Aug

2

Did you read (and comment) the article Ten Reasons Why China is Different by Stephen S. Roach?

It appears the Yale faculty member of MS-Asia is attempting to sell a stale bushel of IB produce…

May be worth publishing here that which the commentator (vn 05:28 31 May 11) wrote in response to Roach a la "ten reasons why Stephen Roach is wrong…" [Ed.: we don't know the identity of the commentator].

"1. China's financial sector is in a mess. Read "Red Capitalism" by Carl Walter and Fraser Howie. Banks have been going through multiple recapitalizations but there continue to be piles of debt accumulating in a range of Ponzi schemes that would make the traders of Goldener Sacks and Lehman Brothers blush. And just as the global financial crisis came from nowhere, so will China's.

2. The seemingly wise, strategic, and committed leadership of the communist party that Roach so extols is as prone to crony capitalism, corruption, nepotism, and political patronage as the most capitalist societies. The state-owned corporations and banks of China are being carved up between communist party leaders, their families, relations, and friends.

3. The aggrandizement of China's export success as an example of superior strategy and impressive competitiveness actually rests on ever-increasing subsidies through low prices for energy, land, capital, water, and the environment, a labor force kept suppliant by the communist party, and an undervalued currency.

4. Continued high investment rates are being achieved by taxing households through a plethora of channels — including low interest rates, wages well below marginal productivity, and the delivery of health and education services at exorbitant prices.

5. China's gleaming cities have been built by migrant workers with no access to health, education, or housing services. Urban areas conduct a discreet form of apartheid where access to basic services depends on where people are born. (The so-called  户籍   system).

6. Inequality in consumption and income are rising — and inequality of asset ownership is probably at stratospheric levels. Yet popular discontent is repressed.

7. As a senior communist party official once remarked, China has privatized its government. It can no longer tell the difference between a public or a private good (or service). Most government departments and agencies have become profit centers, even the PLA. The China Banking Regulatory Commission — responsible for regulating China's powerful banking system — relies for its budget on the banks it is supposed to oversee. As it is, information asymmetries are powerful in banking — the incentives implicit in the Chinese supervisory system make them virtually insurmountable. The conflict of interest in the west’s credit rating agencies pale in comparison to the practices in China.

8. Mercantilist policies have created an accumulated environmental deficit that will take years to remedy – although the chances of reforms in this area are low given the close family and patronage ties between heads of large (polluting) firms and senior leaders in the party. Vested interests in the current arrangement have become very powerful.

9. The practice of “pragmatic, incremental” policy changes that China so prides itself in has created a complex web of interconnected policies, laws, guidelines, practices, and informal arrangements that make it very difficult to untangle. Even if the Chinese know what they want to change, they are not sure how to do it. Recent shortages in energy availability are a case in point. Power generation plants have had to close because of losses caused by high raw material costs and low administered energy prices – but raising energy prices would hurt energy-intensive industry; and raising public subsidies through the budget or banking system run counter to the government’s efforts to withdraw economic stimulus at a time when inflation is high and rising.

10. Encouraged by the success of the stimulus package, the government’s further encroachment into economic decision making by firms and individuals is moving in the opposite direction to where it should be going – if it is to become an innovative, flexible, and dynamic society. China’s leaders are drawing the wrong lessons from their past success. They believe it was because of the government’s superior decision making ability, when in reality it was because of the strength of markets."


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