

What Is the Chinese Economic Model? - ilamont
http://www.tapsns.com/blog/index.php/2010/01/what-is-china/

======
poutine
After working (in tech, not as an english teacher) and living in China for
several years this is pretty much on the mark.

The deck is stacked against foreign companies. If they get large enough their
business will be manipulated to fail in the favour of a home grown competitor.
There is no effective rule of law and most foreign companies are seen as
resources to strip and discard when their utility has ended.

(I had posted a more detailed comment along these lines in the Google thread
here: <http://news.ycombinator.com/item?id=1050829> )

China also has a looming demographic timebomb that will tear the country
apart. This year was the peak of the working age percent of the workforce.
From now on the ratio of working age adults will only decline (thanks to the
single child policy). China isn't wealthy enough to support all those non-
working people.

The world needs to start being more forceful with China. We don't want their
model to succeed. Trust me, you don't want to live in that world.

~~~
jhancock
Western IT and Internet companies find themselves being marginalized and
having their intellectual property copied. There exists quite a bit of local
innovation in applying tech to China as much applied tech requires different
workflow models, so not everything that is copied can be applied directly with
success.

Many consumer product companies: Coke, P&G, Nike, etc.. have done well. How
their revenue breaks down to sharing with local partners and how much gets
back to the international public entity is unknown to me.

The article makes some good points, but still tries to label the gov as
"Communist China". The author makes a good case for educating Westerners that
China isn't what you think it is. We need more of this kind of talk. But
reusing the old label of "Communist China" misses the mark. I don't know what
a better label would be.

I agree with much of what you have said. The deck is stacked against many
types of foreign companies. It is well past time for these entities to start
publicly acknowledging this.

All that said, I cannot agree with everything the author has said. His 9
points listed under "What is the Chinese Economic Model" are well identified
(the bold bullet text itself). But his rational in each of the associated
paragraphs is one-sided. He seems to fully support Western economic models
without acknowledging their flaws and culpability in our engagements with
China. Stolen IP? Slave labor? Western government and business knew this full
well when we got started and we did it anyway because we reaped short-term
value from doing so. We helped fuel this fire. We allowed the Yuan to be a
fixed/manipulated currency and knew full well why China was doing it and what
would happen after they amassed enough wealth. These "playbooks" have always
been completely open. We may not be able to directly influence China, but we
can directly influence the Western leaders we elect and the Western companies
we buy goods and services from.

If you need to understand the mindset of the typical Chinese government
official, I will offer this: Many of them are living a "good life" and those
that support their governance are living good lives. They do not want economic
growth to collapse and do not see communist-era economic methods as
appropriate tools. They kept the structure of governance but replaced the
tools. But even though the structure of governance has remained very similar,
the number and variety of participants has changed considerably. Unlike most
U.S. leaders and citizens, most Chinese have experienced great suffering.
There is support by mainstream Chinese for much of the current heavy handed
behavior and as such the government will continue to use such tools they feel
are useful in hedging against various forms of collapse. Its critical to
understand much of this is not big gov oppressing its people as the majority
of Chinese approve of hedging against extreme failure at most all cost. Will
this approach even out over a reasonable period of time? Will it avoid more
severe outcomes? I have no idea. I do know if things get bad enough that it
effects the security of Western countries, then its already extremely bad for
the Chinese.

~~~
zaphar
The label "Communist China" is exactly the right label though. The Government
of china is unashamedly communist and have no intention of ever changing.
Maybe the reason you can't come up with a better label is because there isn't
one.

~~~
jhancock
Then enlighten us.

What is the structure of the Chinese government? National, Provencal, City?
How are their leaders elected? Are there term limits? Does no one get to vote?
If not, who determines the leadership?

How do laws get made in China (National, Provencal, City)? What are the rights
of those accused of a crime? How does Judicial Process work? In general, are
laws "common" or "codified"?

Is the military in control? Is the military allowed to take action within the
country to keep order? Or is this the domain of local and/or National Guard as
it is in the U.S.? Is China a police state? How so? Do the police not answer
to anyone?

Does China have a "constitution"? What if any basic rights does it guarantee
its people?

How does China's government (through answering the above) differ from Cuba?
Russia?

------
Perceval
The Chinese model is not new. It's called mercantilism, and this was the
predominant economic development model before Adam Smith's free trading
capitalist critique of mercantilism.
<http://en.wikipedia.org/wiki/Mercantilism>

This is how the United States developed in the past. Alexander Hamilton's
economic strategy for the United States followed a similar script. See his
_Report on Manufactures_ :
<http://en.wikipedia.org/wiki/Report_on_Manufactures>

This report was read by Friedrich List, who then wrote a similar development
strategy for the 19th C. German economy. It was this strategy that made the
German industrialization so rapid and effective.
<http://en.wikipedia.org/wiki/Friedrich_List>

There are a number of spectators who have correctly characterized China's
model as modern-day mercantilism (even though they disagree on specifics and
the appropriate response):

Krugman: [http://krugman.blogs.nytimes.com/2009/12/31/macroeconomic-
ef...](http://krugman.blogs.nytimes.com/2009/12/31/macroeconomic-effects-of-
chinese-mercantilism/)

NRO:
[http://www.nationalreview.com/nrof_bartlett/bartlett20031105...](http://www.nationalreview.com/nrof_bartlett/bartlett200311050823.asp)

See also:
[http://www.associatedcontent.com/article/1764172/china_merca...](http://www.associatedcontent.com/article/1764172/china_mercantilism_and_new_global_economic.html)
and
[http://chinaconfidential.blogspot.com/2006/06/mercantilism-w...](http://chinaconfidential.blogspot.com/2006/06/mercantilism-
with-chinese_23.html)

~~~
grandalf
It's worth pointing out that some US economic policies count as mercantilism,
and many Americans would prefer that the US adopt more mercantilist policies.

The US is far from a proponent of free trade!

~~~
Perceval
The U.S. most certainly is a _proponent_ of free trade, even if we aren't the
best _practitioner_ of free trade.

As far as I know, only one country ever practiced fully free trade, and that
was Great Britain for about thirty years starting in 1846 (after the repeal of
the Corn Laws, a feat accomplished in part by David Ricardo, who you might
remember came up with the theory of comparative advantage). This time period
was more or less the height of the British Empire's power.

------
newsio
The list under the subheading "What Is the Chinese Economic Model?" is worth
reading. He is overly harsh on some points ("there is perhaps a 30-year supply
of poverty-level wage earners happy to make export goods at below global
cost") but he is right on the money for others (currency manipulation, stolen
IP, etc.)

Note that this came out more than a week before Google made its announcement
that it was considering pulling out of China. I think other startups or
established companies considering an expansion into China should read this
first. There are certainly opportunities, but lots of asterisks too.

~~~
misdirection
> at below global cost

The funny thing about cost is that it defines itself.

~~~
mrtron
Not when you manipulate your currency and throw aside human rights and
environmental restrictions.

The playing field isn't level.

~~~
jhancock
The currency manipulation was agreed to by many foreign countries. China could
not have done this without WTO and U.S. approval.

There are many human rights problems in China, but it is unfair to say they
throw _all_ these issues aside. I known many Han Chinese that openly support
Tibetan culture and wish to see it preserved.

Environment damage has been a calculated cost and there are many in China that
push against it trying to say its time to pull back. A few years ago, I was
walking up to a subway station in the Shanghai suburbs. There was a group of
local college students with a huge banner urging people to protect the
environment. They were asking people to sign the banner. I stopped and said
hello and signed. The students were thrilled to have a foreigner sign, but the
banner already had hundreds of local Chinese signatures on it. There were no
police harassing them and the students seemed at ease in their public protest.

Sure, the playing field is not level. This is by design and China is fairly
transparent about the mechanisms they will use to protect or lock in economic
growth.

Look at a different trading partner with the U.S.; take a look at Mexico.
NAFTA was promoted as a "trade highway" to U.S. voters. Most would take that
to imply the highway goes in both directions. But if you have done business in
Mexico or travelled there outside the confines of a resort, you'd notice that
U.S. goods do not move into Mexico as freely as Mexican goods move out. In
English, we always distinguish something that is "one-way" by being sure to
say so. But, I never heard a U.S. politician talk about the one-directional
nature of NAFTA. I think much of our problem with China is that most simply
don't know what the real deal is and some of us are just starting to figure it
out.

------
garply
"At a time when the world thinks the communist model has been proved obsolete,
China remains a communist country. In fact, under the current leader, Hu
Jintao, human rights in China have recently suffered and are now in serious
decline, according to Amnesty International-USA, the Committee to Protect
Journalists, Human Rights Watch, and others."

I take two related issues with this statement:

1) He says "in fact... human rights have recently suffered" as if it
demonstrates that China remains a communist country. Certainly attempts at
communist societies and human rights violations are correlated in recent
history, but human rights violations are not evidence of communism.

2) China is not communist, it is Communist - that is, run by a political party
which has the name Communist in it. People use the phrase "communist China" as
slur. I believe this perpetuates the notion that China is actually communist
among a non-trivial portion of the American population. It would be better to
call attention to China's authoritarianism, which I think is what he's taking
issue with.

~~~
poutine
While China is certainly not communist in the literal sense do not
underestimate the extent that the Communist party and its ideals pervade
society.

However I do agree that China is better referred to as an Authoritarian
government with communist and capitalist influences.

Also, we should all not underestimate how revolutionary the Chinese can be.
They have a short fuse and do not in general enjoy the authoritarian regime.
They put up with it for strictly pragmatic reasons, if given a path of _their
own choosing_ that they perceive as better they quite possibly will take it.

~~~
rw
Imagine saying "Capitalist America". How accurate is that? Not very :-)

------
cturner

        When one of Australia’s top mining firms, Rio Tinto,
        refused to allow China’s Chinalco to double its ownership
        interest last year (to 18%), China arrested local CEO
        (and Australian citizen) Stern Hu and three managers,
        who  remain in jail today, under espionage charges.
        China denies any connection. ... In politics, thought,
        and business, China remains a police state.
    

No. I'd support the conclusion, but the evidence presentation here is shabby.

The event that immediately preceded the Rio executive being arrested was the
closing of contract negotiations for a yearly contract on iron ore shipments
[1]. The rejected Chinalco acquisition mentioned in the quoted section was
only a month before, but evidence for link of causality between that and the
arrests is weaker than between the price negotiations and the arrests.

Other motivations need to be weighed up as well:

* At the time the arrest happened there were internal riots in China's western provinces (causing their leader to abort one of those G meetings and fly back to China). There's nothing like stirring up trouble against foreign devils as a mechanism to distract your people away from internal strife.

* The snubbing given to the Australian foreign office also suggests a political aspect. Did the Rudd government imply that it could cause things to happen that it could not deliver? Or did it hamper the process? Or are China just being big-girl's-blouse because they can? [2]

In weighing up iron ore issues you need to be aware that China is easily the
largest producer [3]. It tends towards bilateral deals on 'strategic'
commodities rather than working through global markets like the other major
consumers (e.g. oil). This pushes the dynamic of areas affected by those
commodities from flexible markets into a zero-sum game.

[1] See
[http://en.wikipedia.org/wiki/Rio_Tinto_Group#Arrests_in_Chin...](http://en.wikipedia.org/wiki/Rio_Tinto_Group#Arrests_in_China.2C_2009)

[2] "The Chinese seem determined to continue to humiliate Canberra.",
[http://www.theaustralian.com.au/news/beijing-ramps-up-the-
hu...](http://www.theaustralian.com.au/news/beijing-ramps-up-the-
humiliation/story-0-1225748894393)

[3] <http://en.wikipedia.org/wiki/Iron_Ore>

------
Semiapies
While not a prototypical example, "fascist" describes China's economic system
from the 70s forward better than "communist". Fascist systems seem to tolerate
private enterprise better than communist ones, though the government tends to
pick winners and losers (and shamelessly back the winners with force, as in
the Chinalco example).

Of course, in such a system, the government is _still_ mucking about in the
economy, substituting cronyism for market decisions, and trying to dictate
profits and define their rate of economic growth just like that state
legislature tried to redefine pi. Even Europe and the post-bailout US look
like libertarian fantasies of free enterprise and transparency in comparison.

We have nothing to fear from the Chinese Model. Their explosive economic
growth has almost certainly been exaggerated, and even if taken at face value,
this fascist system still leaves China, aside from a few rich spots, closer to
the third world than the first. Companies dealing with China should be aware
of what they're getting into - but to put it coldly, they should do so at
their own risk, without tariffs or rattled sabers on their behalf when things
go wrong.

Tangentially, I'm a little amused that "locovorism" has a better cachet than
open "anti-globalism".

------
gamble
The degree to which East Asian economies are built to exploit Western
liberalism is almost as astonishing as the amount of abuse Western nations
will tolerate in pursuit of another quarter's profit.

The Chinese may participate in free trade, but it's a mistake to assume
they've become liberals in any sense. When the Chinese learn about free trade,
it's in the context of gunboats shelling their cities to protect drug runners,
not John Stuart Mill.

------
showerst
For those looking for actual economic policy history and statistics, I suggest
Barry Naughton's excellent "The Chinese Economy: Transitions and Growth"
[http://www.amazon.com/Chinese-Economy-Transitions-
Growth/dp/...](http://www.amazon.com/Chinese-Economy-Transitions-
Growth/dp/0262640643)

It's a textbook, but extremely readable and full of interesting history, as
well as modern stats and tables.

------
grandalf
I'm shocked by the amount of anti-China bias on HN.

Consider a few points:

\- The conditions inside US prisons (daily, predictable rape, etc.) rival
those in any labor camp anywhere in the world.

\- Many US prisoners are nonviolent drug offenders.

\- Don't forget the human rights abuses in Abu Ghraib and Gitmo and the
hundreds of thousands of innocents killed in our oil wars.

\- China's main social issue is rich coastal cities and extremely poor inland
areas. This geographical accident is behind many economic policies. The US is
lucky to have rivers that tend to lead to a far more even distribution of
wealth across geographical areas.

\- In its early days the US embraced mercantilism. It has particular political
causes and over all countries who practice it lose more than they gain from
it, but the tradeof is considered worthwhile for political reasons in spite of
its foolishness. In China's case, it represents a way to grow the Chinese
economy while not risking social stability (which is considered highly
important considering the above bullet).

\- The US was also formerly a thief of intellectual property. Notably, many
writers and publishing houses in England were irate that presses in the
colonies paid no royalties, etc., a situation made worse after the American
revolution.

\- Massive sectors of the US economy are under significant government control,
even before the bailouts. It's splitting hairs to bemoan China's "communism".

\- The average person in China does not care about all the political nonsense
that we are being propagandized to stew over. Most people all over the world
just want to be able to lead a reasonably happy life, etc. China surely has
some "backward" aspects, but consider that we did not have women's suffrage in
the US until quite recently, and that we had a draft until VERY recently.
Suppose China is 100 years behind, is that the end of the world? Do we really
deserve to feel such righteous indignation?

~~~
poutine
I would like to clarify that at least personally I'm anti Chinese government
and not anti China or the Chinese people. I love the country for many reasons
and don't fundamentally wish it harm.

When someone points out something bad about a country it's silly to say they
can't say that because there's bad things about their own country. There's bad
things about every country, it doesn't make them beyond criticism.

And that sir is why you get my downvote.

~~~
PieSquared
You make a good distinction, I agree (between government and country).

Also, I think he doesn't deserve that downvote. He contributed his own
thoughts, which were in no way rude or trollish, and seemed more or less
educated. They also sparked a bit of interesting discussion. Anyway, my upvote
balanced it out. ;)

~~~
grandalf
Upvote appreciated. I find it sad how readily so many in the US jump on board
criticizing foreign governments... it's as if we're all reading some sort of
George W. Bush Patriotism manual.

------
garply
One seeming inconsistency that stuck out at me is how he criticizes China's
lack of free market behavior - he uses the pegging of the RMB to demonstrate
this, which is definitely valid support for his argument - and simultaneously
decries the "slave wages" paid to workers.

Claiming the workers are underpaid relative to the USD because of the RMB peg
is one thing, but saying that they underpaid relative to their own economy
(which is how I interpret "slave wages") is a very different thing. He
suggests that the government is the source of these "slave wages". In what way
is the government responsible for low wages for uneducated workers when those
workers are in competition with many other uneducated workers in a country
with a population of ~1.3 billion?

Is it so unreasonable that an "auntie" who cleans houses and does laundry for
a living is paid about 1.25 USD / hour (approximately the rate here in
Beijing) when a low-level analyst at McKinsey here makes 15,000 USD a year? In
relative terms, the manual laborer doesn't seem like she's making slave wages
to me.

~~~
pchristensen
He meant it literally - he said you don't have to pay construction workers for
the first 6-12 months of a job, and you could fire them before that time
without consequences.

"If you are building a downtown tower in Shanghai (and there are a lot of
them, many empty), you may not have to pay some of your workers for six months
to a year. Or you fire them just before that: free labor!"

~~~
SlyShy
Yes, this kind of payment withholding happens to immigrant workers almost
always, and to native Chinese workers often.

That's not to mention the children and mentally handicapped that are literally
sold into slavery.
[http://www.time.com/time/world/article/0,8599,1635144,00.htm...](http://www.time.com/time/world/article/0,8599,1635144,00.html)

~~~
poutine
Almost always? That's a bit of an exaggeration though I don't doubt it does
happen. Most Chinese workers do get paid, even the migrant workers. Indeed the
laws protecting them are way better than laws in the US, though of course
endemic corruption means laws are often ignored. You'd hear about the odd riot
here and there where the builders didn't pay in a failed construction project
but they'd have a tough time completing a project and not paying anyone.
Certainly in any urban area.

------
pchristensen
Well that's the scariest thing I've read in a long time. Turns out the image
of China as a worthy, powerful opponent destined to greatness is a carefully
crafted ruse. There's no doubt about it's power but some of the stuff in the
article would make a young Bill Gates blush.

I wonder what would have to happen for America and Europe to stand up and deal
with this? What would be worth the conflict and political outcry due to
temporarily lowered standard of living?

~~~
poutine
It suits those in power in western governments to paint China as an
existential threat to their respective countries. The reality is somewhat more
complicated but it will be impressive if China manages to hold itself together
over the next 20 years, never mind becoming a superpower which is laughable on
examination.

------
drinian
While traveling in China, I realized that nearly everything about the way they
do business, produce goods, etc. is far less efficient than in the US. Many
activities that would be automated in the US require the interaction of many
people; ever bought a train ticket online and had to pay a bike courier in
cash to receive it?

If the Chinese let their currency float on the open market, my bet is that
China would go from being extremely cheap for Westerners to fairly expensive.
They're effectively using currency manipulation to compensate for an
uncompetitive internal economic structure. (Hopefully in the long run they
will be able to use what is in effect a huge foreign subsidy to fix their
problems, but who knows).

~~~
poutine
This in many ways is quite desirable. China has so much excess labour that
automation would cause severe problems.

I once worked with a North American automated parking meter company that was
ambitious at entering the untapped Chinese market for parking meters. This was
doomed since parking is almost always done by a parking attendant, even on the
street. Parking is also often controlled by the owner of the block. The
attendant is usually someones uncle or whatever that needs a subsistence job.

Another example are elevator attendants who sit on stools (often in private
apartment buildings) and press the button for you. They often come with the
building and are relatives of the manager or property developer. Absurd, but
there you go.

Chinese work gangs always take at least 3 times more people to do the same job
that you'd do in the west. Most of the peoples jobs in such a gang is to sit
around watch and offer advice as far as I could tell.

~~~
drinian
It might be desirable in the short-term, but as an expanding middle class and
the one-child policy begin to shrink the population (and that is a _very_ good
thing, the world can't support a billion Chinese forever), then China's going
to have to learn how to solve its problems with methods that don't involve
throwing people at them. Not to mention that the West is probably going to end
up paying for this, when the currency floats and suddenly all those factories
in China are making $600 iPods instead of $300 ones.

Also, let's take your parking example. Putting aside the Chinese disregard for
all road signs and instructions, let's imagine that they install coin-op
parking meters. (Yes, I know, with the coin shortage in China this isn't
realistic, etc. etc.). Your uncle now has the much easier job of cleaning out
the meters, rather than running around all day. And maybe someone gets a
skilled-labor job as a parking meter repairman?

~~~
billswift
>Your uncle now has the much easier job of cleaning out the meters, rather
than running around all day. And maybe someone gets a skilled-labor job as a
parking meter repairman?

But there are _fewer_ jobs available in this situation in aggregate. This is a
problem with several criticisms of automation that I have seen in liberal and
libertarian circles - they claim that automation does not decrease the number
of workers since workers are needed to deal with the automation. Apparently
they are totally innumerate, since while new jobs are created servicing the
automation, the total number of jobs is significantly reduced.

~~~
drinian
True. I suppose that I would consider it a good thing, taking as a given that
1) a smaller global population is important in the long run, and 2) eventually
we will find a way to allow most people to live without having to work 40
hours a week.

~~~
billswift
The benefit is that the people freed up can do _other things_ , can contribute
to the economy in other ways.

------
raphar
I like the article and agree in the increasing threat of this nation. What it
isn't mentioned, but I think it adds to the main points, is the relationship
of China with Africa. You can read about this situation in this excelent
report [2008 fast company]: [http://www.fastcompany.com/magazine/126/special-
report-china...](http://www.fastcompany.com/magazine/126/special-report-china-
in-africa.html)

In short, the complete report tells how china is extracting and securing its
future flow of raw materials. China is extracting all that is possible from
the continent by every mean available to them.

------
danbmil99
"But reusing the old label of "Communist China" misses the mark. I don't know
what a better label would be."

They've created something new, and it seems to be very powerful. By allowing
some small-scale free-market enterprise at the local level, but keeping iron-
fisted control at the top, they seem to be maximizing their competitiveness
wrt the rest of the world, in a no-holds-barred fashion.

Our Western system is in some ways inherently too fair to compete effectively
with this new scenario. Not sure what that means but I suspect it isn't great
if you're a big fan of western ideals, most particularly the idea that the
rights of individuals should be paramount.

I sometimes wonder if Asian cultures simply don't believe that the way we do.
They seem to have a bit more of a 'hive mind' thing going on. Europe and USA
have had to deal with a crazy mix of cultures and ethnicities; not so much in
Asia.

------
IsaacL
An excellent article; my only caveat was at the beginning, where he basically
said "China is not capitalist, it's communist because it lacks human rights".
My initial thought was "it's possible for a country to be both capitalist and
authoritarian." However, the rest of the article states his case more clearly.

~~~
grandalf
The article was full of poorly reasoned points. See my more elaborate
rebuttal:

<http://news.ycombinator.com/item?id=1056013>

------
noelchurchill
_(One good answer: five evil traders on the 7th floor at Goldman Sachs.)_

What did they mean by this?

~~~
po
> What could possibly be more dangerous to the world than a command economic
> system run on a global scale? > (One good answer: five evil traders on the
> 7th floor at Goldman Sachs.)

I didn't get that either. My reading of it was simply to answer the question
of what could possibly be more dangerous? I don't think it's referencing any
actual event, only pointing out that the western model is vulnerable to top-
down destruction as well.

I think it's a bad point.

------
amutap
its like taking the greediest best out of communism and capitalism. china
implements a wonderful new beast - "commu-talism"

------
lucifer
Strike a strategic deal with the International Banking Cabal (HQ: Basel,
Switzerland), whereby they move production capacity from the West to China and
China agrees to continue the Ponzi scheme affectionately known as the
"International Monetary System" by buying the bonds of the consumers of their
products.

The cartel hope that in the process the Communist China will transform and
become integrated in the political control system before the scheme comes
crashing down.

The Chinese hope to acquire sufficient technological and industrial base to
mount a credible defense/attack which will inevitably occur when the scheme
crashes.

