Books to Get You Thinking
The financial markets got off to a rocky start in 2016 with the overriding fear that global economic growth was slowing down. All eyes were on China - as the world’s second largest economy, China has an important role. The Chinese economy has been faltering with the manufacturing sector contracting for ten straight months. China’s challenges will likely have a destabilizing effect on the entire global economy. Any economic slowdown in China would mean less demand from consumers in China and would translate into lower revenues for producers from around the world. This month’s selection includes books focused on different aspects of China, both economic and political. They answer many questions that readers may have about the evolving ties between the US and China and their ramifications, their mutual interdependencies, and the future role of China as a dominant global force in the political and economic arenas.
Dealing with China by Henry Paulson
A former CEO of Goldman Sachs, Henry Paulson also served as US Treasury Secretary from 2006 – 2009 during the presidency of George W. Bush and was a prominent figure during the 2008 financial crisis as a policy advisor. Heading the investment banking division at Goldman Sachs, Paulson was in close contact with China’s top political and business leaders, as well as with the big banks in China. He was instrumental in helping restructure China’s telecom industry and his fascinating account of the intricate negotiations involved gives readers insight into the complexity of making international financial deals, specifically with China. As Treasury Secretary, Paulson led US efforts to encourage China’s leadership to liberalize and introduce market reforms. Throughout the book, Paulson reiterates the importance of the US to maintain China as an economic partner and help the Chinese leadership rebalance their economy within the confines of the existing political and institutional framework. It is equally important for the world’s two superpowers to work together on wider social and environmental issues, including climate and sustainability. Analyzing the dilemma facing China today as it faces a slowdown in rates of growth after four decades of economic expansion, Paulson advocates a structural shift from its high reliance on exports to raising the domestic demand through more investment in higher paying jobs and services at home.
China Goes Global: The Partial Power by David Shambaugh
David Shambaugh, professor of Political Science at George Washington University and an international authority on contemporary China, provides a rigorous analysis outlining the current state of China’s role as a global power. With the rapid growth of the Chinese economy, it is assumed in many quarters that China will overtake the US as the most powerful country in the world - both in the economic and political arenas. Shambaugh, in this well researched book, dismisses this view as unduly simplistic and one that ignores the different direction and dimensions of the pattern of growth in China. Despite the impressive economic statistics, Shambaugh questions the structural foundation for future sustained growth. China’s growth has been mainly centered on exports of low-end consumer products despite attempts by the government to develop high tech industries such as semiconductors - this in turn affects the prospect for long term growth of the economy. Shambaugh devotes separate chapters to China’s conflicting perceptions about its international identity as reflected in its foreign policy and diplomatic relations where, despite being a member of the UN Security Council and G-20, it does not take a lead role in global governance or in solving any major global problems. Shambaugh builds a tight case around China being an important global player albeit remaining only a partial global power that is unlikely to overtake the US as the world’s most influential country in the near future.
Sustaining China’s Economic Growth after the Global Financial Crisis by Nicholas Lardy
Despite the impressive growth rates that have characterized much of China’s economic experience over the past few decades, there exists a serious structural imbalance in the economy that is likely to make the high rate of economic growth non-sustainable in the years to come. Nicholas Lardy, Senior Fellow at the Peterson Institute of International Economics and an authority on Chinese studies, provides a lucid and comprehensive analysis of the current state of the Chinese economy and the reforms that are needed to bring about sustained economic growth in the coming years. In the past, China has channeled its resources heavily into capital investment and infrastructure projects, as well as exports and investments in real estate, at the cost of domestic consumption. Excessive financial controls and an undervalued currency has added to the imbalances, resulting in capital investment adding up to 49 percent of GDP in 2011 and consumption a mere 35 percent of GDP. While this policy yielded high growth rates in the initial stages of development, a restricted domestic consumers market in the long run is now leading to a stalled economy. The extensive fiscal, financial and pricing reforms that are needed to remove the structural imbalances and position the Chinese economy towards a path of long term balanced, sustained growth are difficult to implement in the face of powerful politically vested interests. It remains to be seen whether Chinese policy makers are able to successfully overcome these challenges and prevent a serious economic slowdown.
A former CEO of Goldman Sachs, Henry Paulson also served as US Treasury Secretary from 2006 – 2009 during the presidency of George W. Bush and was a prominent figure during the 2008 financial crisis as a policy advisor. Heading the investment banking division at Goldman Sachs, Paulson was in close contact with China’s top political and business leaders, as well as with the big banks in China. He was instrumental in helping restructure China’s telecom industry and his fascinating account of the intricate negotiations involved gives readers insight into the complexity of making international financial deals, specifically with China. As Treasury Secretary, Paulson led US efforts to encourage China’s leadership to liberalize and introduce market reforms. Throughout the book, Paulson reiterates the importance of the US to maintain China as an economic partner and help the Chinese leadership rebalance their economy within the confines of the existing political and institutional framework. It is equally important for the world’s two superpowers to work together on wider social and environmental issues, including climate and sustainability. Analyzing the dilemma facing China today as it faces a slowdown in rates of growth after four decades of economic expansion, Paulson advocates a structural shift from its high reliance on exports to raising the domestic demand through more investment in higher paying jobs and services at home.
David Shambaugh, professor of Political Science at George Washington University and an international authority on contemporary China, provides a rigorous analysis outlining the current state of China’s role as a global power. With the rapid growth of the Chinese economy, it is assumed in many quarters that China will overtake the US as the most powerful country in the world - both in the economic and political arenas. Shambaugh, in this well researched book, dismisses this view as unduly simplistic and one that ignores the different direction and dimensions of the pattern of growth in China. Despite the impressive economic statistics, Shambaugh questions the structural foundation for future sustained growth. China’s growth has been mainly centered on exports of low-end consumer products despite attempts by the government to develop high tech industries such as semiconductors - this in turn affects the prospect for long term growth of the economy. Shambaugh devotes separate chapters to China’s conflicting perceptions about its international identity as reflected in its foreign policy and diplomatic relations where, despite being a member of the UN Security Council and G-20, it does not take a lead role in global governance or in solving any major global problems. Shambaugh builds a tight case around China being an important global player albeit remaining only a partial global power that is unlikely to overtake the US as the world’s most influential country in the near future.
Despite the impressive growth rates that have characterized much of China’s economic experience over the past few decades, there exists a serious structural imbalance in the economy that is likely to make the high rate of economic growth non-sustainable in the years to come. Nicholas Lardy, Senior Fellow at the Peterson Institute of International Economics and an authority on Chinese studies, provides a lucid and comprehensive analysis of the current state of the Chinese economy and the reforms that are needed to bring about sustained economic growth in the coming years. In the past, China has channeled its resources heavily into capital investment and infrastructure projects, as well as exports and investments in real estate, at the cost of domestic consumption. Excessive financial controls and an undervalued currency has added to the imbalances, resulting in capital investment adding up to 49 percent of GDP in 2011 and consumption a mere 35 percent of GDP. While this policy yielded high growth rates in the initial stages of development, a restricted domestic consumers market in the long run is now leading to a stalled economy. The extensive fiscal, financial and pricing reforms that are needed to remove the structural imbalances and position the Chinese economy towards a path of long term balanced, sustained growth are difficult to implement in the face of powerful politically vested interests. It remains to be seen whether Chinese policy makers are able to successfully overcome these challenges and prevent a serious economic slowdown.
-Nita Mathur
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