China, Taiwan, Four Asian Tigers and 1997 Asian Financial Crisis

Posted by PITHOCRATES - June 18th, 2013

History 101

Both Mao Zedong and Chiang Kai-shek were rather Brutal to any Political Opposition

Today many of the things we buy are stamped ‘Made in China’.  Because the Chinese can manufacture things cheaply.  For they have a booming export economy.  Which the Chinese built by introducing a little capitalism to the communist state.  And some things that were as un-capitalistic as you can get.  Like artificially low interest rates.  Currency manipulation.  Cheap labor.  And the strong arm of the communist ruling party to keep that labor cheap.  All of this to make their exports about the most inexpensive in the world.  Giving them a huge trade advantage.  Filling stores around the world with products stamped ‘Made in China’.

But before there was ‘Made in China’ there was ‘Made in Taiwan’.  Taiwan.  Officially the Republic of China (ROC).  Not to be confused with the People’s Republic of China (PRC).  AKA mainland China.  Taiwan (or the ROC) is an island in the Pacific Ocean off the China coast with Japan to the northeast and the Philippines to the south.  And is where Chiang Kai-shek and his Chinese Nationalists (Kuomintang or KMT) fled to during the Chinese Civil War when Mao Zedong and his communists conquered mainland China.

Both Mao Zedong and Chiang Kai-shek were rather brutal to any political opposition.  But while the PRC suffered some of the world’s worst famines and abject poverty Taiwan at least modernized into an advanced industrial economy.  Helped in large part by the KMT taking China’s gold reserves.  Their foreign currency reserves.  As well as the intellectual and business elites.  Who typically flee ahead of advancing communists.  As those are the people the communists usually kill or send off to reeducation camps.

International Investment poured into Southeast Asia and Spread the Asian Miracle beyond the Four Asian Tigers

Taiwan is one of the Four Asian Tigers.  Taiwan, South Korea, Singapore and Hong Kong developed advanced economies beginning in the early Sixties.  Thanks in part to laissez-faire economic policies of free trade, open markets, privatization and deregulation.  They also shrunk the size of their public sector.  And had a high savings rate.  Providing the capital for their industrialization.  While keeping personal and public debt levels low.  Because debt matters.  And the more of it you have the more difficult it is to get through a crisis.

But some of these countries also implemented non-laissez-faire economic policies.  Such as keeping domestic interest rates artificially low.  Even having special low rates for select export industries.  And there was some crony capitalism.  Government loaning to their crony capitalist friends.  Some of which disappeared thanks to a certain amount of corruption.  While a lot of it was used to make bad investments.  What those in the Austrian school of economics call malinvestments.  Investments not driven by the laws of supply and demand.  But for non-business reasons.  Growing big for the sake of being big.  Expanding just because of cheap interest rates.  Or the government choosing which businesses to expand.  And often choosing wrong.  Because those decisions were based on political reasons.  Or just a poor understanding of business in general.

The Asian Tigers served as a model for other nations.  Who followed their lead.  And got onto the export bandwagon.  Some even attracted foreign capital to build an export economy with high interest rates.  And pegged their currencies to the U.S. dollar.  To further encourage foreign investors to invest in their countries.  And it worked.  International investment capital poured into Southeast Asia.  Spreading the Asian Miracle beyond the Asian Tigers.

The Asian Tigers recovered the quickest thanks to their Laissez-Faire Economic Policies and their High Savings Rate

Then came the 1997 Asian financial crisis.  Starting in Thailand.  A nation that had a lot of foreign investment.  And a currency pegged to the U.S. dollar.  Then came a massive speculative attack on the currency.  Speculators were trying to force a devaluation of the Thai currency (the baht) by selling mass holdings of the baht.  In hopes of profiting by entering into agreements to repay a debt in baht at a later date.  If the baht devalued they could repay that debt with a cheaper baht.  Thus making a profit.  Thailand fought this devaluation, though.  By selling their foreign reserves to buy baht to maintain the peg to the U.S. dollar.  But they eventually ran out of foreign reserves to sell.  And had to let the baht float.  Causing a massive devaluation.  Making all that foreign debt much more expensive to repay.  Leading to defaults.  And bankruptcies.

Worried foreign investors started pulling their money out of Southeast Asia.  As they sold their holdings they flooded the foreign exchange market with these devalued currencies.  Putting additional pressure on exchange rates.  At the same time the United States was raising their interest rates to head off inflation there.  Those nations that pegged their currency to the U.S. dollar had to strengthen their currencies, too.  Raising the price of their exports.  Making them less competitive.  So exports fell.  Those higher U.S. interest rates made investment there more attractive.  Increasing the capital flight from these countries.  To try and stop this capital flight countries raised their interest rates.  Which further hurt their economies.  As it was more difficult and more costly to borrow money.

Before it was all said and done currencies, stock markets and other assets lost a lot of value in countries hit by the crisis.  Including the Asian Tigers.  But thanks to their laissez-faire economic policies and their high savings rate (except for South Korea) they recovered faster from the crisis than the other Southeast Asian countries.  Of the Four Asian Tigers South Korea suffered the most.  Thanks to a high level of foreign investment.  And numerous corporate bankruptcies.  Because of those malinvestments.  The causes of the 1997 Asian financial crisis are still debated today.  However what can’t be disputed is that those who suffered the least were those nations that embraced laissez-faire economic policies the most.  And those who interfered with market forces to stimulate an export economy tended to suffer more.  Something China (PRC) is doing.  Interfering with market forces to stimulate an export economy.  And making a lot of malinvestments.  As they try to bring their economy up to the standard of Taiwan (ROC).  Only without the laissez-faire economic policies the ROC used.  All but guaranteeing another financial crisis in the region.

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China has Severe Inequality and the Worst Public Toilets in all of Asia

Posted by PITHOCRATES - September 8th, 2012

Week in Review

The Left believes the government can make capitalism better.  And fairer.  In the Eighties they liked to point to Japan.  And the incredible economic growth they had thanks to government partnering with business.  Before their deflationary spiral and their Lost Decade.  Thanks to all that government partnering with business.  But that was yesterday’s news.  Today they like to point at the economic juggernaut that is China.  And say, “See?  That’s what strong government can do.”  For they believe China can get things done because they don’t have to deal with that pesky democracy.  All of those elections.   And being answerable to the people.  In China the government rules.  And the people quake in their boots.  Which lets China get things done.  And make a better society for all Chinese (see The forbidden public toilets of Beijing by Justin Rowlatt posted 9/8/2012 on BBC News Magazine).

Jeff Sun is the scion of one of China’s new rich and the founder of the “China Super Car Club”. He has got so many he cannot even remember them all…

We met Jeff while reporting on the yawning chasms of inequality that have opened up in Chinese society.

We filmed in some of the poorest communities I have ever visited – Chinese villages where no-one has ever owned a car and where they still till their fields using a single donkey, shared between dozens of farmers.

A better society for all Chinese?  Granted there are those on the Left who would love to see a world where no one owned a car.  But one donkey shared between dozens of farmers?  That doesn’t sound like a fairer society.  Not when there are rich people elsewhere who have so many cars that they can’t remember them all.  So apparently this state-capitalism (or as they say in China, communism) isn’t as egalitarian as the Left would like to believe.  For in America there is more capitalism than communism.  And yet American farmers don’t share donkeys.  No.  In America farmers own their own tractors.  Which seems to be a bit more egalitarian than communist China.  But it gets worse.

The journalists’ rule of thumb is that you cannot report the so-called three Ts – Tiananmen, Taiwan or Tibet.

We inadvertently discovered a fourth T.

In an article in the country’s English language newspaper, China Daily, I came across an editorial featuring stinging criticism of China from the WTO. Not the World Trade Organisation, this was the less well-known World Toilet Organisation.

This WTO had ranked China as having the worst public toilets in all Asia. The paper explained how, in response, Beijing had introduced rigorous new hygiene standards – now no more than two flies are now allowed in any public toilet.

The paper was in no doubt about the importance of the issue. “Clean public toilets are the symbol of a civilized society,” it thundered. The controversy made me chuckle and I mentioned to our government minder that I wanted to cover this storm in a toilet bowl.

It was Mr Chen’s job to ensure we did not break any reporting rules. He had been a cheerful, relaxed companion throughout our three-week journey, but now his face darkened.

“I do not think that would be a good idea,” he said gravely…

Mr Chen vanished for a few moments. When he returned his manner was forbidding.

“I am sorry Justin but I have to tell you cannot report this story at all.”

The human rights issue of Tiananmen, Taiwan or Tibet may be a sore spot for China as well as the liberals who so admire their way of governing.  But the worst public toilets in all Asia?  That affects everyone.  At least those who have to drop trou in their busy day away from home.  Not to mention the tourists.  The Chinese government may not know a good, quality public toilet but people traveling to their country no doubt do.  Oh the shame.  Oh the humanity.  Oh the inequality.  No wonder the sensors will allow journalists to report about the severe inequality in Chinese society.  For what is a village of farmers having to share one donkey compared to embarrassing public toilets?  For we all know every country judges another by the quality of their public toilets.  For few things are so sacred, so personal, as copping a squat when out on the town.

And this is the governing style the Left would have the US follow.  For it is more egalitarian.  Even though the masses must use the worse public toilets in all of Asia while the new Chinese rich no doubt enjoy a squat on the finest porcelain known to mankind.  And probably follow that up with a refreshing bidet cleansing.  No.  This isn’t equality.  This is a toilet aristocracy.  Which simply doesn’t exist under laissez faire capitalism.  Where going to the toilet in public isn’t a privilege.  It’s just so expected in capitalist societies that it is taken for granted.

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