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Photo by Olivier Ortelpa. Source: Wikimedia Commons

06:40 pm | 18. July 2019

Good Money, Bad Money

Can we really discuss the factors behind France’s “Yellow Vest” movement and other European upheavals without addressing the role of China in a globalized world?

By Qin Hui

Visiting the scene of the “Yellow Vest” movement in France just before Christmas last year, I could sense the acuteness of the crisis facing Europe. Street revolutions are of course as time-honored tradition in France, and I thought of the May 1968 Paris riots, and of the 2005 Clichy-sous-Bois riots, the latter of course being much more violent in nature than the “Yellow Vest” movement.

But I found the “Yellow Vest” movement to be the most disturbing. Why do I say that? Because the students at the center of the 1968 riots and the migrants at the center of the 2005 riots were relatively sensitive social groups, their grievances perhaps easier for us grasp and explain.

By contrast, who are these people we see rising up in the case of the “Yellow Vest” movement? They are the white collar working class, the sort of people we might expect to see driving their cars to work (ergo their sensitivity to hikes in diesel taxes). They are busy at their jobs during the weekdays, so it’s only on weekends that they turn to protest. They are not unemployed, and the media refer to them as “the middle class.” They are what we would generally consider to be one of the most stable groups in society.

QUICK TAKE

Qin Hui argues Western economists and experts need to better understand the impact China's political and economic system and its “comparative low human rights advantage" has on the West. Europeans should, he says: 

Promote the globalization of human rights, demanding all countries joining the WTO accept and abide by internationally recognized human rights standards.

Eliminate double taxation agreements, and create ways to ensure social welfare in the home country benefits even as capital chases low costs. 

Really understand China’s market, grasping that even as some in Europe voice extreme optimism about the Chinese market, many Chinese entrepreneurs are seeking ways to get themselves and their capital out. 

Think globally for global problems, moving past the consideration of key social, economic and political problems in isolation, such as the common Western face-off between the welfare left and the neoliberal right.

When people talk about Europe in crisis, this often surrounds the issue of immigration. The “Yellow Vests” have little to do with this issue, however. They are not immigrants. They do not oppose immigration. Nor are they people who have been replaced— or who fear that they will be replaced — by immigrants. But they certainly do feel that their situation is worsening.

What's Wrong with Thomas Piketty?

In a globalized world like today’s, there are many threats to the middle class other than migrants. And even if the French were to drive out every last migrant, they would still have to contend with China’s migrant workers (including growing economic underclasses like the so-called “ant tribe,” poor, college-educated workers who live in cramped conditions in the cities, and the “coding slaves,” a term China’s low-paid tech workers use to refer to themselves). A globalized market means that the fluidity of what we call labor is happening at a much higher level than the flow of actual laborers would seem to indicate — just as the fluidity of what we call “capital” is occurring at a much higher level than the flow of actual capitalists would seem to suggest.

Chinese migrant workers need not become immigrants to impact the labor circumstances of the Frenchman. Instead, their cheap labor, its price driven down by what I refer to as China’s “comparative low human rights advantage” (低人权优势), flows into the country in the form of cheap products that ultimately replace products made with more expensive labor in France, where human rights are protected.

I’ll explore this idea in greater detail in a moment, but it is here we can discover the answer to the worsening distribution patterns we find in the West, the recurrent widening of the wealth gap, and the deteriorating status of working classes (not to mention the unemployed) in a globalized world.

When French economist Thomas Piketty published his book Capital in the Twenty-First Century in 2013, it caused a sensation. The book raised a crucial issue that deserved greater exploration — the gap between rich and poor, which is once again widening. By the 1970s and 1980s, many people had come to believe that the countries of the West had developed into societies with strong work unions, high general welfare, and low Gini coefficients. They were free and equal, guaranteeing welfare while encouraging competition. But now, as Piketty pointed out, the problem of inequality in Western countries was growing worse.

Many of Piketty’s opponents have come from the traditional right. They argue that his book exaggerates income disparities in Western countries. But soon after the publication of Piketty’s book, the United Kingdom began its move toward withdrawal from the European Union, Donald Trump was elected president of the United States, and the “Yellow Vest” movement erupted in France — and all of these events that can be viewed as evidence supporting his basic argument. The problem Piketty highlights is a very real one. 

How did this transformation happen? Personally, I am not convinced by the explanation Pikkety provides.

He bases his argument on the simple formula R>G, where “R” is “return on capital” and “G” is “growth rate.” He argues that in normal states of economic development, return on capital is greater than the growth rate, R greater than G, so that the poor can never match the earnings of the rich not only in terms of absolute numbers but also in terms of relative ratios. This means that polarization can generally be expected to worsen, which is why nations must actively intervene in order to encourage redistribution of wealth.

Chinese migrant workers need not become immigrants to impact the labor circumstances of the Frenchman.

 
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Economist Thomas Pikkety. Photo by Government of Chile, available at Flickr.com under Creative Commons license

As Pikkety and his critics argue about the choice between the welfare state and a more laissez-faire approaches, both focus attention on factors in the Western world. Both, I believe, overlook the crucial fact that under our current model of unprecedented globalization, the mainstream ideologies of developed countries — namely, left-wing social democracy and right-wing new liberalism—face challenges far more global in nature.

Inflow-Outflow

Over roughly two centuries, the level of capital accumulation under capitalism in the West rose steadily, until the societies of the Western world moved from a situation of having surplus labor and limited capital to a situation of having surplus capital and limited labor resources. This explains why, through much of the 20th century, international relations were defined in Western capitals by the search for investment opportunities around the world. By the latter half of the 20th century, the export of capital and the import of goods had already become the norm. 

What goods do Western economies now export? Beyond high-technology products, we can scarcely think of anything. And this is the fundamental cause of substantial and rising trade deficits, particularly in the case of the United States. 

The import of goods is equivalent to the import of labor. In saying that I am not talking about import of labor in the sense that Chinese migrant workers are seeking employment in the United States. Even in the highly globalized world we have today, the free flow of populations across borders remains difficult. But even if these workers are not physically present and employed in the United States, can’t they still deprive American blue collar workers of jobs? Yes, of course they can — through the cheap products they make that are sold in the United States. This is how Chinese labor is imported to America. Through the process of globalization, U.S. workers are replaced by labor in China or other similar countries. 

U.S. President Donald Trump has made a huge stink over this phenomenon. Whether or not we accept his logic, it is certainly true that it has resonated among many poor in the United States, and can at least partly explain Trump’s appeal.

When capital from a developed country is transferred to a developing country, the calculation of Gross Domestic Product (GDP) for that developed country will be impacted, as we know from basic economic logic. This is because GDP is calculated by geographic region, and once the capital has been off-shored, those factories or other operations are no longer located in the country. 

Conversely, if we calculate the gross national product (GNP), these developed Western countries are not necessarily on the losing end. GNP is calculated on the basis of ownership — which means that if a German company opens a manufacturing facility in China, the production that results is not factored into Germany’s GDP, but is factored into its GNP. Replacing GDP with GNP reveals different patterns of distribution, and there are both gains and losses for the country in question. While production is moved offshore, the wealth that production generates still belongs to the home country. 

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Chinese assembly line workers manufacture optical equipment. Photo by Steve Jurvetson, available at Flickr.com under Creative Commons license.

If they take advantage of China’s cheap labor, European or American capitalists can certainly make more money, but European and American workers will lose jobs as a result — so for the workers this is a losing proposition. In response, we might hear the old adage that as an old industry vanishes, a new one will crop up to replace it. But even if this is true, will this new industry be able to accommodate the same workforce? As we all should understand, the transfer of capital between industries is far simpler than the transfer of labor between jobs. Through a series of simple stock market transactions, the owner of an automobile manufacturing business can become an investor in the tech industry. Can a worker on the assembly line in Detroit simply pack up his things and head for Silicon Valley? No. Certainly not.

Capital outflow and commodity inflow in the context of globalization has undermined their bargaining power of laborers and other disadvantaged groups in developed countries. In the past, surplus capital in developed countries had relatively little power in the face of democratic welfare distribution and strong unionization. In the era of globalization, capital has escaped this problem and sought refuge in countries like China, where sweatshops can to varying degrees bypass these mechanisms.

When capital is no longer in surplus in these developed countries as a result of outflows, even at times reaching a point of scarcity, labor in these countries shifts into surplus. Over the past two decades of globalization, developed countries across the board have experienced a resulting decline in employment. This, in turn, demands more of the welfare state — meaning that as people lose their jobs, the government must redistribute more wealth to those affected. But the capital outflow that was a root cause to begin with has by this point also resulted in a diminished tax base, which inhibits the capacity of welfare supply. 

There is yet another aspect of globalization that further aggravates this phenomenon: the principle of avoidance of double taxation. While capital flows to other countries, the capitalist’s “hometown” remains in the West. There, he enjoys protection of property and of human rights while escaping the burden of taxation. In the countries like China where he invests, meanwhile, he need not fuss about human rights or environmental protection standards. The road to super profits is wide open. 

These practices, which allow the capitalist to take advantage of the best aspects of each environment at the lowest possible cost, contribute greatly to the tilting of the welfare balance, to the widening disparity between the rich and the poor, and to the rising Gini coefficients we see in developed countries.

The Hidden Cost of Miracles

And what if we take a look at the other end of this globalization spectrum I just described? What is the situation in China? 

The changes brought by China’s policy of reform and opening up have been remarkable. China’s accession to the World Trade Organization (WTO) in 2001 marked another phase in the reform journey, bringing rapid acceleration of economic growth with an export-oriented pattern. In the less than two decades since, “Made in China” products have flooded the world, and capital from across the world has poured into China. Continuous and rapid growth has brought an increase in China’s power as a nation, and has inspired new confidence in its people. 

Many in the Western world have come to admire the so-called Chinese economic miracle, and two contrary explanations have emerged to explain the country’s rapid development, essentially following two strains of economic thought. While classical economists attribute the “Chinese miracle” to the success of economic liberalization or marketization, Keynesian economists credit its success to government intervention and control. Then there are proponents of the so-called “Beijing Consensus” (also referred to as the “China Model”), who applaud China’s development as a success that can be credited to a combination of the market and the government.

In an article more than 10 years ago, back in 2008, I asked the question: How long can the West’s praise for China and its so-called model persist in the face of the fact that A) this model cannot possibly be replicated in developed countries, and B) the impact China has on welfare in these same countries grows ever more serious? A decade has passed in a flash, and under the Trump administration we now see how China and the U.S. are locked in a trade war.

And what are the reasons for tensions over trade? If you respond that Chinese companies are dumping goods on the U.S. and European markets, I would suggest that neither Europe nor the U.S. is in a position to accuse China of dumping so long as they ignore China’s low human rights situation. In economics, after all, the definition of dumping is to sell below the cost of production, using unreasonably low prices to grab market share. Is this an accurate description of how Chinese companies are behaving? I don’t believe so. Certainly, some do behave this way. But this is actually uncommon given that the cost of production in China is genuinely and appreciably lower than in developed countries. If we treat cases where the price is not below the cost of production as cases of dumping, this violates the principle of free trade.

Another oft-heard criticism is that China is not actually a market economy. But what country to this day has operated under 100 percent market principles, with completely free and unrestricted contracting and flow of goods? Even in high-welfare European countries, a considerable share of gross output is distributed by governments. But of course, we can distinguish between the civilized and the uncivilized when it comes to the application of non-market principles, a point that brings us to the concept I alluded to earlier — the “comparative low human rights advantage,” or di renquan youshi (低人权优势). 

In addition to its traditional economic advantages of low wages and low welfare, China has deliberately suppressed the price of four key factors — human resources, land, capital, and non-renewable resources — by limiting or even canceling out the bargaining power of the disadvantaged. China’s systematic rejection of democratic rights, suppression of citizen participation, inhibition of ideas, and contempt for fairness results in lower transaction costs. This is what I mean when I refer to its “comparative low human rights advantage.” 

China’s systematic rejection of democratic rights, suppression of citizen participation, inhibition of ideas, and contempt for fairness results in lower transaction costs.

 

Within this system, the population is impelled toward the pure pursuit of wealth over and against all other interests, enabling a level of competitiveness that no country, whatever its economic model, can hope to match.

Without the process of opening up, this drive for wealth would not have had much impact. In the era of globalization, however, it has allowed China to achieve primitive accumulation of capital at an unprecedented pace. Meanwhile, the risks entailed by this method are alleviated by increases in foreign resources in the form of capital inflows and commodity outflows — so that the resulting crisis factors are shared with the external world through globalization. To suppress internal tensions at home and maintain regime stability, China applies an iron hand. Meanwhile, China-related outcomes in other countries ratchet up their internal tensions — for example, by driving up unemployment. 

In Chinese-style autocratic market economies, capital from democratic countries can find an investment paradise — free of labor unions and environmental protection standards, and beyond the scrutiny of social organizations. So long as capitalists continue to enrich the bureaucrats, they are left to behave more or less as they please, and can even avoid the burden of taxes altogether. At the same time, China’s “comparative low human rights advantage” fuels the flow of massive amounts of low-priced Chinese products to foreign markets, where they force out local alternatives. 

Capital outflows, commodity inflows, and changes in industrial structure have broken the balance of labor and capital that formed in developed countries over the past century. In many countries, labor bargaining powers are collapsing, labor unions are in decline, and welfare is in retreat. 

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A Chinese container ship in harbor. Photo by John Fielding, available at Flickr.com under Creative Commons license.

The globalization process, as a two-way flow of capital and commodities, should have the effect of reducing inequality in Chinese society. As foreign capital enters China, and Chinese commodities are exported to foreign countries, this should alleviate surplus labor and capital scarcity, and thereby enhance the bargaining power of Chinese laborers. But this is not the picture we actually seen unfolding.

While it’s true that the lives of ordinary Chinese people have improved over the past few decades, it’s equally true that distribution of wealth has steadily deteriorated. According to a report from the International Monetary Fund (IMF) released in 2018, China was one of the most unequal countries in the world.  

How do we explain the fact that globalization has led to a growing disparity between rich and poor in both China and Western countries? 

Generally, we can say that the more power a government has, the greater the burden of responsibility it has — what we mean when we talk about the welfare state. Alternatively, a small government that has relatively little burden of responsibility is what we might call libertarian. Today’s China is something different altogether. It has immense power at its disposal, and yet it is barely responsible at all for providing public services. If the government does happen to provide a service, this is treated as an act of grace, something about which citizens should feel grateful. If the government does not provide a service, you have no power to hold it responsible. 

Over the past two decades of China’s development, wealth has been accumulated by two general types of people. The first is a privileged minority; the second is the state and those who wield its advantages. What connection can we find between this unrestricted power and unaccountable responsibility on the one hand, and seemingly unlimited development on the other? 

Can Bad Money Drive Out Good?

The expansion of China’s interaction with the world, and especially China’s unprecedented and growing influence across the world, are important characteristics of the latest phase. 

Back in 2001, mainstream ideas in the West were optimistic about China’s accession to the WTO, arguing that it would accelerate China’s acceptance of universal values and urge it to embrace international principles. The idea was that market economy principles would come first, and then other values would follow in stride — rule of law, constitutional democracy, and so on. This idea, that engagement with the world would change China (世界改变中国), that openness would encourage progress, was a hope shared by Chinese and by people around the world. The possibility certainly does exist, and we can already say that the basic principles of modern civilization have exerted great influence in China in recent years. Likewise, Chinese have made notable progress in terms of both freedoms and material benefit.

However, we must remember that in this process of globalization the influence goes both ways. China is also engaged in a “peaceful evolution” (和平演变) of the whole world. Because of the involvement of Chinese factors in globalization, the two mainstream principles, namely that of the free market and that of the welfare state, are facing challenges on an unprecedented scale. Up to the stage, globalization has chiefly been about the globalization of the market (focussing on the global flow of commodities and capital), and not about the globalization of human rights standards. Neither the socio-economic human rights upheld by the left, nor the rights to individual freedom upheld by the right, have become the general rules of the game. 

And so it happens that not only can a system emerge against the backdrop of this globalization in which there is neither personal freedom nor guarantee of social welfare, in which there is only buying and selling and nothing else pertains — but it is even possible to possess an “advantage” by which, as we say, “bad money drives out good money” (劣币驱逐良币). If the economy that rises from this system is sufficiently huge, it can within the context of globalization compel the welfare states of the entire world to lower their welfare standards, and at the same time can compel more laissez faire states to re-establish their trade barriers. 

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“Furious French,” reads the back of a protester’s vest in January 2019 outside the Arc de Triomphe de l’Étoile. Image by Olivier Otelpa available at Flickr.com under Creative Commons license. 

Aside from Trump’s trade war, another paradoxical example can be found in Alice Weidel, one of the leaders of the German political party Alternative for Germany (AfD), with its slogan of “Germany First” (“Deutschland zuerst”), who has in her praise of China implied an admiration for China’s “comparative low human rights advantage.” According to the Chinese website of Germany’s Deutsche Welle, Weidel said at her party’s representative conference in April 2017 that Germany has much to learn from today’s China. “All the people there are rushing forward, and everyone is working,” she said. Weidel even characterized China as a model for Germany in terms of its immigration policy. “Chinese believe that border security is the most, most important thing,” she said. 

This does not of course mean that Weidel or her party feel a closeness with China or Chinese people. We can justifiably suppose that in a position of power they would treat Chinese citizens, overseas China and Chinese businesspeople with probably shocking insensitivity. But actually this situation of praising the Chinese system while feeling animosity toward Chinese is something that has existed for a long time, even more pronounced at the opposite end of the political spectrum. Consider, for example, how Pol Pot, the mass murderer of the Khmer Rouge in Cambodia, who adhered faithfully to Maoism, murdered roughly one-fifth of the Cambodian and Vietnamese populations in his country — but killed two-thirds of Chinese there. 

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In an article from April 2017, Deutsche Welle interviews AfD leader Alice Weidel for her views on China. 

Admiration and even adoration for the “China Model” does not mean friendship with the Chinese people. I would argue that the more so-called “friends of China” admire its system, the more likely the are to treat Chinese, and particularly overseas Chinese, with contempt. This logic isn’t difficult to understand, in fact. The “China Model” is a low human rights model, built on the foundation of China’s inhumane treatment of its own people. Given this fact, why on earth would non-Chinese admirers of the system treat Chinese people any differently? 

As a Chinese person who loves his country, I hope no less than any of my fellow Chinese for “China’s rise” (中国崛起). But I look with considerable fear on the rise of the “China Model,” because the first to suffer under this model, I’m afraid, are the Chinese themselves. China should rise — but it should rise by another model. 

So let me absolutely clear in saying that my criticism of the “China Model” is first and foremost for the sake of Chinese. But I also believe that Europeans should be very clear-headed on this issue. Because it is true, of course, that bad money can drive out good money. We have a saying in Chinese that, “The person of noble character cannot win over the person of vile character” (君子斗不过小人), that those who follow the rules, in other words, cannot hope to win out over those who play dirty. Do we not have enough examples of this already in world history? 

The greatest advantage of the free economy arises from the creative energy and spirit of the free citizen, not simply from the drive to mortgage their lives and constantly work harder. If we take the suggestion, as many have made, and as the AfD’s Weidel made in her Deutsche Welle interview, that Chinese are able to work really hard, we still have to acknowledge that they do not work as hard today as African slaves did in the American south in the 18th and 19th centuries. 

Research by economist Evsey D. Domar, economic historian Robert W. Fogel and others has suggested that the export-oriented serfdom of 18th century Russia and the American slavery of the 19th century were both productive and efficient in the sense that profit could be extracted from them — an argument made, with some controversy, against the suggestion by some, for example, that slavery in the American south had been largely inefficient and unsustainable.

Fogel argued that in the decades before the American Civil War, economic growth in the south had outpaced that in the north. Nearly all innovation in the economy at that time arose from the industrial north, and yet the south was better able to utilize these innovations in practice. The south, in other words, could learn from the innovations of the north, but the north could not utilize the slave exploitation of the south. The south could appropriate the creativity arising from the free economy, but the free economy could not copy its “comparative low human rights advantage,” to return to my terminology. It is conceivable that slavery would not have been phased out, as some have argued, through market competition had the situation continued. Nor can we say for sure what effect this might eventually have had on the economy of the north. 

Returning to those fanatical patriots in the West who would emulate the “China Model” in order to save Germany or Italy or _____, I have voiced my concern that they would show little consideration for Chinese. But how would they behave toward Europeans? If they suggest that Europeans should look to the Chinese — who are all, as Weidel said, “rushing forward, and everyone is working” — is this not essentially suggesting that Europeans should become like China’s migrant workers? How many Europeans, I wonder, could stomach that sort of life? 

The rise of this model of development would be a mutual loss for both Chinese and Europeans. But China’s rise on a different model might truly be a win-win situation for us all.

What Should Europeans Do? 

So if Europeans care about the values of modern civilization, if they wish to avoid the driving out of good money with the bad, what should they do? 

Promoting the globalization of human rights

First of all, Europe should promote the globalization of human rights even as its calls for the globalization of markets. It should demand that those countries joining the WTO all accept and abide by internationally recognized human rights standards, including the civil rights and labor rights standards. This is the only way that globalization can be beneficial, or do the least harm, to the welfare state in developed countries. Equalizing human rights standards does not mean of course that pay is equalized. But it does mean people must enjoy the same rights to bargaining — including collective bargaining, but also the negotiation of rights and responsibilities between the government and the governed in terms of taxes and welfare. 

This alternative “dual globalization” (双重全球化) might avoid the constant friction and resistance we have seen up to now, and while maintaining the effects of industrial restructuring and development might also promote the improvement of China’s social system — at least to the point where we can avoid a corrupting race in which everyone must align with the “low human rights” model. 

Is it really acceptable that they should enjoy property rights and other protections in a democratic country under rule of law without paying taxes, while at the same time reaping the benefits of the system in a country with low human rights?

 

Moreover, this approach would not require the obscuring of national borders, and so would be more realistic and feasible, not impacting the current system of sovereign nation states. At the same time, however, it would set the stage for a future in which the drawbacks of the sovereign state system could be overcome, putting the conditions in place for supranational governance through institutions like the European Union. 

The E.U. itself offers points the way to success: countries that have joined the E.U. have each achieved consistent human rights standards, including labor rights standards, even as free movement between member states is possible. Even though the wage standards and wealth levels in these countries are not consistent, the Schengen Agreement has not resulted in the collapse of welfare systems. 

Eliminating double taxation agreements

A second step would be to eliminate double taxation agreements, and in this way restrict capital flows, a far more reasonable approach than the use of trade protections and restrictions on commodity flows. When it is not possible for manpower to move freely across borders, but accumulated capital can be transferred at low cost to another country, particularly a country having “comparative low human rights advantage,” this costs the former employment opportunities and increases its welfare burden. 

Double taxation agreements have led to a deterioration of the tax base. And combined, these two effects are a major reason why developed countries have been pushed toward unrestricted budget overdrafts. Administrative restrictions should not be placed on capital flows, but there should be a way to ensure that additional profits reaped as capital chases low costs in some way contribute to the social welfare of the home country. 

It is true that the company in question will have obligations in the country to which it takes its capital. But if it wishes to pursue low costs without raising its tax burden, there is another way — and that is to establish itself as a legal person in the target country, or to relocate entirely to that country as a natural person, incurring the property rights risks entailed by being based in a country with “comparative low human rights advantage.” Is it really acceptable that they should enjoy property rights and other protections in a democratic country under rule of law without paying taxes, while at the same time reaping the benefits of the system in a country with low human rights?

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Police use tear gas against Yellow Vest protesters near the Musée d’Orsay in Paris during the first protests of 2019. Photo by Christophe Leung, available at Flickr.com under Creative Commons license.

Understanding China’s Great Big Market

Many multinational enterprises have expressed great optimism about the prospects of China as a market. Herbert Diess, the chairman and CEO of Germany’s Volkswagen said during a visit to China earlier this year, for example, that “the future [of Volkswagen] depends on the Chinese market.” Diess also indicated that he would extend his annual stay in China from 20 days to 40 days, a sign of the market’s importance to the company. 

But how should we understand the Chinese market? 

Although many scholars, myself included, have argued, the so-called “China Model” is actually a model that depresses national consumption and strives for primitive accumulation of wealth. Actual consumption by Chinese as a proportion of GDP (excluding government consumption and production-related consumption) is among the lowest in the world. Regardless of this fact, of course, China is a country of 1.4 billion people. Total consumption is happening at striking levels, and is still increasing, whatever the situation with respect to consumption ratios. Perhaps more importantly, given the widening gap between the rich and the poor, it is true that high-end consumption in China is increasing at a rapid rate. Imagine just the top one percent of 1.4 billion people eager to spend and flaunt their newfound wealth and this is enough to cause the whole global consumption market to faint. 

In the past few years, however, there has been a sharp rise in the number of rich Chinese emigrating, and capital outflows from China have been substantial as the economy slows, as the trade war with the U.S. continues, and as entrepreneurs lose faith in light of the government’s clear preference for the state sector over the private sector. This is the trend even as unprecedented controls on foreign exchange and immigration have stayed the outflow of substantial amounts of capital. Facing few real investment prospects at home, and unable to get their money out, China’s rich consume luxury goods, and the China market seems to show more and more promise. 

But is this situation sustainable? And how can we evaluate the risks?

Diess, the Volkswagen chairman, cheered the group’s boom in sales in China, but where are these “German cars” manufactured? As many will know, Zwickau and Eisenach, towns that were once known as centers of automobile manufacturing in East Germany, sought outside investment from the west to bail out their bankrupt auto industries — but the investors would not come. Why was that? Because they preferred producing in China, with its “comparative low human rights advantage.” Most of the Volkswagens now sold in China are manufactured in China. To be sure, the German companies that have invested in China are happy. But are the people of Zwickau and Eisenach happy?

Global Thinking for Global Problems

Finally, and most importantly, I think Europeans — and all the rest of us — must expand our horizons and break away from this habit we have of considering problems in isolation. I think too often we still weigh and debate these questions about globalization and its dilemmas in terms purely in terms of back-and-forth attacks along the right-left spectrum of traditional Western constitutional politics. 

In the era before globalization, Westerners could in theory focus on Western realities when talking about Western problems, and then could propose appropriate strategies and solutions. In the context of globalization, however, if you do not understand the situations in other countries as part of a clearer picture of the world, not only is it impossible for you to propose solutions to problems arising elsewhere in the world, but you will find you cannot accurately address your own problems. Because no problem today is a purely Western problem, just as no problem today is a purely Chinese problem. 

How shall we solve these problems? How should Europe, in step with the times, propose solutions — politically, culturally, economically? How might China, through its own reform process, contribute not only to China’s progress but to the progress of the world? These are fundamental questions that deserve serious discussion and consideration. It is imperative now that people in every country concern themselves with what is happening not just in China but in other countries as well. Europeans might believe it is a form of lofty idealism to concern themselves with the democratic development of another country. But let me tell you, in the context of globalization, bad money can drive out good money — though we can take heart in knowing that the reverse is also true. 

If others are in a poor state, can you really attend to your goodness in isolation?

Many of the problems we face today are problems we have never before faced. I believe it’s important that as we tackle them, we uphold our basic values as human beings. I’ve never believed in historical determinism, but I do believe that our societies should pursue better prospects for all, and that this pursuit should be something we all share in our hearts. 

 

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Good Money, Bad Money

18. July 2019
Author
Qin Hui

Qin Hui is a former professor of history and economics at China's Tsinghua University. He has written extensively on economic and social policies, globalization and China's agrarian past. Qin was among the first graduate students to study in China following the end of the Cultural Revolution.