The Chinese Birdcage: How China's Rise Almost Toppled the West

204 Pages·2016·2.6 MB·English

by  Heleen Mees (auth.)

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The Chinese Birdcage
Heleen   Mees
The Chinese Birdcage
How China’s Rise Almost Toppled the West
Heleen   Mees
Brooklyn, USA
ISBN 978-1-137-58888-3 ISBN 978-1-137-58886-9 (eBook)
DOI 10.1057/978-1-137-58886-9
Library of Congress Control Number: 2016949262
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The registered company is Nature America Inc. New York
To understand the origins of the g lobal fi nancial crisis , one should not read
Michael L ewis ’ The Big Short but Arthur L ewis ’ Economic Development
with Unlimited Supplies of Labor instead.
C
ONTENTS
1 The Chinese Birdcage 1
2 Western Triumphalism 1 1
3 China as the World’s Factory 2 1
4 Housing Bubbles Across the Western Hemisphere 33
5 The Global Financial Crisis 5 5
6 The Economic Fallout 75
7 Unlimited Supplies of Labor 8 9
8 China’s Economic Development 9 9
9 Corporate Cash Piles and Falling Interest Rates 1 15
vii
viii CONTENTS
10 The Shortfall in Demand 1 33
11 Piketty Reconsidered 1 63
12 What Lies Ahead? 175
Index 191
L F
IST OF IGURES
Fig. 4.1 Loose-fi tting monetary policy 3 6
Fig. 4.2 Household debt as share of disposable income
versus house price 2000–2007 42
Fig. 4.3 Global income growth from 1988 to 2008 4 6
Fig. 7.1 Capitalist surplus with unlimited labor supplies 9 3
Fig. 7.2 Capitalist surplus with unlimited labor supplies 9 4
Fig. 10.1 Adjusted labor income shares in developed economies,
Germany, the USA and Japan, 1970–2010. The
adjusted labor income share makes an
adjustment for the self-employed 134
Fig. 10.2 Labor share of non-farm business in the USA 1 38
Fig. 10.3 Construction employment versus house price 2000–2007 1 59
Fig. 10.4 Manufacturing employment versus house price 2000–2007 1 59
Fig. 10.5 Exports versus house price 2000–2007 1 60
Fig. 10.6 Unit labor costs versus house price 2000–2007 1 60
ix
I
NTRODUCTION
The festivities for the celebration of the 25th anniversary of the fall of the
Berlin Wall in 2014 were markedly subdued. The countries in the West
were still reeling from the havoc caused by the g lobal fi nancial crisis . The
single European currency, which was meant to seal the European unifi ca-
tion, had come under such severe strain that it might just as well collapse.
Around the globe, populists both on the left as well as the right scored
resounding victories, shattering the political center and rendering some
nations virtually ungovernable. Instead of forging ever expanding politi-
cal unions, national borders were increasingly being questioned—not for
being cast too narrow but for being cast too wide or being too porous.
The contrast with a quarter century before could not have been greater.
The night that the B erlin Wall was brought down, in December 1989,
people were dancing in the streets. Western triumphalism over the dawn
of a new era knew no boundaries. The belief in free market capitalism was
so high that the then American president, Bill C linton , told his Chinese
counterpart Jiang Zemin in 1997 that trade between the two countries
would lead to a spirit of freedom—read d emocracy in China—as inevitable
as the fall of the Berlin Wall . That’s also the reason China was put on a fast
track to becoming a member of the W orld Trade Organization .
While the West was smarting over the bursting of the dot-com bubble,
and, more critically, over the attacks on the World Trade Center and the
xi
xii INTRODUCTION
Pentagon, in December 2001, China quietly became a member of the
World Trade Organization. China’s economy grew so briskly that 25 years
after the fall of the Berlin Wall, which also marked the 25th anniversary
of the bloody suppression of the student protests at Tiananmen Square,
China passed the United States as the world’s leading economic power.1
Although trade with China exploded after the trade barriers were taken
down, it did not transform China into a democratic paradise, as President
Clinton had assumed. Present-day China has little resemblance to the
communist bulwark it was under Mao Zedong, where every private initia-
tive was quenched. However, the suppression of dissenting voices under
the leadership of Xi Jinping leaves no misunderstanding that China is far
from a free society. People in China are free to compete, start enterprises,
and become billionaires. They are free to challenge the authority of the
Communist Party of China privately but not so much publicly. The state-
run media are under increasing pressure to toe the Communist Party’s line
and act as its mouthpiece.
Instead of transforming China into a liberal democracy, as Francis
Fukuyama had prophesized in T he End of History and the Last Man (1992),
China’s entry into the World Trade Organization sort of wrecked rich
countries’ economies and subverted Western democracies. So what went
wrong? Does not Econ 101 teach us that international trade is a win-win
situation for all countries involved? Even if in the short term, some people
will gain and others will suffer, economic orthodoxy has it that the gains
of the winners from free trade, correctly measured, work out to exceed the
losses of the losers. While, strictly speaking, trade with China did follow
standard economic theory, things at large did not quite turn out that way.
China proved too big a chunk for the world economy to simply digest.
With China’s accession to the W orld Trade Organization , almost a bil-
lion workers were added to the global economy. Many of these workers
not so long ago lived off a dollar a day. So it was foremost very cheap
labor . Just when China made its (re)appearance on the global stage, the
spread of low-cost computing and the Internet broke down the old geo-
graphic boundaries between labor markets. Not only manufacturing jobs
became thus susceptible to outsourcing but service jobs as well. Within no
time, China became the world’s factory, and I ndia , thanks to its people’s
fl uency in English, became the world’s back offi ce.
1 China poised to pass US as world’s leading economic power this year, The Financial
Times , April 30, 2014.