Why China Will Fail
Originally published on Linkedin:
https://www.linkedin.com/pulse/why-china-fail-sulki-yang/
It looks like it has become a recurring theme on LinkedIn that China has already surpassed the United States as a world leader in economic growth and progressive thinking. They have attributed that to China's impressive year-to-year rapid economic growth, and its impressive investment and development of surveillance technology. Nothing can be further from the truth as China has demonstrated time and time again that its heavy-handed interference in the free-market economy has resulted in a massive capital outflow and the lower economic productivity of its citizens.
To understand why the West won't cede its position to any rising powers in the near future, we have to go back to understand why Europe became the most dominant power on the planet. At the very dawn of the European Mercantilism, when European societies became aware of both the New World and the newly-discovered sea routes to all corners of the world, the lowly merchant class of Europe realized the money-making potential of trading with untouched, raw lands through the sea. There had been only one barrier: it required significant upfront costs and risk to raise trading ships and hire people to crew them. Most merchants, no matter how brilliant they were, couldn't afford to do so, and even if they could, there would've been a lot of risks involved because shipwrecks were not uncommon and if you had lost even one ship at sea that would've been an investment that you would not have gotten back. The answer to that was an early form of capitalism, or joint-stock companies that allowed a large pool of individual merchants to invest a portion of their assets to fund grand expeditions to go out and trade and make a return on early stockholder's initial investments. This was an easy and convenient way for them to start their jointly-owned company and to lower risk and liability. And as we know from hindsight, everything else from here was history, as the Europeans have stretched their empire from the deep jungles of India to the remote islands of the Pacific. Such a world-changing development like this wouldn't have happened if there had been strict government intervention or ban in its economy the Europeans of old have demonstrated that there has to be a good balance between government oversight and the free market to propel growth.
In many ways, China is an antithesis of the Western success story, while the West went out and 'explored new ideas.' China effectively shut its borders, closed off from new ideas, enforced conformity, and effectively shunned its merchant class. There is no way to quantify how many trillions of dollars it had lost over the centuries after its closed-door policy, but there is no denying that the country had shot itself in the foot as generations of people lived in continuous poverty and many millions have needlessly lost their lives due to famine or war. But their government was a quick learner, they recognized that to improve they had to copy the Western model with some of their own ideas, the West led to the path to success, and China followed that path in form of state-directed capitalism. They've followed a hybrid model of where they allow limited markets to exchange with the direction of the state's Party.
The problem with its current economic model is that it is nothing more than a quick cheat sheet on how to develop its economy and build up its infrastructure. There was little risk involved, and little theoretical theory to follow. Everything was based on practical facts; they knew it would work with discipline and state focus because they knew it worked for the West. China also knew it worked for Japan, South Korea, and Taiwan who were all looking at the same playbook. Many countries around the globe were startled by East Asia's rapid development in mere decades, but in actuality, it is of little wonder as East Asia practically copy-and-pasted Western success. It also meant that because those countries had 'skipped' from poverty to development, with no trial and errors in-between, that meant that they (China especially) hadn't learned its past mistakes. There is no cultural memory or tradition in China about risk-taking or laissez-faire that also means that there is no cultural value on diversity or free speech as we do in the West. That doesn't mean that every individual in the West are egalitarian, far from it (as this Author himself had been a victim of racism), but our society had learned naturally what value diversity and free thinking has brought us.
Americans allow a certain amount of risk to be involved in their capitalist system. They are willing to weather a few depressions if that means greater prosperity and growth for society. Americans and Europeans know from centuries of the stock exchange, that you can only mitigate, but not stop full-blown economic meltdowns. Americans lose heart when they see an iconic brand (Borders, Toys R Us) go out of business, but recognize the importance of market self-correction and that it is for the greater good of society. On the other hand, China's one-party government tries everything it can to take the risk out of the game. The government doesn't believe in free-market choices or market correction as the country's relatively recent banning of cryptocurrency exchanges and mining has shown. While the American government remains wary and skeptical of cryptocurrencies, they have tolerated the rage so far, and are even interested in reaping some rewards by taxing the cryptocurrency investment of its private citizens. America's open-door policy with such emerging fintech paying dividends as more startups are popping up with their own ideas and capital flow is coming into the country for blockchain technology. On the other hand, in mere months, more and more Chinese companies involved in blockchains or cryptocurrencies are fleeing the country for greener pastures with a more open-mind to cryptocurrencies. Ironically, many of the Chinese or Asian cryptocurrency exchanges and miners and their money are moving out to Europe or North America. To exacerbate an already bad situation, China is implementing its newly-developed surveillance technology and the law to strictly control their citizen's behavior. The government has introduced a pilot program for its "social credit system" but it has already been reported that more than 7 million people have been banned from boarding flights and 3 million from high-speed railways. The financial credit system was introduced to protect the integrity of the financial market and the economy of its host country that it is operating from, but this "social credit system" implemented by the PRC (People's Republic of China) is done to strictly control and punish people's behavior and is nothing more than a barrier to productivity.
"Mr. Liu is on a "dishonest personnel" list — a pilot scheme of the SCS — because he lost a defamation lawsuit in 2015 and was asked by the court to pay a fine that is still outstanding according to the court record.
"No one ever notified me," Mr. Liu, who claims he paid the fine, said.
Like the other 7 million citizens deemed to be "dishonest" and mired in the blacklist, Mr Liu has also been banned from staying in a star-rated hotel, buying a house, taking a holiday, and even sending his nine-year-old daughter to a private school."
Mr. Lie was banned from taking an airline flight for simply losing a defamation lawsuit. And it gets worse:
"The city said the next step was to use the credit system to punish people for transgressions such as dodging transport fares, cheating in video games, and restaurant no-shows."
You get penalized for simple transgressions like cheating on video games.
"In 2015, Zhong Pei, a then 16-year-old student living in Jiangsu, was blacklisted for being dishonest, after her father killed two people and died in a car accident.
It took Ms Zhong four months to dispute the court's decision and get her name off the list in 2017 to board a train and enroll in her university."
It's hard to imagine something like this out in the West, where we would artificially lessen a citizen's productivity and deflate the tax base by preventing people from earning an income or going to university because of video game cheating or because you're related to a criminal.
As a conclusion, China has many deep fundamental problems in their government structure and society that makes them risk-averse to the point that much-needed capital is flowing out of the country and their overly-concern in social engineering is reducing economic output by shrinking its tax base.
https://www.investopedia.com/terms/m/mercantilism.asp
https://technode.com/2018/03/29/china-announces-yet-another-crackdown-against-cryptocurrencies/
https://www.economist.com/node/21541753
https://en.wikipedia.org/wiki/East_India_Company
https://en.wikipedia.org/wiki/History_of_capitalism
http://thefederalist.com/2015/03/05/why-the-twenty-first-will-not-be-the-chinese-century/
Just so that everyone is clear. I published that LinkedIn article.
@originalworks
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