Monday, November 26, 2018

Andrew Sheng and Xiao Geng — China’s Four Traps

An issue with this analysis as I see it is that it is based on a Western approach to economics and finance that is not applicable to China as a socialists country with its own development path.

The first point they make is this:
The first is the middle-income trap. With a per capitaannual income of around $9,000, China remains significantly below the threshold for high-income status, set at around $12,000-$13,000 by the World Bank. Only a few countries in history have managed this leap during the last half-century....
The problem with this approach is, one, using aggregates where value is expressed in terms of USD rather than real value. The analysis should include standard of living and distribution, as well as purchasing power parity, to be meaningful.

The second point is:
Second, China may become ensnared in the so-called Thucydides Trap…
Reverse logic. The US is becoming ensnared in the Thucydides Trap by its own choice to pursue global hegemony, which makes China not only a competitor but also a threat. China will have to deal with this reality and it is doing so. This will entail greater military spending which is stimulative economically, increases attention in R&D and innovation, and encourages dual-use development of technology.

The third point they mention is:
The third potential trap is what Joseph Nye calls the Kindleberger Trap. Charles Kindleberger, an architect of the Marshall Plan, blamed the breakdown of the international order in the 1930s on America’s failure to match its provision of global public goods to its new geopolitical status as the world’s dominant power. If China does the same, according to Nye, chaos could erupt again, especially at a time when the US is withdrawing from global leadership.
As a socialist country, China is committed to public investment both domestically and abroad and its record so far is somewhat spectacular. China is also proposing a socialist socio-economic and political system that is capable of surpassing the capitalist West and is also suggesting its adoption to other developing countries in place of the neoliberal, neo-imperialist and neocolonialist alternative the West is offering.

Their fourth and final point is:
Finally, there is the climate-change trap. High-income countries in general, and great powers in particular, consume a disproportionately large share of resources.
The Chinese leadership is already committed to this, while the US elite is opposed to it.

So I would say that the article is misdirected. The US and West should be paying attention to these points. China already is.

Project Syndicate
China’s Four Traps
Andrew Sheng, Distinguished Fellow of the Asia Global Institute at the University of Hong Kong, a member of the UNEP Advisory Council on Sustainable Finance, former chairman of the Hong Kong Securities and Futures Commission, and currently an adjunct professor at Tsinghua University in Beijing; and Xiao Geng, President of the Hong Kong Institution for International Finance, and professor at Peking University HSBC Business School and at the University of Hong Kong's Faculty of Business and Economics

See also
A blue-collar wave is rising in China — and buoying Xi Jinping.
In most countries, a slowing economy and a sinking stock market would put some heat on politicians. Not in China. A working class that numbers more than 400 million has President Xi’s back.
Under his presidency, China’s economic policies are favoring workers more than at any other time in recent decades....
China Blue-Collar Wave Strengthens Xi’s G-20 Hand
Shuli Ren | Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder

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