Why China Won't Rule the World

[ulmont]

Another potentially interesting thread falls victim to a "tedium hijack".  Sadly, those are becoming more common than even the ACW hijacks were at their zenith.   

McClellan was underrated.  If he had only gotten the troops he asked for, he would have taken Richmond in no time!!11!!eleven!

[Habbaku]

If Joe Johnston were left in charge of the Army of Tennessee, the war would still be going on.

[Razgovory]

I have demonstrated my good faith by providing a book that talks about the movement.  Until you pony up some counter-indicative evidence, I am going to rest on my oars.

Yeah, and last time you did that what happened?  The battle of Aegospotami.

[Syt]

So...you refused to point out the actual part that would support your claim; awesome.   

Dude, the book is only 260 pages. You're able to read, aren't you?

[Kleves]

If Sherman had fought for the South, we would all be speaking retard today.

[Razgovory]

If Sherman had fought for the South, we would all be speaking retard today.

If Sherman fought for the south he would have lost.

[HisMajestyBOB]

If Sherman had fought for the South, we would all be speaking retard today.

So this thread is from a parallel universe where Sherman fought for the south?

[HisMajestyBOB]

As a matter of fact, he is: http://www.youtube.com/watch?v=JO0f2ue_ecI

That would have been much better with a turkey on his head

Most things would be.

[Viking]

If Sherman had fought for the South, we would all be speaking retard today.

If Sherman fought for the south he would have lost.

Agreed, the South was really really poorly suited for total war, even if it was indirect.

[The Minsky Moment]

Responding to the article that opens the thread . . .

The analysis is pretty sound.  China has escaped the worst of the global recession.  It has done so primarily by flooding the state banking system with money, which in turn has pushed state-owned and quasi-state owned business into increasing investment.  This, as Pei indicates, only exacerbates the fundamental distortions in the Chinese economy -- namely, over-investment, under-consumption, horribly inefficient allocation of capital.  The tough choices have been deferred, but they can't be deferred indefinitely.

Similar ground was covered in an even more stark manner in the Financial Times editorial page last week:
http://www.ft.com/cms/s/0/afac7ada-e448-11de-bed0-00144feab49a.html?nclick_check=1

Why China's exchange rate policy concerns us
By Martin Wolf

Published: December 8 2009 22:53

A country's exchange rate cannot be a concern for it alone, since it must also affect its trading partners. But this is particularly true for big economies. So, whether China likes it or not, its heavily managed exchange rate regime is a legitimate concern of its trading partners. Its exports are now larger than those of any other country. The liberty of insignificance has vanished . . . .

having accumulated $2,273bn in foreign currency reserves by September, China has kept its exchange rate down, to a degree unmatched in world economic history. Finally, China has, as a result, distorted its own economy and that of the rest of the world. Its real exchange rate is, for example, no higher than in early 1998 and has depreciated by 12 per cent over the past seven months, even though China has the world's fastest-growing economy and largest current account surplus.

What we are seeing, as Mr Carney points out, is a failure of adjustment to changes in global competitiveness that has unhappy precedents, notably during the 1920s and 1930s, with the rise of the US, and, again, during the 1960s and 1970s, with the rise of Europe and Japan. As he also notes, "China's integration into the world economy alone represents a much bigger shock to the system than the emergence of the US at the turn of the last century. China's share of global gross domestic product has increased faster and its economy is much more open."

. . . .

Unfortunately, as we have also long known, two classes of countries are immune to external pressure to change policies that affect global "imbalances": one is the issuer of the world's key currency; and the other consists of the surplus countries. Thus, the present stalemate might continue for some time. But the dangers this would create are also evident: if, for example, China's current account surplus were to rise towards 10 per cent of GDP once again, the country's surplus could be $800bn (€543bn, £491bn), in today's dollars, by 2018. Who might absorb such sums? US households are broken on the wheel of debt, as are those of most of the other countries that ran large current account deficits. That is why governments are now borrowers of last resort.

For the external deficit countries, the concern is how to lower fiscal deficits without tipping their economies back into recession. That will be impossible unless they are either able to get their private sectors spending and borrowing as before, or they enjoy rapid expansion in net exports. Of the two, the latter is the safer route to health. But that in turn, will only happen if surplus countries expand demand faster than potential output. China is the most important single player in this game.

Fortunately, these adjustment are in the long-term interests of both sides, including China. As a recent report from the European Chamber points out, China's external surpluses have been a by-product of misguided policy.** Thus, capital was priced too cheaply in the 2000s, via cheap credit and low taxes on corporate profits, while foreign exchange was deliberately kept too expensive by currency interventions. In the process, income was transferred from households to industry. The result was an extraordinary surge in exports and capital-intensive heavy industry, with little job creation. Household disposable incomes fell to an extremely low share of GDP, while corporate investment, savings and the current account surplus soared. The short-term response to the crisis, with soaring credit and fixed investment, while successful in sustaining demand, reinforced these tendencies, rather than offset them. Another round of huge increases in excess capacity and current account surpluses seems inevitable.

China's exchange rate regime and structural policies are, indeed, of concern to the world. So, too, are the policies of other significant powers. What would happen if the deficit countries did slash spending relative to incomes while their trading partners were determined to sustain their own excess of output over incomes and export the difference? Answer: a depression. What would happen if deficit countries sustained domestic demand with massive and open-ended fiscal deficits? Answer: a wave of fiscal crises . . .

[Sheilbh]

Addendum: I'm not clear on when "The Great Depression" became officially known as "The Great Depression," or even just a "depression." In 1930, the economist John Maynard Keynes famously referred to it as "The Great Slump of 1930," so it's a wonder that label didn't stick. The Oxford English Dictionary's quotations section for the entry on the term "depression" includes the following chronology:

My understanding is that prior to the Great Depression all periods of prolonged economic shrinkage were called 'depressions'.  At some point the Great Depression gained capital letters; ever since then we've used the word recession.

[Siege]

That article is bullshit.

The moment the chinese realize the power they bear, we are going to be in trouble.
That's why we need to contain them now, and do everything in our power to keep them down.
A world ruled by China is not an option for the West.

[Sheilbh]

Incidentally I think the US is ridiculously bullish about China.  I think popular discourse seriously underestimates the distance China still has to go to be even a mostly developed nation.  Also I read an article recently that said that basically China's soft power has sort of run out.  For a long time China has been projecting herself as being fundamentally like any other developing nation, albeit a particularly large one.  As her economic muscle has grown - in the region and internationally - countries in ASEAN and Africa are considerably less sold on that and increasingly see China as another, relatively, strong economic power - regardless of the the third worldist sheen the Chinese government likes to present.

[The Minsky Moment]

There is a good medium term bull case for China, based primarily on the fact that even now they are functioning at a relatively low average standard of living.  There are still hundreds of millions of people living at just at or above subsistence, and so just getting those people to even a substandard level by OECD standards could take involve decades of high growth.

Long term there is a big question mark, as to whether China can successfully pass the Chun-Chiang line - that is the point at which a society reaches a level of mass affluence such that hard authoritarian rule cannot be maintained at the same time as continuing economic progress.

Short term there are the problems mentioned above.

[Jacob]

Yeah, I think China's soft power works more along the following lines:

1) We're interested in economic relationships with you and we're not going to give you any guff about your "internal affairs" in any shape or form.  Whether it's human rights, local kleptocrats, environmental issues or whatever we're not going to really care.  Let's do business.

2) We're a pretty big power with pull and money with somewhat different priorities than the US, Europe or the old USSR.  Sometimes that's a better fit, so let's do business.

3) We are very unlikely to engage in foreign military adventures.  It's all about business, so let's do it.