Contrasting the Chinese, EU and American Economic Systems
by John Lawrence
Since 2001, China has pursued a “going-out” investment policy. At first, the PRC (People's Republic of China) mainly encouraged SOEs (state owned enterprises) to invest overseas but in recent years, China's overseas investments have diversified with both state and private enterprises investing in nearly all industries and economic sectors. After Deng Xiaoping came to power in the late 1970s, China opened up its economic policy with the result that approximately 800 million people were lifted out of poverty in about 40 years. This turned China into a capitalistic nation ruled by the Chinese Communist party although the word "communist" is largely an anachronism at this point. China developed a unique economic system comprised of state owned enterprises and private enterprise. It has been the private aspects of China's system that have mainly driven the huge increases in GDP to the point where China is likely to take over the US as the world's largest economy in terms of GDP in a few years.
There are 4 components of GDP: consumption, investment, government spending and profit from exports. Some of the reasons for China's becoming an economic powerhouse are that consumption is only 38% of GDP whereas US consumption is nearly 70% of GDP. While Americans consume, China produces, exports and invests. I would characterize the US as having a Taylor Swift economy, an economy based on consumption of entertainment and other disposable items with no lasting value. It has been reported that Taylor Swift and the Barbie movie have been at least somewhat responsible for keeping the American economy afloat. When you add in social media and professional athletics, much of American consumption is immediately disposed of as soon as the event is over. In the EU consumption is about 52% of GDP so somewhat larger than China's but much less than the US.
Chinese investment is 43% of GDP while The US' is about 16%. EU investment is about 25% of GDP so midway between the US and China. At 21.4% EU government spending is larger than either the US (17.6%) or China (16%). Like the American government the Chinese government doesn't spend a lot of money on welfare. Chinese families are basically savers and provide a lot of the same services to their own intergenerational extended families which are provided by EU governments. The American ethos is largely individualistic and so many family members who can't provide for themselves fall through the cracks. This is one reason for the homeless crisis in the US.
The Chinese economy is bolstered by the fact that it is a net exporter (2.5% of GDP) while the US (-2.7%) and the EU (-2.7%) are net importers which subtracts from their GDPs. China also exports capital and manpower in the form of the Belt and Road Initiative. Announced in 2013, the Belt and Road Initiative (BRI) aims to strengthen China’s connectivity with the world. It combines new and old projects, covers an expansive geographic scope, and includes efforts to strengthen hard infrastructure, soft infrastructure, and cultural ties. As of October 2019, the plan touches 138 countries with a combined Gross Domestic Product of $29 trillion and some 4.6 billion people. Supporting a diverse array of initiatives that enhance connectivity throughout Eurasia and beyond could serve to strengthen China’s economic and security interests while bolstering overseas development.
The Chinese political system, nominally communist, has the same elements of democracy that the early US political system had which is that locally elected bodies select the next higher political body with 3 successive iterations so that the National Assembly is chosen by the provincial assemblies at the next lower level. The original American Constitution had a similar feature in that the Senate was not chosen directly by the people but by state legislatures. State legislatures continued to elect senators until adoption of the Seventeenth Amendment to the Constitution in 1913 which provided for popular election of senators. The Chinese system tends to meritocraticy with the best and brightest ascending to the top levels whereas the more democratic American system has within it the possibility of electing complete idiots like Donald Trump whose ascendancy served to prove how vulnerable the two party system really is. By contrast the Chinese emphasize harmony and stability which are attributes of their main philosophical inheritance: Confucianism.