You want China to build tanks (and such) to stimulate the economy? Couldn't the gov't just promise to buy all the refrigerators and MRI machines and tracters, industry could produce.
I'm sure there's a real-world reason that armorments are always the effective stimulus, but I can't think of it.
I still think China's gonna come out of this technology revolution smelling sweet. Did you know that the only satilite companies listed on Wall Street(I've found) that actually make a profit(big margins too), are Chinese?
smooches paula
At 12:19 AM 6/14/99 -0400, you wrote:
>
>Some Policy Options for China
>
>By
>Henry C.K. Liu
>
>Much has been accomplished in the two decades since China’s historic
>opening to foreign trade and investment, and its domestic reform toward
>a socialist market economy.
>China’s economic reform began at a time when the world economy was
>undergoing two fundamental changes:
>1) a shift from industrial to financial capitalism, and
>2) a rapid process of globalization engineered by US neo-liberalism.
>
>These global changes are marked by the unregulated increase of a
>cross-border flow of funds and the spectacular growth of financial
>derivatives on currency exchange rates and arbitrage on interest rate
>parity. The underlying asset of these derivatives (notional value) rose
>from a negligible level in 1988 to US$37 trillion in 1998, almost 5
>times the US’s GDP, by unbundling financial risks in global markets for
>buyers who will pay the highest price for specific protection.
>These unregulated trades, independent of national borders and
>unregulated by national or international regulations, are handled by
>only a dozen or so Western private institutions, mostly American.
>Repeatedly, these manipulated transactions resulted in massive transfers
>of wealth from the emerging economies to the advanced economies.
>
>Emerging in 1978 from 3 decades of isolation, China has since pursued
>Mercantilist trade policies within the context of industrial capitalism
>to insure an export surplus to accumulate needed foreign exchange
>reserves to back its currency for trade purposes. Data suggest that
>this policy has fallen far short of its intended goal of letting China
>catch up economically with the developed economies.
>
>China's GDP grew from US$149 billion in 1976 to US$935 billion in 1997,
>a 6.3 times increase.
>Chinese GDP was 0.08% of US GDP (US$1,771 billion) in 1976, and in 1997,
>it was 0.12% of US GDP (US$7,746 billion).
>In 2 decades, the GDP gap between China and the US narrowed by only
>0.04%.
>At this rate, China will catch up with the US in GDP in a little more
>than two centuries.
>Because Chinese population growth (1.1% of 1.23 billion) is higher than
>that of the U.S. (1% of 267 million), the per capita GDP gap is actually
>widening.
>Moreover, the technological gap between the two economies is also
>widening as a result of the uneven division of labor, China being left
>with low tech, labor intensive manufacturing while the US concentrates
>on high tech industries.
>
>For two decades, the U.S. has been leading the rest of the world in
>transforming its economy from industrial capitalism to financial
>capitalism, through deregulation, strategic mergers and acquisitions,
>innovation in structured finance and globalization of markets.
>Market access has taken on new critical importance in global financial
>capitalism. This is evidence in the astronomical rise in share value of
>new loss-making "internet companies" with strong future market
>potentials but no cash flow records.
>In addition to new markets created by technological breakthroughs, the US
>has been actively pushing for the opening of global markets,
>particularly in the financial services sectors.
>For capital-starved emerging economies, control of access to their
>domestic markets is the only defense against wholesale foreign takeover
>of their indigenous industries and their future competitiveness.
>Leaders of developing economies are beginning to reject the myth,
>promoted by US neo-liberalism, that external capital is indispensable
>for domestic development. Under this doctrine, developing economies
>have no option but to become victims of a new wave of economic and
>financial imperialism as a natural result of scientific theory rather
>than by Western design. In fact, this myth is false and the formula it
>subscribes is not necessary for the development of a
>large, self-sufficient economy such as China’s.
>
>American globalization, based on the theory of market fundamentalism,
>favors players who process the existing attributes of the American
>economy. These attributes are: abundance of excess capital, a
>technologically skilled labor force, an advanced and sophisticated
>financial infrastructure and information technology and a saturated
>domestic market where grow can continue only through overseas expansion
>and technological breakthroughs.
>This American globalization regime puts all developing economies at a
>structural competitive disadvantage and locks them into an unfair
>international division of labor and mal-distribution of profits (surplus
>value), and reduces them permanently into semi-colonial status.
>
>Even if China manages to continue to expand its foreign trade, the
>export sector cannot realistically be expected to contribute more than
>15% of its GDP.
>Thus 85% of the Chinese economy must depend on domestic development.
>Further global market penetration by low cost Chinese goods can increase
>only at a declining rate from here on. All the easy markets have been
>saturated.
>The policy of using foreign capital has very limited range. To fully
>develop the Chinese economy of 1.25 billion people, the entire supply of
>surplus capital of the global economy would be insufficient.
>
>Capital is stored purchasing power while credit is borrowed purchasing
>power. The global economy is increasingly financed by debt rather than
>capital. In any expanding economy, debt financing is inherently more
>efficient than equity financing.
>
>China now has excess production capacity and enormous latent demand, but
>the Chinese economy has insufficient purchasing power to fully benefit
>from this idle capacity. Some economic planners have mistakenly
>identified inefficiency in the SOEs (state owned enterprises) as the cause
>of this bottleneck. In reality, the profitability problem of the SOEs in
>a weak purchasing power environment is the result of this bottleneck and
>not its cause. No enterprise, no matter how well managed, can survive
>without a ready paying market for its products. Restructuring the SOEs
>through privatization and mergers with massive layoff of workers will only
>exacerbate the bottleneck, by reducing purchasing power further through
>increases in unemployment. Unemployment, in addition to further weakening
>purchasing power, will also lead quickly to social unrest.
>
>China does not need foreign capital for developing its domestic economy.
>
>China can create its own capital by monetizing its forzen assets and
>its latent consumer demand.
>
>Take housing as an example.
>The nation’s 1.25 billion people are currently housed in 250 million
>housing units at an average of 5 persons per household.
>This real estate asset, current owned by the state, is mostly kept
>passively frozen economically and kept off the Chinese economy.
>I propose that the government adopts immediately a policy to grant
>ownership of all housing units to their current occupants. A built-in
>social fairness is inherent in the existing distribution pattern, since
>the location and quality of the housing allotment already reflect the
>occupants’ past and current contribution to the nation.
>Since private ownership is now constitutional, the State Council can
>announce by executive order that in recognition of contributions made
>hitherto by the population, ownership of their respective homes is
>granted to them free and clear immediately, to be used at will by the
>new owners.
>This will immediately create in the housing sector a mortgage market for
>China’s banks, which will in turn provide an immediate supply of capital
>for investment in existing and new ventures, and a boost in purchasing
>power for both consumer and capital goods. The public will have money
>to buy goods and services produced by the SOEs and newly formed private
>companies.
>
>Assuming a national average market value of homes at RMB 400,000 yuan
>each, with urban units commanding much higher values, a total market
>value of 100 trillion yuan will be immediately created in the economy.
>At current exchange rate, that amounts to US$12.5 trillion, over two
>times the US GDP.
>At a conservative mortgage ceiling of 50% of market value, the Chinese
>economy will immediately have a cash pool of 50 trillion yuan for
>investment and consumption.
>The Chinese banking system will suddenly be the largest and strongest in
>the world.
>Each individual family will have a cash windfall ranging from several
>hundred thousand yuan to several million yuan, with which to invest, to
>start new businesses, and to buy goods and services of all kind.
>The real estate mortgage payments will cost around 6-10% on a 30-year
>mortgage, while the investment income for each family from the mortgage
>proceeds will conservatively exceed 16%, providing a comfortable cushion
>for savings and growth.
>The Chinese economy will suddenly be vibrant and demand driven.
>In addition, real estate tax revenue for local governments will be
>substantial on a housing inventory with a market value of 100 trillion
>yuan. At a conservative tax rate of 1% of market value, the annual tax
>revenue will be 1 trillion yuan.
>If this approach is applied also to the industrial sector, the impact
>will be enormous.
>
>Thus it is clear that China does not need foreign capital, which at any
>rate is not available in necessary amounts and at a cost that China
>would be willing to pay.
>
>Unemployment is not a cure for economic inefficiency. The fallacy of
>NAIRU (Non Accelerating Inflation Rate of Unemployment), as promoted by
>American supply-side economists, is well known even for capitalist
>systems. In a socialist society, full employment must be a policy
>goal. The entire economic system exists to support full employment.
>Unemployment cannot be used as a tool to support a faulty economic
>system.
>China’s policy in recent years of allowing unemployment to increase is
>counter-productive and dangerous. Jobless worker have no money to buy
>the goods produced by factories, thus leading to more unemployment and
>further shrinking of the economy- a downward spiral.
>
>Chinese economic planners have been misled in the last two decades by
>fixated Western economists and ignorant Hong Kong tycoons. China has
>adopted a Western neo-liberal model of economic development, modified by
>Hong Kong compradore mentality. Within this model, unemployment is
>necessary to keep wages low and labor demand weak.
>The open to the outside/reform policies by now have a history of two
>decades. It is interesting to compare this record with the record of
>Germany during the period from 1933 to 1937.
>In 4 short years, Hitler's Germany was able turn a Germany ravaged by
>defeat in war and by the liberal policies of the Weimar Republic, with
>heavy foreign debt and the total unavailability of foreign capital, into
>the strongest economy and military power in Europe.
>
>How did Germany do it?
>The centerpiece was the Germany's Work Creation Program of 1933-1936,
>which preceded its rearmament program.
>German economic policies between 1930 and 1932 were brutally
>deflationary, and in 1933, Hitler was elected Chancellor out of the
>chaos.
>
>The financing of Nazi economic recovery programs drew upon credit
>creation techniques already developed prior to Hitler's appointment as
>chancellor. What changed after 1933 was the government's willingness to
>create massive short term credit and the government's firm commitment to
>retire the debt created by that credit.
>Hitler told German industrialists in May 1933 that economic recovery
>required action by both the state and the private sector. The
>government's role was limited to encouraging private sector investment,
>mainly through tax incentives. He expressed willingness to provide
>significant public funding only for highway projects. Investment was
>unlikely if consumer refused to spend their money, and Hitler understood
>that potential consumers need income to make purchases. To combat
>traditional German fear of the social consequences of appearing better
>off than their neighbors, Nazi propaganda would psychologically
>stimulate the economy and develop a lust for life among consumers.
>Hitler stressed on May 31. 1933 that the Reich budget must be balanced.
>A balanced budget meant reducing expenditures on social programs,
>because Hitler intended to reduce business taxes to promote needed
>investment. A large work program without deficit spending had to be
>financed outside of the Reich budget. Hitler resorted to “prefinancing”
>(Vorfinanzierung) by means of “work creation bills”
>(Arbeitsbeschaffungswechseln).
>Under the scheme of “prefinancing” with work creation bills (WCBs), the
>Reich Finance Ministry distributed WCBs (3 months, renewable up to 5
>years) to participating credit institutions and public agencies.
>Contractors and suppliers who required cash in order to participate in
>work creation projects drew bills against the agency ordering the work
>or the appropriate credit institutions. These credit institutions then
>accepted (assumed liability for payment of) the bills, which, now
>treated as commercial paper, could rediscount the bills at the
>Reichsbank (central bank). The entire process of drawing, accepting,
>and discounting WCBs provided the cash necessary to pay the contractors
>and suppliers. The Reich Treasury undertook to redeem these bills,
>one-fifth of the total every year, between 1934 and 1938, as the economy
>and tax receipts recovered. As security for the bills, the Reich
>Treasury deposited with the credit institutions a corresponding amount
>of tax vouchers (Steuergutscheine) or other securities. As the Treasury
>redeemed WCBs, the tax vouchers were to be returned to the Treasury.
>Nazi Party economic experts believed that credit creation for purposes
>of job creation posed no inflationary threat and that it would be a far
>more responsible policy than the more conservative approach of tax
>increases and balanced budgets. Redeeming WCBs would burden the 1934-39
>Reich budget, but the decline in Reich expenditure for welfare support
>and other subsidies would more than off-set the redemption payments.
>The surplus would be used to reduce public debt and reduce taxes. There
>were legal, political and institutional restrictions unique to Germany
>on the scope of the Reichbank that virtually dictated resource to WCBs
>as a means of putting 6 million unemployed Germans back to work. But
>the principle of WCBs can be applied to China to combat unemployment.
>
>During 1933, Hitler sought to reassure Germany's business leadership
>that Nazi rule was consistent with the preservation of the free market
>system, because he needed the support of the industrialists. He could
>buy that support by keeping wages down during the recovery, but any
>rigorous effort to curb prices and profits would alienate the business
>community and slow down economic recovery.
>Hitler sought to restore profitability to German business through
>reduced unit cost achieved by increasing output and sales volume, rather
>than through a general increase in prices (Mengenkonjunktur, niche
>Preiskonjunktur- output boom, not price boom).
>Adoption of “performance wage” (Leistungslohn- payment on a price-rate
>basis) increased labor productivity, thereby driving costs down and
>profit up. Some upward price movements were permitted to adjust price
>relationships between agricultural and manufactured products and between
>goods with elastic and inelastic demands, also to prevent price war and
>below-cost dumping.
>These principles of "output boom, not price boom" and “performance
>wage” will also work for China.
>
>Hitler saved the German farmers from their heavy debt burden through
>relief programs and through rising farm prices. This policy increased
>farm income at the expenses of the middlemen institutions and provided
>price subsidy for the consumers.
>Hitler sought price stability only in sectors critical to the national
>economy and to the goal of rearmament. Germany had no price policy
>until the 1936 Four Year Plan which concentrated economic authority in
>the hands of Goring and put finally an end to free market policy.
>Business managers generally make investment and employment decisions
>based on their judgment of the prospect for new orders. The difference
>between Germany's economic recovery under Hitler and America's relative
>stagnation under Roosevelt in the early 1930s, was the relative
>probability of new orders for goods. Hitler made it clear that in the
>near future after 1936, a major rearmament program would make heavy
>demand on the nation's durable goods and capital goods industries. With
>that assurance German industry could expand with confidence. Roosevelt
>was unable to provide such “confidence” to industry and had to rely on
>anemic market forces.
>
>The Chinese economy has two ready conditions for full employment:
>1) a pent-up domestic demand waiting to be released by the monetization
>of frozen assets and
>2) a needed armament program to sustain industrial demand, even if China
>continues to adhere to a purely defensive strategy.
>
>China does not need foreign capital.
>All China needs is liberation from bad Western advice.
>