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Cracks in the Great Wall of China: Honeymoon Over? |
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Friday, 20 July 2007 |
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Even once furor fades over defective Chinese exports, it's unlikely that China will ever regain the uncritical acclaim it enjoyed over the past two years.
The world is coming to realize that the very same policies that generate eye-popping GDP figures threaten China's future prospects of developing into a modern economy. Developmental economists have known this for a long time. "Extensive development" -- putting up a factory on land and producing bad quality shoes -- is easy. "Intensive development" -- manufacturing quality products, distributing, marketing and branding them -- is hard.
And there's just something about the Chinese export scandal that made Americans feel a bit queasy. Yes, in the 1960s and 1970s, "Made in Japan" and "Made in Korea" were synonymous with shoddiness. Yet when Japan made shoddy goods, it was because it was on a learning curve. But the fact that mainland Chinese deliberately substitute cheaper toxic materials in medicines to save money crossed the line.
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There are other reasons why the bloom is fading off the Chinese rose. China's $1.2 trillion in reserves is matched by the amount of bad debt in its banking system. That's close to 50% of its GDP -- making the U.S. savings and loan (S&L) crisis or current subprime lending woes look like a rounding error.
Source: Excerpts from Global Guru Nicholas Vardy
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