#155 Not the Chinese Century

By D. Arnott | January 11, 2023
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China will NOT become the world’s greatest economic power, because their economic model is not aligned with reality, as the Christian Worldview is.

 

The 18th and 19th centuries could be considered the centuries of the United Kingdom.  And, the 20th was the century of the United States.  The Chinese are claiming that the 21st century is the Chinese Century, both geo-economically and geopolitically.  But, it’s not going to happen.  China will NOT become the world’s greatest superpower.  Not in 2023, nor 2030, nor 2050.  Why not?  Their economic model is not aligned with reality, or as I like to call it, the Christian Worldview.

 

The Yin Yang

First, just a LITTLE philosophy, and it’s a little because I’m not much of a philosopher.  The Chinese believe that good and bad are intermingled, as shown in the yin-yang.  As it turns, good and bad move together.  Their belief is that the US was on top for a century, and now as the yin-yang turns, they will be on the top.  They believe they have less control over their fate than Christians do.  And, they believe good and evil are intermingled, while we believe that good and evil are SEPARATE entities, and that evil is a parasite on good.  

Now, back to economics.  The Japanese Center for Economic Research issues a periodic assessment of trends in Asia-Pacific economies, and as recently as 2021 it forecast that China’s nominal GDP would exceed America’s by 2029. No longer. The Japanese think tank now estimates that the U.S. will maintain a healthy lead over the People’s Republic, with U.S. GDP exceeding $41 trillion in 2035. China’s will be closer to $36 trillion.

 

Move the Labor Force

When I was a PhD student in the early 1990’s, experts were saying that China couldn’t grow because their infrastructure was undeveloped.  They didn’t have the roads, water & sewer, electricity, telecommunications, nor railroads systems.  They overcame those logistical hurdles by moving the labor force from the countryside to the burgeoning Pearl River delta cities of Guanzhou, Shenzen, and Donguan.  That was pretty easy.  Just make stuff near the port, put it in a sea-going container, and it can reach any port in the world in a few days. 

They have experienced what economists call the “catch-up” effect.  It’s kinda like, if you want to be the most improved basketball team in the conference, you start out as the worst.  China started out as an undeveloped economy when they were freed from Communist Socialism starting in about 1978.  They put their foot in the door of free market capitalism, but now under Xi Jinpeng, they are slamming it shut.  Their economy reportedly grew at 9% for about 20 years.  This year it’s down to five percent.  Okay, mostly because of Covid, but that’s concealing the problem of centralized government.   But the Japanese Economic source I cited earlier, thinks China’s growth will be 2% or lower by 2030, because of the authoritarian rule of President Xi and the one-child policy that has shrunk the labor pool.  That 2% growth compares with 3%, which the US has averaged for over a hundred years.  

 

Economic Freedom

Frederick Hayek made the point that freedom is the underlying concept of an effective economic policy.  It’s the first of the Ten Commandments of Biblical Economics that Sergiy Saydometov and I wrote about in our book Biblical Economic Policy. 

Stu Cvrk, published an article in the Epoch Times recently titled Anything Mao Can Do I can Do Better: Xi Jinping.  The article explains how China is moving backward, not forward in political and economic freedom.  “The 20th Congress of the Chinese Communist Party was a complete triumph for President Xi Jinping.  The constitution was modified to essentially allow him to be ‘emperor for life.’   And the cult of Xi is advanced daily by state-run Chinese media.”

Centralization still does not work is the title of podcast #76 and it’s still true.  During one of my visits to China with some DBU students, as we drove by a huge apartment development, I counted the floors, while one of my students counted the buildings.  We estimated housing for 10,000 was sitting empty.  

During a visit to the Beijing Olympic site in 2009, I asked “What was here before the Olympics?”  The lie was that it was barren land.  It was not.  A lot of people were displaced so the Chinese Communist Party could put on a show for the world.  What’s behind the scene?  A lack of freedom and private property rights that are endorsed in the New Testament.

Acts 2: 44 and 45 reads, “ All the believers were together and had everything in common. 45 They sold property and possessions to give to anyone who had need.  That scripture is often portrayed as an endorsement of Socialism, but it’s the opposite.  Four things indicate the story’s support for private property and free market capitalism: 1. People owned property.  2. They sold it in a free market.  3.They made a profit.  4. They gave the money to those in need.   Just like the disciples were pleased to have the profit-seeking intellectual capital of the people who owned the fields, all countries seek to have those kinds of creative people who are made in God’s image.  Except China. 

 

Intellectual Assets are Leaving

In his forward-thinking economic program titled Free to Choose, the great Milton Friedman predicted in 2003 that China’s increasing economic freedom would lead to more political freedom.  I agreed with him, because that is the usual progression of countries.  As they gain economic freedom, those nouveau riche businesspeople use their new power to force open political freedom.  But, Friedman and Arnott were wrong this time.  

A recent article in the Wall Street Journal was titled Wealthy Chinese, Fed Up at Home, Find a Haven in Japan.  The article noted that the Center for China & Globalization, a Beijing think tank, produced data in 2019 showing that the U.S. had the largest number of Chinese migrants at around 2.9 million, followed by Japan with 780,000, and then Canada and Australia.

A Chinese man who owns a real-estate firm in Tokyo said recently, “People are uneasy and frustrated because their life can be disrupted at any moment and they may be arrested in the future. So, some think, ‘Let’s get out.”

Ginger and I had a conversation with a Chinese national who sells real estate in Canada.  She told us the Canadians were charging a 30% premium for Chinese who bought real estate in Canada.  First, that discourages foreign investment.  Any country who does that will suffer economic loss.  But that’s not the point.  The REAL point is what I talked about in podcast #131 titled Abraham and Wealth Migration.  China is suffering a brain drain among their most innovative and creative people.    

Look, people move to locales with better economic conditions.  Witness the just under 4 million people who have crossed the southern border of the US in the last two years.  People don’t break the law to move to Cuba, North Korea, nor Venezuela, nor China, which is my subject today.  They move where there is GREATER political, economic, and religious freedom.  On a relatively more micro scale, people are moving WITHIN the US from California and New York, to Florida and Texas.  On the macro level, people are moving from China to countries with greater freedoms. 

The Hong Konger is the title of a very good movie made by the Acton Institute about Jimmy Lai, the founder of Giordano.  Later, he started his own newspaper named Apple that challenged the Chinese aggression toward his hometown of Hong Kong.  He was arrested and is in jail today, because of a lack of free speech in China.  His arrest has encouraged many of his fellow rich Hong Kongers to flee China.  People always flee countries of less freedom, for countries of greater freedom.  But, so often, we concentrate on political freedom, and miss how it is intertwined with economic and religious freedoms.

 

Second Source

Yes, China has become the manufacturing floor for the world.  You have had the same experience I had this week: I ordered an alternator for my John Deere tractor.  When I opened the box, I was not surprised that the alternator was made in China.  But don’t worry about it.  I was in Vietnam a few years ago with a guy who was seeking a second source for men’s shirts.  It’s simple risk and return: Companies demand a second source, in case something happens to the first.  Smart businesses already have second sources outside China.

Most of us believe that God gave us the freedom to accept or reject His invitation of salvation.  We have to believe He wants us to be as free as possible in our economic and political lives.  China is increasing control that will stifle the economy, as they chase intellectual assets into other countries. 

FEAR GOD,
TELL THE TRUTH,
EARN A PROFIT.

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