US, Europe should study Chinese
Updated: 2011-06-23 15:31
By John Ross (chinadaily.com.cn)
This difference also explains why there are large budget deficits in the US and Europe but not in China.
US and European policy poured huge resources into unfunded government spending to maintain consumption, creating the budget deficits, hoping this would also indirectly stimulate investment. It was rather like pointing a hose into the sky hoping that some of the water will collect in a jar 50 meters away - actually most of the water misses the target. Such indirect attempts to stimulate investment haven't worked, but the resulting budget deficits produce political crisis.
China funded investment in a targeted way, particularly infrastructure, and the resulting economic growth increased government revenues, which are up 33 percent this year, avoiding a major budget deficit.
Given the far superior economic performance of China during the last three years it is therefore slightly odd that both the Financial Times and the Wall Street Journal have recently decided to run articles predicting disaster for ... China.
The Wall Street Journal, for example, chose to highlight small investment funds which are short-selling the RMB because "China's economy is a bubble waiting to burst." The chief economics commentator of the Financial Times, Martin Wolf, recently devoted his column to "How China could yet fail like Japan." This drew heavily on the analysis of commentator Michael Pettis, whose prediction regarding the financial crisis had been that "the US would be the first major economy out of the crisis and China one of the last." This turned out to be the reverse of the actual result.
The technique in such comparisons is ignoring proportion - that is, number and weight. As there will always be problems in every economy, no one will ever be unable to find one in China (or the US, or Germany, or France!) By ignoring the quantitative weight of relative problems, a thoroughly distorted image of reality is then created. So China's economy has grown by 30 percent in three years, and the US and Europe collectively haven't grown at all, but the real economic problem is not in the US or Europe but in China!
Such economic analysis not only lacks objectivity but is negative for economic policy-making in the commentators' own countries.
Rather than seeking to deny evident reality, that China's response to the financial crisis has been far more successful than that of the US and Europe, these commentators might instead be better studying China to find what explains this. Naturally not that China's response can be mechanically copied - China's spokespeople rightly stress that no country can copy another. But to see what lessons are generally applicable from China's success.
Given the experience of the last three years, it would seem time for US and European economic policy to study some Chinese.
John Ross is Visiting Professor at Antai College of Economics and Management, Shanghai Jiao Tong University. From 2000 to 2008, he was then London mayor Ken Livingstone's Policy Director of Economic and Business Policy.
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