China

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Hey PLA,

Sorry for my absence last week. After an uncomfortable few
days of limping around campus, I visited to UHS to find out that the large red
bump on my right Achilles’ Tendon was MRSA. They soon put me on antibiotics,
and I’m now on the mend. This week, however, I’d like to investigate China’s
current business environment. It seems that the past 2 years I have only heard
optimism regarding China’s future. We frequently see Chinese firms moving in to
buy US ones, and even high school teachers are telling their students to study
Chinese to increase skill set. But I’d like to venture the idea that China’s
booming growth is not sustainable -and perhaps exaggerated too.

In a recent NYT article titled “China Fortifies State
Businesses to Fuel Growth”
, two potential futures for China are proposed:
first, that “China has a decade or more of robust growth awaiting it before its
economy matures”, and second that “distortions and waste, in no small part due
to government meddling have resulted in gross misallocation of capital will end
up pushing growth rates down well before 2020.” The latter argument pertains to
Chinese government majority ownership of 99 of China’s largest 100 publicly
listed companies. Cold War history teaches us that government run enterprises
are not efficient, and that the market is the most efficient economic system.
In China, large state run companies are increasingly buying up their smaller
private competitors in business moves fueled by the Chinese government. Although
initially this may show growth, in the long run it decreases competition -thus
disincentivizing the companies to continue to innovate and provide higher
quality services at lower costs to the local and international markets.

Interestingly, some analysts also argue that “the state
owned conglomerates, built with state money and favors into global competitors,
have now become political power centers in their own right, able to fend off
even Beijing’s efforts to reign them in.” In another article I also learned
that China is the fastest growing purchaser of public surveillance equipment,
much of which has to do with recent civil unrest and ethnic rioting. Reports
like these suggest that China is still a long way from social stability. Additionally,
China’s financial system is notoriously more opaque than our own, leading me to
question how representative Chinese financials are of actual growth.

That’s all I’ve got. I hope you are all doing enjoying the
week and getting ready to kick off against Kent State on Saturday.

Grace and Peace,

-Harry

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