State Capitalism

These two paragraphs are a concise summary of how China goes about achieving growth in its economy:

"Central to China's approach are policies that champion state-owned firms and other so-called national champions, seek aggressively to obtain advanced technology, and manage its exchange rate to benefit exporters. It leverages state control of the financial system to channel low-cost capital to domestic industries—and to resource-rich foreign nations whose oil and minerals China needs to maintain rapid growth."

"China's policies are partly a product of its unique status: a developing country that is also a rising superpower. Its leaders don't assume the market is preeminent. Rather, they see state power as essential to maintaining stability and growth, and thereby ensuring continued Communist Party rule."

Dean, Jason, Brown, Andrew, and Oster, Shai, 2010. China's "state capitalism" sparks a global blacklash. The Wall Street Journal, Nov. 13.

I completely agree with this assessment. The combination of a policy of currency pegging and State control of the financial system are the drivers of economic growth for China. It is a relentless approach that seeks to acquire technology rather than to develop it domestically. In addition, there is a focus on a structural positive balance of trade to the detriment of developed countries.

From an American standpoint, I see little in the way of a policy to create reasonable and fair trade between China and the US. For years this issue has gone unaddressed and I think a great deal of the responsibility rests with poor government and corporate decision-making from 2000 until now.

I think the policy of currency pegging by the second largest economy in the world is insane and will ultimately lead to a massive miss allocation of assets within the global economy. The damage from such policies could last decades.