What We Can Learn From China

What We Can Learn From China

China’s economy is the second biggest in the world, and experts predict that they may overtake the US by 2035. Even if that happens, their per-capita GDP will be a fraction of the per-capita GDP in the US. So how is it that a country whose output per person is so small can be growing at rates that are unmatched by any other nation, and what is more important, what can we learn from their success.

It’s my contention that what differentiates the Chinese from us are pragmatism and unity of purpose and not economic resources or unduplicatable advantages. This is not to say that China doesn’t, at times, break the rules regarding fair play, they’re guilty of stealing technology and forcing companies to share technologically as a precondition for access to their markets. And while this is undoubtedly a factor in their growth, but it’s not the predominant one.

Analysis of the Chinese economy by the economists Julan Du and Chenggang Xu finds that the economic system of China is state capitalist which is a form of socialism in which markets still play a role but the government owns most of the industry, where the goal is profit-maximization instead of a goal of maximizing public welfare. It’s in the role of government, in the unified approach to decision making, that is the biggest explanation for why the growth rates of China and US differ so radically.
China is working rapidly to modernizing its economy with the goal of overtaking the US. To accomplish this, the Chinese government is using its power as a sovereign currency nation to expand its infrastructure and industrial base. Simply put, China is spending money into existence and in doing so is employing large numbers of rural workers in projects ranging from bullet trains, to new cities, to space exploration, to name just a few.

To accomplish their growth objectives, the Chinese government relies on the dollars it earns from its foreign trade surpluses to purchase from other nations the resources it needs to expand it production. With its unified goal of development, and control over the majority of Chinese industry, the Chinese government has used its domestic currency, its large and largely untapped rural labor force, along with its trade surplus dollars to purchase resources and super charge their economic growth.
By contrast, the US does not have a large untapped rural labor force that can be used to for industrial expansion, neither do we have a trade surplus, although we are a sovereign currency nation. Do these deficiencies mean that we cannot replicate the success that China has experienced over the past few decades? To that question the answer is a qualified no. The reason for the qualified answer is that while we can replicate what China has accomplished, we definitely will not if we continue on the path we’re on.

While the Chinese government is singularly focused on economic development, the government in the US is focused on making sure the party in power has no successes so that in the next election the party in power is defeated. Our infrastructure is crumbling, we’re moving to a dual economy where a majority of our families live on the edge of financial disaster, and yet we do nothing.

We neither have nor need a trade surplus. The US dollar is in fact the world’s reserve currency. Other nation’s must earn the currencies they need to buy on world markets, we create that currency every time our government makes expenditures of any kind. Our government has an unlimited ability to buy on world markets if it chose to do so. Yes this does sound like state capitalism, and not the capitalism we claim to support, but quite frankly who cares. Economic growth is the name of the game, nations that grow faster, live better. We do not have a large reserve rural labor force, but we do have a large number of people who want to immigrate to the US, something that China does not have, and while all of them may not be highly skilled, the nation has a need for both skilled and unskilled labor.

We are not China, but we have the capacity to replicate what they have accomplished if we chose to act with unity of purpose and that is our problem. We are so tribal. We agree on nothing, not on health care, infrastructure, child hunger, taxes, national debt, poverty or income inequality. In Washington it’s win politically at all costs, with the public suffering as a consequence. If we don’t change, China will become the dominant economy for decades to come, and if they do, we’ll have no one to blame but ourselves.


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