By Arnold Kling
The Washington Post’s Steven Pearlstein warns about
China, now on the fast track to becoming a dominant player in the global economy and causing major disruptions along the way.
Here in the United States, entire industries are being quickly wiped out as production is shifted across the Pacific
Arguing differently is The Wall Street Journal’s Hugo Restall.
China is using the hard-earned savings of its people, which could have been devoted to building globally competitive companies, and is instead throwing them down 100,000 state-owned ratholes so that Chinese workers can produce artificially cheap products for American consumers to enjoy.
…At the end of the day, China will be left with uncompetitive companies, depleted savings and a balance-sheet recession. It will have to sell off the distressed assets of its failed banking system, at which point Western companies can buy up even more of the economy at fire-sale prices.
Finally, Yasheng Huang and Tarun Khanna write,
In the early 1990s, when China was registering double-digit growth rates, Beijing invested massively in the state sector. Most of the investments were not commercially viable, leaving the banking sector with a huge number of nonperforming loans—possibly totaling as much as 50 percent of bank assets. At some point, the capitalization costs of these loans will have to be absorbed, either through write-downs (which means depositors bear the cost) or recapitalization of the banks by the government, which diverts money from other, more productive uses. This could well limit China’s future growth trajectory.
Huang and Khanna argue that India’s development model is more durable, because it stimulates Indian entrepreneurs rather than relying on a combination of foreign investment and state-owned enterprises.
For Discussion. Journalists tend to write about foreign economic growth as if it were a threat to the United States. How do economists see it differently?