The Stanly News and Press (Albemarle, NC)

Opinion & Letters to the Editor

June 6, 2013

Many factors explain current economic situation in China

Thursday, June 6, 2013 — When I was growing up in the 1950s, China was our political enemy. My uncle, who lived next to my family, had fought the Chinese army in Korea, so nothing positive was said about China during family gatherings.

Our political relationship with China changed in 1972, when President Nixon surprised the world with his visit to Beijing and historic handshake with Chairman Mao. The U.S. political relationship with China has now been normalized for de-cades.

However, many observers of China say the real turning point in Sino-American relations was not the political thaw that began in 1972 but the change in the Chinese leadership later that decade that directly led to the country’s economic transformation. The new Chinese leader, Deng Xiaoping, was one of the major forces behind taking an impoverished economy and turning it into the economic superpower of today.

What did Deng and his supporters do? This is the subject of a fabulous new book, “How China Became Capitalist,” co-authored by 102-year-old Nobel Prize winning economist Ronald Coase. His story of China’s economic emergence is fascinating, as it was stopped and restarted several times. But the remaking of China’s economy essentially followed three elements.

First was the introduction of economic incentives. A basic tenant of economics is that people respond to incentives. Want people to work harder and businesses to make more; let them keep what they earn in wages and profits. This simple idea – which had been contrary to Mao’s philosophy – was implemented first in farming and then in the economy.

And guess what happened? Chinese productivity and output soared. Poverty was reduced, the middle-class expanded and the country’s standard of living jumped.

Second was releasing the grip the Chinese government had on prices and letting them be set by old-fashioned supply and demand. Under Mao, government bureaucrats controlled the prices of everything from corn to cornflakes. The problem was these top-down regulated prices had no link to the realities of a modern economy. If the price was set too low, shortages resulted when buyers tried to purchase more than companies produced. Conversely, prices established too high gave the opposite – surpluses and waste as producers made more than buyers could afford.

The solution was to free prices and let them be determined by economic conditions. Now, prices would result from interactions between buyers and sellers. China found this system led to reductions in waste, surpluses and – perhaps ironically – prices themselves.

The last shake-up in the Chinese economy has been the hardest, taking on the powerful and protected state-run companies. Such companies, which dominated the Chinese economy under Mao, were inefficient, antiquated, inattentive to consumer desires and costly. Today, although some still exist, they have been pushed aside for the innovative, cost-conscious and fast-changing structure of numerous private companies – none of them guaranteed to survive – constantly competing for the consumers’ purchases.

Some economists argue that the overhaul of the Chinese economy in the last three decades has never been matched in human history. It has brought prosperity to hundreds of millions of Chinese households. But the remake has created new issues, both internal to China and internationally.

A big issue is environmental, specifically pollution. China’s rapid industrialization and almost insatiable need for energy have added to the world’s concern about air quality and climate change. Of course, other developed countries are also big energy users and pollution-producers, so the problem isn’t unique to China.

China’s rapid economic growth, particularly in manufacturing, has redrawn trade patterns and reallocated jobs in the world. Some workers and companies – including in the U.S. and North Carolina – have benefited, while others have lost. But one thing is for sure, any major company today anywhere in the world must consider China both as a competitor in production as well as an opportunity for sales.

Last is the argument that while the Chinese government may be pursuing a hands-off policy for their domestic economy, they very much have hands-on policies in international trade that give them an unfair advantage. Indeed, this has been a contentious point for the U.S., although the evidence for the charge has been intensely debated by economists.

So how did China rebuild its economy within the span of one generation? Easy, they adopted and applied the standard economic principles of incentives, freely set prices and competition, ideas taught every day in Economics 101 classes. But, you decide if this is enough.

Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy.

1
Text Only
Opinion & Letters to the Editor
  • mama.jpg What we get wrong about millennials living at home

    If the media is to be believed, America is facing a major crisis. "Kids," some age 25, 26, or even 30 years old, are living out of their childhood bedrooms and basements at alarmingly high numbers. The hand-wringing overlooks one problem: It's all overblown.

    July 22, 2014 1 Photo

  • Doug Creamer Maintaining hope

    Gardeners are facing challenges with the weather this year. It seemed like we were getting great conditions in April and May. The weather was warm and we were getting some good rains. Then sometime in June the rain stopped. It got so dry that I didn’t have to cut the grass. While I enjoyed the break, the garden was not happy at all. I was having to water quite a bit to keep the vegetable garden alive and growing.

    July 22, 2014 1 Photo

  • Jason O. Boyd I may be a bit behind the times, but at least I can find ‘America’

    I seem to be reading about and dealing with technology a lot lately.
    I  love technology and have always been fascinated by gadgets of all kinds and the wonderful things they can do. You never seem to go through an entire day without some form of invention enhancing your life.

    July 21, 2014 1 Photo

  • Brent Laurenz Meeting out in open helps negotiations move ahead

    RALEIGH – State lawmakers reconvened in Raleigh on May 14 promising a brief legislative session this summer, but as July moves along they are still in town and tackling big issues.

    July 21, 2014 1 Photo

  • Larry's Sketch 7.16.14.tif They don’t give a darn for Duke University

    John “Duke” Wayne’s heirs are suing Duke University over trademark rights.

    July 21, 2014 1 Photo

  • Your chocolate addiction is only going to get more expensive

    WASHINGTON - For nearly two years, cocoa prices have been on the rise. Finally, that's affecting the price you pay for a bar of chocolate - and there's reason to believe it's only the beginning.

    July 18, 2014

  • Patrick Gannon Don’t forget the losers in state lottery

    RALEIGH – Behind every state lottery dollar that goes to education is a loser.
    There’s also a winner – the teacher whose salary it pays, the student who gets a scholarship or the district where a new school gets built. But we hear about the winners in advertisements and in press releases.
    This column is about the losers.

    July 18, 2014 1 Photo

  • Hodgepodge Cooling an overheated hedgehog and other summer travel stories

    Anybody with a pet during the summer inevitably finds themselves facing this question: What do I do with my pet on vacation?
    There are kennels for dogs, day cares for cats. Shoot, you can even find a friend to take care of your guinea pig.
    But what do you do with a hedgehog?

    July 18, 2014 2 Photos

  • North Carolina Boasts Top Wildlife Magazine and A Success Story

    The following opinion piece was released by the N.C. Wildlife Resources Commission:

    RALEIGH  — When Wildlife in North Carolina, the magazine published by the N.C. Wildlife Resources Commission, was named recently as the nation’s best in its category, it reflected more than accolades as a quality publication.

    July 17, 2014

  • 130408_NT_BEA_good kids We're raising a generation of timid kids

    CHICAGO - A week ago, a woman was charged with leaving her child in the car while she went into a store. Her 11-year-old child. This week, a woman was arrested for allowing her 9-year-old daughter to go to the park alone. Which raises just one question: America, what the heck is wrong with you?

    July 17, 2014 1 Photo

House Ads
Seasonal Content