I found an interesting article about China today in this morning's NY Times.
I'm interested to see if they can carry off the S. Korea/Japan model in the way that they aspire, or if it fails. Judging from China's previous success at random industrial shifts, I'm betting we're going to see higher prices on manufactured goods, and lower prices on these intro technologies. Should be interesting to watch how the public reacts - if they even notice, that is.
From a development perspective, I'm glad China's focusing on something other than being a manufacturing hub. This will serve as another example of how government support can help develop a market where one would not naturally exist. Hopefully they'll be able to convert their manufacturing labor supply to technology-educated manufacturers a.s.a.p with as little growing pains as possible.
Wimbledon Wisdom
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I recently ran across a graduation speech by the tennis great Roger
Federer. I especially appreciated this passage:
In the 1,526 singles matches I played...
1 day ago
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6 comments:
This is a great piece. I actually sent it around to folks here at my firm. We recently acquired a law firm in China and intend to expand our tax controversy / transfer pricing practice there. This article offers some insight into what we can expect. (For those familiar with TP, it means more profit splits!)
"This will serve as another example of how government support can help develop a market where one would not naturally exist."
Lisa,
Did we read the same article? Isn’t this piece talking about the Chinese government getting out of the way of markets and continuing the trend of liberalization which has led to such rapid economic growth? I picked up the words “entrepreneur” and “privatize” and noticed that these companies are making decisions based on (gasp!) profit maximization and reduced government interference. Heaven forbid we let the market mechanism improve the standard of living!!
What exactly, dare I ask, are the examples of “government support [helping] develop a market” that you speak of?
By the way, who is this person named China who appears to be acting as a single being? Or are we talking about China, the country of 1.3 billion individual people who each have their own interests.
I think to begin with, I’m defining "China" as its leaders - those who hold government positions and make investment decisions about the national economy as a whole, not the billion or so individuals who have no say over what happens at the national level. I thought as it was obvious I was referring to the government (especially the Chinese government) the shorthand would be accepted, but you're right - it pays to be precise.
Secondly, I think I’ve misused a word that is causing some confusion – when I said “develop a market” what I should have said was “develop the sector.” In particular I’m referencing the fact that China isn’t known for being a high-technology center – that’s pretty much all I was getting at. The original post was basically just a quick reference, not an in-depth analysis, and I should have put more careful thought into expressing what I meant. I wasn’t implying that China’s leadership is inventing the technology market – obviously that’s a global marketplace, and the end goal of this sector’s development. That will probably make the rest of this post redundant, because I think that’s the point that KLR was arguing against, but in the interest of generating discussion, I’ll make the rest of the post anyway. I think it’s also important to point out that I am neither a proponent of, nor strongly against, the capitalist system. (Strong capitalists, feel free to roll your eyes and label me a Communist, but I’m not convinced – the “best we have now” rationale is not enough!) I don’t necessarily see the sprouting of capitalism as a signal that the Chinese system has failed, or that it will necessarily cause an economic revolution – I think the effects are going to be (and have been) much more gradual, and much more controlled than all that.
Maybe I’m giving the government more credit than they’re due, but I see this particular case as an example to other developing countries who are wary of capitalism of how to incorporate international capitalistic pressures into government policies to move the economy forward – the tax breaks to the technology sector, removal of tax breaks to the manufacturing sector, policies that “favor high-tech economic zones, research and development centers, and companies that promise higher salaries and more skills” combined with the control the Chinese government has over higher education (not mentioned in the article, but one point upon which I based my assessment) and the President’s outright claim that “we will make some serious efforts to strengthen our nation’s competence” represent government actions and attempts to develop the supply chains to take part in the global sector. In a sense, this is a way to take advantage of capitalism without necessarily giving up control over what’s going on. (This is contentious, and you’re right to argue it – that’s the whole debate about China in general, I think. I’ve just come to the conclusion that China’s government isn’t giving up control over its economy – it’s shifting its position, but it’s not going anywhere. Your conclusions from the same set of facts could be quite different)
There’s no question that international capitalism and free enterprise lead the way to the Chinese focus on this sector, but what I’m saying is that by recognizing the importance of moving from manufacturing to high technology, the Chinese government has a chance to improve its economic status, and is doing so through the actions I’ve already listed (and then some).
I don’t deny that capitalism exists in China – it has existed there for quite some time in one form or another. Basically the bottom line to me is, China’s government is not just opening the floodgates of capitalism and letting it take the economy by storm. They (the government) are taking a calculated step towards a sector that boasts high profits – something that is good for China as a whole, and something that isn’t innately a part of China’s factors of production. The rosy picture of private enterprise and free market painted by the article are a bit misleading, from my perspective, but it highlights one method China’s government is using for its economic development. I’m just a little too cynical about the Chinese government’s openness to capitalism to think otherwise. What I do definitely support is the ability of China’s government to see an area where they could excel, and to do what they can to focus production in that area. That, to me, was the lesson to be taken, though maybe I took that lesson from reading between the lines and inferring from my own knowledge more than what directly came from the article.
Hope that clarifies my position a bit.
Or, alternatively, the Chinese government shifting incentives across sectors is a lagging, not leading, indicator of an economic trend.
Your faith in the ability of government officials to steer the economy is impressive.
Also, isn't it a bit of an self-indictment of the failure of centralized economics when the Chinese government is attempting to spur growth by introducing more....market incentives.
Hey - I've only been an "economist" for 2 years...I'm allowed to be a little naive when it comes to government intervention. (On a serious note, you've obviously studied this stuff way longer than I have, so please forgive any ignorance or inaccuracies on my part and put them down to inexperience - I'm still learning, so let that temper how you view what I'm saying)
Your points really are well taken, though - my perspective is slanted by the large number of classes/professors/coworkers/bosses I have (and have taken) who are Chinese economists, so I probably do give the Chinese government too much credit. It's obviously logical to think that the acceptance of parts of the market system is evidence of the failure of the centralized system, but to me it still seems like more of a synergy (forgive the horrible business-speak term) of systems than one reigning over the other. In the interest of moving on to newer posts, I'm going to call this discussion completed for now, but I respect what you're saying, and I hear you!
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