I’ve been skeptical about China for some time. While I do believe China has made some serious economic progress as a country, I remain thoroughly convinced that ultimately its economic “miracle” will be much like that of the Soviet Union powerhouse in the late 20s: apparently awesome in scope at the time, but a total fraud after the fact.
For one thing, China remains a control economy. There is no history that I know of in which a controlled economy works. The primary drivers of macro-economic growth are innovation, technological adaptation, and increased efficiency.
In order to have this, you need to have rule of law, strong education, openness to trade, and quality institutions to establish credibility and uphold the rule of law.
China is big on trade and education, but sorely lacking on quality institutions and rule of law. Just a few of the more glaring items include:
China’s obviously fraudulent economic data.
- Rampant corruption of Chinese Government officials (no rule of law).
- A lack of individual rights for Chinese citizens (again no rule of law)
- A total lack of credible institutions to maintain accounting standards, quality control, protection of Intellectual Property, and the like.
One could easily argue that the US suffers from some of these issues (indeed, every country in the world does). However, the US remains, for the most part, a dynamic and open economy with semi-credible institutions and which generally upholds the rule of law (I remain convinced that those who committed fraud and broke the law leading up to the Financial Crisis and since then will eventually be brought to justice).
China on the other hand experiences corruption on a scale that is truly staggering to understand. More importantly, the corruption is deeply intertwined with the economic growth story itself.
Continue Reading: There's No Engine for Global Growth Pt 1 (China) | ZeroHedge