JCL Blog

Do We Want China to Fail?

In the past 30 years the Chinese economic miracle has raised 500 million people from below the poverty line to above it. Our economy is stuck in the mud and theirs is seemingly growing at whatever number they want. There is a very good article in the New York Times outlining how China's growing economy is impacting its domestic markets. The article states that the average annual income in the cities in China is still under $3,000, and under $1,000 in the rural areas. Despite this, the Chinese now buy more cars, more home appliances and bigger TVs than we do here in the US.

The China story is truly amazing -- after all, they have not had a losing year since 1976 and in those three decades, only two years had GDP growth of under 5%. In 1976 China's economy was 5% the size of ours, now it is 50%. Economists may have differing opinions on many things, but they all agree that markets have cycles. Thirty years without an economic reset in China does imply that one of these days, their economy is going to have a bad patch. When it happens, we will be able to say that even the Chinese markets reset every once in a while, and some people will feel better about themselves. I would argue that it is not in our best interest for the following three reasons:

Life or Death

The delicate balance of the Chinese economy still has more than 600 million people living very close to starvation. China is extremely focussed on growth because without it millions of people starve. And if that is not enough motivation, with starvation comes political unrest -- so a downturn in China would also start a revolution intent on replacing the government. With the recent build up in Chinese military capability, such a change would include the current government turning on its own people -- also devastating.

Keep us Honest

Honesty is in short supply in our country these days, but it would be even less so without a strong competitor. On some days it is nice to be alone on top of the world economic heap, but I would argue that since the fall of the Berlin Wall, we have been without competition, and lack of competition gives us nothing to focus on but gaming our own system. The last twenty years has seen our smartest math and science minds put to use creating financial products on Wall Street, and engineering quadruple razor blades we will never need. A growing and vibrant China motivates us to fix our own country.

Share the Load

A successful China may not get around to helping other nations for fifty years. Just taking care of themselves however, will free the rest of the developed nations to work to solve the other terrible problems facing our world. Who knows, if China continues on its path to prosperity they may even decide they have a responsibility to help others. And we could use all of the help we can get.

So even though we may feel badly that the Chinese are now buying all of the Hummers -- hey, they even bought that company -- and soon will be buying many more of our assets, I would encourage you to join me in pulling for China to succeed. If they do we will all be better off.