One man is too small to have a huge effect in China, but he’s so freakin’ rich. It would be interesting to follow his rise along with the rise of the corporatist state.

Obviously Red China told Paulson that principle and interest losses were not acceptable, that was all the prodding he needed to guarantee GSE paper or face a dumping of US currency onto the markets causing the ruination of his strong dollar speak.

Somehow Chinese and US commoners are alike in that neither has any control over political/military goals…..could it be both are colored Red.

I also posted that comment on Michael Pettis’ blog, and he responded overnight, pointing out that the financial system in China is still nascent, and it would be doubtful that they could handle such an inflow…in the unlikely event that investors felt so inclined.

Thanks for the education, all around…

I’m Chinese-American, spent 7 years in Asia, and my sister has spent the last 6 years in China in private equity.

I think the answer to your question is in this exact summary: the problem is that anyone who has spent some time in China knows that the Chinese government’s stability is on some level superficial. If the Chinese officials don’t find some way of reconciling the growing income disparity between those living in urban areas and those in rural areas, there is going to be the kind of civil unrest too large for them to crush, even with their strong military.

Furthermore, I have to believe that among the first to suffer from the global economic downturn are going to be the factories: the intermediaries between the ownership class in the cities and the peasant class in the country. The factories tend to be a first stop for those seeking to leave the rural areas of China (though they are theoretically restricted from such moves). If these stop being an outlet for those seeking a better life, China is going to have a serious problem on its hands.

That an economic collapse of a significant degree in the US negates the Chinese government’s concerns about an appreciating yuan’s impact on exports. Obviously, if exports take a large dive, then the damage to that sector of the economy would already be done. You might ask “If exports sink, why would the yuan appreciate?” And that brings me to my point: is it realistically forseeable that large investors would see the yuan as an undervalued asset in one of the world’s largest economies, with a high domestic savings rate, massive aggregate deposits, and a budget surplus by a government that is extremely stable.

i.e., is there a scenario where large investors would forsake the dollar for the yuan, out of a flight to safety?

Domestic consumption would be the engine of the economy, China’s purchasing power would skyrocket, and that combination of purchasing power and size would produce a tsunami of foreign investment…by the Chinese, scooping up undervalued assets across the globe. It would be something akin to America in the years immediately after WWII, when the rest of the world’s economies were devastated by war, and the dollar became the reserve currency.

OK, I’ve stuck my chin out, please educate me on why that scenario can’t happen…

It is important to realize with the Chinese (really all cultures actually) that they are deeply proud and deeply insecure. There is a fusion of ideas from the west and east that has happened in the urban centers.

This is a deeply capitalistic culture with a long history of meritocracy. That doesn’t mean that they have swallowed the Anglo-saxon social structure whole.

A lot of my friends feel I am too pro-China. But I have found it is much easier to do business in China than in India or Europe.

One exception to this observation is at the top of the talent pool. Europe has a deep reservoir of highly talented people at the top ranks in management, finance, engineering. China’s pyramid is small at the top. Time will fix that too. When it does, there will be more talent to seed government as well.

…I thought "What a switch! For 15 years now China has been the crown jewel of neoliberalism, but as soon as Wall Street and the City start feeling vulnerable, China is all of the sudden a Red Menace, a Trojan Horse filled with state planners…the enemy amongst us!"

But I will admit this article certainly makes a compelling case. I have consistently underestimated China over the last decade, simply because market economies do not develop that fast. It's taken Eastern Europe 20 years to begin to converge with the West…the underlying foundations of a market economy-clear and enforceable business law, a functioning banking system, and at least a patina of SMEs-simply take time to establish in a society that has been command & control for generations.

This article might explain it: China did not go through a transition like the CEECs; it simply opened the floodgates to well-heeled Western opportunists, and plowed massive amounts of money into the most ambitious infrastructure program since the pyramids. And the Great Neo-Liberal Success was not a success at all: it was merely greedy Western firms offshoring their operations nearly wholesale, turning China into one giant Caymans or Bermuda. And I suppose China is not really corporate capitalist (i.e. government using its power and taxing base to spend massive funds on multi-nationals…top-down economic development), its just a murky web of companies that are indirectly state controlled, sitting alongside Western-run companies whose owners are back in New York living the high life, praising globalization, and lecturing Main Street on its need to compete in the "new world".

What a farce! What a lie! All this time, neoliberalism (The End of History, remember?) was nothing but hot air…

What do the tea leaves say now?

The reporting I see from China, and the commentary on the web, is so self-contradicting that I don't know what to make of it. We hear that the purchase of raw materials from Indian suppliers has evaporated overnight, that tension is building in China's outer regions, and that American economic problems will mangle export-driven China. Yet their growth rate is still over 10%, their banks are plush with deposits (I heard one estimate of $17 trillion), the government is running a surplus…

and then we hear the rumor that Paulson moved on Freddie & Fannie after a meeting with the Chinese. If that's true, then whatever was communicated must have been in forceful enough terms to make a free-market conservative and former head of Goldman-Sachs immediately turn around and nationalize most of the mortgage market.

I don't know what to make of it: is China struggling to keep its economy from imploding; or is it preparing to make the switch to a domestically-driven economy, and the earthquake that would ential for international political economy?

The argument of constructive engagement – that western investment will lead to democratic capitalism there – is myth.

Of course, statism is clearly on the rise here, too! Eamonn Fingleton’s Jaws of the Dragon is an excellent introduction to a similar analysis