Is China an External Shock Away From Implosion?

Saturday, January 31, 2009 22:57

In a recent email Northwestern professor Victor Shih has reviewed NYU Professor Yasheng Huang’s recently released book Capitalism with Chinese Characteristics: Entrepreneurship and the State.

A book that has been recieving a lot of praise in the Shanghai community (I have not read it), Victors opinon of the book was very favorable, and in his words:

This book is a must-read for anyone considering long-term investment in China because it unearths a story of China’s growth that is more sobering and unsettling than the conventional one.

In wrapping up his review of Huang’s work, Victor writes the following. It is perhaps one of the most important questions I have seen a qualified economist write, and I hope you will take some time to think about the possible answers:

Huang ominously predicts that “The Shanghai model will come back to haunt Shanghai if there is an external shock. “(209) Not just Shanghai, but much of China. That external shock is arguably happening right now as the global recession leads to a decline in export and a slow-down of FDI, previously the two genuine bright spots in the economy. If Huang’s account is correct, the coming months may truly test the limits of capitalism with Chinese characteristics.

I must admit that it is hard now to fall into the trap that has been laid out here.

There is a lot to worry about economically right now, and it is not my intent to add any more fuel to the fire. however, I hope the above will enduce some debate on what the real risks are to China’s economy, whether or not the current system is strong enough to overcome an “external event”,, and if not.. what is THE external event?

I will have some posts later this week that will look through one industry in particular, but in the meantime I invite your comments on the book or the questions asked by it..

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