With so much news about the Chinese economy bombarding my ears everyday, I can't help to
wonder, "Will Chinese Economy Ever Be Lost?"
Yes, China's economy has been experiencing some incredible growth, so much so that it even succeeded in surpassing Japan as the second biggest economy of the world.
Chinese economy seems on horse on steroids at the moment, but didn't Japanese economy once look invincible back in the days?
In fact, I see a lot of similarities between Japanese economy in the 1980's and the present Chinese economy.
First, the growth of both economies depended on heavy exports.
Of course, it's no secret that China's economy is very export oriented.
Chinese products are overflowing everywhere, and it has become the expected that most of the things that you find in stores will almost always have at least something to do with China.
What about Japan?
After Japanese surrender post World War II, many Japanese soldiers were suddenly free to become cheap labor source for the emerging Japanese economy. Instead of going back to their hometowns in the countryside, many of them decided to remain in cities, where they hoped to find new jobs. The Korean War helped these soldiers find jobs by opening up more work opportunities especially in industries like steel.
Then, as the Japanese economy continued to progress into more high-tech industries, the rising Four Asian Tigers took over Japan's former manufacturing tasks.
This is actually what is happening in Southeast Asia right now. As China's living standards and wages continuously rise, a lot of manufacturing tasks are moving on to countries like Vietnam and Indonesia.
Then, does this mean that China may experience the economic recession that Japan has gone through the last decade?
Not necessarily.
Let's pause for a bit and go back to the Japanese model for a second.
Many countries (especially the United States) complain about Chinese government's artificial depreciation of the RMB, but before the Plaza Accord of 1985, Japanese government also kept the Yen very low to help its exports.
In fact, statistics show that after the Plaza Accord was signed, Japanese Yen experienced a sharper appreciation in comparison to the dollar than what Chinese RMB has ever experienced so far.
With this sudden increase in wealth due to appreciation of the Yen, Japanese consumers eagerly invested abroad and began to spend more lavishly than ever before, creating huge bubbles in the market that eventually bursted in the 1997 IMF crisis.
One of my dear friends, Jin Yan, told me what she thought over this issue over lunch today.
Jin is a feature editor at one of China's most respected economic magazines called Caijing, and she has also worked for the Economist and the LA Times in the past.
I asked Jin if she thought China would experience similar economic crisis like that of Japan.
Jin said flatly, no she didn't think so.
There may be some similarities between how Japanese and Chinese economies have developed.
But we live in a completely different world now.
For example, the political power structure of the world is completely different.
When Japan was going through its economic growth, America and the former Soviet Union were fighting Cold War.
After the collapse of the Soviet Union, America took over as the World's Super Power, and until recently US was borrowing enormous sums money to purchase Chinese products. When US stopped doing this, Chinese government had to come up with different ways to encourage its economic growths. One of the ways being eliminating the main taxes of the peasants back in 2004.
In addition, the source for Chinese and Japanese labor forces are different.
Japanese labor force came from the aftermaths of World War II, whereas Chinese labor force resulted from the Chinese economic reforms in December 1978.
This economic reform allowed for more natural flow of the labor force to gradually flow into the market.
Furthermore, the sheer size of China and Japan is incomparable.
Even though China's economic growths may be quantitively based rather than qualitative,
the fact that China is so big makes it easier to surpass the success level that Japan has experienced in past.
Of course, China is not without problems.
Corruption is still rampant in China, and businessmen who 打擦边球儿(da3ca1bian1qiu2: literally to skirt the line legally or morally) are too many to count.
China is also still struggling to resolve its pollution problems, and most of the development is too heavily centered around the big cities.
Yet, China has successfully managed to host the Olympics and organize the Shanghai World Expo.
China's second-tier cities are experiencing active growths, and out of Top 10 World Banks today, 4 are China's State Banks.
China is also more actively trying to solve its environment problem.
There were so many places where China's economy could have gone awry, yet
China has managed so far to keep things in control for the most part.
So will there be a "Lost Decade" for China?
Not as long as China can continue to break all the rules .
I think I would have to give a big nod to what my friend Jin calls the best description of the economy.
不确定(bu4que4ding4: Uncertain).
