The following article is from today’s South China Morning Post:
Andrew Sheng, a distinguished central banker and securities regulator, recently suggested in an article in the Post that China might be able to save the world for capitalism. It’s a laudable thought given that Western capitalism is on skid row, drunk on debt and seemingly unable to understand how bad its plight is.
But it is still wishful, because China has its own problems, notably overreliance on investment and exports, excessive loans to state-owned enterprises (SOEs) and local governments, an undervalued currency and suppression of consumption.
Does Beijing recognise the problems? Probably yes, but whether it has the political will to change economic course is more doubtful.
Equally doubtful is whether China could change the world if it wanted to. Since it accounts for less than 10 per cent of global gross domestic product (against about 55 per cent accounted for by the United States and Europe combined) and since a world-saving effort would require China to become an importing power, that is even more questionable.
Beijing, of course, has its supporters – including Stephen Roach, non-executive chairman of Morgan Stanley Asia and a faculty member of Yale University – who assert that China is different, bigger, special, the superpower that will defeat all the odds.
But Fraser Howie is one of those asking questions about China’s economic miracle. He’s an investment banker, too, has lived in China, speaks the language fluently, has a Chinese wife, and has written two books about important financial aspects of its economy.
His views are in sharp contrast to those of most bankers, who keep their heads down and make money.
Howie takes issue with all the commentators who believe that it is only a matter of time, 10 or 20 years – or maybe even five – before China takes over from the US as the global megapower.
“I fundamentally don’t believe that China will ever achieve superpower status in the way that the United States has in terms of cultural influence and general domination.
“If nothing else, Chinese culture itself is exclusionary. The whole language is structured around inside and outside. Chinese systems are all designed to run Chinese people. No one else is going to take this … garbage from their government,” he says. “People are not rallying round the world, [saying:] `Bring me no freedom of assembly; bring me no religious freedom; give me a one-party state; I want my civil rights taken away; I want corruption in my government; I want my bank savings to be taken to give preferential treatment to SOEs’.”
Howie says that for the next year, it will be difficult to get even straightforward decisions out of China, because of the political jostling as President Hu Jintao and Premier Wen Jiabao step down, probably to be replaced by Vice-President Xi Jinping and Vice-Premier Li Keqiang, respectively. He complains that the new leaders all look the same, hardly a personality or leader among them.
Politics and economics interact, especially with the building up of the giant SOEs, whose chief executives, Howie points out, “have ministerial-level power. And so you have a question of who’s the government here? Is the government the politicians or the businessmen, because they are actually holding the same level of power?”
He notes China’s predilection for new buildings, many of questionable quality.
“If you build a worthless building, that adds to GDP because you use cement, workers, whatever. If you knock it down, that adds to GDP as well, because you need to employ people to knock it down. And then you build another building, and that adds as well,” he says. “You look at so many of the projects, such as town halls or police headquarters, even in villages, 10 storeys high.”
Howie praises China’s ambition but says there is a lack of imagination and a concentration on trophies.
“They want to have the world’s best universities, so they throw lots of money into education. They build lots of big university campuses. What they don’t try to do is reform primary school education and move away from the rote learning system and standardised tests. China came top recently in some global standardised test. That’s great, but I have never seen anything in life that is a standardised test, nor in business. Unless you can move the world to a standardised test for business and life, that’s of limited benefit.
“China has gone for the trophy events, like the Olympics, the Expo, the Asian Games, huge monumental things. And yet traffic in Beijing is still very bad, air pollution in Beijing is bad, the quality of life is somewhat dubious, the Chinese people are not happy.”
With its US$3.3 trillion in foreign exchange reserves, China wants its place in the global financial sun, but Howie hardly thinks it is prepared for the scrutiny that comes with it.
“Think of the number of commentators – basically any man and his dog – everyone has a view on Ben Bernanke, Tim Geithner and whether they are right or wrong, what they should do. Do you think the Chinese are going to suffer that level of scrutiny and the vitriolic attack that comes with being the world’s central banker? There’s no way that they are going to put up with that.”
Saving the world for capitalism will have to wait until China saves itself.