Friday, January 22, 2010

The Chinese puzzle

I watched the BBC news last night and particularly enjoyed a puff piece about how China is now poised to overtake Japan as the world's second largest economy. In the year of "global" economic recession, China's economy grew by more than 8%. The biggest economic concern for the Chinese government is not falling tax revenues and a massive trade deficit - it is the worry that the economy may "overheat" - usually a sign that it is, if anything, growing too fast.

Why is China surging ahead economically while the rest of the world stutters along? Well, various commentators have various points of view, but they are - in my opinion - all wrong. China is surging ahead of the rest of the world because it has, outside of a few "closed" states, the most protected industry in the world.

Oh, they don't use anything as transparent as trade tariffs (except in retaliation) but while US food giants buy up British chocolate makers, Indian steel producers close down the remnants of Britain's steel industry and German car manufacturers snap up failed US auto brands, the Chinese government protects their industries like a mother bear protects her cubs.

They don't need to put up trade barriers because nobody can make things as cheap as the Chinese can. Instead, they prevent foreign firms from buying into their industry - whether it is German companies trying to buy ball bearing factories or US fizzy drink giants trying to buy juice producers.

So, when the Chinese government poured in its "fiscal stimulus" it knew that every penny will go to help Chinese industry and Chinese people while Britain spent a fortune keeping Japanese, French and German car manufacturers happy.

Protectionism has a bad name these days, but the lesson we can learn from the Chinese (and, to a lesser extent, Germany and France) is that it works.


bernard said...

Good point, Rantingman.
Mind you, China shares a similar growth pattern to India, and both have something in common: their enormous populations, which allows them to trade lavishly within their own borders.
There'll come a time when all Chinapersons will have all the flip-flops money can buy...then they'll be stuffed.

Richard Matthews said...

The Chinese also make tangible products: things that you can see, pick up and use.

All that Britain has is its invisible financial services industry.