Saturday, October 20, 2012

Is China Buying the World?

That's the name of the excellent book by Peter Nolan. Part of what he suggests is behind the Chinese success is that the "government has refused to privatize the commanding heights of its economy" (p. 13). In fact, the large role played by the State, in particular State-Owned Enterprises, is clear in the data. According to this report on Chinascope:
"Of the top 500 companies in China, 316 are State-Owned Enterprises (SOEs). They account for 82.82 percent of the total revenue, 90.40% of the total assets, and 81.88% of the total profit of these 500 companies. The top 10 most profitable companies are all SOEs, including three oil companies and five banks."
Mind you, Nolan's point is that in crucial industries, for example aircraft (see also James Fallows' China Airborne), US based firms that control sensitive technology (in aircraft there is a symbiotic relation between military spending and civilian innovation) are deeply interconnected with the catch up process in China (remember this?).

It's not so much that China is buying the world, as much as developed (mostly, but not uniquely, US based) country's firms that are using Chinese markets to expand its worldwide domination. Think of Apple/Foxconn as an exemplary case. Chinese development is a combination of State-led growth with a heavy dose of foreign participation in the development of the more technologically advanced sectors, and an increasing role for the domestic market (and yes they slowed down to some 7.8% growth now, it seems).

That is why it's also important not to be swayed by the view that China is becoming a developed country contesting US hegemony. Even if the performance of China is impressive, China is still a country doing the transition to an urban-manufacturing society, and is an earlier stage of the process of development when compared to the most advanced Latin American economies (see here).*

PS: As I noted in the comments to the post in the link above, in current dollars, Chinese GDP per capita is around 6000, while Argentine and Brazilian GDP per capita are closer to 12,000.

2 comments:

  1. I wonder... There is a certain divide in the sphere of geostrategy between the authors who believe that net exporters have the upper hand (from the political/strategical point of view) and those authors who believe instead that it is net importers who hold exporting nations by the throat. Their idea is that it is much easier for importers to substitute between the partners, while the exporters are forever in the danger of being starved of opportunities to sell.

    Dunno who is right. Maybe people on top of the governments don't even think in that terms at all.

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    1. It's not a problem of exporters and importers. It's about who has the key currency, which implies the power to impose it as 'lingua franca' of the global market system, meaning the armies to back it up. The key commodities (oil) are prices in dollars and will continue to be in the foreseeable future. Suggest my paper here http://www.levyinstitute.org/pubs/wp_666.pdf

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