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November 03, 2003

China & Japan or China v Japan?

There is an opinion forming in the Australian Press that Japan is being passed by China as the top economic power in the Asia Pacific region. Japan is in decline whilst China is booming. The symbolism of China putting humans into orbit says it all. China may be a form of primitive capitalism, but it has arrived.

This article in the International Herald Tribune (via Peking Duck) strikes a deflationary note. It says:

At the same time, the space flight is an apt metaphor for the risks inherent in China's economic rise. It is representative of the economy's worst element: its top-down nature.
This is what the world's most populous nation needs: bottom-up entrepreneurship that creates new businesses and jobs; a strong regulatory infrastructure for its equity and bond markets; aggressive education programs so that the tens of millions of workers being displaced by an opening economy can compete in the age of globalization; a plan to tackle a worsening AIDS crisis; and a greater effort to protect the environment.
What is Beijing offering? Vanity projects, and a fast- growing number of them. Aside from the ambitious, headline-grabbing space program, Beijing has been busy building the world's biggest dam, its tallest building, its longest bridge, its highest railway (to Tibet), its biggest stadium for the 2008 Olympics and, yes, its fastest-growing economy....
China has been to space, and it is getting the headlines it wanted. But Beijing had better begin expending the same amount of time and resources shoring up its high-flying economy."

Things are not that rosy with a primitive capitalist economy. A key problem is the banking system:

"China's banking system, however, is a clear and present danger, not only to its economy but also to social stability. Its state-run banks are harboring a bad-loan problem worse than Japan's, explaining why China isn't attracting as much institutional money as foreign direct investment."

So its rockets, space capsules and skyscrapers rather than human rights issues, financial-system transparency, and democracy.

Posted by Gary Sauer-Thompson at November 3, 2003 10:38 PM

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