The "Asiatic mode of production", or more generally, "Oriental despotism", is an element of Marxist-Leninist thought that should be revisited today, in the early 21st century, in the context of communist China's dramatic rise to the forefront of the global economy.
Specifically, it will be argued here that the main continuity between imperial China and the People's Republic - namely, the all-pervasive bureaucratic apparatus state - is every bit as crucial to our understanding of modern China as the much more widely discussed discontinuity brought about by the communist revolution; in the final analysis, one can actually make the case that it is even more so.
As a start, China has been an empire since 221 BC, the date of its initial unification by one ruler, the first Qin emperor; indeed, the term "China" itself is derived from "Qin".
What is remarkable from a Western point of view is that practically all of the greatest innovations and developments in Chinese thought - notably the Confucian worldview - took root and matured around that date, that is, in the late pre-imperial (territorial states) and early imperial (especially Han dynasty) eras. In the subsequent two millenniums, Chinese civilization followed a very notable cyclical pattern of imperial rise, decline, and fall: while the dynasties varied in the degree of absolute political power they enjoyed as opposed to the civic strength of their subjects, their overall foundations for legitimacy were unmistakably little altered. In a nutshell, it boiled down to a so-called "mandate of heaven" of the reigning dynasty, based upon its ability to effectively administer and defend the imperial domain and thus preserve the exalted basic qualities of societal existence, namely stability and harmony.
In the modern age beginning around 1500, but especially since the industrial revolution about 1750, the stunningly rapid technological, socioeconomic, and ultimately political transformation of the West gave rise to an ever-increasing Western consciousness of the "otherness" of the East, i.e. the Orient, of which China among all the great eastern empires - notably Turkey, Persia, and India - appeared to be the representative par excellence. This otherness, in essence, was the apparently static and unchanging nature of Eastern society in stark contrast to the dynamism and progress of the West. Unsurprisingly, by the mid-1800s, as the industrial revolution accelerated to propel European Christian civilization into a position of unprecedented dominance over others, this awareness came to acquire an increasingly patronizing tone, and it would undergird the white man's imperialist colonization of most of the colored world in the closing decades of the 19th century and the early 20th.
It was in this context that Marx and Engels, among others, discussed what they termed the "Asiatic mode of production", or "Oriental despotism" per earlier Enlightenment terminology. Drawing from other Western thinkers, whether in their own day, such as John Stuart Mill, or from such earlier luminaries as Montesquieu and Hegel, they latched onto the central element of this peculiar form of non-Western autocracy: the seemingly all-powerful bureaucracy.
However, it was the 20th-century German Marxist/Sinologist-turned anti-communist, Karl August Wittfogel, who in 1957 published the definitive volume discussing this topic, "Oriental Despotism". Deeply disillusioned by the regressive autocratic retrenchment of both Stalinist Russia and Maoist China, Wittfogel laid the foundations for a systematic deconstruction of the pattern of continuity between Czarist Russia and the former and between imperial China and the latter; in doing so, he expounded upon the not insubstantial writings of the late 19th and early 20th century socialist thinkers - not least Marx, Engels, and Lenin themselves - to arrive at his critical conclusion that the entire theory of the "Asiatic mode of production" was deliberately abandoned by the Bolshevik revolutionary generation because it presented such a scathing indictment of the retrograde true nature of their supposedly progressive and scientific movement.
Today, as China is ruled by a party-state that continues to call itself communist but has obviously engaged in arguably the most blatant appropriation of public wealth for private interests in modern history, it behooves us to explore the possibility that, far from being an extraordinary deviation of the natural flow of human (specifically Chinese) affairs, it's more accurately a modern iteration of China's dynastic past of bureaucratic despotism.
What follows will be a multi-part critique on my own part of Wittfogel's aforementioned magnum opus on Oriental despotism.
Wednesday, November 25, 2015
Monday, November 23, 2015
Another flawed argument that Chinese communist rule is imploding
Minxin Pei's recent piece arguing that the CPC's rule in China is in its twilight recalls similar analyses earlier this year, perhaps most notably David Shambaugh's "The Coming Chinese Crack-up" in the Wall Street Journal back in March.
I disagree that the CPC is on the brink of collapse. I could be wrong, of course, but I'd like to point out that both Minxin Pei and David Shambaugh represent a strong strand of opinion that wishes, rather obviously, that the severe pressures apparently bearing on CPC rule will lead to a crisis that will give an opening for the reform and liberalization that have been absent since 1989; in this hope, they are misguided and have misread the meaning of the undeniable changes in the Xi Jinping era.
I think it's already obvious by now that the post-Tiananmen era - but more generally, what I call the "extended Deng Xiaoping era" (1978-2012) - has ended with the leadership of Xi Jinping. But this hasn't necessarily made the regime weaker and more brittle; or even if it has, China is so much wealthier now than back in the 1990s and even early 2000s that it makes the immediate threat of mass social unrest and revolution a rather distant prospect.
Granted, the evaporation of what Minxin Pei calls "elite unity" is troublesome for continued party rule. But this overstates the degree to which the elites were actually united during the Jiang Zemin (1993-2004) and Hu Jintao (2004-2012) eras to begin with. Whatever loss of unity at the apex of the CPC power structure has been a long time coming - and it has arguably been much worse at different points during the past decade than it is today, when Xi Jinping's single-handed authority seems rather impregnable, at least publicly.
True, there have reportedly been no fewer than 20 assassination attempts on Xi Jinping since he assumed office, most of which, it would appear, are connected to disgruntled or fearful officials caught in the crosshairs of the anti-corruption campaign. So yes, it goes without saying that discord within the party has potentially catastrophic consequences.
On the other hand, as Xi's power further entrenches and consolidates, much more than mere enmity, dread, or hatred of the top leader will be needed to mount any serious attempt to undermine, let alone overthrow him. As Xi locks down his control of the military and internal security apparatus - early this year, for instance, he apparently replaced his elite personal security detail with more reliable loyalists - his enemies must contend with slimmer and slimmer chances that they could seize power even if they do somehow eliminate Xi himself. This will alter all their calculations of risk and cost versus potential gain and reward with respect to any scheming to remove Xi, even as it heightens their awareness of the immediate danger to themselves should they be suspected of treason.
Even more significantly, in my opinion, the recent simultaneous crackdown by Xi against civil society, internal party liberals, and nongovernmental reform groups, far from being a sign of his regime's incoherence or paranoia, is probably itself a cunning CPC power play. It's Xi basically telling the party elite and even the rank-and-file apparatchiks, "I have every intention of keeping us in complete charge of the country, with no external limits on our authority; but that's exactly why you must support my harsh measures to clean up our own mess, because if you don't let me do it, you'll only empower those who hate all of us, clean or dirty alike."
Xi Jinping is no Jiang Zemin or Hu Jintao; neither is he a Deng or a Mao; he isn't many of the things that many of us wish he were. But if anything, he's an exceedingly gifted politician who has decades of practical knowledge of the actual (not merely theoretical) workings of power and statecraft. None of his prominent critics in the Chinese world have anything remotely rivaling the résumé he boasts in that regard.
That being said, at least for the time being, Xi also seems to be able to count on much popular support for his anti-corruption purge, as well. Coupled with his strong nationalism, this appeals to the very real element of jingoistic pride in Han supremacy that was strongly nurtured throughout the post-Tianamen era (1989-2012), and is now a driving societal force with increasing international significance in the post-post-Tiananmen (i.e. Xi Jinping) era.
And even here, he is cold, cunning, and patiently methodical, driven less by emotion than by colorless hard calculation: don't count on him to overreact stupidly to Western, American, and regional efforts to check Chinese assertiveness. Like any smart nationalist strongman, he'll wait until popular demands for aggressive coercion against foreigners reach such a boiling point that by the time he actually pulls the trigger, he can claim to have exercised remarkable restraint.
All of this, in my humble opinion, is more bad news for liberals, reformers, and Westerners fearful of China's rise than it is for the CPC itself.
I disagree that the CPC is on the brink of collapse. I could be wrong, of course, but I'd like to point out that both Minxin Pei and David Shambaugh represent a strong strand of opinion that wishes, rather obviously, that the severe pressures apparently bearing on CPC rule will lead to a crisis that will give an opening for the reform and liberalization that have been absent since 1989; in this hope, they are misguided and have misread the meaning of the undeniable changes in the Xi Jinping era.
I think it's already obvious by now that the post-Tiananmen era - but more generally, what I call the "extended Deng Xiaoping era" (1978-2012) - has ended with the leadership of Xi Jinping. But this hasn't necessarily made the regime weaker and more brittle; or even if it has, China is so much wealthier now than back in the 1990s and even early 2000s that it makes the immediate threat of mass social unrest and revolution a rather distant prospect.
Granted, the evaporation of what Minxin Pei calls "elite unity" is troublesome for continued party rule. But this overstates the degree to which the elites were actually united during the Jiang Zemin (1993-2004) and Hu Jintao (2004-2012) eras to begin with. Whatever loss of unity at the apex of the CPC power structure has been a long time coming - and it has arguably been much worse at different points during the past decade than it is today, when Xi Jinping's single-handed authority seems rather impregnable, at least publicly.
True, there have reportedly been no fewer than 20 assassination attempts on Xi Jinping since he assumed office, most of which, it would appear, are connected to disgruntled or fearful officials caught in the crosshairs of the anti-corruption campaign. So yes, it goes without saying that discord within the party has potentially catastrophic consequences.
On the other hand, as Xi's power further entrenches and consolidates, much more than mere enmity, dread, or hatred of the top leader will be needed to mount any serious attempt to undermine, let alone overthrow him. As Xi locks down his control of the military and internal security apparatus - early this year, for instance, he apparently replaced his elite personal security detail with more reliable loyalists - his enemies must contend with slimmer and slimmer chances that they could seize power even if they do somehow eliminate Xi himself. This will alter all their calculations of risk and cost versus potential gain and reward with respect to any scheming to remove Xi, even as it heightens their awareness of the immediate danger to themselves should they be suspected of treason.
Even more significantly, in my opinion, the recent simultaneous crackdown by Xi against civil society, internal party liberals, and nongovernmental reform groups, far from being a sign of his regime's incoherence or paranoia, is probably itself a cunning CPC power play. It's Xi basically telling the party elite and even the rank-and-file apparatchiks, "I have every intention of keeping us in complete charge of the country, with no external limits on our authority; but that's exactly why you must support my harsh measures to clean up our own mess, because if you don't let me do it, you'll only empower those who hate all of us, clean or dirty alike."
Xi Jinping is no Jiang Zemin or Hu Jintao; neither is he a Deng or a Mao; he isn't many of the things that many of us wish he were. But if anything, he's an exceedingly gifted politician who has decades of practical knowledge of the actual (not merely theoretical) workings of power and statecraft. None of his prominent critics in the Chinese world have anything remotely rivaling the résumé he boasts in that regard.
That being said, at least for the time being, Xi also seems to be able to count on much popular support for his anti-corruption purge, as well. Coupled with his strong nationalism, this appeals to the very real element of jingoistic pride in Han supremacy that was strongly nurtured throughout the post-Tianamen era (1989-2012), and is now a driving societal force with increasing international significance in the post-post-Tiananmen (i.e. Xi Jinping) era.
And even here, he is cold, cunning, and patiently methodical, driven less by emotion than by colorless hard calculation: don't count on him to overreact stupidly to Western, American, and regional efforts to check Chinese assertiveness. Like any smart nationalist strongman, he'll wait until popular demands for aggressive coercion against foreigners reach such a boiling point that by the time he actually pulls the trigger, he can claim to have exercised remarkable restraint.
All of this, in my humble opinion, is more bad news for liberals, reformers, and Westerners fearful of China's rise than it is for the CPC itself.
Saturday, November 21, 2015
China's response to ISIS and its own radical Islamist problem
China has censored social media discussion of the recent killing of one of its nationals by ISIS, apparently fearing too much discussion will make its inaction look bad to its own citizens. Meanwhile, it has reported killing 28 "terrorists" in Xinjiang that it claims were local Islamic radicals tied to a foreign extremist group, and took a swipe at Western "double standards" on terrorism even as it offered condolences for last week's Paris attacks.
How big is the radical Islamist problem in China, specifically Xinjiang? It's definitely worse than the official state media makes it out to be, and has become a chronic security issue since the big Urumqi riots in 2009, which now claims hundreds of lives annually. That being said, it's hard to think that this isn't a problem Beijing has largely brought upon itself. Its policies - jailing moderate activists, banning veils and headscarves, restricting Ramadan observances, and compelling Sinocentric education - are pretty much a wish-list for ISIS, Al Qaeda and other international jihadist groups to get young Uighurs to join their ranks. If anything, the minuscule number of Uighurs that have actually been seen with such groups in places like Syria and Afghanistan is an indication of the longstanding moderation of these Muslims.
Or, if China really messes things up with its heavy-handedness, this could be the early stages of something much worse: a far broader politicization of Islam in the Uighur population, including violent radicalization. That would be the opening for ISIS or Al Qaeda to actually establish themselves within Chinese borders.
The aspirant ISIS caliphate includes a good chunk of western China, including Xinjiang:
How big is the radical Islamist problem in China, specifically Xinjiang? It's definitely worse than the official state media makes it out to be, and has become a chronic security issue since the big Urumqi riots in 2009, which now claims hundreds of lives annually. That being said, it's hard to think that this isn't a problem Beijing has largely brought upon itself. Its policies - jailing moderate activists, banning veils and headscarves, restricting Ramadan observances, and compelling Sinocentric education - are pretty much a wish-list for ISIS, Al Qaeda and other international jihadist groups to get young Uighurs to join their ranks. If anything, the minuscule number of Uighurs that have actually been seen with such groups in places like Syria and Afghanistan is an indication of the longstanding moderation of these Muslims.
Or, if China really messes things up with its heavy-handedness, this could be the early stages of something much worse: a far broader politicization of Islam in the Uighur population, including violent radicalization. That would be the opening for ISIS or Al Qaeda to actually establish themselves within Chinese borders.
The aspirant ISIS caliphate includes a good chunk of western China, including Xinjiang:
Friday, November 20, 2015
What does Xi Jinping's commemoration of Hu Yaobang mean?
Xi Jinping has lauded Hu Yaobang on the occasion of the 100th birthday of the famously fallen liberal party leader of the 1980s whose death in April 1989 triggered the Tiananmen protests. What does it mean?
Most likely, similar to his recent ploy in meeting President Ma of Taiwan, Xi is demonstrating ideological and political flexibility and practicality. The message he's sending to Chinese liberals is: "You don't have a monopoly on the legacy of our greatest reformers." Just like with the Ma meeting, he was telling Taiwanese: "Your fate ultimately lies with the Chinese world, not in drifting away from it."
These are subtle but politically astute moves for someone who has demonstrated a willingness to be tough and uncompromising on the fundamentals of CPC rule.
Perhaps Xi will one day reveal that he was privately sympathetic to the cause of political reform of both Hu and Hu's similarly disgraced successor, Zhao Ziyang, whose timidity during the 1989 Tiananmen crisis sealed the hardliners' triumph within the party before the June 4 crackdown. After all, his father had benefited so much from the bold reforms of the Deng era, which secured Xi Jinping's own political rise. Or maybe Xi wasn't too happy with his father when the elder Xi took a costly pro-Hu stance against the conservatives, effectively marginalizing himself within the council of "eight elders" that ruled China as the informal trustees of the revolution during Tiananmen.
Whatever the truth of the matter that can't be brought to the light yet, I encourage all Chinese liberals and China watchers hopeful of eventual political reform to grasp at the positive aspect of this commemoration of Hu by Xi: if we share a common figure of admiration and respect with Xi Jinping, that's a potential point of future accord.
Or to put it more bluntly, we should at least be thankful that the most powerful princeling of the current generation of leaders also happens to be the one most closely connected to the early reformers...considering how things nearly went awry with Bo Xilai, we shouldn't take this for granted.
Most likely, similar to his recent ploy in meeting President Ma of Taiwan, Xi is demonstrating ideological and political flexibility and practicality. The message he's sending to Chinese liberals is: "You don't have a monopoly on the legacy of our greatest reformers." Just like with the Ma meeting, he was telling Taiwanese: "Your fate ultimately lies with the Chinese world, not in drifting away from it."
These are subtle but politically astute moves for someone who has demonstrated a willingness to be tough and uncompromising on the fundamentals of CPC rule.
Perhaps Xi will one day reveal that he was privately sympathetic to the cause of political reform of both Hu and Hu's similarly disgraced successor, Zhao Ziyang, whose timidity during the 1989 Tiananmen crisis sealed the hardliners' triumph within the party before the June 4 crackdown. After all, his father had benefited so much from the bold reforms of the Deng era, which secured Xi Jinping's own political rise. Or maybe Xi wasn't too happy with his father when the elder Xi took a costly pro-Hu stance against the conservatives, effectively marginalizing himself within the council of "eight elders" that ruled China as the informal trustees of the revolution during Tiananmen.
Whatever the truth of the matter that can't be brought to the light yet, I encourage all Chinese liberals and China watchers hopeful of eventual political reform to grasp at the positive aspect of this commemoration of Hu by Xi: if we share a common figure of admiration and respect with Xi Jinping, that's a potential point of future accord.
Or to put it more bluntly, we should at least be thankful that the most powerful princeling of the current generation of leaders also happens to be the one most closely connected to the early reformers...considering how things nearly went awry with Bo Xilai, we shouldn't take this for granted.
Thursday, November 19, 2015
What the yuan's SDR inclusion really means
A Financial Times piece lays out the true significance of the yuan's inclusion in the SDR, now all but a foregone conclusion. In essence, it says that this is indeed a watershed moment for the Chinese economy's global integration, even if the short-term effects appear muted.
Beijing's aspiration to dismantle capital controls by 2020 seems quite ambitious, but SDR inclusion strengthens the hand of those, led by PBOC governor Zhou Xiaochuan, who are officially committed to liberalization. On the other hand, it also raises the stakes: any major retrenchment from here on out will represent a severe breach of goodwill and trust, and that's assuming that the liberalization doesn't get bogged down to begin with.
Business Insider presents a Standard Chartered Bank matrix of how the different types of capital will be liberalized.
The CPC isn't in fact relinquishing control of China's finances; it's merely switching gears to do it with more efficient, repeatable processes, reducing the need for ad-hoc micromanaging. Further, it knows that an unfettered yuan is a requisite for the intensified regional trade and development competition that's heating up with the US in the Asia-Pacific.
Beijing's aspiration to dismantle capital controls by 2020 seems quite ambitious, but SDR inclusion strengthens the hand of those, led by PBOC governor Zhou Xiaochuan, who are officially committed to liberalization. On the other hand, it also raises the stakes: any major retrenchment from here on out will represent a severe breach of goodwill and trust, and that's assuming that the liberalization doesn't get bogged down to begin with.
Business Insider presents a Standard Chartered Bank matrix of how the different types of capital will be liberalized.
The CPC isn't in fact relinquishing control of China's finances; it's merely switching gears to do it with more efficient, repeatable processes, reducing the need for ad-hoc micromanaging. Further, it knows that an unfettered yuan is a requisite for the intensified regional trade and development competition that's heating up with the US in the Asia-Pacific.
Tuesday, November 17, 2015
Another assessment of China's GDP accuracy
Business Insider has published an analysis strongly suggesting that China is overstating its GDP growth, because its reported declines in imports, manufacturing, and investment (whether absolute decline or decline in growth) are too strongly decoupled from the overall GDP growth figure when compared against the lack of such decoupling in OECD economies (US, UK, Europe, and Japan).
However, a key paragraph is the following (my emphasis):
Let's take imports: they have been consistently down by double-digit percentages year-on-year, and a staggering 15 to 20 percent in recent months. But that's because of the crash - up to 50 percent in dollar terms - in commodity prices. No comparison with an economy like the US makes any sense.
Meanwhile, according to Bloomberg, despite a slowdown in 3Q, fixed asset investment growth is still up 10.3 percent on year through September (down rather slightly from 11.4 in 1H). This isn't anything remotely approaching a crash; neither is the slowdown of industrial production to 5.7 percent.
So the bears will always have their talking points; they'd just be a lot more credible if their assessments weren't so chronically full of holes, even if the official data is itself as patchy as they claim.
However, a key paragraph is the following (my emphasis):
While there are considerable differences between China’s economy compared to other major OECD nations – the stage of economic development just for starters – the evidence uncovered by Artus suggests, in his opinion, that the government is overstating the true growth level of the economy.Just one scratch below the surface, and this whole comparison between China and advanced OECD economies is completely unwarranted. $8,000 per capita GDP simply can't be compared to $40,000 or $50,000, can it? Might as well compare $8,000 to $4,000 or $5,000: in other words, between China now and China in 2011 or 2012, before its massive rebalancing began in earnest.
Let's take imports: they have been consistently down by double-digit percentages year-on-year, and a staggering 15 to 20 percent in recent months. But that's because of the crash - up to 50 percent in dollar terms - in commodity prices. No comparison with an economy like the US makes any sense.
Meanwhile, according to Bloomberg, despite a slowdown in 3Q, fixed asset investment growth is still up 10.3 percent on year through September (down rather slightly from 11.4 in 1H). This isn't anything remotely approaching a crash; neither is the slowdown of industrial production to 5.7 percent.
So the bears will always have their talking points; they'd just be a lot more credible if their assessments weren't so chronically full of holes, even if the official data is itself as patchy as they claim.
Saturday, November 14, 2015
Yuan's SDR inclusion all but approved by IMF; gradual depreciation now the best outcome
IMF chief Christine Lagarde has given the yuan the go-ahead for inclusion in the SDR, paving the way for the RMB to join the dollar, euro, yen, and pound sterling in the international currency elite.
Days earlier, PBOC chief Zhou Xiaochuan delivered a sobering warning of what this actually means:
With the immediate danger of market and currency collapse seemingly contained, the decidedly uphill battle to open up the Chinese financial sector to global competition can finally begin. Beijing has precious little time to waste: it has been lucky and sufficiently adroit so far, but, as ever, it has no laurels to rest on and can't afford to mess this one up, not least because its monetary decisions now rival even Washington's, i.e. the Fed's, in global implications.
The most optimistic scenario is a gradual, smoothed-out depreciation over the next five years to a level of 7 to 8 RMB to the dollar. This will buy time for the wider global economy to readjust and retool in the wake of what Goldman Sachs has dubbed the "third wave" of the global financial crisis, by retaining high levels of liquidity in the real Chinese economy to support 6 to 7 percent real GDP growth per the 13th five-year plan.
For China, the desired end state is a 10 to 20 percent lower yuan that enables her to cement her position as the linchpin of the global manufacturing supply chain via the shifting of advanced component production from Japan and South Korea and the attendant increased automation of her vast plant. The three-way FTA with Tokyo and Seoul is the centerpiece of Beijing's strategy.
As this CBS news report points out, it's too early to speak of Chinese consumers saving the global economy. Believe it or not, China still needs lots of investment in infrastructure and manufacturing capacity, largely because so much investment since the financial crisis has been wasted, and as anyone who's actually lived or worked in China can tell you, even the heavily utilized investments are often anything but optimal. If you just take the heavy industrial sector, especially in the north, you're talking tons of horribly inefficient, highly polluting excess capacity that's being shut down, consolidated, and/or recapitalized with new, i.e. greener investment. That's untold billions of dollars quarter after quarter.
All this also sheds additional light on the end of the one-child policy. A whole slew of articles, including in Financial Times and Fortune, have called it "too little, too late" in terms of the looming demographic crisis, i.e. rapid aging of the population and shrinking workforce; but the more optimistic view that I took in my own earlier post was echoed here in Forbes:
In this respect, the government's nascent efforts to create a nationwide social safety net will also be crucial: young families will only spend more at present if they don't have to save so much for retirement on their own, though this whole topic of social security and healthcare is for another post.
Days earlier, PBOC chief Zhou Xiaochuan delivered a sobering warning of what this actually means:
“To guard against and eliminating financial risks is a severe challenge for us in the next five years,” the Governor of the People’s Bank of China wrote in an article.While it's true that Zhou has long been a godfather of reform in the communist hierarchy, it's still remarkable how strong this language is.
With the immediate danger of market and currency collapse seemingly contained, the decidedly uphill battle to open up the Chinese financial sector to global competition can finally begin. Beijing has precious little time to waste: it has been lucky and sufficiently adroit so far, but, as ever, it has no laurels to rest on and can't afford to mess this one up, not least because its monetary decisions now rival even Washington's, i.e. the Fed's, in global implications.
The most optimistic scenario is a gradual, smoothed-out depreciation over the next five years to a level of 7 to 8 RMB to the dollar. This will buy time for the wider global economy to readjust and retool in the wake of what Goldman Sachs has dubbed the "third wave" of the global financial crisis, by retaining high levels of liquidity in the real Chinese economy to support 6 to 7 percent real GDP growth per the 13th five-year plan.
For China, the desired end state is a 10 to 20 percent lower yuan that enables her to cement her position as the linchpin of the global manufacturing supply chain via the shifting of advanced component production from Japan and South Korea and the attendant increased automation of her vast plant. The three-way FTA with Tokyo and Seoul is the centerpiece of Beijing's strategy.
As this CBS news report points out, it's too early to speak of Chinese consumers saving the global economy. Believe it or not, China still needs lots of investment in infrastructure and manufacturing capacity, largely because so much investment since the financial crisis has been wasted, and as anyone who's actually lived or worked in China can tell you, even the heavily utilized investments are often anything but optimal. If you just take the heavy industrial sector, especially in the north, you're talking tons of horribly inefficient, highly polluting excess capacity that's being shut down, consolidated, and/or recapitalized with new, i.e. greener investment. That's untold billions of dollars quarter after quarter.
All this also sheds additional light on the end of the one-child policy. A whole slew of articles, including in Financial Times and Fortune, have called it "too little, too late" in terms of the looming demographic crisis, i.e. rapid aging of the population and shrinking workforce; but the more optimistic view that I took in my own earlier post was echoed here in Forbes:
... But the government can’t explicitly or effectively make its people consume. The solution? Apparently, it’s to allow the existence of more people. That is, China is allowing married couples to have two children to increase consumption (and probably also investment). And this is going to work. ...
So, there you have it. Need an economic stimulus plan that will actually work? Un-restrain the number of children the country can have. Wait. I guess this will only work in China.The declining labor force isn't the issue: the shortage of consumers is the real threat to China's economic future. Babies and young kids are excellent consumers - entire services and consumer goods sectors revolve around them well before they're old enough to contribute their own labor. So it makes perfect sense to have a mini-baby boom; it just behooves Beijing to make children less costly in real terms, by (among other things) getting its currency and monetary policy right to unleash enough liquidity that doesn't end up further inflating real estate.
In this respect, the government's nascent efforts to create a nationwide social safety net will also be crucial: young families will only spend more at present if they don't have to save so much for retirement on their own, though this whole topic of social security and healthcare is for another post.
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