Everything you know about China is wrong | Hacker News Reader

Everything you know about China is wrong

foreignpolicy.com

56 pointstytso54 comments

The author of this piece, Minxin Pei, has been writing about national policy in China for a long time for a variety of publications. I get the sense, from what I remember of his earlier writings, that his own views on issues have been updated by observing the path that China's development has followed since the end of the Cultural Revolution (back when I began studying the Chinese language and Sinology). There are an increasing number of observers who think the current governance and policies of China are unsustainable. I too think much of the gee-whiz reporting about China's "inevitable rise" in the last few years is very reminiscent of overoptimistic predictions of "Japan as Number One" back in the 1980s. Most likely, the more entrenched democracy and ability to criticize the government openly that the United States has as compared to China will help the United States muddle through and continue to be the world's sole superpower. First-generation immigrants from China like Pei will help that process of the United States adjusting to new world realities of the twenty-first century.

China is of a order of magnitude larger than Japan. 1200m vs 120m people. If china modernizes along the lines of Japan pre WWI, it doesn't really matter if they "stall" at some stage. Chineese construction sites look like something out of the movie Contact. The game has been changed. US needs to be paying attention. Technology has increased the ability to "play catch up." On the other hand, its had minimal impact ability to differentiate amongst the more advanced economies.

$7 Trillion GDP, 1344 Million people.

$15 Trillion GDP, 312 Million people.

When China only catches up to 25% of the US GDP per capita (where Brazil and Russia are), it will overtake the US. The the US will have to boast about its per-capita GDP, which really isn't that good (compared to many other OECD countries, most importantly Canada).

I get the impression that a lot of US things go unchallenged (by most Americans) because they are "number 1", so they are obviously doing everything right.

Take a look at the data as single metro-region.

Las Vegas has long been considered the world’s top gaming destination. Is that still true? Gaming revenue in Macau [China] this year probably will exceed $20 billion, which is a little over three times the size of Las Vegas ... Las Vegas still has more diversity in its various offerings, but it’s hard to say that it’s king of the hill in gambling.

Edit: For Brevity

List of countries GDP/Cap $USD

Note: Macau =#6 (tie), USA =#16

1 Monaco 172,676 (2009 data)

6 Switzerland 80,391 (2011)

— GuernseyJersey Channel Islands 76,413 (2007)

— Macau 65,550 (2011)

16 United States 48,442 (2011)

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28nom...

GDP adjusted for purchasing power parity is better for comparing countries:

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_...

But what matters most is quality of life per capita. In that aspect, the US is IMHO slightly behind most of western Europe, Canada, Australia, New Zeland, etc. Mostly because of wealth inequality.

Duly noted, but "precision" in this sense is a red-herring. The point of the Macau example is 3x. In 2006 it was 1x. I will trade you $20B for $6B, and then worry about PPP. :D

Edit: Your link also ranks Macau at #3 > Us #7.

It would help your argument to get your facts right. The only OECD countries ahead of the US in GDP per capita are Luxembourg, Norway and Switzerland. Canada's is about 85% of the US (source http://stats.oecd.org/). It's true that many things go unchallenged by most Americans and there's no question to this American that we don't do everything right, but facts need to be respected.

Edit: these are purchasing power parity numbers.

I used nominal GDP.

Obviously, if you have a few billionaires and a lot of peasants the GDP PPP will be high. You'll have a low cost of living (due to low labor costs, and plenty of supply), and a high average GDP (due to the billionaire).

Median GDP (PPP or otherwise) won't be so great, though.

I'm not saying the US sucks, just that once you stop looking at aggregate GDP you actually have to start thinking.

I don't quite get it. Why should we pretend Warren Buffett et al. don't exist in this context? If these billionaires are a part of the US economy, they contribute to its strength.

In some sense, many billionaires stop being a citizen of their home country and become a "citizen of the world." This also goes for multinational corporations.

Warren Buffett is a notable exception to this, however, being "bullish on America."

> If these billionaires are a part of the US economy, they contribute to its strength.

If you are interested in aggregate GDP, then yes, billionaires contribute to the country's strength. If you care about the average person, then no.

The US won't care about aggregate GDP so much once they aren't number 1.

I agree with you entirely that if you're trying to measure how well off the majority of Americans as opposed to, say, Swiss, you should look at median income statistics as a much better measure. However, well-off-ness isn't what GDP per capita (PPP or otherwise) is trying to measure.

On a side note the best measure of income inequality is the GINI index. The US GINI index is an abysmal 45, contrasted to 33.7 for Switzerland. But, China's is 48 which is staggeringly high for a nominally socialist country.

> remember Bobby Kennedy (or his speechwriter): "The Gross National Product includes air pollution and advertising for cigarettes, and ambulance to clear our highways of carnage. It counts special locks for our doors, and jails for the people who break them. GNP includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm and missiles and nuclear warheads... And if GNP includes all this, there is much that it does not comprehend. It does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry or the strength of our marriages, or the intelligence of our public debate or the integrity of our public officials... GNP measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile; and it can tell us everything about America - except whether we are proud to be Americans."

Your point is valid. This is why I (an American) generally prefer the social choices that have been made in Europe to those that have been made in the US.

I'm not sure how relevant GDP per capita is in measuring the fortunes of states if a company in one state may be heavily invested in another (i.e. a US-based company may be investing more heavily in China than the US).

> When China only catches up to 25% of the US GDP per capita (where Brazil and Russia are), it will overtake the US. The the US will have to boast about its per-capita GDP, which really isn't that good (compared to many other OECD countries, most importantly Canada).

Here's a game-plan for China. Catch up to 30-35% of US GDP per capita. This will give them a huge operating margin for competition in space colonization. Be the civilization to colonize Mars. The expansion of human civilizations into the solar system will be analogous to the western nation's era of exploration and colonization. The new civilization on Mars will incubate new ideas and cultures in the 21st century much as the "new world" did centuries before.

As custodians of Chinese civilization, I don't see a better move for the Chinese government.

Discovering the New World certainly propelled Europeans to wealth, what with looting silver from Peru, the Atlantic slave trade, opening the Mississippi river basin, the US taking control of the ocean's chokepoints in WW2. But it's hard to see how colonizing Mars will help "the Chinese government". A better move for advancing "Chinese civilization" would be to encourage Chinese people to immigrate to other nations, such as the US, Australia, South Africa, Chile, rather than Mars or the Moon.

But that's already happening... from 1990 to 2010, the ethnic Chinese population of the USA rose from 1 million to 3m, now 1% of Americans. It's already 5% of Canada, and 3% of Australia. Many individual regions and cities around the world have much higher percentages, e.g. Northern California, Vancouver. The diasporas of Singapore, Malaysia, and elsewhere in S.E.Asia advance Chinese civilization, but not the Chinese government much.

> Discovering the New World certainly propelled Europeans to wealth, what with looting silver from Peru, the Atlantic slave trade, opening the Mississippi river basin, the US taking control of the ocean's chokepoints in WW2. But it's hard to see how colonizing Mars will help "the Chinese government".

Do you think any of those things were easy to see for Europeans before the fact?

Colonizing Mars probably won't directly help the Chinese Government. I never said that it would; you are putting words in my mouth here. However, colonizing Mars would certainly help Chinese Civilization gain ascendancy in a pan-solar civilization.

Mars will probably become the economic center of such a solar-system spanning civilization. One can grow crops there. (A workable amount of insolation in a 24 hour cycle.) There are resources there that can support many industrial processes we already base our civilization on. The gravity is low enough that getting from the surface of Mars to Orbit won't stretch the bounds of a materials technology based on molecular bonds. (Whereas the gravity well of Earth is just large enough to make this really obnoxious.) Given these and other factors, Mars will be well positioned as the largest population center, and largest agricultural and industrial power other than Earth. At the same time, it will be several times more accessible than Earth for most of the solar system.

You're thinking much further ahead than me.

> colonizing Mars would certainly help Chinese Civilization gain ascendancy in a pan-solar civilization.

Different presently-recogized civilizations, such as Western, Muslim, Indian, and Chinese civilizations, will be indistinguishable by the time a pan-solar civilization arises.

> Mars will be well positioned as the largest population center, and largest agricultural and industrial power other than Earth

I believe people who grow up in one gravity zone can live for a long time in a weaker gravity zone, but can't adapt at all to a stronger gravity. People born on Earth could move to Mars to live, but people born on Mars couldn't live on Earth. If true, that gives support to your argument. But perhaps Titan or some asteroid would also become a large industrial power.

> Different presently-recogized civilizations, such as Western, Muslim, Indian, and Chinese civilizations, will be indistinguishable by the time a pan-solar civilization arises.

I very much doubt it. We will have distances where lightspeed comms are delayed by minutes or hours. It will take longer than a century for the differences to dissolve, and there will be enough accelerated cultural change to produce more differences with more distance to preserve them.

The economics of agriculture combined with the smaller gravity well will ensure Mars has the highest population. I agree that Titan, with local access to the energy wealth of Saturn, may well be a major power also.

But China is still a fraction of the world (<20% pop, <6.5% land). Also, the collection of democratic countries put together is much larger than China. Also, India is a dark horse: democracy is inefficient in the short run but I believe does better in the long.

I believe America is the last hegemony. Today's world is so much more intertwined economically and culturally than it ever has been in history. Borders are ever less relevant as cross-border commerce and communication between citizens increases (airplanes, then phones, and now the Internet).

No single country will be able to dominate. That America does is an artifact of history. China, India and Brazil won't so much as displace it as pull it back down to everyone else's level.

I'm a huge fan of Foreign Policy, but I do think that this article is one of their weaker pieces. It basically boils down to saying, "Well, yes, China looks strong, but it has many internal weaknesses that may bring it down, and therefore we should be careful to plan for a future in which the Communist Party falls." Well, that may be true, but it's also unhelpful. It can be said for any country. I mean, no nation is invincible or omnipotent.

Yes, China has flaws in its growth model. But are those flaws large enough to knock down the Chinese Communist Party within the next two decades? I personally don't think so.

I wish there was a place, where you could read objective summaries of HN articles. Like yours "Well, yes, China looks strong, but it has many internal weaknesses that may bring it down, and therefore we should be careful to plan for a future in which the Communist Party falls."

I'm not sure that is an "objective" summary, and hence the challenge with the type of site/place you are wishing for...

They don't necessarily have to be flaws big enough to bring down the Communist government, they just have to be big enough to bring down their rise as a global power, or at least cause something of a contraction.

Moreover, even if the Communist party fails (or evolves) hardly means that China will have failed.

China will have crises proportionate to their incredible growth rate. But China's strong cultural emphasis on hard work, investment, and planning for the future indicate a strong future for China and the Chinese people.

I see more eagerness to find an achilles heel in China than I do blind faith that it will grow or dominate.

If China continues as an ascendant power the U.S. will need an offshore balancing presence in Asia-Pacific. If it dramatically implodes, ditto - a reunifying Korean Peninsula and reforming SE Asia, to say nothing of a politically ruptured China, merit our attention. Either way, it seems, the criticism Asia-Pacific pivot appears premature.

The only case where it is overshooting is in the case that China stalls and/or enters a period of slow, decades-long decline. Given the nationalist tensions in the South China Sea and the country's addiction to growth for social stability that seems unlikely.

> If China continues as an ascendant power the U.S. will need an offshore balancing presence in Asia-Pacific.

Isn't that what bases in South Korea & Japan are for?

Damn, you guys really talk about people and countries like they're pawns on a chess board.

Maybe queens and bishops, not pawns.

But I think you have it backwards. Chess was created to teach tactics and politics, was it not (at least apocryphally)? This way of thinking may be where chess came from, rather than the other way around.

Good point! Still, I don't know which is scarier. The fact that even some HN'ers consider countries and peoples things to be molded and manipulated for the country's good, or the fact that this kind of thinking has been such a common idea for so long that a popular game was modeled after it.

Here's a contrarian piece on the Chinese personal savings rate: no organized retirement benefits means all kinds of hiding of assets.

http://brontecapital.blogspot.com/2012/06/macroeconomics-of-...

If anything, that piece probably understates the problems mentioned. Though there has been recent moves to provide pension schemes for urban and rural workers, even if the programs are underfunded, it still covers a huge portion of the population, where before it was mostly urban and patch-work & underfunded at that.

http://www.economist.com/node/21560274

Longevity in China is increasing rapidly and the one-child policy results in a grandchild potentially having four grandparents to look after. The “four grandparent policy” means the elderly cannot expect to be looked after in old age. Four grandparents, one grand-kid makes abandoning the old-folk looks easy and near certain.
Nor can the elderly rely on a welfare state to look after them. There is no welfare state.

So the Chinese save. Unless they save they will starve in old age. This has driven savings levels sometimes north of fifty percent of GDP. Asian savings rates have been high through all the key industrializations (Japan, Korea, Singapore etc). However Chinese savings rates are over double other Asian savings rates – this is the highest savings rate in history and the main cause is the one-child policy.

- Summary of the argument

> Four grandparents, one grand-kid

Under present regulations, if two people marry, who are both "only children", then they can have two children. So four grandparents means two grandkids.

The one-child policy is slowly changing into a two-child policy, via the slow rollout of many exemptions. I'm guessing the policy will morph into a complete two-child policy one day (though never completely disbanded because the National Family Control Administration workers will want keep their jobs).

You know, people really ought to listen to what the early capitalists and anti-capitalists said about overproduction more often. It's the never-solved problem of capitalism.

EDIT: Thanks downvoters. I hope you enjoy your ever-falling profitability, your unsold and unsaleable goods, your deflating currency, your rising indebtedness as the real value of nominally-denominated debts increases, your unemployment crises.... All of it. Keep downmodding; share and enjoy!

Your post would be slightly more illuminating if you made more specific reference to whom you're referring to specifically, and where they commented on overproduction. Perhaps also a bit of the substance of what was said.

Until the industrial age was moderately advanced, overproduction wasn't particularly much a problem -- most societies alternated between sufficiency and (fairly often, if not more often) insufficiency, especially in food, but also other goods and products.

Sometime clarity of exposition beats stridency for illumination.

But we're not talking about the early industrial age. We're talking about today.

I thought the article was actually lacking in that it didn't mention overproduction. This is the classic bane of industrialized economies: unsold inventory, rising unemployment, falling or negative inflation, falling asset yields, etc. The article describes China gaining the symptoms of overproduction.

And, as many writers both pro- and anti-capitalist have noted, it tends to require a solution extrinsic to the market (think of Paul Krugman's "babysitting co-op parable"). To make things profitable again, someone or something has to purchase the excess inventory at some market-clearing price. Nominal private debts also need to be cleared from the market, allowing general price levels to adjust.

Now here's the tough bit: overproduction is not the same as recession. Recession comes from malinvestment, and once capital is reallocated to genuinely productive uses it goes away. Some stimulus, especially infrastructure investment, also helps, but recessions are a natural part of the business cycle that end more or less on their own. Society just has to withstand the economic "bad weather".

Overproduction crises, however, also known as depressions, don't go away on their own. Apparent malinvestment in an overproduction crisis is only a symptom, not a cause.

If I could put forth a hypothesis, the actual cause is that one of the two big pillars of production has gotten way out of price-balance with the other. Those are labor and capital. In a healthy economy, labor is costly and productive, encouraging capital investment to get the most out of limited human labor-power. Capital, in turn, is well-priced for wide distribution and developed, increasing general productivity.

Knock out either of these, and you've got problems. If labor is too cheap compared to capital (ie: right now and the Great Depression), then you'll get overproduction: aggregate demand from labor wages won't exist to purchase the products of capital, and they rot. You also get low productivity growth, because it's that much cheaper to just employ humans at menial tasks (see: the service industry) rather than to automate.

(As an aside, computing is currently one of the few healthy fields: labor is expensive and capital (ie: FLOPs as well as investment dollars) is cheap, encouraging massive capital investments and productivity growth.)

If you knock out capital by making it too expensive or unavailable when labor is strong, you get stagflation. The capital-owning class and the working class bounce between themselves the price shock in the cost of investment or technological capital. So unemployment gets high (because where's the capital to employ people?) while price levels rise in general (because labor and consumers refuse to "take one for the team").

So to get rid of an overproduction crisis, what we actually need to do is increase the cost of labor, which feeds into aggregate demand to purchase down inventory and increase the marginal profitability of capital investments. I'd say the best way to do this is usually by either direct strengthening of workers (ie: allow labor to organize, shorten the work-week, other stuff like that), or by infrastructure investment (which employs laborers as well as yielding positive capital externalities).

Much better.

Wasn't familiar with Krugman's "babysitting co-op parable". Interesting.

I'm not convinced that depression is strictly an issue of overproduction -- it's more a vapor-lock in which the currency pump between production and consumption seizes up. The Friedman approach is to encourage production, the Keynesian approach is to stimulate demand. Calling insufficient demand the same thing as overproduction doesn't quite seem right to me.

I've got to reflect on your cheap vs. expensive labor comments as well. The immediate problem I see is that expensive labor, in a world in which either capital or labor is free to migrate, results in either in-migration of cheap labor, or capital flight to less expensive markets. Which suggests possibly putting some controls on both, or addressing the labor costs part.

I suspect we're agreeing in at least part on the idea that you've got to have currency flows on both sides of the production/consumption cycle.

I'd also argue that right now both capital (in the form of interest rates) and labor (in the form of wages) are relatively inexpensive in the US. The dual problems are of stimulating demand, and on generating a real return on investment (equity or debt).

Overproduction is an issue insofar as (mostly) consumer goods are how we manage to generate fiscal flows. People buy goods for money. However if they either don't buy goods, or prices are too low to generate sufficient flows, you end up in a cycle where you're cranking out crap goods which people don't particularly need to consume but are strongly encouraged (by advertising, moral suasion, societal pressure) to do so: the "consumer economy".

We worked our way out of this the last time (Great Depression) with WWII.

I suspect we're agreeing in at least part on the idea that you've got to have currency flows on both sides of the production/consumption cycle.

Definitely. I can say that at least right now, one of the major problems is that labor is "penned in" by national borders, but capital isn't. The labor side of things has gotten too weakened because capital can arbitrage itself to seek optimum pricing, and labor can't.

So yes, to a certain degree I'm in favor of capital and/or trade controls simply because I think a real one-world open-borders policy cannot possibly work right now, and free trade/capital flow without free movement of labor is just an arbitrage opportunity waiting for eager capitalists.

I'm not convinced that depression is strictly an issue of overproduction -- it's more a vapor-lock in which the currency pump between production and consumption seizes up.

True enough. A "real depression" also seems to have another major component: a weight of private debt that the nonfinancial economy cannot reasonably carry. This prevents price and currency adjustments from correcting the other imbalances naturally.

Europeans won't really have their pensions too. The same is about broken American SS system. But it is just so much easier to notice problems somewhere else. At least Chinese werent promised any pension so they save. Do Americans think what will happen if their politicians break the promise? Or pay them wii heavly inflated dollars for their benefits? Have they saved? Oh, no they trust the Government. You see how Americans are stupid and Chinese wise? How can you not save trusting that the Government will pay you pension in an old society?

Pensions made sense in young societies. They are temperorily phenomenon. Have existed for 60 years. Like communism. Gone!

Yeah, I'd much rather have the 12.4% a year of salary that the US government takes from my paycheck (and from my employer on my behalf). We are already getting cheated on our returns, and the Social Security program is still going off the rails in the next decade. It is going to get much much worse.

The majority have no fucking idea how to invest their money for retirement, or not to take out 100k of student loans for some no-name private university. Credit card debt is $14.5k/head, student loans will be screwing gen x/y for many years to come. It will be interesting to see how this plays out.

http://www.csmonitor.com/Business/new-economy/2012/0609/Cred...

Social insurance in Germany has been around since the 1880s. Social Security has been around since 1935, or nearly 80 years.

Social insurance may change in the future, but so long as the elderly still have a vote, they will vote very heavily in favor of maintaining a social insurance program.

And if the elderly don't have a vote, the socioeconomic system will have changed so much that merely having "saved" won't fix anything. Likewise, if the dollar has experienced hyperinflation and benefits are worthless, any private savings will be as well.

Social insurance in Germany was Bismarck's invention. Everybody paid. One in ten lived long enough to collect any benefits. Now you will have 30% of the society to cover living cost of the other 70%. They can vote for financial pyramids in their beloved democracy as much as they want. Guess what, the ponzie schemes will still not work.

Unless you're going to send elderly people back to work, if 70% of the population is elderly then the other 30% is still going to have to work to support them--that or let them starve. It doesn't really matter how you do the accounting.

> ...two left-leaning think tanks, released a report forecasting that China will have 200 million college graduates by 2030. The report (which also estimates India's progress in creating human capital) paints a grim picture of U.S. decline and demands decisive action.

What is the quality of those 200 million college graduates, however?

One can liken human capital to architecture and building. A house can look like an impressive fortress of concrete and rebar, while the underlying reality is quite different. Witness the buildings in the earthquake stricken regions of Turkey and Sichuan province that fell down because of cost cutting.

Companies can be like this as well. Most large corporations have a façade of solidity while much of the interior is actually made out of fluff, with particular strong structures contained within. In this analogy, good Startups are like little pillboxes or maybe even like tanks. They're all strength. (Or, in William Gibson's words, "all edge.")

I spoke at length with another resident of the hacker hostel I'm at. Her parents moved from China, and the family goes back periodically. She also just graduated from Stanford. Her take on the situation there is that there's a minority who relate very much to western tech culture. They view themselves as part of the same extended tribe that the SV tech belongs to. In other words, they view themselves as being like us. They are likely to be an influential and affluent minority, however.

I fully expected this article to say pretty much the exact opposite. That our view of China is "too weak."

I'm surprised the OP didn't mention the inevitable demographic shift, as the number of able-bodied citizens drops in comparison to the over-60 population:

http://www.guardian.co.uk/world/2012/mar/20/china-next-gener...

Of course, every modern nation faces this problem. But China has had a particularly aggressive birth control policy, which makes repopulation inherently difficult.

The thing about China is that outsiders fundamentally do not know the inner workings of the PRC Politboro. In recent years, there have already been major changes in the structure of the system (see: Xi Jinping, Bo Xilai, etc.) that were unforeseen.

>In the late 1980s, they feared that Japan was going to economically overtake the United States, yet the crony capitalism, speculative madness, and political corruption evident throughout the 1980s led to the collapse of the Japanese economy in 1991.

Crony capitalism, speculative madness, and political corruption? Yes, those things are not prevalent in the US at all... cough dot com bubble, Haliburton, housing bubble, Bush and co, Enron, trillion dollar bailout cough

I've always been curious about the debt of the Japanese government...

http://www.independent.co.uk/news/business/japans-crime-inco...

http://www.independent.co.uk/news/world/yakuza-settle-bad-de...

You're not refuting the argument. (http://en.wikipedia.org/wiki/Tu_quoque)

Linkbait? I'm pretty sure they do have a few buildings that are made of half styrofoam covered in plaster, and a bridge filled with garbage and covered in rebar and plaster.

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