China: a superior economic model?

Yesterday, a friend commented that the economic troubles that the United States is faced with is largely because of the deregulated market in which the Government has very little control. He then went on to claim that China’s economic model, an object of criticism over the past so many years, has proved to be superior to most other models.

I would think that such an argument is rather too simplistic. China has had a long history of Government bailouts of banks. So it is not as if the system is perfect. Far from it. But the control that the Government has on the system makes it easier for the Chinese to make light of such problems.

Extending the control argument into a different sphere, one can say that the Chinese Government controls the media in that country, so, even if there were to be a systemic failure in China, the Government can stage-manage it to create an impression as if all were well.

In countries, like the United States or even India, where the media is not a mouthpiece for the Government (OK, I’m not talking about Fox News), systemic failures are covered in all their gory details. (The downside is that a such coverage deals blow to the public’s confidence, and feeds into fears and causes a vicious cycle of fear-induced-fear.)

Lastly, China is a net exporter. According to Wikipedia, in 2007, China’s exports, of over $1.2 trillion, were $262 billion more than its imports. The US alone accounts for a fifth of these exports. If the economies of the US and Western Europe spiral into a recession, Chinese exports would be hit, thus crippling its economy. That the Chinese are not big domestic consumers doesn’t help at all. Nor does the fact that they like to save their money rather than spend (all of) it.

But yes!

That is not to say that the United States’ model is superior. With a growing external debt, and population that has a negative personal savings rate, the country is a model for how not to be. The public can criticize Washington for its problems, but it wasn’t the politicians who goaded the commoners to spend beyond their means, and wind up with massive credit card debts.

The people worked themselves into the mess, and only they can get themselves out of the hole. This does require massive governmental intervention, but what is more important is an attitudinal change towards personal finances. That said, to point to China, growing economic superpower as it may be, and call its economic model as superior is simplistic and ill-founded.

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Tags: China, economic crisis