Friday, May 14, 2010

China’s Elusive Crash

For months, in some instances for years, economists and other analysts have warned of the coming Great Crash in China. The causes include reckless bank lending, overinvestment in infrastructure, excessive domestic savings, dependence on exports, a fixed exchange rate, inflation (especially in property), rising income inequality, and so forth.

China seems oblivious to these warnings and refuses to crash. Instead, it grows at sustained high levels, doubling national output every 7-8 years, quadrupling in 14-15 years, and so on. How can this be when the West, especially Europe, struggles with financial and economic problems?

Members of Congress cannot walk and chew gum at the same time, a criticism first leveled at Gerald Ford by Lyndon Johnson. In marked contrast, Chinese officials can walk and chew gum at the same time, and make decisions to resolve dozens of problems that arise every day. No other set of economic policy makers has been as successful as the Chinese over such a long period of time. Chinese are willing to work 10 hours a day six days a week; Greeks want to work barely half that. Chinese students study around the clock; Greek students want to spend their time demonstrating. China can build hundreds of airports, thousands of miles of highways and high-speed railways, put on an Olympics, send a man in space, create hundreds of scientific research institutes, modernize its military, invest in Africa, and numerous other important achievements, all at the same time.

The reason that Western analysts get it wrong is that they are trapped in the theoretical matrix that is taught in Western universities and practiced by Western analysts. China’s decision makers are first and foremost pragmatists, relying on evidence and what works.

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