceptable to
whom, exactly? Apparently, we should conclude from this man's nonsense that
since economic declines are "inevitable" anyway, we might just as
well cause it ourselves now instead of waiting for it to occur naturally. Why
wait for the gods of economics to trash our economy someday in the future when
we can make it happen today? And, just to prove he fully absorbed his American
education, Li also tells us "We should support private businesses and
small enterprises"; in other words, kill those damned Chinese state-owned
enterprises that the Americans so much hate. Do people like this have to pay to get their rubbish published, or does
Xinhua do it for free?
•China's Economic
Nationalism
In 2006 the Financial Times ran an interesting
article titled, "Why China must turn away from economic nationalism".
There was no byline but the author was identified as the managing partner at
the law firm DLA Piper Beijing, who
I assume was Dr. Liu Wei. In the
article, we're told that perhaps China is "turning its back on foreign
investment", that "the international business community is
worried", and that maybe this "populist response to public
resentment" will herald "a new era of economic nationalism" in
China. We're told that much new legislation appears to be "primarily aimed
at foreign investors", which leaves American businesses feeling
"threatened". Moreover, Chinese companies are launching internet wars
"to incite nationalistic objections" to what Li Deshui, former head
of the National Bureau of Statistics, termed "malicious take-overs"
of Chinese enterprises, and stated that this process of "selling out the
country" could not be permitted to continue. The author further tells us
that these views have received widespread popular support, and that "there
is widespread concern, verging on paranoia" about privatisation of China's
SOEs. Doesn't sound good.
The
author tells us that American corporations must heavily lobby the Chinese
government to resist at all costs "the temptation of economic
nationalism" which will ultimately harm China, and that the government
must be made to understand that this short-sighted attitude is not a sign of
economic maturity. The article finishes with the advice that "the harsh
realities of competition in an international economy" dictate that China
must permit capital and resources to be efficiently allocated "by letting
the market decide". Where have we heard that before? But before we credit
the Americans, and especially the commercial sages at DLA Piper for offering
good advice to help save China from itself, we should review the meaning of the
term "economic nationalism" and the fundamental position of the
American government toward this apparently self-destructive attitude. We have
already seen how the US many decades ago exerted enormous political and
military force to eliminate what it called this "scourge of economic
nationalism", which at the time it defined as:
"a
philosophy designed to bring about a broader distribution of wealth and to
raise the standard of living of the masses". And we can recall the US
State Department further defining this attitude as consisting of people who are
"convinced that the first beneficiaries of the development of a country's
resources should be the people of that country".
You
can now see why this economic nationalism is a bad thing, why it would be so
harmful to China, and why the Americans are so firmly opposed to it. If China
should be so foolish as to decide that the benefits of China's development
should flow primarily to the people of China and raise their overall standard
of living, the Americans will be unable to empty all the Chinese bank accounts.
Just as the US claimed that Mexican oil didn't belong to Mexico but to US
multinational oil companies, so the new Chinese wealth doesn't belong to the
Chinese but to American multinationals.
But
according to our unbiased, disinterested and clear-thinking sage at DLA Piper,
China's objections to this American philosophy "are not signs of economic
maturity". Fortunately, he has a solution: heavy lobbying in favor of
further US takeovers of Chinese companies. And he concludes with this gem of disingenuous
wisdom, "If a potential transaction risks provoking
"nationalistic" objections, investors will need to couch the deal in
the language of mutual benefit." In simple terms, this means that if the
Chinese begin to see clearly the dangers in the viciously predatory form of US
capitalism, we must be clever enough to tell them it's good for them and hope
they will be stupid enough to believe us. I
must say it frightens me to think some Chinese might actually be tempted to
believe such obviously dishonest and self-serving rubbish.
*
Larry
Romanoff is a retired management consultant and
businessman. He has held senior executive positions in international consulting
firms, and owned an international import-export business. He has been a
visiting professor at Shanghai's Fudan University, presenting case studies in
international affairs to senior EMBA classes. Mr. Romanoff lives in Shanghai
and is currently writing a series of ten books generally related to China and the
West. He can be contacted at: 2186604556@qq.com.
Larry
Romanoff is one of the contributing authors to
Cynthia McKinney's new COVID-19 anthology ''When China Sneezes''.
