Friday, March 03, 2006


How Do They Do It ?

China's economy is forecasted to expand 8 percent in 2006 – again.


The secret of China’s startling economic growth during the past decade is nowhere to be found in Confucius’ teachings. The Chinese economy has grown at a steady 8 percent per annum and 2006 promises to be no different. This is roughly three to four times the rate of a typical western advanced economy, even when the latter is working well. What is even more startling, manufacturing production in China has gone up 16 percent in the last six months alone! So the question of the year for us poor capitalistic trainees has got to be: how do they do it?

When confronted with this question, politicians here in North America on both sides of the border are typically of no help at all. The standard response muttered is that ‘China has a lot of catching up to do’. This, of course, is a non-answer. We all know that they are catching up or we wouldn't have asked the question in the first place. Besides, who is doing the 'catching up'? Is it the government? Or the entrepreneurs? Or the people? The most extreme responses I can remember have been rendered by two top politicians, one American and the other Canadian. When asked the question of China’s explosive rate of growth last July, Vice-president Dick Cheney said, well, absolutely nothing. Pure silence. I think in acoustics they refer to it as ‘white noise’. Which, by the way, should not come as a surprise to anyone since the Vice-president is an expert only in the field of Halliburton’s Economics, which these days seems to be expanding at pretty much the same rate of growth as China’s. On the opposite side of the spectrum, instead, lies the glorious response rendered by former Canadian Prime Minister Paul Martin. Contrary to the American Vice-president, Mr. Martin embarked in a five-minute tirade on national television – which, however, was given in French, so that we common mortals kind of missed the gist of it all.

It seems to me that none of China’s entrepreneurs, people and much less their government are trying to 'catch-up'. None of them has any means of knowing on a daily, monthly or even annual basis whether they are 'catching up' or not. Economic development is not a race. Nevertheless, something is happening. There's some extra vitality in China, which we have either lost or never had. The real answer, of course, lies with the cause of all economic growth - demand. And in the case of China, it is specifically the quality of demand that counts. Consumers all over Asian countries are buying as many status goods as they can and as quickly as they can. Unlike consumers in western countries who have bought status goods as they appeared one by one over the course of the last 200 years from the onset of the Industrial Revolution, and incorporated them successively into their culture as ordinary possessions, Asia is seeing the whole catalogue of brand new status goods – from cars to electronics, from clothes to real estate developments - simultaneously. And China, the most populated of all Asian countries, is at the forefront of it all.

Of course, just like everything else, these expansion times of the Chinese economy are destined to come to an end. When Chinese consumers finally will manage to buy all the status goods of the West - as the Japanese have done - then they will be in the same predicament as Westerners are today in not knowing what else to spend their money on. Or else they won’t have the time or energy available for using any more goods because they will be so darned tired of traveling back and forth to work every day and, besides, TV will take care of whatever few hours they will have left for leisure.

As in all sustainable economies, the trick is to stimulate demand so as to stimulate production. Failing this, well, here we are then. That's the problem that politicians in Japan, Europe and America are facing right now.

Luigi Frascati

As Featured On Ezine Articles Platinum Author

Real Estate Chronicle

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