7/12/2004

East Meets West

This article in Newsweek has a very good relation to current topics in our macroeconomics class. China is currently experiencing a capitalism boom driven in part by foreign investment. There are however pitfalls for some investors who are having trouble investing in an economy that has a completely different culture than ours. China is also experiencing some of the same type of social complaints that we see here in the United States. The income gap between the wealthier Chinese, who tend to live in urban areas, and the poor, who tend to live in rural areas, is growing ever wider. This fact does not however negate the fact that Chinese people have on the whole become richer. Personally I believe that even though there will always be a debate over who is really gaining the most from this growth the Chinese are realizing the benefits of allowing a capitalistic society.

2 comments:

derek said...

I think this topic is a very important one to discuss. The awakening of the Chinese economy is something that I believe will be very influential on the upcoming years. Everyone, whether they are interested in economics or not, will be affected by it. Businesses around the world are, and will be, beginning to focus their attention towards Asia. The Chinese economy is sure to experience dramatic growth in just a few years, and there will be many opportunities associated with its growth.

Dr. Tufte said...

This is all good.

Mark my words, China is trendy now, but the country you will be hearing about in your middle and old age will not be China, it will be India. Currently, China, India, and the U.S. are 1-2-3 in population. But, India will soon overtake China, and as their per capita incomes converge towards that in the U.S. they will both become more economically powerful. But China will be playing second fiddle to the richer in aggregate India, and the richer per capita U.S.

I thought the article about China glossed over some of the important problems. First, investors have problems in China because the party and the army still have their hands in the cookie jar, and secondly because of unusual regulations in certain areas. A big problem with most business investments in China is that you need to have somebody from the party or the army involved to make the thing work. This is just kleptocracy. Also, they have a lot of regulations controlling what sort of investments are possible. Did you know that you can't buy the same shares in Chinese companies that Chinese citizens can? Even better, the shares they can buy are worse than the ones you can buy. Why would they do something crazy like that? To push savings from Chinese citizens into less desirable investments that the government has a political reason to support (usually failing state owned enterprises).

You know ... people make all sorts of comparisons of China to other countries: China is like Japan, or S. Korea. Invariably it is a good model. I have in mind a more middling model: China is like Indonesia, big, capable of a lot, but fundamentally flawed by crony capitalism.

As to the cultural differences, I think those are overrated. The big issue is pride. If there is money to be made, people who are not wedded to pride issues will find a way to do it. Every time I here some &*%#*@ about cultural differences the somebody-wants-a-bribe-or-protection-money-or-a-job-with-no-work red light goes off in my head.

C-Dizzle had a bunch of misspellings and miscapitalziations.