Join us for an evening of foreign policy

Join the Claremont Journal of International Affairs on Tuesday November 22nd as we watch CNN’s GOP debate on foreign policy and national security. The debate starts at 5pm and we will be watching at the Shakedown cafe in the Gold Student Center on the campus of Pitzer College. Refreshments will be provided. We look forward to seeing you there!

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APEC in the “Asian Century”: Contending Visions

Manassinee Moottatarn CMC’13

President Obama’s host of the recent Asia-Pacific Economic Cooperation (APEC) meeting at his birthplace, Honolulu, Hawaii on November 11th, 2011 is very symbolic. The US’s is hosting such an event for the first time in almost two decades. Halfway between the US and Asia, it is the site which “highlight(s) America’s position as a Pacific nation” as reported in Obama’s White House statement. The United States has every reason to participate in Asia’s rise. But is APEC the best forum for the renewal of US engagement in Asia? Is the US irreversibly belated in its participation, and if so, how can it renew its leadership position in the region before it’s too late?

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In Honolulu, Asia-Pacific finance ministers agreed to boost growth and trade in order to fend off the global financial crisis. Together, the 21 economies of APEC, developing and developed alike- account for more than half of world trade. “I want to emphasize that the Asia-Pacific region is absolutely critical to America’s economic growth. We consider it a top priority,” Mr. Obama said in Hawaii’s capital. With a weak domestic economy and his re-election hopes, President Obama made job creation a theme of the meeting.

In a Foreign Policy magazine report, Secretary of State Hilary Clinton hailed the 21st century as the “Asian century”, emphatically stating that after a long hiatus, the US is making a “pivotal” comeback to the region. Obama’s team is following through with Clinton’s grand statement and was enthusiastic in setting the Honolulu meeting agenda. They emphasized three main goals: increasing trade and investment, promoting green jobs, and coordinating member economies’ regulations on commerce and trade. In particular, the green trade initiative was hailed as an achievement for Obama at the meeting.

But for all the engagement that the US has recently begun, the truth is that they are dangerously belated in joining Asia’s booming times. The president’s trip to the island was marred by increasing domestic criticism for his softness on China’s unfair trade policies, such as keeping its currency undervalued and lavish state subsidies for companies. APEC is entering into its third decade with unresolved tensions between its original purpose- to unite the East and West in harmonious cooperation- versus today’s Asia-centric focus of member economies. How can the US reconcile these two goals to ensure its full participation in APEC? And after a long absence, how can APEC regain its leadership positions on key world economic issues?

It became apparent very early on that APEC had a clear Western versus Asian divide, with the US prioritizing trade liberalization while the East Asian countries sought trade facilitation and economic and technical cooperation.

And the US has little going for it at the moment in APEC. There is no reason why APEC cannot become as active as it once was during 1993-1997, under the presidency of Indonesia and the US and the introduction of the ambitious “Bogor Goals” for free and open trade and investment in the region. However, after the Asian financial crisis, APEC’s popularity began to wane as the effected Asian countries began to prioritize economic cooperation within Asia.

The crisis generated a bitter legacy of the US in Asia, the Washington Consensus and its institutions, such as the IMF. Instead, Asia has come up with their own proposals to improve their independence, such as the Chiang Mai Initiative, which aims to create an alternative Asian Monetary Fund. This has not bore any fruit so far, but the animosity towards external reliance is clear enough. In addition, the lack of progress on multilateral trade liberalization in the WTO and the Doha Round, as well as the creation of Western trading blocs such as NAFTA and the EU, has prompted Asia to become more self sufficient and create trading blocs of their own, such as ASEAN + 1, +3 and +6. Today, the US commands little respect in Asia, with the bursting of its two economic bubbles- one dot com crisis and the current financial debacle plunging the world economy into a downturn and discrediting the US as both a model and a leader. Moreover, the replacement of the G7 with the G20 as the chief steering committee of the world economy has major implications for APEC, for it enhances Asia’s global leadership- the G-20 includes five Asian countries, seven if Australia and Russia are counted. Bypassing APEC, Asian countries could enhance their roles in the G20 and address issues such as Europe’s reluctance to reform the governance structure of the IFOs and India’s blockage of the Doha Round.

Seeking to counter the growing Asia-only focus in the region, the US launched FTA negotiations of its own with several East Asian countries and proposed in 2006 a Free Trade Area of the Asia Pacific (FTAAP). Although most of these negotiations have stalled, one of the most promising initiatives in this vein is the Transpacific Partnership (TPP). The U.S., Australia, Malaysia, Vietnam and Peru are negotiating to join the group, which brings together the economies of Chile, New Zealand, Brunei and Singapore. However, none of the major Asian economies have joined the TPP- suspicions are rampant that the US is trying to sideline Asian economic integration rather than promote it. US Trade Representative was very blunt in his response to this.”Well then, China can stay on the sidelines and watch us build the most dynamic trade partnership in the Asia-Pacific,” said US said Kirk. “If China believes this is too ambitious, that’s a decision for China to make.”

C. Fred Bergsten from the Peterson Institute for International Economics has four suggestions for the US to remain engaged in Asia in his policy report entitled “Pacific Asia and the Asia Pacific: The Choices for APEC.” Firstly, but most unlikely, the US could call for the termination of APEC. If the Asians decide that their futures lie in exclusively Asian arrangements and that their strength in numbers in the G-20 commands respect from the US without utilizing institutions, the US could possibly call attention to the redundancy of APEC.

Alternatively, the US could simply accept its marginalization in APEC but nevertheless keep it as insurance against the failure of Asia’s integration. Thirdly and most championed by Asia, the US could support major reform of the global economic governance in the IMF, WTO and the Doha Round. Fourth, as it is currently trying to do, the US should continue to renew its leadership in the Asia Pacific. It should agree to support Asian regional integration, as it did in Europe- but only if the principles were compatible with US and global interests, such as increased liberalization.

For now, Bergsten envisions a three-step process for the US since chances are slim that it will move directly toward an FTAAP soon. First, the United States and major Asian countries—most likely Korea and Japan—should join the TPP, enticing other Asian APEC economies to join. It should then be transformed into an FTAAP as soon as possible. This will then prompt the revival of the Doha Round as demanded by non-APEC countries excluded in the Asia Pacific trade integration.

In addition, Bergsten writes that China should welcome such cooperation with the US in any form. Indeed, as the regional hegemony, it should prefer having the US on the inside of negotiations rather than lurking outside it. Trade and currency disagreements between the two continue to simmer- launching a cooperative transpacific project should help ease tensions on these issues.

All eyes are on Asia right now. Whether the US likes it or not, it’s up to the Asian member economies of APEC if they want a primarily Pacific Asia future constructed via a 10+3, 10+6, and the like, or an all-encompassing Asia Pacific future for the benefit of the rest of the world too.

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Where is Occupy Beijing? The invisible financial burdens of the Chinese people

From the U.S.A to Chile, many protesters have occupied key districts of their respective cities and expressed their passionate concerns over their failing economies. The Economist made an informative diagram that indicated the “occupied” countries and compared their levels of economic recession. Due to government repression, citizens of some countries cannot take their anger onto the street. But that does not mean they do not have their own under-reported economic problems.

Aside from farcical marches consisted of old, retired Maoists in support of Occupy Wall Street, the Chinese people seem to be very content with global capitalism. Yet a closer look into Chinese events would change that superficial understanding. The crisis of surging bankruptcies in Wenzhou, a small southern city known for its ingenious entrepreneurs, small and medium-sized businesses have defaulted in startling numbers on high-interest loans provided by private lenders in recent years. The popularity of private, high-interest loans points to the policy discrimination in China, where larger banks usually refuse loans to smaller enterprises.

While medium and small businesses that cannot access to capital, the Chinese government’s ability to invest in costly projects in order to sustain GDP growth poses a stark contrast. For example, China’s four biggest banks recently took a beating on the stock markets and was only saved by the government’s indirect financial support. According to The Economist’s report Chinese banks: The A-share team from August 1st to October 7th, the Industrial & Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China together lost over $109 billion in market value. Fortunate for them, Central Huijin Investment, a government agency that owns controlling stakes in the big four banks, came to rescue and said it would buy more “A” shares in all of the four banks on Oct. 11th. While the Brookings Institute indicated that the amount of the care package was small, the act boosted investor confidence and the Chinese banks immediately recovered some of their stock value the next day.

This event is merely one example of how the Chinese government timely uses its political power to support banks for the sake of sustaining growth figures, also known as state capitalism. Yet the state’s almost unlimited access to funds relies on the silent price paid by ordinary Chinese people. As Its Economy Sprints Ahead, China’s People Are Left Behind, an analytical report by New York Times’ Shanghai correspondent David Barboza, clearly shows that the central government relies on high household savings to support the government-run banks. China’s central banks also depend on the vast pool of consumer savings to help finance their investments in the foreign exchange markets, as a way to keep the currency artificially weak and export consumer goods. On the other hand, the absence of proper public social safety nets prompt Chinese people to save most of their money for costly private social services, such as housing and education. In my article Rate of sales’ rise in decline for China Daily, I also cover the same acute structural problem where Chinese people not only save their money in order to insure their future health or retirement through private options, they also cannot increase their capital due to the lack of quality investment options and the government’s deliberate negative interest rates.

In the New York Times article, Barboza observes that government’s reliance on consumer savings essentially mean that banks are taking money from private households. His report cites Nicholas R. Lardy, an economist at the Peterson Institute for International Economics in Washington, who said that the government policies exacted a hidden tax on Chinese households that amounted to about $36 billion in 2008 alone. Some economists believe (and hope) that the Chinese government will soon change their fiscal policies to restructure the economy. Barboza also cites Xu Xiaonian of the China Europe International Business School in Shanghai warned that “If we don’t change, we will follow those same footsteps (of Japan),” where it relied too long on a predominantly export economy and neglected domestic markets until the bubble burst.

Restructuring the Chinese economy will require self-motivated leaders with long-term visions from the top; yet short term negative effects of state capitalism are also rather unsettling. Due to overwhelming unpaid debts, there have been regular suicide attempts by company bosses in Wenzhou since April 2011, according to China Media Project. Since last month alone there have been 25 documented cases of bosses jumping from buildings or throwing themselves in front of traffic. Premier Wen Jiabao even flew in to address the crisis on Oct. 4th, but talking alone will not solve the structural problem in China’s economy. His State Council will have to push the Politburo to create fairer and sustainable economic policies, starting with relinquishing privileges for state-owned banks.

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China: The Winner of the Eurozone Crisis?

Manassinee Moottatarn CMC’13

The eurozone is in a bind. First EU leaders prohibited sovereign defaults, harming Greece’s liquidity flow. Now, euro-zone exits are possible, with German Chancellor Angela Merkel and French President Nicolas Sarkozy allowing Greece to return to the drachma- leaving the leaders with little to no credibility to save the euro any longer. Without any mechanism for fiscal transfers, members with large fiscal deficits such as Portugal, Ireland, Italy and Spain are forced to handle their debt with harsh austerity measures- giving them an uncompetitive exchange rate and higher borrowing costs as banks cut back lending.

From the editorials of major media outlets, it seems as if China, the world’s second-largest economy and the biggest holder of foreign currencies with $3.2 trillion in reserves, is currently the EU’s best hope to solve its sovereign debt crisis. But even if China will lend to the eurozone, does that guarantee a sustainable East-West partnership?

photo credit courtesy of Risk.net

On October 27th, European Commission president Herman van Rompuy announced that leaders of the eurozone had agreed to expand the European Financial Stability Facility (EFSF) from 440 billion euro to 1 trillion euros. The leaders will set up a special investment fund to absorb sales of bonds to private investors, sovereign wealth funds, and IMF contributions. European leaders had expressed hope that non-European countries, especially BRIC countries, would buy EU treasury bonds and help fuel liquidity in the eurozone. But Brazil, Russia and India have shown little interest. President Sarkozy is thus counting on his Chinese counterpart Hu Jintao to support EU’s new bail-out program.

Beijing’s response to the EFSF has been promising because the leaders have enough self interest to help Europe. China seeks stability for the European economy and the euro in international financial markets, which will curb the influence of the US dollar. The EU is China’s largest trading partner and largest export market. Bad times in Europe will hurt Sino-EU bilateral trade and may lead to further protectionism of the EU market, which is a worst case scenario for China’s export-led economy. A financially strapped Europe would also reduce its investment in China.

The tables are now turning in favor of China. Both SAFE, the Hong Kong branch of China’s sovereign wealth fund, and the Chinese Investment Corporation itself have tried to avoid alarming the West by presenting themselves as financial investors with no political agenda. But although “the West imposed [rules] on countries with sovereign wealth, like China, to force them to invest along commercial and not political lines…it’s ironic that Europe may now be side-stepping that principle,” said Ashley Monk, co-director of the Oxford SWF Project which researches sovereign wealth funds.

But Beijing has held back from publicly announcing to help the eurozone. This indicates their reservation about the structure of European financial policies where there is no EU level control over the independent fiscal policies of eurozone member states. In addition, diversification of reserve holdings may prove to be a problem. China may want to preserve the value of the euro to diversify its reserve holdings of U.S. dollars. But the renminbi (RMB) is pegged to U.S. Treasury bonds at an undervalued rate in order to boost its exports. Diminishing its dollar holdings would lead to an appreciation of the RMB and depreciation of the U.S. currency. And so China simply cannot get rid of its dollars.  As the euro loses value again, Chinese exports to its largest trading partner will lose competitiveness. Beijing may want to help the euro, but certainly not at the expense of its dollar peg.

No doubt, if there is to be a deal, Beijing seeks reciprocity from Europe.  If Brussels asks Beijing to help them with their debt crisis but continues to shun China’s claim for recognition as a full market economy, restrict high-tech exports to China and keep the arms embargo in place, why should Beijing budge? China aims to reduce its reliance on exports by stimulating domestic consumption and can afford to sustain its own development even while putting FDI on hold. There is also something deeply paradoxical for many ordinary Chinese people that China, a developing country, should be helping the eurozone, a collection of developed nations.

Human rights groups fear that EU leaders will placate Chinese leaders and ignore the brutality of Chinese government crackdown on activists, dissidents and lawyers. Will feigned myopia by the EU lead to an even more renegade China on human rights? In what situation can you confront your banker on rule of law and transparency? Klaus Regling, the chief executive of the European Financial Stability Facility who went on a charm offensive in Asia to rally support for the eurozone, dismissed the idea that Europe would need to offer political concessions to China in return for investment. “I am not here to discuss concessions,” he said, adding that China already buys EFSF bonds and gets no special treatment in return.

Professor Patrick Chovanec of Tsinghua University’s School of Economics and Management in Beijing thinks that China’s real opportunity to help Europe isn’t just about bailing it out in the short term. To ensure a sustainable partnership, the Chinese government should invest in the EU and encourage domestic consumption of European goods. “What the Europeans lack isn’t money, but growth,” said Professor Chovanec. “The real way Chinese can help Europe is by using their money to help create jobs, earnings and opportunity in Europe.”

China has been doing just that. In addition to investing in the country’s railways, telecom and construction sectors, Premier Wen Jiabao offered to buy more Greek government bonds when Greece returns to borrowing on the international debt markets. Other high profile visits include Wen visiting Hungarian Prime Minister Viktor Orban in Hungary, where he pledged to buy Hungarian bonds and extend 1 billion euros in credit. China and Germany signed trade deals worth $15 billion. These overtures are purely strategic- Hungary is located in central-eastern Europe, a region that China seeks greater trade and investment ties. Germany is an important economic and technological partner for China and the key EU member in dealing with the Greek debt crisis.  Now is the perfect time to expand because established EU member states have become increasingly protectionist toward Chinese goods and investment in the past few years.

All in all, China has shrewdly seized the opportunity to engage Europe in economic and technological cooperation, regardless of the rest of the world’s opinions.  China is “almost always condemned whether it does something or if it does not”, says Duncan Freeman, researcher with the Brussels Institute of Contemporary China Studies.  But this time around, there are high hopes for Asia’s economic giant. The world waits with baited breath for China to lend a helping hand to an increasingly desperate eurozone.

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Stabilizing the Bear: Can Putin do it again?

In Russia, stability is often valued high above comparatively trivial things, such as democracy or freedom. This perhaps explains why around half of Russians consider the despot Josef Stalin a positive influence on Russian history.

Josef Stalin remains relatively popular in Russia to this day

He may have been a tyrant, but he saw the Soviet Union through perhaps its most trying time and prevailed both militarily and economically. It is not uncommon to this day to hear toasts to his memory.

This mindset may also help to explain the popularity of Vladimir Putin, and more recently, the lack of domestic concern over his decision to switch places with President Dimitri Medvedev for a third term in office. Coverage of the Kremlin over the past few years has been dominated by speculation as to what would happen at the end of President Medvedev’s term in 2012. As prime minister, Putin amended the constitutional limit on presidential terms, opening the possibility of his return to the presidency. He consistently intimated that he could run again in the future. The younger, reform-minded Medvedev never quite enjoyed the same popularity as Putin, who many considered to still be pulling the strings from behind the curtain. Even guards at the Kremlin would jokingly announce Putin’s limousine’s arrival with, “Now the real one is coming.” The disparity caused many pundits to suggest a growing animosity between the two rulers. One now wonders how much of the falling out was legitimate and how much was exaggerated by a media desperately guessing at how the Kremlin really operates.

Putin certainly fits the description of a strong leader and is credited with bringing stability to Russia, though perhaps at the expense of democracy. In many ways he was everything his predecessor Boris Yeltsin was not. He threw out the oligarchs who infested Yeltsin’s administration, he increased Russia’s economic output, he fought to suppress terrorists in the Caucasus, and he stood up to his critics in the West. He doesn’t even drink (which for Russians means he only drinks beer, not vodka). Yet his style of “managed democracy” has drawn heavy criticism from the West.

Does another Putin presidency bode well for Russia? The first time around, Russia benefited heavily from steep increases in the price of oil. However, Russia’s dependency on energy exports made it especially susceptible to the global financial crisis. The Kremlin understands this and both Putin and Medvedev have heralded the need to diversify Russia’s economy. That will, however, require greater international cooperation. Putin’s dismissal of democratic institutions could be harmful toward these economic objectives.

Moscow has been pushing for membership in the WTO for 17 years. While they have found support from an Obama administration keen on restarting the relationship with Russia, obstacles still prevent accession. For instance, joining the WTO must be achieved by unanimous agreement of the existing members, and Georgia is putting up a roadblock. While negotiations between Georgia and Russia are set to resume this month, progress has been slow, especially since the Russian-Georgian war in 2008.

Russia will need to attract more foreign investment. In a volatile global economy, uncertainty over the future of Russian leadership was not helpful. Kremlin officials no doubt hope that Putin’s return will be a signal of stability to investors who need no longer worry about a struggle for power at the top. However, it’s hard to imagine that this episode will put to rest concerns the international community may hold. The position swap between Medvedev and Putin could prove worrisome for foreign governments and investors alike. The fact that the two politicians have indicated that they reached this decision years ago is particularly troubling as a clear pronouncement of who really manages the “democracy” in Russia. While Russians may look forward to another Putin presidency, they may in fact lose some of the stability they value so highly. Many in the West thought that Medvedev’s rise to power would herald a new push for liberalization at the Kremlin. It seems now that these promises were nothing than hot air to placate audiences foreign and domestic all the while allowing Putin to orchestrate a return to power.

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Molina’s Past and Guatemala’s Future

By Zavi Engles

As Guatemalan elections continue, some citizens and critics have noted a surprising turn of events, as the current leading candidate is a controversial ex-military man who has been accused of human rights abuses during the long-running Guatemalan civil war (which lasted until 1996). The former heard of military intelligence, Otto Pérez Molina, is poised to be the next President, despite numerous allegations that he condoned and participated in acts of torture, including against indigenous communities. Many voters cite his stance on greater security spending as the primary reason for their support, as Guatemalans continue to suffer from increasing narco-trafficking related violence.

Some critics have posited that Molina’s popularity may also be bolstered by the fact that Guatemala is home to a relatively young population. 70 percent of Guatemalans are under the age of thirty, meaning that the horrific acts committed by the military during the civil war are no longer a significant aspect of the collective Guatemalan memory in the way they once were. Molina won the first round of elections with 37 percent of the votes. Though Molina is the leading candidate, he did not garner the 50 percent necessary to avoid a runoff that will now occur in November. His tenuous victory signals that many voters are perhaps concerned about his controversial military background as well as his conservative, hard-line approach to the problems central to Guatemalans today. In July, human rights advocates filed an official report to the United Nations Convention Against Torture and other indigenous groups have also made official statements accusing Molina of human rights abuses.

Both Molina and the runner-up candidate, Manuel Baldizon, are running on similar platforms as both promise to increase security spending. However, Baldizon’s business-oriented background as well as some outlandish public statements, including such as personally seeing to Guatemala’s qualification in the World Cup have made some voters reluctant to support him. Molina has also been campaigning aggressively on the issue of the Guatemalan drug trade and the corresponding, increasing violence. This issue is paramount to the current elections as the homicide rate in 2010 was 41 per 100,000 as compared to 5.4 per 100,000 in the United States. Molina’s plans include equipping the military with more advanced technology and having them patrol the streets on a regular basis. Molina’s slogan perhaps best exemplifies his approach as he promises to rule with a “mano dura, cabeza, y corazon” (English translation: firm hand, head, and heart).

Molina and his mano dura

For many, his message of “mano dura” or firm hand when it comes to tackling violence is a sign of hope that the rampant violence can finally be contained by a more aggressive governmental policy.

However, none of the candidates were able to garner the 50 percent of votes needed to win outright, which shows that many Guatemalans still have doubts about electing a former military head to represent their interests. As one Guatemalan citizen puts it, “there is no one that is stealing our hearts…unfortunately it has come down to who is the least bad.” At this point, Guatemala’s future is still uncertain in regards to who will be the next President and, if Molina wins, what changes he will implement on the political stage. 

Update 11/7/11 – Molina has won the Guatemalan election

 

 

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How China will Take Over the World by 2013

The Fat Years is a fascinating dystopian novel that captures the dilemmas of Chinese politics. The exciting plot, the intellectual content, and the realistic characters make the novel a must-read for anyone interested in international relations.

The insightful author of the book, the Shanghai-born Chan Koonchung, grew up in Hong Kong and Taiwan. He now lives in mainland China, trying to learn about the culture and politics as much as his outsider identity allows. Chan uses the mouth of the character He Dongsheng, “a Communist party official who is an insomniac and drives around Beijing in the wee hours of the night,” to outline a detailed plan of how China ascended to the position of the leading hegemonic power in 2013. (America and the West fester in debt and decline during a second global economic meltdown.)

I will attempt to summarize the plan in the following paragraphs and I hope to incite a discussion of the economic accuracy of this plan.

Premises:

  1. The Chinese government is authoritarian.
  2. During the 2nd economic meltdown, people lose confidence in the dollar and sets off a wave of selling; (2009)
  3. America enters stagflation and its stock market plunges; (2009)
  4. Like most parts of the world, China is affected by America’s downturn: exports=0, unemployment soars, GDP growth becomes negative; (2009)
  5. China still holds a lot of dollars and suffers from the dollar’s rapidly declining value.
  6. Chinese people become extremely worried and start hoarding commodities. (2010 Jan.)

Stage 1: The state will not initiate any command for police or army forces to restore “social order” anywhere in China, except for Xinjiang and Tibet.

He Dongsheng’s Explanation: We will wait to see how long the people can endure anarchy.

Result: Some start to steal, rob, and burn stores. Most people, worried of their safety, beg for the state to restore order (“give themselves up to the Leviathan.”).

Stage 2:

a) The state “strikes hard” (yanda) against crimes across the nation and sentences quick executions to convicts of most serious crimes.

He Dongsheng’s Explanation: In 1817, the Lord of Liverpool and his government suspended Habeas Corpus by rushing the Gagging Acts through Parliament. These measures banned meetings of over fifty people and instructed magistrates to arrest everyone suspected of spreading seditious libel. The economy started to flourish the next year. Similarly the Chinese government needs to exercise its force to “tame” its people and improve the economy.

b) 25% of everyone’s personal domestic bank account money will be converted to vouchers. 1/3 of the vouchers must be spent in the next 90 days, 2/3 of the vouchers must be spent in the next 6 months. The vouchers lose their value after expiration dates.

He Dongsheng’s explanation: the lack of domestic demand is mostly caused by Chinese people’s over-saving. During severe economic times, the wealth tend to save up. During times of emergency, the government can increase consumption through direct orders.

This plan is practical because it is easy to execute, given that all banks are routed to computers, and that it will only affect people with relatively more property (because they have bank accounts). Lastly, it does not require any government stimulus or Keynesian employment plan to increase consumption as well as GDP by at least 5 percentiles.

c) Supply must increase along with increased demand. The Chinese government will loosen restrictions on services and manufacture industries (except the ones dominated by state-owned enterprises or related to national security), encourage financial credits, and improve the accessibility to private funds. We will encourage entrepreneurship.

Result: Everyone will become businessmen. Enterprises flourish, urban unemployment plunges, and people earn higher income. New products and new services emerge in 1-2 months. China will successfully transition from an investment and export-based economy to a domestic demand-led economy.

d) Allow farmers to own rights to their own farm land. (In reality, the state has the final say to all property rights)

He Dongsheng’s explanation: to placate the farmers and prevent them from revolting.

e) “Strike-hard” campaign aimed at economic and corruption-related crimes.

He Dongsheng’s explanation: The government previously scared off the hooligans, gangs, and human traffickers. Now the government must use the justice system to defeat the opportunists during this period of transition.

f) Price controls.

He Dongsheng’s explanation: the supply of goods and services will often experience short periods of shortage even without opportunists who mess with the market. People’s expectations of these shortages will create irregular inflation cycles. Without price control, these cycles might develop into hyperinflation and undermine the entire economic reform. (He Dongsheng cited a historical exemplar: Franklin D. Roosevelt initiated price controls during World War II and saved America from the Great Depression.)

With capable technocrats, statisticians experienced in price control, the economic information previously unavailable during the years of China’s planned economy (real-time updating of prices online), and strict forbiddance against opportunistic hoarding, China realizes a new form of “commandist economy” and gains dominance amidst many crises.

The following stages involve more international politics. The government, under He Dongsheng’s master plan, will expand China’s geopolitical influence, such as establishing strong ties with Islamic countries as well as Japan. I will summarize those strategies in my next blog post.

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