China’s economic development is a strong interest of mine and after seeing the article on Thomas Crampton’s site about Lee Horn’s article about the notion that China does not offers a new model for economic development, I thought I would jump in as well to offer my thoughts in this area.

I think that it is a misreading of what Lee Horn is saying when trying to pitch his words as China developed by sheer luck. In fact, it is far more important to note this phrase and really understand what he means:

Rather than treading a pre-set path towards economic development, China was able to improvise along the way, learning from experimentation, and thereby responded flexibly and pragmatically to unintended outcomes and unforeseen events, in line with Deng’s encomium to “cross the river by feeling for stones” (‘mo shi guo he’).

I think Professor Bohn would be very happy to see this being used and recognized, even in a non-business way. Lee’s point is not that it really developed through luck (which, admittedly, it did), but through the willingness of being flexible and testing to see what works and what does not.

Every country that has developed will of course have some kind of luck associated with that development, good timing, good size, good environment, etc. What matters is that China was able to take advantage of that climate and continue development by that learning from experimentation.

The paper that I wrote in 2005 for my Chinese Political Economy class dealt with this point of what kind of economic development China was following titled “Political Economic Development of China.” Essentially, the goal of the paper was not to classify China under a specific model, similar to Lee’s point, but rather to do an overall comparison of China’s economic development with past Asian Tigers’ developments.

A point that Lee makes is also worthy to keep in mind for economic development is each state’s unqiueness:

Uniqueness – It is questionable how much of China’s experience could or should be exported. [...] China’s uniqueness in terms of size and history help explain its economic rise.

My point to this is that every country is unique and therefore each respective country will need to adjust its economic development accordingly. China’s country had the following internal situations (please see the paper for sources):

Chinese State - Deng Xiaoping embarked on decentralization and political reforms as a response to China’s slowdown of economic growth, but these experiments in political reforms were cut back dramatically after the Tiananmen crisis of 1989. Still, the government under Jiang Zemin by the end of the 1990s began to focus again on government reform experimentations with local elections and removing itself from micro-management to macro-economic supervision.

Major Conglomerates - An interesting feature of the Chinese economic development has been the promotion of joint-ventures for foreign companies with Chinese companies. [...] These joint-ventures give local companies access to new technology, managerial skills, and capital by joining up with the foreign company where in turn the foreign company gains leverage over other domestic rivals and foreign firms that try to operate solely on their own in a new and developing Chinese market.

Industrialization - China is certainly not following Import Substitution Industrialization (ISI), but at the same time, China is not specifically pushing an Export-Oriented Growth (EOG) because although the country is exporting its products all over the world, the government has been reducing its tariffs. Foreign Direct Investment (FDI) is a major part of China’s ability to finance much of its growth, particularly to overcoming barriers for the development of large firms in the auto sector.

I go further within the paper to explain how various Asian Tigers developed, but wanted to get to the main point that China tested ideas from different systems and used the ones that workd for China. In this way, China’s obligation to the WTO was to open up its financial banks in ways similar to the Taiwanese and Korean development. Sometimes it is how countries failed in economically developing (see Russia’s style of “Big Bang development“) to move down a different path of gradual style of economic liberalization.

In conclusion, similar to Lee’s note of:

Rather than adherence to an intellectually consistent and ideologically circumscribed model of economic development, reform in China was driven by pragmatism and a piecemeal approach to instigating and managing change.

China’s development took approaches from a realistic standpoint void of an all-encompassing ideological approach in order to deal with a new world order (World Trade Organization) with rules that even the Asian Tigers did not have to deal with.

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China’s prominence is rising in the high-tech world on a variety of fronts as China’s Alibaba.com has enjoyed a massive 340 percent gain in net profit tied to China’s fast-growing economy. The number of unique visitors (as of October 2007) is second only to the US (yes, China’s large population has helped), however, their presence is being felt all around the world from World of Warcraft users having to sell their characters at a cheaper rate to compete with the Chinese ones to within China as homegrown sites such as TenCent, Baidu and Sina all reach more native Web surfers than Microsoft, Google, or Yahoo.

Nonetheless, one should be careful to equate fast growth, large numbers, and impressive actions with that of how China will overtake other first world nations in the near future. Strong growth now, does not mean it will continue to do so in the future.

Even more so, one should always be careful about making predictions of country growth with innovation and new tech centers. A new book called Silicon Dragon by Rebecca Fannin notes:

It’s going to be years before it becomes very pronounced, but China is slowly emerging as the next Silicon Valley.

If you look at venture capital money flowing in, it’s a phenomenal rate. China has been the fastest-growing target for venture capital in the last four years: far faster than anywhere else in Asia or the U.S. or Europe.

Venture capitalists used to say they’d never invest outside a 30-mile radius of their offices. Now VC firms like Sequoia Capital, Kleiner Perkins Caufield & Byers, and Accel Partners are all focused on China. Virtually all of the major venture capital firms in the U.S. have teams and funds there. It’s been a huge shift. And for every startup that’s funded in China, there’s a startup that’s not funded somewhere else.

Yes, the growth and money put into China has been tremendous, but if its going to be years in the future, we can only imagine how long China’s growth and strength can last. The Asian Tigers were seen as phenomenal and Japan itself was seen as going to overtake the US back in the 1980s, but as we all saw, some fundamental economic instabilities became too pronounced to avoid leading to stagnation within.

Keep in mind one important point from all this:

We have to ask: what innovation has the new China produced already? [B]eing a manufacturing powerhouse is quite different from actually [originating] the products, let alone inventing novel ones.

In other words: Look beyond how fast the growth is, beyond how much money is being invested, but dive into how stable is this system? Is this growth based on sound principles? Is the country able to adapt to economic downturns? Are there any intrinsic problems that will prevent future growth during the hard times? Lastly, what is actually being created and not just mimicked?

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You just know Paul Krugman had a lot of fun writing this paper on interstellar trade (PDF).

Of course, a lot of the interstellar economic trade theory has to rely on a future without replicators as that just throws economics out the window.

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A few weeks ago I was privileged to go to the Asia Foundation’s event “The Future of Democracy in Southeast Asia.” I was mainly there to meet up with other IR/PS alumni as I’m more interested in East Asia and China in particular, but surprisingly the event turned more towards the relationship between economics and democracy which was quite fascinating.

The overall subject was how democracy was faring in the region and how that related (or not) to the lack of democracy. Larry Diamond from the Hoover Institution favored the more Modernization Theory approach and Big Bang aspect of turning around a country’s economy by quickly embracing democracy whereas Kishore Mahbubani noted that in fact what matters more is the role of good governance.

Listening intently to the arguments laid out by both sides, I actually could not help but envision the two of them as two differing viewpoints of mine where I truly believe that on the one hand democracy is the best form of government possible for economics in the long-term and for the well-being of the countries’ citizens. Yet, at the same time, democracy and elections are not everything if the democracy is so corrupt and governance so poor that the people begin to clamor for an autocracy that could benefit them instead.

In the same way, Japan, Taiwan, and Korea all developed economically with a system of government that was either not democratic, or at best a minor democracy. China even sees Singapore’s style of government as the best outcome for development rather than a quick change that Russia went through.

Nonetheless, I am an eternal optimist that all countries that want to develop into a first world (aka developed) nation status will have to develop a style of democracy suiting to the country’s citizens in order to consistently root out endemic corruption that grows over time under one system of rule (endemic in this case being longer than eight years). Interestingly, the development of democracy has occured when the average citizen earns around $5000 a year or can afford a car.

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One thing to always note, even as someone who’s internationally a neo-liberalist, is to remember to separate economic theory from economic reality:

My conservative friends are fond of telling me that the market is always right. Well let’s look how the market behaved yesterday.

According to the New York Post, after the Spitzer story broke:

“Traders were on such a high that stocks rallied for about a half-hour.”

I don’t know about you, but I certainly trust a market that forgets about the mortgage crisis, lack of consumer spending, our trade deficit or any of the other economic troubles we are facing and values our nation’s companies based on the fact that Elliot Spitzer paid for sex.

/sarcasm

One has to take into account that people are sometimes irrational, corrupt, and misguided in what matters to them and their pocketbook.

It’s also another thing to keep in mind when people try to spout the idea of rational choice.

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Hah! Good luck on achieving this.

The future of the net will stay open, will stay independent, and will stay around the interactiveness and interoperability of people all around the world. Sure there will be forces trying to undermine it or take advantage of a variety of idiots out there, but there will always be places that will crop up to fight back. We see that already with free anti-virus software makers whom develop credibility through what they offer and then sell other services or upgrade features.

The Internet is the closest thing we have to a free market ever with brilliant people all around the web taking up the charge to make a buck knowing how to use the idea of one thing being free while selling other services or upgraded products.

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To understand the future of the Internet, definitely read this article at Wired on freeconomics.

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I think the following article by Kevin Kelly titled “Better Than Free” is a great article about Internet Economics and is in my view lays out perfectly the points on how the Internet is changing how content (really any type from written to music) is perceived–from cost-based to free except in the unique areas.

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I ran across a blog called “Journalism by Other Means” talking about The New Hegemony, a response via the New York Times article. I strongly suggest reading the full 8-page article (I know, that’s a lot of clicks and time) called Waving Good-bye to Hegemony. Part of the article definitely goes into my previous post on the Rise of Chinese Style Democracy, but I wanted to note some areas of disagreement on a wonderful article that makes me happy to see some journalists really caring about the US/international affairs contrary to this past 8 years (all after the jump…) (more…)

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This is a guest post by Ivy:

新年的中国一派歌舞升平，国际上，“中国崛起”也几成共识。当然，不那么“和谐”的杂音依然有的是。

中国国家主席胡锦涛元旦前夕到天津看望和慰问基层干部群众，誓言千方百计稳定物价，解决低收入群体住房难的问题。北京理工大学的胡星斗教授指出，其实解决这两个问题难度极大，绝非短期内所能完成。

曾于1998-2001在世界银行担任公司治理顾问的香港中文大学财务学讲座教授郎咸平则提出中国的八大危机说。如：宏观调控的目标错误，地方政府以 GDP为纲的理念造成了整个经济结构的失衡，中国金融业将为外资所席卷，外资银行可以经营人民币业务，等等。搞不好就会一蹶不振，直至“死掉”。

郎咸平1956年生于台湾，1986年获得宾夕法尼亚(University of Pennsylvania)大学沃顿商学院(Wharton School)财务学博士学位，曾经执教于美国沃顿商学院、密歇根州立大学、俄亥俄州立大学、纽约大学、芝加哥大学等。他最早对中国国有企业产权改革公开提出批评。

中国可能要经历10年通货膨胀
(more…)

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