China is now the world’s second largest economy after it surpassed Japan, according to numbers released Monday (today). Experts are estimating that it will surpass the U.S. by 2030.
1. The article says,
Economists say that China’s economy is too heavily dependent on exports and investment and that it needs to encourage greater domestic consumption — something China has struggled to do.
First, I’m not sure this will be a problem. Right now people in China don’t yet have the money to engage in consumerism, but once those salaries hit a critical threshold, I’d be surprised if it continues to be a problem.
Second, I’m not sure that I understand this completely. I guess you can’t have a company like, say, Ikea, if your population isn’t buying home furnishings. But shouldn’t we be discouraging consumerism for the sake of the environment? After 9/11, Dubya told us all to go out shopping, and I’m not sure that was such great advice. Spending and consuming is one way to get the economy going, but if you’re exporting and investing and making money from outside the country, I don’t see what the problem is. (I may be missing something here, so please feel free to explain it to me. I looked up this WSJ article that says more consumption will create less dependence on foreign customers, but that doesn’t seem to me to be a reason to encourage your people to spend.)
2. The article says:
Assessing what China’s newfound clout means, though, is complicated. While the country is still relatively poor per capita, it has an authoritarian government that is capable of taking decisive action — to stimulate the economy, build new projects and invest in specific industries.
That, Mr. Lardy at the Peterson Institute said, gives the country unusual power. “China is already the primary determiner of the price of virtually every major commodity,” he said. “And the Chinese government can be much more decisive in allocating resources in a way that other governments of this level of per capita income cannot.”
This is quite interesting. Does this mean centralized federal monetary and financial policy is the wave of the future? (Some conservatives and libertarians already think that we have this.)