China’s History and Economics–Part 2: Dynasties and Wealth Creation

China’s History and Economics–Part 2: Dynasties and Wealth Creation


[ SILENCE ] [ MUSIC ]>>HELLO AND WELCOME
TO TALKING POINTS. I’M DAVE KELLY, DIRECTOR OF
ADVANCED MEDIAL PRODUCTION AT CAL STATE LONG BEACH. TODAY WE WILL CONTINUE A
CONVERSATION THAT WE BEGAN IN AN EARLIER PROGRAM ABOUT
THE RISE OF CHINA AND HOW THAT NATION HAS BECOME
AN ECONOMIC SUPERPOWER IN JUST THE PAST
THREE DECADES OR SO. MY GUEST TODAY AGAIN
IS DR. JACK HOU. DR. HOU IS A PROFESSOR
OF ECONOMICS AND HE IS ALSO AN EXPERT IN
CHINA’S ECONOMIC DEVELOPMENT. WELCOME BACK JACK AND THANK YOU FOR JOINING US AGAIN
ON TALKING POINTS.>>THANK YOU. THANKS FOR HAVING ME.>>WHEN WE LEFT OFF LAST PROGRAM
WE WERE TALKING ABOUT CHINA AND THE CURRENT STATE OF AFFAIRS
THERE AND WE WILL GET BACK TO THAT LATER IN THE SHOW. BUT FIRST I WANT TO
SPEND SOME TIME TALKING ABOUT CHINA’S ECONOMIC HISTORY BECAUSE THEY HAVE A VERY
INTERESTING HISTORY. AND MANY OF OUR VIEWERS
MAY NOT REALIZE THAT CHINA WAS THE WORLD’S
NUMBER ONE ECONOMIC POWER BACK IN THE PERIOD LEADING UP TO
THE INDUSTRIAL REVOLUTION. SO, IF WE’RE TALKING
ABOUT THE 1600S AND EVEN INTO THE 1700S THEY WERE THE
WORLD’S NUMBER ONE POWER HOLDING SWAY OVER AS MUCH AS ONE
THIRD OF THE WORLD’S GDP. SO, HOW WAS IT JACK THAT CHINA
WAS IN CONTROL OF ONE THIRD OF THE WORLD’S GROSS DOMESTIC
PRODUCT DURING THAT PERIOD?>>WELL, CHINA HAS HISTORICALLY
BEEN THE LEADER OF THE WORLD. IF YOU LOOK AT ADAM SMITH IN HIS
“WEALTH OF NATIONS” PUBLISHED IN 1776 HE SPENT
MORE THAN ONE THIRD OF THE BOOK TALKING ABOUT CHINA. BUT AGAIN, EUROPEANS
WERE FASCINATED WITH THE PROSPERITY
AND SUCCESS OF CHINA. MOST OF OUR AUDIENCE HAVE HEARD
OF CHINA BEING THE INVENTOR OF GUNPOWDER AND SUCH. BUT REMEMBER CHINA INVENTED
THE MOVEABLE PRESS CENTURIES BEFORE GUTTENBERG. CHINA INVENTED CROSSBOWS ABOUT
A THOUSAND YEARS BEFORE EUROPE. CHINA INVENTED CHROMIUM,
CHEMICAL CHROMIUM BY AS LATE AS THIRD CENTURY B.C. BUT
WHAT WAS THE MAIN CAUSE FOR CHINA’S SUCCESS WAS
ITS TECHNOLOGY ADVANCEMENT IN AGRICULTURE. FOR EXAMPLE, CHINA USED
BOARD PLOWS WHICH ALLOWED YOU TO PLOW THE LAND AND TURN THE
SOIL SIMULTANEOUSLY BY 400 B.C. AND EUROPE DID, DID SHOW THAT,
DID HISTORICAL RECORDS SHOW BY 400 A.D. THE ROMAN EMPIRE
STARTED USING THE PLOW, THE MOLD PLOW, THE BOARD
PLOW BUT WITH THE FALL OF THE ROMAN EMPIRE
IT PREVENTED IT FROM BEING WIDELY DISSEMINATED. IT WASN’T UNTIL THE 1500S WHEN THE DUTCH TRADERS
BROUGHT IT BACK FROM CHINA DID IT
GET WIDE ADOPTION. AND, OF COURSE, THAT LED
TO DRAMATIC INQUIRIES IN AGRICULTURAL PRODUCTIVITY
IN EUROPE WHICH ALLOWED THE LAND OWNERS
TO EVICT A LOT OF THE PEASANTS. BECAUSE THEY DON’T
NEED AS MUCH WORKERS AND THE PEASANTS
FLOCK TO THE CITIES. SO LATER ON WHEN INDUSTRIAL
REVOLUTION CAME ALONG EUROPE ALREADY HAD A READY LABOR
FORCE IN THE CITIES. BUT GETTING BACK, BECAUSE OF
CHINA’S ABILITY TO THE ADVANCES IN THEIR AGRICULTURAL
TECHNOLOGY, COMPLIMENTED WITH A VERY SOPHISTICATED
LAND MANAGEMENT SYSTEM, CHINA WAS ABLE TO PRODUCE
MORE THAN ENOUGH FOOD TO FEED ITS POPULATION AND THAT
IS WHY HISTORICALLY CHINA HAS BEEN THE MOST POPULOUS NATION. AND REMEMBER, UP
UNTIL MORE RECENTLY, BY MORE RECENTLY I MEAN
THE LAST 200 YEARS, WE HAVE GAUGED A COUNTRY’S
PROSPERITY NOT IN TERMS OF GDP BUT IN TERMS OF ITS
POPULATION, IT’S ABILITY TO FEED AND SUSTAIN THIS POPULATION. SO, IN A NUTSHELL
CHINA’S SUCCESS WAS BECAUSE OF ITS LAND MANAGEMENT AND ADVANCED TECHNOLOGY
IN AGRICULTURE.>>SO THE ABILITY TO SUSTAIN
A POPULATION IS WHAT KEEPS A COUNTRY STRONG IN THIS CASE. AND AS YOU MENTIONED THERE WAS A
SERIES OF SCIENTIFIC DISCOVERIES OR DEVELOPMENTS OR TECHNOLOGICAL
DEVELOPMENTS THAT ALLOW CHINA TO MOVE AHEAD, CERTAINLY
IN AGRICULTURE AND THE LAND MANAGEMENT
SYSTEM THAT YOU REFERRED TO. THIS GOES BACK ALL THE WAY INTO
THE SONG DYNASTY WHICH WAS FROM, IF MY NUMBERS ARE CORRECT, FROM
THE YEAR A.D. 960 TO ABOUT 1280.>>UM HUH.>>AND WHAT WAS INTERESTING AND
UNIQUE ABOUT THIS SONG DYNASTY AND THEIR ABILITY TO DEVELOP
AGRICULTURAL LAND MANAGEMENT?>>WELL FOR THE SONG DYNASTY
IT’S IMPORTANT IN SEVERAL WAYS. THE LAND MANAGEMENT SYSTEM I
ALLUDED TO EARLIER ON CONTINUED IN CHINA FROM PROBABLY
1000 B.C. ALL THE WAY UP TO THE SONG DYNASTY. BY THE TIME YOU GOT TO THE SONG
DYNASTY POPULATION OUTWEIGHED THE AVAILABLE LAND. SO SONG DYNASTY WAS FORCED TO CHANGE ITS LAND
MANAGEMENT SYSTEM. PEOPLE PAID TAXES
NOT IN TERMS OF GRAIN BUT IN TERMS OF CURRENCY. THAT LED TO A FINANCIAL
COMMERCIAL BOOM IN CHINA IN TERMS OF CHANGES IN TAXATION, WHICH LED TO THE ECONOMIC
DEVELOPMENT BOTH IN TERMS OF TRANSPORTATION, LODGING, ETC.
AND FINANCIALLY CHINA STARTED TO SEE THE EMERGENCE OF
EARLY FORMS OF LONG CHECKS. ALSO IN SONG DYNASTY THERE WAS A
BURST OF INTELLECTUAL CURIOSITY ABOUT THE PHYSICAL
WORLD BY SONG DYNASTY. WE’VE SEEN A LARGE SCALE FOR
EXAMPLE USING WATER AS A SOURCE OF POWER, LARGE SCALE
MANUFACTURER PRODUCTION, PRINTING, ETC. THAT’S MAINLY
IN THE NORTHERN SONG DYNASTY WHEN THEY WERE DEFEATED
AND FORCED TO MOVE SOUTH. THAT CAUSED A WIDESPREAD
OF INTELLECTUALS BECAUSE IN THE EARLY
DAYS THE INTELLECTUALS WHO OWN LAND COULD RELY ON THE
LAND AND HAVE PERPETUAL INCOME. BUT WHEN THE FLED TO THE
SOUTH THEY WERE NOT ABLE TO BRING THE LAND WITH THEM
AND HENCE THEY HAD TO RESORT TO EITHER BECOMING ENTREPRENEURS
THEMSELVES OR TEACHING. SO THAT CAUSED THE
MUCH MORE WIDESPREAD OF INTELLECTUAL EDUCATION
IN CHINA.>>SO EDUCATIONAL DEVELOPMENT
CAME AS A NECESSITY FOR THOSE WHO WERE DISPLACED FROM
THEIR PREVIOUS LANDHOLDINGS. AND THEN AS WE MOVE
ALONG HERE WE SEE THAT THE POPULATION ALMOST
DOUBLED DURING THE SONG DYNASTY AND THEIR PER CAPITA INCOME
ROSE BY A FACTOR OF ONE THIRD. HOW WERE THEY ABLE
TO ACCOMPLISH THAT? AND WHEN WE TALK ABOUT
AGRICULTURE ARE WE TALKING ABOUT RICE AS THE PRIMARY CROP?>>WELL IN THE OLD
DAYS WHEN YOU HAD TO PAY TAXES YOU
PAID TAXES IN RICE. AND THAT’S WHY IF YOU LOOK AT THE OLD HISTORICAL RECORDS
YOU WILL SEE A GOVERNMENT OFFICIAL AND HIS PAY IS IN RICE, BECAUSE THAT’S WHAT THE
GOVERNMENT’S TAX REVENUE WAS. BUT IN THE SONG DYNASTY WHEN
YOU STARTED PAYING IN CURRENCY THAT FREED UP THE FARMERS
TO PRODUCE WHATEVER THE LAND AND THE CLIMATE WAS
BEST SUITED FOR. THAT AMONG OTHER
THINGS, OF COURSE, INCREASED THE PRODUCTIVITY
OF FARMERS AND CHINA HISTORICALLY HAS
BEEN RELATIVELY CONCENTRATED IN THE NORTH AND WHEN THE
NORTHERN SONG WAS DEFEATED AND THEY MOVED SOUTHWARDS
AND BECAME THE SOUTHERN SONG THAT OPENED UP DEVELOPMENT
CULTIVATION OF THE SOUTHERN CHINA, WHICH
WAS ACTUALLY MORE FERTILE AND MORE SUITABLE FOR
THE PRODUCTION OF RICE AND MANY OTHER AGRICULTURAL
GOODS.>>I’VE HEARD THE TERM
WET RICE CULTIVATION.>>UM HUH.>>EXPLAIN WHAT THAT
MEANS, WET RICE CULTIVATION.>>WET RICE CULTIVATION IS
BASICALLY YOU HAVE FARMLAND WHERE YOU FLOOD IT WITH WATER. RICE DEPENDS HEAVILY ON WATER. THAT’S WHY IN THE NORTHERN
PLAINS WHERE WATER, WHERE RAINFALL IS RELATIVELY
SCARCE, IN THE OLD DAYS WHEN THEY WERE STILL
FORCED BECAUSE OF TAX LAWS TO PRODUCE RICE THEY
WERE LESS EFFICIENT. THEY DIDN’T HAVE ENOUGH WATER. BUT IN THE SOUTH, WHERE A FARMER
CAN EASILY PRODUCE TWO CROPS, IN MODERN DAY THEY CAN PRODUCE
UP TO THREE CROPS A YEAR AND RAINFALL IS VERY IMPORTANT. MANY IF OUR AUDIENCE IF YOU
LOOK AT FOOTAGE OF RICE PATTIES IN CHINA YOU CAN SEE THE FARMERS
WITH THEIR, WITH THEIR FEET IN KNEE DEEP MUD
PLANTING THE SOIL AND YOU WILL SEE CHINA VERY
INGENIOUSLY USED THE MOUNTAINOUS TERRAINS WHERE YOU CAN HAVE THE
WATER FLOW DOWN STEP BY STEP. THAT’S HOW CHINA WAS ABLE
TO FEED ITS POPULATION. THIS IS AGAIN A TECHNOLOGY WHERE
YOU CAN USE YOUR WATER RESOURCES AND USE THAT ON HILLSIDE LAND.>>WRAPPING UP THE SONG DYNASTY
WHICH ENDED AROUND 1280 OR SO, THAT’S THE TIME MARCO POLO
WAS TRAVELING TO THAT PART OF THE WORLD AND AT THAT
POINT IN TIME GENGHIS KHAN AND HIS ANCESTORS, THE
MONGOLS, WERE IN CHARGE. AND MARCO POLO MET KUBLAI KHAN,
THE GRANDSON OF GENGHIS KHAN, AND WAS QUITE IMPRESSED
AT THE XANADU PALACE. WHAT WAS IT LIKE AT THE XANADU
PALACE WHEN MARCO POLO VISITED AND WHAT KINDS OF THINGS
DID HE BRING BACK TO ITALY?>>WELL, OF COURSE,
FROM THE CHINESE POINT OF VIEW SPAGHETTI WAS
ACTUALLY CHINESE NOODLES. OF COURSE, I’M PRETTY SURE
OUR ITALIAN AUDIENCE PROBABLY WOULD DISAGREE. BUT REMEMBER AT THAT
TIME IN MIDDLE– IN MEDIEVAL AGES IN EUROPE
WE SEE GLOOMY CASTLES, DAMP WET WHERE FARMERS WERE
BASICALLY PSEUDO SLAVES TO THE LORD OF THE
MANOR AND SUCH. AND HERE YOU COME TO A COUNTRY WHERE YOU HAVE A VERY WELL
STRUCTURED BUREAUCRATIC SYSTEM WITH PALACES THAT MAKE THE
EUROPEAN PALACES BASICALLY LOOK LIKE HUTS. AND I THINK THAT IS WHY THAT
PROBABLY PLANTED THE SEED FOR THE WESTERN FASCINATION
TOWARDS CHINA. REMEMBER, WHEN MARCO
POLO FIRST TALKED ABOUT HIS TALES EUROPEANS
DID NOT BELIEVE THAT THIS WAS POSSIBLE.>>AND WE KNOW ABOUT THE SILK
ROAD AND ALL OF THE THINGS THAT DEVELOPED AS A
RESULT OF THAT INTERACTION. LET’S TALK ABOUT WHAT HAPPENED
DURING THE INDUSTRIAL REVOLUTION BECAUSE CHINA WAS AT
THE TOP OF THE WORLD AND THE INDUSTRIAL
REVOLUTION HAPPENED AND THEN THEY SLID FORM THERE. YOU WERE MENTIONING
EARLIER THAT IN EUROPE A LOT OF FARMING TECHNIQUES IMPROVED SO THAT THERE WAS AN ABUNDANT
POPULATION IN THE CITIES AND VILLAGES TO PROVIDE
THE LABOR. WHAT HAPPENED IN CHINA AND
WHY DIDN’T THEY FOLLOW SUIT?>>WELL WE TALK ABOUT THE MORE
DISTANT AND THE MORE RECENT. THE MORE DISTANT BY THE TIME
YOU GOT TO THE MING DYNASTY, WHICH IS AFTER THE MONGOLS, THE MING DYNASTY THE THIRD
EMPEROR HE SEES THE POWER BY OVERTHROWING HIS NEPHEW
AND HE GAINED A LOT OF SUPPORT FROM THE EUNUCHS IN THE PALACE. AND TO PLEASE THE EUNUCHS
HE GAVE MORE POWERS TO THE EUNUCH RATHER
THAN THE BUREAUCRATS, WHICH WERE MAINLY
INTELLECTUAL SCHOLARS. ONE OF THE WAYS HE DID THAT
WAS TO MAKE THE EXAM SYSTEM SO COMPLICATED THAT IT BASICALLY
CONSTRAINED THE IMAGINATION OF THE INTELLECTUALS. I FEEL THAT IS PROBABLY
ONE OF THE REASONS FOR THE BEGINNING
OF THE DECLINE. AND, OF COURSE, IT
IS BECAUSE OF THIS THAT THIS WESTERN SCHOLAR
MAX VEBA [ASSUMED SPELLING] WHO ARGUED THAT INDUSTRIAL
REVOLUTION OWED A GREAT DEAL OF DEBT TO PROTESTANT ETHIC AND HE CRITICIZED CONFUSION
ETHIC AS BEING A HINDRANCE. I DO NOT QUITE AGREE. I THINK IT’S MAINLY BECAUSE
OF THE IMPERIAL EXAM THAT LED TO THE INTELLECTUALS
BEING LESS IMAGINATIVE. YOU CAN JUST IMAGINE IF ALL OF OUR EXAMS WERE
MULTIPLE CHOICE RATHER THAN ESSAYS ALLOWING STUDENTS
TO IMAGINE AND SHOW THEIR IDEAS. BUT IN MORE RECENT
TERMS REMEMBER BY UP TO THE 1700S CHINA’S
GDP POPULATION WAS EQUAL TO ROUGHLY THE ENTIRE EUROPE. SO FOR ONE COUNTRY IT WAS BY
FAR THE MOST DOMINANT COUNTRY. BUT BY THE EARLY, BY THE EARLY
MID 17TH CENTURY CHINA CLOSED ITS BORDERS, MAINLY BECAUSE
WESTERN CULTURE CAUSED TOO MUCH SOCIAL UNREST AND SINCE CHINA
DID NOT REALLY NEED ANYTHING FROM THE WEST, THE EMPEROR
DIDN’T FIND IT FEASIBLE TO TOLERATE THE UNREST CAUSED BY
THE WEST SO THEY CLOSED THE DOOR TO FOREIGNERS, FOREIGN IDEAS
AND REMEMBER WE’RE TALKING ABOUT MID 1700S, WHICH
WAS PRECISELY THE INDUSTRIAL REVOLUTION.>>THAT WAS BAD TIMING.>>EXACTLY.>>SPEAKING OF TIMING WE HAVE
TO TAKE A BREAK RIGHT NOW. STAY WITH US. WHEN WE COME BACK WE’LL FAST
FORWARD TO CONTEMPORARY CHINA AND TALK ABOUT SOME
OF THE ISSUES INVOLVED WITH CHINA’S CURRENT
ECONOMIC DEVELOPMENT. WE’LL SEE YOU IN A MOMENT.>>[BACKGROUND MUSIC] THERE’S A
WORLD OF OPPORTUNITY AVAILABLE THROUGH THE COLLEGE
OF CONTINUING AND PROFESSIONAL EDUCATION
AT CAL STATE LONG BEACH. WOULD YOU LIKE TO MOVE AHEAD
IN THE FIELD OF HUMAN RESOURCES AND PERSONNEL MANAGEMENT? SIGN UP FOR THE HUMAN RESOURCES
MANAGEMENT CERTIFICATE PROGRAM. YOU’LL LEARN HOW TO EXPAND YOUR
KNOWLEDGE AND SKILLS AND ADVANCE IN THIS DYNAMIC INDUSTRY. FOR MORE INFORMATION CONTACT
THE COLLEGE OF CONTINUING AND PROFESSIONAL EDUCATION
AT CAL STATE LONG BEACH.>>WELCOME BACK TO
TALKING POINTS. I’M DAVE KELLY. MY GUEST TODAY IS DR. JACK HOU. WE’RE TALKING ABOUT THE
RISE OF CHINA AND HOW THEY– THAT COUNTRY HAS BECOME AN
ECONOMIC SUPERPOWER IN JUST OVER THE PAST THREE DECADES. AND JACK, BEFORE THE
BREAK WE WERE TALKING ABOUT THE ECONOMIC HISTORY OF
CHINA AND HOW THEY HAVE RISEN AND FALLEN BEFORE AND NOW
THEY’RE ON THE ASCENDANCY. WE FIND THAT CHINA
TODAY IS NUMBER TWO AND MOST ECONOMISTS AGREE
THAT THEY WILL BE NUMBER ONE BY AROUND 2019 OR SO IF
PRESENT TRENDS CONTINUE. WHAT ARE THE REPERCUSSIONS OF CHINA BECOMING THE WORLD’S
NUMBER ONE ECONOMIC POWER?>>WELL, I ALWAYS WANT
TO REMIND THE AUDIENCE BECAUSE OF THE INEVITABLE RISE
OF CHINA BECOMING NUMBER ONE IN TERMS OF GROSS
DOMESTIC PRODUCT, PEOPLE SEEM TO HAVE
A FEAR OF CHINA. BUT REMEMBER IF YOU
LOOK IN TERMS OF PER CAPITA GDP CHINA
IS STILL WAY BEHIND. CHINA IS STILL LESS THAN AROUND
20 TO 25 PERCENT OF THE U.S. SO EVEN WITH THIS GROWTH IT
IS STILL FAR BEHIND IN TERMS OF THE U.S. SO I DON’T FEEL THAT THERE IS ANY MAJOR
REPERCUSSION WORLDWIDE.>>AND PEOPLE NEED TO
REALIZE THAT IT’S ALL ABOUT PURCHASING POWER
PARODY AND THE LIFESTYLE THAT THE INDIVIDUALS CAN
LIVE WITHIN THAT COUNTRY. AND SO A COUNTRY MY HAVE THE
LARGEST OVERALL NET WEALTH BUT THE PEOPLE MAY
NOT LIVE AS WELL AS OTHER FOLKS IN
OTHER COUNTRIES. AND THAT’S WHAT YOU
WERE JUST POINTING OUT.>>YES.>>OKAY AND AS WE TALK ABOUT
THE REASONS WHY CHINA DEVELOPED THEIR ECONOMY THE WAY THEY
HAVE IN SUCH A SHORT PERIOD, ONE OF THOSE FACTORS WAS
A VERY LARGE SAVINGS RATE. WHY DID CHINA HAVE SUCH
A LARGE SAVINGS RATE AND HOW DID THIS
CONTRIBUTE TO THEIR GROWTH?>>WELL THIS IS A VERY
COMPLICATED ISSUE FROM A– FOR THE REASON CHINA HAD SUCH
A LARGE SAVING RATE WAS MAINLY BECAUSE WHEN THEY CHANGED
ETIOLOGY FROM COMMUNISM TO A MARKET DRIVEN
SYSTEM THE IRON RICE BOWEL WHERE YOU ARE GUARANTEED
FROM CRADLE TO GRAVE THAT GRADUALLY DISAPPEARED. SO THE INDIVIDUAL HAS NOW BE–
HAS TO BE RESPONSIBLE FOR HIS OR HER OWN RETIREMENT
AND WORST OF ALL HIS OR HER MEDICAL COVERAGE. AND THERE IS AN OLD SAYING;
THERE ARE MANY FAMILIES IN CHINA THAT ARE JUST ONE MAJOR
MEDICAL INSTANCE AWAY FROM UTTER POVERTY. AND IT IS THE FEAR OF THIS THAT
HAS CAUSED THE CHINESE PEOPLE TO SAVE SO MUCH AND THE CHINESE
CULTURE OF TRYING TO LEAVE AS MUCH BEQUESTS TO YOUR
CHILDREN AS POSSIBLE. OF COURSE, THIS FROM
A THEORETICAL POINT OF VIEW IS THE ROOT CAUSE
FOR CHINA’S ABILITY TO CREATE SUCH LARGE EXPORT SURPLUS. AND THIS LARGE EXPORT SURPLUS AND THE LARGE SAVING RATE
ALLOWS THE CHINESE GOVERNMENT TO HAVE THE LUXURY OF
INVESTING IN ITS INFRASTRUCTURE. CHINA’S INVESTMENT, INFRASTRUCTURE INVESTMENT
ACCOUNTS FOR 46 PERCENT OF ITS GDP COMPARED TO 12
PERCENT IN THE U.S. AGAIN, THAT’S NOT SUSTAINABLE. AND THE PROBLEM WITH ANY ECONOMY
THAT GROWS THAT RAPIDLY IS THAT AT A CERTAIN
POINT YOU HIT THE WALL BECAUSE YOU CAN ONLY
EXPORT TO A CERTAIN POINT. YOU HAVE TO DEVELOP THAT
INTERNAL CONSUMER DEMAND AND THE INTERNAL
CONSUMER MARKET. AND WITH CHINA SUCH
A LARGE POPULATION, THAT WOULD BE THE NEXT STEP. HOW ARE THEY DOING ON THAT
AND WHY IS IT SO IMPORTANT TO THEM TO BALANCE THAT OUT?>>WELL, WHEN I LEFT
CHINA I TRIED TO REMIND THE CHINESE AUDIENCE THAT THE SUB-PRIME CRISIS
DID CAUSE PAIN FOR CHINA, BUT IN THE LONG RUN IT WAS
PROBABLY GOOD FOR CHINA. IT FORCED THE CHINESE GOVERNMENT
AND THE INTELLECTUAL COMMUNITY TO SORT OF PUT ON THE
BRAKES AND LOOK AROUND AND SEE THERE IS
SOMETHING WRONG. SOMETHING WRONG AMONG OTHER
THINGS AS YOU ELUDED TO, TOO DEPENDENT ON WESTERN
CONSUMPTION, WHICH IS RISKY AS THE SUB-PRIME CRISIS SHOWED. TO GET THE CHINESE
PEOPLE TO CONSUME MORE, PART OF IT IS GOING TO BE DONE
BY THE GOVERNMENT IN TERMS OF EDUCATION PROPAGANDA,
WHICH IS STILL VERY IMPORTANT IN THE CHINESE SYSTEM. BUT CHINA HAS ALSO EMBARKED ON
IMPROVING INVESTMENT CHANNELS. THAT’S ONE OF THEIR PRIME
DIRECTIVES SINCE LAST YEAR. THEY HAVE ALSO TRIED TO DRAMATICALLY IMPROVE
THEIR HEALTHCARE AND OLD AGE INSURANCE, WHICH
WILL ALLEVIATE THE NEED FOR SUCH MASSIVE SAVINGS. IF PEOPLE DO NOT HAVE TO SAVE
SO MUCH THAT WILL FREE UP A LOT OF THEIR MONEY FOR DOMESTIC
CONSUMPTION, WHICH WILL LEAD TO MORE DOMESTIC ABSORPTION AND A MORE BALANCED
GROWTH FOR CHINA.>>AND WAGES ARE
RISING IN CHINA AS WELL AND CHINA’S AVERAGE MONTHLY
WAGES ARE ALREADY HIGHER THAN THEY ARE IN
MEXICO ON AVERAGE AND THEY’RE CONTINUING TO RISE. AND THIS LEADS PEOPLE TO
SPECULATE THAT WELL THAT MEANS THAT THE NEVER ENDING CHASE FOR THE CHEAPEST LABOR WILL
MOVE ELSEWHERE AND GO TO PLACES LIKE VIETNAM AND CAMBODIA,
NEXT DOOR NEIGHBORS, AND ALSO PERHAPS MYANMAR, WHICH
USED TO BE REFERRED TO AS BURMA AND OTHER PARTS OF THE WORLD. BUT YOU’RE CONVICTION IS
THAT CHINA’S NOT TOO WORRIED ABOUT VIETNAM, CAMBODIA
AND MYANMAR.>>CHINA IS NOT THAT
WORRIED FOR SEVERAL THINGS. WESTERN INVESTORS WILL FOREVER
BE INTERESTED IN CHINA NOT BECAUSE OF THE CHEAP LABOR BUT BECAUSE THE TREMENDOUS
INTERNAL MARKET POTENTIAL. AND IF YOU LOOK AT
THE CHEAPEST LABOR, YES VIETNAM THE LABOR
IS CHEAPER. BUT REMEMBER, THE
SIZE OF VIETNAM PALES IN COMPARISON WITH CHINA. SO, IF ALL OF THE
WESTERN INDUSTRIES IN CHINA IMMEDIATELY MOVE
TO VIETNAM OR MYANMAR, CAN YOU IMAGINE THE IMPLICATION
OF THE WAGES OVER THERE? THEY WILL PROBABLY GO
UP THREEFOLD OVERNIGHT. SO, IN THAT SENSE I THINK
INTELLECTUALLY THE CHINESE ARE NOT WORRIED ABOUT THAT. AND ONE OF THE THINGS THAT
CHINA WILL NEED TO DO IN ORDER TO FOSTER THIS CONSUMER MARKET
THAT THEY WANT TO DEVELOP IS TO MOVE UP THE SCALE,
BECAUSE IN ORDER TO PROVIDE GOOD QUALITY JOBS
AND TO KEEP RISING THE QUALITY OF KINDS OF PRODUCT THAT
THEY’RE DEVELOPING HAS TO GO UP. SO THEY NEED TO INNOVATE MORE
AND NOT JUST MANUFACTURE.>>YEAH, I DON’T REMEMBER
WHO FIRST COINED THIS BUT I THINK THIS IS A
WONDERFUL TERMINOLOGY. IT TALKS ABOUT THE U.S. GROWTH
IS GROWTH THROUGH INSPIRATION. AND CHINA’S GROWTH IN THE LAST
30 YEARS OR SO HAS BEEN GROWTH THROUGH PERSPIRATION AND CHINA
NEEDS TO MOVE UP THE FOOD CHAIN SO TO SPEAK AND USE
INTELLECTUAL INNOVATIONS FOR THE SOURCE OF THEIR GROWTH. CHINA HAS INVESTED TREMENDOUSLY
IN ITS EDUCATION SYSTEM AND I DO PREDICT THE
PAYOFF WILL COME ABOUT. BUT THEN REMEMBER, CHINA
ALSO LACKS IN TERMS OF A LOT OF COMPLIMENTARY INSTITUTIONS
INCLUDING INTELLECTUAL PROPERTY PROTECTION AND SUCH. I KNOW OUR TIME IS SHORT. WE’RE PROBABLY NOT GOING TO
BE ABLE TO FULLY COVER THIS SO I’LL LEAVE THIS AT HERE.>>OKAY. AND I THINK
THAT’S AN IMPORTANT POINT THAT YOU JUST BROUGHT UP THOUGH. AND THAT IS THAT IN ORDER
TO AGAIN RISE UP THE SCALE OF ECONOMIC PRODUCTIVITY
AND PROVIDE THE SO CALLED VALUE ADDED
ASPECT TO THE ECONOMY AND TO PRODUCTION IT’S GOT
TO COME IN THE WAY OF IDEAS AND INTELLECTUAL DEVELOPMENT
AND SERVICES AND THINGS THAT WON’T INVOLVE AS MUCH OF THE HEAVY INTENSIVE
FACTORY PLACEMENT WHICH HAS LED TO THE POLLUTION
PROBLEM IN CHINA.>>YES. THE CHINESE GOVERNMENT
HAS STARTED I WOULD SAY PROBABLY AROUND 2009 AND STARTING
TO IN THE COASTAL CITIES WHERE THE ORIGINAL GROWTH BEGAN. THEY ARE TRYING TO
MOVE UPWARDS IN TERMS OF THE PRODUCTION LADDER TO BE
MORE WITH HIGHER VALUE ADDED AND MOVED A LOT OF
THE PRODUCTION, POTENTIALLY LABOR INTENSIVE,
POTENTIALLY MORE POLLUTIVE, POLLUTION INDUSTRIES MORE INLET. SO THE COASTAL WHERE
THE WAGES ARE HIGHER, WHERE THE LAND COST
IS HIGHER BY MOVING UP THE VALUE ADDED I THINK
THIS IS A SMART MOVE IN TERMS OF MAINTAINING ITS GROWTH.>>ONE THING WE HAVEN’T
TALKED ABOUT YET IS THE ONE CHILD
POLICY IN CHINA AND HOW THAT HAS HAD SOME
REPERCUSSIONS FOR THEIR FUTURE. IT DID PREVENT ACCORDING
TO SOME ESTIMATES THE– IT PREVENTED THE BIRTH
OF MAYBE 400,000 FOLKS THAT WOULD HAVE BEEN BORN
OTHERWISE WITHOUT THAT POLICY. BUT WHAT ARE– WHAT IS THE
IMPACT OF IT NOW LOOKING 20, 30, 40 YEARS DOWN THE ROAD.>>WELL THE ONE CHILD POLICY WAS
IMPLEMENTED IN 79 INDEPENDENT OF THE ECONOMIC REFORM,
MAINLY OUT OF NECESSITY. CHINA’S GROWTH WAS TOO LOW. PRODUCTIVITY WAS TOO LOW. LABOR FORCE, SURPLUS
LABOR WAS TOO HIGH. BUT WITH THE ONE CHILD
POLICY IT ALSO PUT A CAP ON CHINA’S ABILITY TO SUSTAIN A
LABOR INTENSIVE EXPORT ORIENTED GROWTH STRATEGY. AND AGAIN, I ARGUE THAT IS
WHY THE SUB-PRIME CRISIS IN THE LONG RUN HELPED CHINA. AT THE CRITICAL TIME IT
CAUSED THE CHINESE GOVERNMENT TO SLOW DOWN, PRESS ON THE
BRAKE SO TO SPEAK AND LOOK AT ALTERNATIVE ROOTS
TOWARDS FURTHER DEVELOPMENT. CHINA HAS ALREADY TAKEN
SEVERAL MEASURES IN TERMS OF LOOSENING THE
ONE CHILD POLICY. PERSONALLY I THINK IT’S
A LITTLE BIT TOO LATE BECAUSE IT TAKES 16 YEARS FOR– YOU CAN PRODUCE A
CUP IN TWO SECONDS, BUT IT TAKES YOU 16 YEARS
TO PRODUCE A WORKER. SO, I THINK IT’S A
LITTLE BIT TOO LATE, WHICH MEANS THAT THE GOVERNMENT
HAS TO SPEED UP ITS DEVELOPMENT IN TERMS OF MOVING UP THE
VALUE ADDED PRODUCTION CHAIN.>>AND WHAT HAS THIS POLICY DONE TO THE DEMOGRAPHICS
GOING FORWARD? WHAT DOES THE SOCIETY LOOK LIKE
IN TERMS OF AGE STRATIFICATION?>>MANY OF OUR AUDIENCE
HAVE HEARD OF WHAT WE CALL THE
POPULATION PYRAMID, WHERE THE ELDERLY IS A
RELATIVELY SMALL PORTION AND THE YOUNGER POPULATION
IS LIKE THE BASE OF THE PYRAMID BEING VERY LARGE. IN CHINA IF YOU LOOK AT IT,
CHINA IS LIKE A STACK OF COINS. BECAUSE OF THE ONE CHILD POLICY
EACH GENERATION IS ROUGHLY ABOUT THE SAME SIZE,
WHICH IS VERY PROBLEMATIC. ACCORDING TO ESTIMATES BY THE YEAR 2050 CHINA WILL
HAVE 140 MILLION POPULATION THAT ARE 80 YEARS OLD OR OLDER. AND PERSONALLY, I AM
EXTREMELY CONCERNED ABOUT THE HEALTHCARE
COST IMPLICATIONS.>>ONE LAST THOUGHT,
BECAUSE WE’RE RUNNING OUT OF TIME AGAIN
IN THIS SEGMENT. BUT CHINA HOLDS A LARGE
NUMBER OF U.S. TREASURY BILLS. PEOPLE HAVE BEEN CONCERNED ABOUT
THAT AND THE KIND OF LEVERAGE THAT GIVES CHINA OVER THE U.S.
IS THAT LEVERAGE OR IS THAT KIND OF AN INTERDEPENDENCY,
30 SECONDS OR LESS.>>I THINK ITS INTERDEPENDENCY
BECAUSE CHINA TO MAKE SURE THAT THEIR INVESTMENT
HOLDS VALUE THEY NEED TO MAKE SURE THE U.S. HAS
SUCCESSFUL AND SUSTAINED GROWTH. OTHERWISE THEY ARE IN
TROUBLE, STAYING IN CHINA.>>SO WE ALL RISE
OR FALL TOGETHER.>>YES.>>IN THAT SCENARIO.>>YES.>>JACK IT’S ALWAYS A PLEASURE
TO HAVE YOU ON THE SHOW.>>THANK YOU, THANK
YOU, THANK YOU.>>THANK YOU SO MUCH
AND THANK YOU FOR JOINING US ON
TALKING POINTS. [BACKGROUND MUSIC] JOIN US
AGAIN FOR ANOTHER EPISODE SOON. I’M DAVE KELLY. UNTIL THEN, HAVE A NICE DAY. [ MUSIC ]

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