Economic reform in China

There’s a more interesting new post over at Econlog.

Almost every week I see articles about China opening up its economy.  Here’s a recent example from The Economist:

CHINA is home to 1.4bn people. The population is ageing, and thus more vulnerable to ailments. Sustained economic growth is making the country richer, and more able to afford remedies. To foreign pharmaceutical firms, this looks like a winning combination. They are less keen on protracted review times, onerous rules and the reams of paperwork required to sell drugs in China. It can take a decade after approval in America for foreign drugs to reach Chinese patients.

The Chinese authorities at last appear to have acknowledged the problem—and are administering a cure in doses that have surpassed even optimists’ expectations. A reinvigorated regulator is waving through drugs from abroad, and clamping down on unscrupulous domestic companies. The government is spending more on drugs, including foreign ones, as it expands public health care. It is letting market forces weed out frail local firms. In other words, China is becoming a more normal market. Global drugmakers are rubbing their hands. By some estimates China became the second-largest global consumer of medicines in 2017. The market is worth $122.6bn, according to IQVIA, a research firm.

And another recent example from the Financial Times:

China has been opening up its financial sector in recent months, a move that some Wall Street groups hope to benefit from. Since Beijing raised the cap on foreign ownership of securities trading and fund management companies from 49 per cent to 51 per cent in April, several big US banks have said they aim to gain majority control of their operations in China.

A few months back, CNN provided this example:

China is making good on the promise to open its huge car market to foreign automakers.

The country will remove its longstanding restriction on foreign ownership for manufacturers of electric cars, ships and aircraft this year, the government announced Tuesday.

The announcement is just a first step in what China promised will be gradual phasing out of all restrictions on foreign ownership in the automobile industry.

This has been going on for decades, and I could cite many other examples.

Another trend that has been going on for decades is media claims that China is no longer reforming its economy, and is going back to the bad old days of state control.

Which set of news stories is true?

PS.  Sometimes things happen that are so weird that if they were not true you could never imagine making them up:

For decades, Taiwan and China have competed for recognition. In 1979, the United States switched its support and officially established sovereign relations with China, and many other countries followed. . . .

In recent years, China has had success in courting Taiwan’s diplomatic partners. Only 17 nations recognize Taiwan; outside the Vatican and Swaziland, they are all islands in the Pacific and the Caribbean or countries in Latin America.

American officials have expressed growing concern over the shift.

The US government, the Chinese government in Beijing, and the Chinese government in Taipei all agree that there is only “one China”, which includes the Chinese mainland and Taiwan.  In 1979, the US decided that the Beijing government was the legitimate government of China.  That’s still our official policy.  Now several countries in Latin America are following our lead, and we are upset with them.

PPS.  Tyler Cowen has an interesting Bloomberg column about 30 years of changes in Guangzhou.

PPPS.  This Fu Ying essay is one of the few articles on US/China relations that I actually agree with.

PPPPS.  Russ Roberts has a very interesting interview of Frank Dikötter on the Great Leap Forward.  This caught my eye:

Anyway, in October 1957, to mark the 40th Anniversary of the Bolshevik Revolution, 1917, all the leaders of the socialist camp are invited to Moscow, and there Khrushchev announces that he will overtake your country, the United States, in the production of dairy products. Mao doesn’t miss a beat: he says, without even standing up, ‘If you wish to overtake the United States, we will beat England–the United Kingdom–in the production of steel within 15 years.’ That’s the start of the Great Leap Forward.

At the time, the goal seemed preposterous.  China’s attempt to do this with backyard steel mills backfired, causing lots of misery.  Interestingly, today China produces 100 times as much steel as the UK.


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19 Responses to “Economic reform in China”

  1. Gravatar of dtoh dtoh
    11. September 2018 at 17:47

    Scott,
    There’s a difference between nominal and real. Japan played this same game for years

  2. Gravatar of dtoh dtoh
    11. September 2018 at 18:03

    Also, I have no idea why the U.S. government continues to allow a system under which U.S. consumers subsidize foreign consumers. The U.S. should prohibit the sale of any drug in the U.S. at a price which is higher than the price at which the drug is sold in foreign country where the government sets drug pricing (except for very poor countries.) This would immediately force the drug companies to stop agreeing to the low prices set by national health/drug agencies around the world. Drug prices would equalize (foreign prices up/U.S. prices down) and the subsidization of foreign consumers would end.

  3. Gravatar of Benjamin Cole Benjamin Cole
    11. September 2018 at 18:07

    I am skeptical Westerners know what is going on inside China, or whether it is liberalizing or not.

    Simple story as illustration: Internet-media-mobile game giant Tencent has been told by Beijing it cannot sell its online games in China. The story for public consumption is the Communist Party of China (CPC) has determined the games are injurious to Sino youth.

    Maybe that is “true” and the CPC really believes the Tencent online games are injurious to youth, and so free markets and free enterprise be damned, the CPC will ban Tencent’s games.

    But there is no free media in China—in fact, President XI has stated the role of Sino media is promote the outlook and perspective of the CPC. So media in China will disseminate misinformation and disinformation as directed by the CPC.

    So perhaps the “real” story is that the CPC is pressuring Tencent for reasons unknown and unknowable to Westerners. Perhaps the CCP has a hiring quota for party members, and Tencent has not met that quota. Ergo, a little pressure.

    In general, multi-nationals use China as a manufacturing platform, and so have an economic interest in coloring the China story as seen in the West. In fact, to hear multi-nationals and their house organs tell it, the Sino supply chains are irreplaceable, and disruption in Sino relations would lead to grievous harm to multi-nationals and Westerners.

    So does the CPC have the multi-nationals by the (financial) balls?

    What kind of “news” stories can we expect, given that?

  4. Gravatar of dtoh dtoh
    11. September 2018 at 20:40

    Benjamin,
    Agree. Another rule I would have for trade with China is that all U.S. companies can operate freely in China without censorship or eavesdropping. No free speech/no privacy…. then no trade…nada… zero…. full stop period.

  5. Gravatar of Benjamin Cole Benjamin Cole
    11. September 2018 at 21:03

    dtoh:

    If you are old enough, you remember when “repression behind the Iron Curtain” of civil, human, free speech and religious rights was a staple of Western journalism, and I am glad that it was.

    Today, Sino repression is aided by tremendous technology, organization, and state effectiveness (the Russians were often unorganized, undisciplined and lazy, if brutal).

    Recently, the Communist Party of China has decided to crush Christian and Muslim organizations, and followers. This type of state repression would have been a prominent staple of “how bad Russia is” stories of the past.

    But China has allowed multi-nationals to use it as a manufacturing platform.

    Ergo, as presented in the Western media, China is not so bad.

    https://www.worldreligionnews.com/religion-news/china-continues-crackdown-christianity-2

    China’s brutal crackdown on the Uighur Muslim minority, explained – Vox
    https://www.vox.com/2018/8/15/17684226/uighur-china-camps-united-nations Aug 30, 2018 – US lawmakers are pushing for sanctions over China’s use of “reeducation camps,” where Uighurs face political indoctrination and torture.

  6. Gravatar of Benjamin Cole Benjamin Cole
    12. September 2018 at 02:00

    “The economic and financial news channel of Nasdaq-listed NetEase, one of China’s leading internet portals, stopped updating its content from noon on Tuesday for “rectification” of unspecified mistakes.

    In a statement on its website and its mobile app, which had the style of a public self-criticism letter, the company did not explain what mistakes had been made.

    The decision to close the sometimes outspoken news service comes at a time when Beijing is trying to maintain an upbeat economic narrative to ensure confidence in the economy and prevent further deterioration in financial markets.

    NetEase said only that it had encountered “serious problems” and the firm, with a market value of US$24.7 billion, had conducted “in-depth and comprehensive reflections” and decided to close down the channel for an undisclosed period of time.

    The suspension of service is intended to “maintain order in cyberspace communications” and “create a clean and tidy cyberspace” – phrases that come directly from a speech by Chinese President Xi Jinping in April 2016 and which have since become overriding policy principles for Beijing’s tighter control of the internet.

    The statement was published at 11.54am, six minutes before the suspension started. The vagueness of the statement triggered wild guesses about what the channel has done to anger Chinese censors.”

    —-30—-

    This sort of story is now daily fodder from China. Can one invest in a nation with a permanent news blackout? Perform due diligence? Interesting question.

    https://www.scmp.com/economy/china-economy/article/2163752/china-financial-news-service-shuts-down-sorry-unspecified

  7. Gravatar of dtoh dtoh
    12. September 2018 at 03:14

    Benjamin,
    Agree. As I said, I would turn off trade completely with China until they implement extensive reforms in this area.

  8. Gravatar of Christian List Christian List
    12. September 2018 at 03:39

    Scott,

    Your China propaganda is as breathtaking as ever. I hope they pay you well at least.

    As always, you misrepresent the One-China policy. I wonder if that’s intent or ignorance, and if so what’s worse: Ignorance or corruption?

  9. Gravatar of ssumner ssumner
    12. September 2018 at 09:51

    dtoh, You said:

    “There’s a difference between nominal and real. Japan played this same game for years”

    I don’t follow. How does this relate to the post?

    As far as regulation, how about just trying free market capitalism?

    Ben, You said:

    “What kind of “news” stories can we expect, given that?”

    So lets see. You have 1000s of comments over here, where you cite news stories about countries like China. And now you are telling me that these stories are merely propaganda. OK, so does that mean all of your comments are just worthless propaganda? I’ll take that into account next time I read one of your comments.

    BTW, where did you learn about the Tencent story? Through the media, or talking to the Tencent CEO?

    Christian, No, I don’t misrepresent the one China policy, and the Chinese pay their bribes to the FT, the Economist, and CNN, not me. I just pass along the propaganda from those fake news outlets.

    My God. Are you really that paranoid?

    Everyone, How about presenting a single piece of actual evidence that a single claim in the three news stories above are inaccurate? When all people can do is tell me that they don’t believe anything in the mainstream media, I’ll draw the obvious logical conclusions.

  10. Gravatar of Christian List Christian List
    12. September 2018 at 11:04

    When all people can do is tell me that they don’t believe anything in the mainstream media.

    No one said that.

    For example, I think the NYT article about the mega-über-bully CCP is mostly true.

    Even people who know little to nothing about the One China policy will see in a few seconds that you misrepresent the One China policy in a very crude way that makes the totalitarian mega-bully CCP look way too good.

    Compare that to your regular outrages about the “bully” Trump, for example, and it gets even weirder.

    How about presenting a single piece of actual evidence that a single claim in the three news stories above are inaccurate?

    I’m not saying that the “news stories” are inaccurate. I just think they aren’t relevant at all. The CCP is still there.

    The problems in China are political not economical. China needs reforms in the fields of democracy, Rechtsstaat, free press, freedom of speech, and individual rights. That’s where China is lagging way behind. That’s also the reason why China is not a Great Power at all.

    I also find that the economic rise of China is far from remarkable. It’s just like in any textbook. That’s what you get when you open up economically. Who would have thought so? Other Asian states like Japan, Hong Kong, and Singapore found that out way earlier. China just copied them. Good for them, good for us.

    The West has been telling China that for at least 50 years, if not 150 years. But the CCP would rather listen to the (other) German idiot called Marx. That was their own mistake, which cost them at least 40 years and millions of deaths.

    I do not give extra applause for states that need decades before they realize that “Das Kapital” is not a good economic textbook at all. How many decades should we give them until they realize that “Das Manifest” is a really bad political textbook? The CCP is just bizarre and criminal (to put it very mildly), and you know it.

  11. Gravatar of dtoh dtoh
    12. September 2018 at 14:56

    Scott

    Nominal – When you say you’re going to do it.
    Real – When you actually do it.

    Japan played the same game. Agreed to fair trade and then invented a thousand ways to cheat.

    Didn’t matter so much with a smallish country like Japan who’s our ally.

    Matters a lot more when it’s a big country that has political values which are completely inconsistent with our political values.

  12. Gravatar of Benjamin Cole Benjamin Cole
    12. September 2018 at 20:21

    Scott:

    Oh, come

    I did not say the thousands of news stories I cite are mere propaganda.

    I do say mainlnd China and President XI regard media as a mouthpiece of the Communist Party of China (CCP). This is indisputable. In this sense, there is no “news” inside China, only propaganda. There are huge areas of simple omission, or slant.

    As for Western media, news is often slanted, and often the slant is simple emphasis or omission. Again, this not contestable—just look at a Fox vs. CNN or MSNBC. Fox highlights migrant crimes, for example. If Trump does an inappropriate “fist pump,” that is news as MSNBC.

    That multi-nationals have established a huge manufacturing base in China and other nations is indisputable. Recently, in “free trade” commentary, the story line is that these offshore supply chains are indispensable, and would wreck grievous havoc on multi-nationals to rely less on such supply chains.

    If this is true, then multi-nationals have a huge stake in present trade arrangements, whether or not such arrangements are in the interest of the US. This is indisputable also.

    So, the “US” Chamber of Commerce has taken a deep interest in “free trade” (ie, no tariffs on China goods). Obviously, a lot of money churns around DC, make of it what you will. I would say the multi-nationals have deeper pockets than domestic manufacturers, and global clout as well. They seem to control the narrative.

    Money buys megaphones, in the media, in academia, in think tanks and foundations.

    BTW: Not a single US-based news organization has reported that NetEase news service is on a Beijing lockdown. Reuters has a lone story, and also the South China Morning Post. Pretty good stories.

    The US media is curiously uninterested in a bald news clampdown in mainland China. But US mainstream news consumers have no clue. This is typical.

    So: Who controls the narrative?

  13. Gravatar of Todd Kreider Todd Kreider
    14. September 2018 at 08:32

    Scott,

    In the essay you linked to Fu Ying writes that “China has added greatly to American prosperity.”

    Not really. Further into the essay he writes that trade with China has saved each American family (on average) $850 a year. With the median household income at $61,300, that comes to 1.3%. That is nice but not “added greatly to American prosperity.”

    The real U.S. gains will come once China’s scientists and engineers improve to where quite a bit of innovation comes from China and if the significant improvements in training continues from the 90s, that day is not too far off — the 2020s. (A large percentage of first rate Chinese scientists trained in the U.S. stay here to work.)

  14. Gravatar of ssumner ssumner
    14. September 2018 at 14:32

    Christian, You said:

    “Even people who know little to nothing about the One China policy will see in a few seconds that you misrepresent the One China policy in a very crude way that makes the totalitarian mega-bully CCP look way too good.”

    Then present some evidence. And it does make them “look good”, I happen to favor putting the Taiwan government in charge of a unified China. It’s more democratic, richer, and has better economic policies.

    As for the need for political reform, what’s your point. I have the exact same view as you do.

    “I do not give extra applause for states”

    I’ve never given China any applause, much less extra applause. I’m just trying to figure out what’s going on. There are some positive economic changes, and retrogression on issues like free speech. Do you disagree?

    dtoh, I doubt Japan “cheats” any more than the US. Both countries have low tariffs, and both countries have lots of hidden non-tariff barriers. In any case, let them “cheat”. It hurts them far more than it hurts us.

    Under Mao, China was 1000 times as closed to the US as today—I don’t recall people complaining that Mao’s policies hurt the US economy (even though they did, by denying us cheap imports.)

    Ben, You said:

    “As for Western media, news is often slanted, and often the slant is simple emphasis or omission.”

    OK, from now on I’ll assume all the western new sources you cite are slanted, unless you provide evidence otherwise.

    Or would you prefer I assume you cherry pick only those stories that agree with your preconceived notions? I’m willing to go either way. Let me know.

    Todd, OK, but when you are talking about the entire economy, 1.3% is actually fairly big deal. For instance, the economy has expanded at 2.8% under Trump. vs. 2.1% on average during the previous 7 years. Lots of people think that extra 1% (over 6 quarters) is a big deal. If so, then 1.3% is as well.

    No one is claiming America would be poor without China, but you wouldn’t find that size impact from a Belgium or Ecuador.

  15. Gravatar of Todd Kreider Todd Kreider
    14. September 2018 at 18:47

    “OK, but when you are talking about the entire economy, 1.3% is actually fairly big deal. For instance, the economy has expanded at 2.8% under Trump. vs. 2.1% on average during the previous 7 years. Lots of people think that extra 1% (over 6 quarters) is a big deal. If so, then 1.3% is as well”

    But that 1.3% of income isn’t growing at 1.3% a year and is assumed to be flat, at least in the medium run.

    If you are at the median, your household earns $5,100 a month. If the government gave you $70 a month, pre-tax, would you say that the subsidy “has added greatly to my monthly income?’ (A rhetorical question.)

  16. Gravatar of ssumner ssumner
    15. September 2018 at 07:34

    Todd, We are not really arguing about anything other than terms. But here’s the deal. In economics basically EVERYTHING is a small share of GDP. There is no plausible policy reform, or natural disaster (like Japan’s 2011 tsunami) or war in Iraq, or anything else that moves the GDP of a huge developed economy by more than a few percent.

    I do see your point, and partly agree. But within the normal range of issues, 1.3% is a much larger than average impact. We may have to just agree to disagree on this, it’s all a matter of perspective.

  17. Gravatar of Todd Kreider Todd Kreider
    15. September 2018 at 20:14

    The issue is that you are comparing a fixed 1.3% share of American income as Chinese contribution to income with 1.3% growth. In ten years time, the U.S. GDP will be over 10% larger while the Chinese contribution to income will still be around 1.3% o so.

  18. Gravatar of E. Harding E. Harding
    15. September 2018 at 22:59

    At the time, the goal seemed preposterous.

    Not really. It was only two years too ambitious. It could have easily been accomplished in five years, rather than seventeen, were it not for the more inefficient features of Maoist economic policy. South Korea rapidly surpassed the North in steel production over the course of the 1970s.

    https://www.worldsteel.org/en/dam/jcr:09ed87af-366e-44c6-9f55-63c09f76b520/A%2520handbook%2520of%2520world%2520steel%2520statistics%25201978.pdf

    Another trend that has been going on for decades is media claims that China is no longer reforming its economy, and is going back to the bad old days of state control.

    China is increasingly deregulating in the economic sphere and regulating in the personal sphere.

  19. Gravatar of dtoh dtoh
    16. September 2018 at 15:40

    >> dtoh, I doubt Japan “cheats” any more than the US. Both countries have low tariffs, and both countries have lots of hidden non-tariff barriers. In any case, let them “cheat”. It hurts them far more than it hurts us.

    No.

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