Thursday, July 9, 2015

The End of Chinese Economic Exceptionalism.

The Washington Post ran an article yesterday that touched on an issue relating to the founding of this blog.  The article was titled "China’s Market Crash Dents Nation’s Aura of Invincibility".  It dealt with the disconnect between ideology and reality within and outside of China.
“It is remarkable to us how analysts and investors around the world who deeply believe in the laws of economics and free markets have tacitly bought into the idea of Chinese exceptionalism,” wrote Anne Stevenson-Yang, director of J Capital Research.
On the one hand, we have commentators outside of China that support the free market, yet they believe the Chinese model of heavy-handed state-ownership will lead China to surpass the West.  They denounce the actions of the Federal Reserve, a central bank with the second best record of maintaining purchasing power and the most transparent central bank, but at the same time put tremendous faith in the People's Bank of China's ability to replace the dollar.  They believe in the spontaneous order, but advise we all teach our children Mandarin Chinese, a language that is a government invention and enforced by the state.
The authorities responded first by easing monetary policy, suggesting pension funds would invest more, cutting trading fees and even relaxing rules of using borrowed money to speculate in the markets. Opinion leaders took to social media to demand that investors buy shares “for the nation.” Elderly women burst into trading halls to sing patriotic songs.
On the other hand, we have nostalgic communists within China that somehow make the stretch to measure the success of socialism with Chinese characteristics in terms of market capitalization, corporate bond values, and export levels.  They speak up for the workers, but credit China's cheap labor for its success in the globalized economy.  They oppose monopolies, but support merging state-owned enterprises to compete in overseas markets.  They oppose foreign influence in China, but study Marxism.

We must look to Martin Jacques for intellectual honesty, but reverse his opinions to come to the proper conclusions.