China envy is a common trope in our political culture, most commonly, though not exclusively, found on the left. David Cay Johnston’s most recent column is but one illustration of the phenomenon, which persists despite the yeoman efforts of scholars like Yasheng Huang, Victor Shih, and others with a granular understanding of the inner workings and vulnerabilities of China’s growth model. Michael Pettis has been making the case for a steep Chinese slowdown with increasing urgency, and he lays out the case in a Wall Street Journal op-ed published earlier this week:
China’s growth over the past couple of decades was based on large increases in government-directed investment. As a consequence, it had to run large trade surpluses to absorb the resulting excess capacity in manufacturing.
This can’t continue. Investment, especially in infrastructure and real estate, is increasingly wasteful. With Europe in crisis, and Japan and the U.S. struggling with their debt, demand for China’s exports will stagnate.
Can China rebalance away from investment and toward domestic consumption as the main engine of growth? Yes, but with great difficulty.
You get the gist. It is precisely the aspects of the Chinese economy that appeal to the Tom Friedmans and the David Cay Johnstons — massive public investment (extracted from voiceless rural households and channeled to cronies, but we don’t generally hear that part)! — that are proving profoundly problematic. As Yuval Levin has noted, one is reminded of the libertarians and conservatives who cheered on Ireland as the Celtic tiger, pointing to its go-go financial markets.