Anderson RespondsIssue: Mar-Apr 2009
LET ME start by repeating my conclusion from the main article: to argue against China’s eventual rise it’s not enough to point to vaguely perceived imbalances or assert that the economy can’t go on exactly the way it was before. We need more than a little grit in the wheels to slow the country down—instead, we need a definitive, fundamental crisis that pushes China off the growth path for a long time to come. And we need it soon, ideally within five to ten years.
Now, as an avid follower of Minxin’s work, it’s a pleasure to have a chance to comment on his views, and he clearly provides an engaging review of long-term challenges for the mainland economy. But has he made the case for a looming crisis? Unfortunately, the answer is no—and on most counts the arguments fall very wide of the mark indeed.
One of Minxin’s main propositions is that the state’s role in the economy is unhealthy and out of proportion, that Beijing created a false sense of economic well-being and a flawed set of economic structures. He asserts that the government creates massive economic distortion by manipulating key input prices such as those of energy, capital and land. Yet to start, I must ask, what energy mispricing? For the past two decades Chinese fuel prices have been set more or less at world levels, with the exception of the short-lived 2007–08 subsidies as a response to global crude price spikes, and, as I write, Chinese consumers are paying more for fuel than their U.S. counterparts. There is no “world price” for electricity, which makes comparisons harder here, but while China regulates prices, it does not subsidize electricity production or distribution.