As a complete aside there is a pretty amusing article from last week’s New York Times ("Booming, China Faults U.S. Policy on the Economy"). The article starts out:
Not long ago, Chinese officials sat across conference tables from American officials and got an earful. The Americans scolded the Chinese on mismanaging their economy, from state subsidies to foreign investment regulations to the valuation of their currency. Your economic system, the Americans strongly implied, should look a lot more like ours.
But in recent weeks, the fingers have been wagging in the other direction. Senior Chinese officials are publicly and loudly rebuking the Americans on their handling of the economy and defending their own more assertive style of regulation. Chinese officials seem to be galled by the apparent hypocrisy of Americans telling them what to do while the American economy is at best stagnant. China, on the other hand, has maintained its feverish growth.
For several years as the US benefited from the early pleasures of excessive monetary growth, the Bush administration (and, to be fair, the Clinton administration too, although perhaps not to the same ugly extent), seemed to find it hard not to assume a marked superiority over everyone else when it came to managing domestic economic policy. We lectured our foreign friends fairly aggressively and a tad more arrogantly than was justified by the actual numbers.
But of course all good things must end, and an economic boom generated by monetary excess and greater risk-taking among financial institutions, as pleasant as it can be in its early stages, must end too, and usually in an ugly way. As the US is working itself out of the now-obvious monetary excesses of the last ten or so years, this is a great time for once-lectured-at countries to sneer.
The New York Times article goes on to suggest that the problems besetting the US economy, set against the rude good health of the Chinese economy, has created a "brash new sense of self-confidence on the part of the Chinese." For the first time in several years the Chinese are behaving in a less humble – some might even suggest arrogant – manner and are pushing back. They are arguing that perhaps their model of development is not so obviously inferior to the more markets-oriented models proposed ham-fistedly by the US and the other "Anglo-Saxon" countries.
It must be an especially great pleasure to point out publicly, and in international forums, the problems with US currency management, after hearing for so long that their own currency was mismanaged. Unfortunately just because your critic turned out to be full of hot air doesn’t mean his criticisms were all wrong. China’s currency has been mismanaged, and China is going to be forced into some kind of adjustment – and I am willing to bet it will be more difficult than what the US is likely going to suffer.
I guess it is hard to begrudge Chinese officials their forgivable glee in seeing US self-righteousness brought down, but I wouldn’t take too much comfort if I were them. The fact the US financial model had serious flaws shouldn’t make us too confident of alternative financial systems. They all have the same basic flaws – the real question is how quickly they can adjust.
My worry has intensified because there are rumors that at a recent high-level meeting in Beijing involving the most senior economic policy-makers, the consensus was that an economic slowdown is a much more urgent problem than that of monetary excess. Maybe, but monetary excess is a very big problem – a much bigger problem for the long-term – and it won’t pay to downgrade its policy-making implications. The longer this goes on the more vulnerable China’s financial system becomes, and the harder it will be to adjust.