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When China Sneezes


November 5, 2015

Written by Sandy Stuart

One of the wonders I have witnessed in my lifetime is the development of China. Whoever would have even dreamed China would have evolved as it did. I can recall when it was a manufacturer of cheap copies and that was about it. Cheap copies and subsistence agriculture. And over this mess presided the monolith communist party that was deathly afraid of contamination of its society by the rest of the world.
Despite China’s socialistic economic system there were evidences that there was huge business potential. I witnessed this when I served in the Army after graduating from college. I was stationed in what was then Saigon in South Vietnam. Today it is Ho Chi Minh City. But there was a thriving Chinese quarter named Cholon where shopping was tops. I also traveled to Penang, an island off the west coast of Malaysia. Penang had earned the nick name of the “poor man’s Hong Kong”. While nowhere near as large as Hong Kong, Penang was very prosperous (and very Chinese). I watched with fascination as a local merchant went to great lengths to find and sell me a dark blue star sapphire jewelry set. It turns out what I wanted was pretty rare, but the store owner fed me Coca Colas while his “runners” scrambled about the back alleys of the Chinese quarter seeking dark blue star sapphires. Eventually some were found and they designed a nice set of earrings and a necklace for my long-suffering bride.
All this to say that one could see the Chinese business potential, if only the Communist party would get out of the way! Finally the party opened the economy of one province to free enterprise. It took off. Other provinces followed, although the state retains control over selected industries. Substantial economic growth resulted for a number of years. Today China is known as the world’s “factory floor”. Many millions of Chinese citizens have been lifted out of agricultural subsistence poverty into urban factory jobs.

 

What reforms are needed?

I can see living evidence of the benefits and evidences of thriving capitalism in China right here in Lynchburg, Virginia. I am involved in a ministry to foreign students who attend Randolph College, a school within easy walking distance of my church. Of special interest to me are the students from China. They are all eager to learn about the rest of the world and capitalism. They work very hard and are often on the Dean’s List. They are also very proud of their country and love to see all the “made in China” labels on the things they buy here. They also speak English very well after years of formal instruction in both grade school and high school.
They read the same material as we do about corruption and heavy-handed actions by their government. Yet they seem to tolerate that news as their country prospers. They all seem to be rooting for their president, Xi Jinping, who has a well-deserved reputation of combating corruption, even at the highest government levels. He has made many powerful enemies, but he has also attained hero status among the Chinese people. The fight continues. They hope he will prevail.
China has necessarily been economically cooling off from its high growth rate. So what are the prospects for China? I have some personal observations and thoughts.
China’s economic success has put pressure on many other countries. Many developing countries depend on China’s purchasing their raw materials for its factories. If China sneezes, the world catches a cold.
But as these suppliers gain strength, they will compete better and keep the heat on China to undertake even more reforms. What reforms are needed besides the corruption? Those state-owned industries need to be privatized. Its financial sector is a mess as a result of the government directing loans be made to those inefficient state-owned industries.
China has been growing its military and making territorial claims in the South China Sea. Used to be, countries wishing to expand would locate an uninhabited island and plant its flag to claim it. China has tried a new approach. They are building new islands on shallow shoals in and near vital sea lanes and oil deposits. They are building islands where there had been none before. How does one try to litigate that in the worlds’ courts?

 

China recognizes its need to develop its consumer and service sectors and is doing so.

With all the world commerce going on, I doubt there will be major military adventures, but there will always be points of friction and border disputes.
There has been recent stock market turmoil in China. Its government has tried unsuccessfully to stabilize the stock market. I doubt they will be able to do so. The volatility does not impact China’s economy all that much because most of China’s wealth is in its real estate market. Its stock market is relatively small by international standards.
Bottom line is China’s future success depends on its politics. So it is with any centrally directed economy. The more the government tries to “fix the economy”, the worse off it will be. Better to let the free markets reign.

About the Author:

Tami Acree
Tami CERTIFIED FINANCIAL PLANNER professional and NAPFA-Registered Financial Advisor. She earned her BS in Accounting from Liberty University and also completed Tallahassee Community College's CFP® Certification Program. Tami enjoys assisting clients in all stages of life to achieve their goals and become financially independent.

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