Economics & China

I just returned from a trip to China. While there I spoke with students considering coming to the US to study, one of which asked me a great question: The economic systems of the US and China are different, so if I study economics in the US will what I learn be useful when I return to China?

I gave her a truthful answer: Economic principles are universal, economies are global, and there are similarities and differences between the US and Chinese economies. What you learn in the US would be very useful when you return to China.

But a complete answer is much more complex. Yes, there are economic differences between the two nations, but they aren’t as great as some think. Granted, the US and Chinese economies are officially “capitalist” and “communist,” the US has two centuries of economic growth China cannot match, and the US dollar—unlike the RMB—is openly traded and respected on world markets. These differences aside, the similarities are growing.

Both nations manipulate their currencies. The literal and figurative printing presses in Congress and the Fed have been expanding and inflating the money supply in the US. Central planners in China do pretty much the same, pegging the value of the RMB in part to the market value of the US dollar.

Politicians in both nations routinely call for economic growth while beating down the source of that growth, the private sector. The US and China are moving in different directions, but toward the same middle ground. The Chinese government just introduced a “reform package” for its state-owned enterprises (SOEs) that allows them to make more of their own decisions and offer better compensation packages to top executives, most of whom have left the SOEs for private firms. However, the government will retain tight control over capital and key strategic decisions will always be vetted by government officials.

Meanwhile, Washington has ramped up regulations for virtually every sector in the economy. From Obamacare to Dodd-Frank to “anti-trust” persecution of successful companies to calls for a national $15 minimum wage, the US government is implementing ever-expansive controls on US industry. Like Beijing, Washington attempts to find the “balance” between economic freedom that produces growth and jobs, and state control that legitimizes the political claim that business cannot be trusted. In this respect, both nations are off course. Of course, there’s no thing as a balance between liberty and statism. The US is moving in the wrong direction, away from a successful free enterprise tradition. The Chinese are moving in the right direction, but still want the control. Both the US and China could use a heavy does of Hayek.

There is one key distinction between the US and China—political freedom. Reform in China depends on the wisdom of the current socialist regime, but citizens in the US have the opportunity to replace its socialist political leadership by means of the voting booth. Statism is well grounded in the US; our government schools, a bloated social security system, and massive deficit spending connected to an entitlement mentality won’t change overnight, even with the right leadership. But we have the power to recall our representatives and begin moving in the right direction. Many of the candidates in the Republican presidential primary offer potential for doing just that.

3 thoughts on “Economics & China

  1. I still remember my economics class…she should feel right at home if she gets my professor…central planning is good, free markets have problems, etc. etc. I didn’t learn real economics until I graduated.

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