I admit that I don’t know much about communism other than it does not account for greed/laziness. But China is at least somewhat communist–why it doing so well? Is it the “not communist” part of the economy that’s driving their growth, or something else?
Short answer: Cheap & plentiful unskilled, semi-skilled & skilled labor. And by cheap I mean ridiculously cheap. On the order of a tenth or less the cost of labor here in the US and other developed nations. Plus absolutely no interference from unions and little to no human rights or environmental concerns. Electronic devices, car parts, textiles, everything. And they are not just assembled but completely manufactured there and shipped overseas.
Thanks; do you believe they will run into problems as the cost of labor increases? The famous BRIC report projects their GDP to be $70 trillion / $50,000 per capita in 2050.
I believe it is just a matter of time until the Chinese start demanding higher wages and start consuming more themselves. Cheap labor is an expremely valuable resource but it will run out just like it has everywhere else.
They have a lot of people engaged in construction projects, but unfortunately, there are a lot of ghost cities.
There is a massive real estate bubble, with reckless speculating on empty apartments and malls. Eventually, the house of card will start to shake.
A really low baseline. If you start with an economy that’s in really bad shape, relatively minor improvements can give you significant growth - it’s possible to grow by ten percent a year or more.
But eventually you reach a plateau. You’ve essentially picked all the low-hanging fruit for improving your economy and now it takes major efforts to grow by even one or two percent. And as your economy grows larger, the amount each percent represents also grows larger.
In many ways, China’s entire economy is a bubble. Easy Credit Dries Up, Choking Growth in China is on today’s front page of the NYTimes and shows what happens when the bubble bursts in one city.
It’s impossible to explain China’s growth in a paragraph but here’s a stab at it. China’s leaders encouraged industrialization and allowed at least a favored segment to make money from it. The government poured incredible amounts of money into infrastructure to bring the country up to modern standards. They also relaxed rules that limited movement internally, so that hundreds of millions moved - or were moved - into cities, which grew hugely, requiring housing, roads, schools, hospitals and stores, which create jobs and income. Hundreds of millions of migrant workers provide the cheap workforce to support that middle class. Economic activity grows the economy, just like theory states. A 10% growth rates doubles the economy every 7 years, so in two decades there has been an eightfold growth in wealth. That lead to more that the population of the U.S. moving into the middle class.
Can this rate of growth keep up? Nobody believes it, but the question is whether the growth will slowly shrink to U.S. levels or do so overnight. China has enormous challenges. The government is thoroughly corrupt and plays favorites to the point that the public screams every day more than Americans do about their government. The infrastructure is overbuilt and in the wrong places and too often flimsy or dangerous. Air pollution is so serious that it’s cutting into tourism, and killing off thousands. Industry relies on a cheap workforce but is finding it harder to do so: despite what Hail Ants said, wages are growing and are now much higher than in other South Asian countries. Industrial jobs are leaving China. The education system can’t keep up with need and there are far fewer high levels colleges than in the U.S. There is no social net: families save much larger percentages of their income than we do and that cuts into needed consumer spending. The one-child policy dropped growth below replacement level so the population is aging and their are fewer peasants to move to take their places. For all the censorship of the internet, people know about the unhappiness and know that, as in the article I cited, there are huge demonstrations regularly against local leaders.
The government can’t hold it together that much longer. It has done an incredible job of getting to this point, though the contradictions between communism and capitalism become more apparent every day. You can use the past two decades as a lesson in the wonders of government control of the economy or the horrors of government control of the economy depending on how you cherrypick facts. But there is an inevitable law that high percent growth cannot be sustained. China is at, near, or past that point.
There is also something to be said for the Chinese work ethic/community structure or whatever you want to call it. All kinds of countries from America to Thailand, have Chinese populations that have higher per capita income than other groups. Taiwan,Singapore and Hong Kong under the British had high rates of growth. As Jim Rogers says, nowadays China is more capitalistic than America.
Moved from General Questions to Great Debates.
samclem, moderator
Cheap labor is a problem in itself
Yes, this is going to be a major issue in the not-to-distant future. Capitalism creates a middle class, and eventually a middle class demands democracy. It could be relatively peaceful & bloodless (doubtful), or a minor or major civil war, or worst case scenario: snowball into WWIII. Hopefully not…
China is in the process of industrialization. Historically, pretty much all countries have had booming economies while they have been going through a process of rapid industrialization. Then, when the process is complete, their economy stops growing at a rapid rate and they wonder what has suddenly gone wrong.
Precisely. This is the “Middle Income Trap” and it hits developing nations that depend on cheap labor for growth. It is not impossible to get through, but it’s pretty hard. With the list of political and economic imbalances in China, I would agree that they are going to have a really rocky time coming up. We’ve seen what happens when a totalitarian government loses its iron grip on the populace and the top pops off the pot.
China is experiencing a few very fortuitous things at once.
One is successful rapid industrialization and privatization. China opened up at just the right moment, when modern shipping and supply chains were primed to take advantage of what they had to offer. When that kind of industrialization hits a massive and extremely poor population, you end up in boom-time conditions. Then you add in the growth from privatizing previously publicly held assets, and especially land.
Another is a youth bulge. China has been experiencing an unusually large number of working-age people (note that this is tapering off.) This means more people in the workforce supporting fewer people-- which fuels both productivity and consumer spending.
Finally, they’ve adopted aggressively growth-oriented policies, with all the good (the most massive relief of poverty ever seen) and bad (horrible environmental practices, etc.) When you focus on growth and only growth, it does tend to work.
While there are plenty of problems with the current system, and things like the real estate bubble will catch up with them, I don’t see prosperity leading automatically to democracy, either slowly or cataclysmically. China will continue to develop in their own ways, along their own path.
Labor costs have already increased, jobs are being moved to Vietnam, Bangladesh, Mexico, etc. because labor costs in China are getting too high.
As far as the statement that all nations do well at this stage, a lot of nations did not experience growth from low to middle income status at a consistent 8-10% a year the way the east asian nations did. I have no idea why east asian nations grow so fast compared to other regions. Nations in that region tend to grow rapidly both in low income and middle income status (South Korea, Taiwan, Hong Kong, I don’t think Japan did though). I’m assuming the data predicts China will continue rapid growth in middle income status as it transitions to high income status.
A per capita GDP of 50k requires incomes to grow by about 800%, which is about three more doublings of their economy. If it grows at 6% a year, that means 36 years. I assume that is not inflation adjusted, if so that would be higher.
Well, for most of history, China was the world largest economy. In many ways, we are returning to the norm.
So they should organize labor unions. Leaving a Communist government that purports to be post-Stalinist, as it were, to face the vexing question of whether it can, in this day and age, crush a state-independent labor movement the way the Soviet government would have and Mao’s government would have.
They will consider that, deeply and seriously, for about the burn-time of three sticks of incense.
Not really. China was the world’s largest economy back when the norm was to have an economy built around what could be produced by farmers and artisans. China had a lot of these and was very successful in that kind of economy. But the western world industrialized and changed the definition of what the norm was. China, which had been in first place under the old norm, tried to ignore the new norm as much as possible. The result was China stayed in one place while other countries were moving past it.
What China has finally done is abandon its old norm and acknowledged it needs to have a modern economy.
I can’t recall what TV news show it was, but they did a report where some companies are already looking at other countries, such as Cambodia, because of this.
China was starting from a really low point. Mao was one of the worst leaders in the history of the world. More Chinese people starved to death under Mao than Russians were killed in WW2. After Mao died, a village in China decided to break from collective farming assigned land to each family and allow each family to keep what it harvested. The harvest were so bountiful it attracted the attention of the government who decided to allow what was going on and encourage other towns to copy the new model. This was because Mao’s brutality to the upper members of the communist party had discredited communism amoung the elite.
Allowing capitalism into China led the way to industrialization. Peasants went from subsistence farming which produced barely enough to feed a peasant family to working in a factory and producing several dollars worth of production per day. China had hundreds of millions of people that could make this transition. At first it was working in the factories of foreign companies but then Chinese entrepreneurs copied the factories and opened their own. This surge in productivity led to massive injections of foreign capital, which led to more industrialization. Normally autocratic regimes see growth as a threat and try to control it, or see it as an opportunity for graft and strangle it. The local communist parties in China found that they could make more money by selling land to factory owners then they could in bribes. This meant that the local governments competed for the factory owners by offering good business conditions. The increased revenue and economic growth also could benefit the careers of the local party officials and allow them to move up in the government. So all levels of government in China are very pro-growth.
China is a confucian culture which means they believe in education, hard work, meritocracy, and obedience to authority. This makes the chinese worker very productive.
China has many problems, such as the incompatibility of an authoritarian government with a growing economy, and austrian business cycle concerns but they still have millions of people who can make the transition from peasants to industrial workers.
They will never be as rich as the US, but the chinese economy is one of the greatest boons to mankind in history.