Some people, like Martin Jacques (see TED talk here, HT Jeff Tucker), thinks that China’s path to progress will be immensely different from that of the West. They could be right...overtime.
Chart from the Economist
However, for as long as the Chinese read and apply Western economic theories as their own policies, I doubt that Chinese cultural “uniqueness” will hold true. (chart from the Economist shows both Chinese and Americans learning to assimilate each other)
Proof?
This from yesterday's China’s People’s Daily, (all emphasis mine)
The People's Bank of China (PBC) will print 1 trillion yuan ($151 billion) worth of new bank notes this year, but officials refuted claims that the announcement had anything to do with inflation, the Xinhua News Agency reported Wednesday.
Ma Delun, deputy governor of the PBC, said Tuesday that the bank intends to replace old paper money floating in the market.
Ma said the amount of paper currency currently in the market is worth about 4.6 trillion yuan ($698 billion), and the central bank plans to replace them in five to seven years.
He said the central bank also plans to release more cash into the market during Spring Festival, but it has no plan to issue large-denomination currency and newly designed Renminbi notes.
Peng Sheng, an official with the Postal Savings Bank of China, told the Global Times that during Spring Festival, people spend more cash to buy gifts, travel, stuff them in red envelopes, while companies need cash for bonuses.
There was speculation that the PBC will print more money because of inflation.
Some points:
One, Chinese authorities justifies the policy of money printing to the perception of scarcity of money.
Second, Chinese authorities denies the causal linkages of money printing with that of inflation.
In the book When Money Dies: The Nightmare of the Weimar Collapse, authored by Adam Fergusson, we note of the following passage:
Most successful businessmen, however, stuck happily to the heresy that only by a continually falling exchange rate could Germany compete in neutral markets. After them, the deluge. Neither they, nor the politicians, nor the bankers — with distressingly few exceptions — perceived any direct connection between inflation and depreciation. And yet, as the printing presses churned out bank notes the exchange continued rapidly to fall. What impressed the ordinary politician was the danger of social unrest which would, in his opinion, inevitably arise if there were any scarcity of currency. He could not see, or intentionally ignored, the obvious danger which proceeded from continuous inflation. Social unrest appeared, just the same.
So basically, the incumbent Chinese leaders, Weimar politicians of the 1920s and the current day central bankers seem to share the same outlook, reasoning and policy directions.
While cultural quirks can influence diversity in people’s value preferences, this doesn’t mean they are immune to the laws of scarcity.
Finally, chatter about “new paradigms” scare the wit out of me because they usually herald a peaking of a bubble cycle.
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China’s Innovative Way of Skinning the United States!
Mark Twain is credited with an early use of the cliché "more than one way to skin a cat" in A Connecticut Yankee in King Arthur’s Court, as follows: “she was wise, subtle, and knew more than one way to skin a cat, that is, more than one way to get what she wanted”. Thefreedictionary.com defines beggar-thy-neighbor as: an international trade policy of competitive devaluations and increased protective barriers that one country institutes to gain at the expense of its trading partners. Under the guise of fostering ‘indigenous innovation’, the Chinese government has creatively used a non-conventional, subtle version of beggar-thy-neighbor. Its version doesn’t entail the competitive devaluation of its own currency, which would enhance China’s exports and inhibits its trading partners’ exports. China’s version perpetrates an over-valuation of the currencies of one or more of its trading partners. This negatively affects all the trade of the pegged trading partner(s), not just trade with China. During the recent period China pegged its currency to the U.S. Dollar, its version of beggar-thy-neighbor was 8 times as damaging to the U.S. economy as what the media refers to as “China keeping it currency undervalued”.
In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Until action is taken on Buffett’s or a similar balanced trade model, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.
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