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  • Nov 1, 2014
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Jake's View
PUBLISHED : Sunday, 28 October, 2012, 12:00am
UPDATED : Sunday, 28 October, 2012, 3:10am

Why China is enslaving itself to the United States

A US poll named China the world's strongest economy. But without reforms its rise is an illusion

Asked in the Pew [Research Centre] survey, "Which is the leading economic power, the US, China, Japan, or the European Union?", 41 per cent of American respondents said China is the world's most powerful economy. Just 40 per cent named the US.

SCMP, October 24

The United States is the home of astonishing poll results, of course. A large number of Americans are likely to agree at any time that the moon is made of blue cheese. They'll bomb it if you call it a question of national defence.

However, the common belief China now has the larger economy, which Tom Holland noted in his Monitor column yesterday, is more than just woeful ignorance. As Tom said, it is symptomatic of the xenophobia American politicians routinely awaken at election time - our problem is China. Let's get China.

Let's get real. China is where the US keeps its modern equivalent of slave pens. Tens of millions of Chinese labourers work in drudgery at very low rates of pay to supply American consumers with an abundance of goods at ultra-low prices.

The chart shows just how low. Over the past 15 years the consumer price index, excluding durables, has risen by 52 per cent in the US, while prices of durable goods have fallen by 14 per cent. This is China's doing.

Do these consumers thank their virtual slaves? No, they accuse them of undermining the US economy by creating a trade surplus, forgetting this comes back to the US as a huge inflow of investment.

And why do these virtual slaves do it? They have little choice. About 150 million of them do not have residency permits in the places they live and so can easily be exploited. This people's republic makes very good use of its people. Very good use indeed.

Why, then, do American politicians not target these employers? The answer is they would too often be targeting American citizens. Half of China's exports come from foreign-invested enterprises. The figure is higher yet for consumer goods exports. Foreign brands control the workplaces even without ownership. No supplier to Apple or Walmart defies its key buyer.

Why doesn't the government of China do something? It is afraid to institute the financial reforms that would allow the country to build up its own brand names and technologies.

These reforms are first of all to open the capital account and allow investment inflows and outflows to find their course. They are, consequent on this, to remove the heavy hand of the bureaucrat from the allocation and price of the money that funds industrial effort.

No country can build an independent industrial base without pricing the effort in its own currency. China uses the US dollar as a surrogate currency for industry, as the yuan is still funny money for this purpose. As a result, it has also ceded control to foreigners.

However, such reforms would undermine the central control of the government in economic matters. The authorities have a choice to make: let their people go free and take the next step up in development or keep their hands on everything while selling themselves to foreigners. So far they have elected to talk the first, but do the second.

And the ludicrous thing is that 41 per cent of Americans think this skewed economic model has actually created the world's largest economy.

jake.vanderkamp@scmp.com

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