The prescriptions encompassed policies in such areas as macroeconomic stabilization, economic opening with respect to both trade and investment, and the expansion of market forces within the domestic economy.
By contrast, in his January 2012 article in Asia Policy, Williamson describes the Beijing Consensus as consisting of five points:
Incremental Reform (as opposed to a Big Bang approach)
Innovation and Experimentation
Export Led Growth
State Capitalism (as opposed to Socialist Planning or Free Market Capitalism)
Authoritarianism (as opposed to Democracy or Autocracy).
In general the sense that capitalism is killing democracy and that democracy inhibits economic growth is gaining credence, as illustrated by the proliferation of books like Robert Reich’s Supercapitalism: The Transformation of Business, Democracy and Every Day Life.
The Risk of a Chinese Hard Landing
Regardless of the long term merits of the Chinese approach, to date the Chinese economy, and emerging market economies have been a bright spot in the world helping push the world GDP growth to 5.3% in 2010 and 3.9% in 2011. A small chorus of market pundits, including Nouriel Roubini, has warned that China could be in for a hard landing, putting under threat the seemingly last remaining engine of economic growth.
Their argument is centered on the popping of a real estate bubble in China: In 2009, during the financial crisis, China unleashed hundreds of billions of dollars — over a trillion yuan — in stimulus aid to keep the economy flourishing as its major trading partners in Europe and the U.S. were in recession. Billions went to fixed asset investment across the country, from roads to new buildings. China’s middle class and especially the rich invested billions in real estate, not only as a store of value, but also as a means of speculating on the urbanization trend. Less than 50% of the population lives in cities and urbanization continues, but its pace has not kept up with the real estate development creating surplus housing. Aware of the dangers of a real bubble, the government has also introduced policies to limit further appreciation.
Chinese excess savings may be a bigger threat to the global economy that the popping of its real estate bubble. The anticipated shift from savings to consumption, on which most global growth models are predicated, is not happening.
In general, some of the recent statistics are worrying:
Exports rose 4.9 per cent in April, which was weaker than expected.
Industrial production rose 9.3 per cent in April, the lowest level since early 2009.
Housing inventories are high, and prices fell in April over last year, for the second straight month.
Electricity production/use rose just 0.7 per cent in April, the slowest pace since 2009.
Rail freight volumes have slowed to a trend rate of 2 per cent to 3 per cent, down considerably from last year.
Loan demand in April missed expectations, suggesting that access-to-capital difficulties continue.
Government revenues rose just over 10 per cent in the first quarter, over last year. That’s the slowest pace in three
years and down from revenue growth of more than 20 per cent in last year’s first quarter.
The current debate on a hard landing also ignores the risk of political, social and religious strife that seems inevitable in the long run and is more likely to occur in an economic downturn. This is not to say that a hard landing is inevitable. China has a number of policy options at its disposal, but still faces the hard task of rebalancing its internal economy towards consumption.
With record oil, gold, commodity and food prices, Malthusian concerns are coming to the forefront. Prices for oil, corn, copper and gold all tripled or more over the last 10 years. The high commodity prices are not Malthusian per say but raise Malthusian fears that we are running out of the resources necessary to run our economy which has been based on the availability of cheap energy and to feed ourselves as the world population is expected to reach 10 billion.
Many believe that these prices seem will remain high for the foreseeable future. We may be at Peak Oil. The increasing investment in harder-to-reach oil is a sign of oil companies’ belief in the end of easy oil. Additionally, while it is widely believed that increased oil prices spur an increase in production, an increasing number of oil industry insiders are now coming to believe that even with higher prices, oil production is unlikely to increase significantly beyond its current level. For now, alternative, ecologically-friendly sources of energy provide no panacea; not only is the supply unreliable and inadequate but their average per KW-hour cost remains well above that of oil.
Risks of Military Confrontation
Those Malthusian fears may also be increasing the risk of a future US / China conflict. Chinese government-owned companies have been acquiring access to natural resources at a record pace. China has intensified its long-standing claim to virtually all of the resource-rich South China Sea and is building up both its navy and its anti-navy missiles to push the US navy further out from its coast.
Throughout history, the rise of new economic and military powers has often led to conflict with the incumbent nations. History has repeatedly showed that relations between great powers cannot be sustained by inertia, commerce, or mere sentiment. They must rest on some convergence of strategic interest, and preferably on “a joint concept of world order.” Yet those are precisely the ingredients that have been lacking since the early 1990s.
In his brilliant analysis of the “rise of the Anglo-German antagonism,” Paul Kennedy describes how an assortment of factors—including bilateral economic relations; shifts in the global distribution of power; developments in military technology; domestic political processes; ideological trends; questions of racial, religious, cultural, and national identity; the actions of key individuals; and the sequencing of critical events—combined to lead Britain and Germany to the brink of World War I.
It’s unclear how the China / US story will play out and it would take a similar number of factors to bring both countries to the brink of war. Moreover, both China and the US seem keen on engagement and Chinese leaders speak of its “Peaceful Rise.” However a real risk of conflict remains given the weakness of the non-economic ties that bind them and the real risk of misunderstandings on many issues: human rights, Taiwan, Korea, etc.