Chinese laugh at western critics

I had not expected the audience of Chinese financial regulators to laugh hysterically at my remarks on the eurozone economy. It took a further five minutes for their conversations in Mandarin to subside.

The subject of my talk, the future of the eurozone, normally invites anxiety rather than mirth. My goal was to outline the key features of the eurozone with a particular emphasis on its structural problems. I had not included any jokes.

The comment that evoked such a strong response was about Germany. I told them that many commentators argued that Germany was at the centre of the eurozone’s problems as they believed it saved too much and consumed too little. As an aside I noted that similar criticisms are made of China’s role in the world economy.

In retrospect I should not have been surprised that a Chinese delegation would react so strongly against this viewpoint. In effect it is blaming Chinese success, its strong economic growth and its large trade surplus, for many of the world’s economic problems. The implication is that the world would be better off if China had not grown so fast, if at all.

It also draws attention away from the culpability of America and, on a smaller scale, Britain. From a Chinese perspective if there is a global economic imbalance the weakness of the American economy is the main culprit. If America had not insisted on living beyond its means the world would not be in such a mess.

As it happens there is a substantial element of truth in the Chinese view on this question. It is rich for American and indeed British commentators to criticise China for its export success. It can be seen as Anglophone commentators blaming China for their own country’s lack of competitiveness.

The imbalances in the world economy are better viewed as the result of America’s productive weakness rather than of Chinese underconsumption. Although America is still much more productive than China in absolute terms the Chinese are catching up rapidly. The key problem is a lack of investment and growth in the American economy rather than a surfeit of prosperity in China.

Nor should it be forgotten that rapid economic growth has lifted hundreds of millions of Chinese out of poverty. Some have referred to it as the greatest success in poverty reduction in history. Although inequality has widened since the late 1970s the living standards of the average Chinese have improved immensely. It is true that the Chinese could benefit from raising consumption still further but they are not to blame for the West’s weaknesses.

The fundamental problem with the common western criticism of China is not that it is self-serving but that it embodies an upside down view of the world. It understands the economy from the perspective of consumption rather than production. It fails to appreciate that producing enough for everyone to live in comfort is the world’s fundamental economic challenge.

As things stand the Chinese are unlikely to ever except the view that their economy is too dynamic. They understand, quite rightly, that rapid growth has brought them much welcome prosperity. If anything they want even more.

Any serious discussion of the global economy should start from the recognition that the productive weaknesses of the advanced economies should be addressed. They are no laughing matter.

This comment was first published today on Fundweb.