Is Asia Slowing? My Report From China

Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

“I believe the 21st century will belong to China because most centuries have belonged to China.”

— Niall Ferguson

After this year’s highly successful FreedomFest, my wife and I flew to China for several speaking engagements and an opportunity to assess the second biggest economy in the world (although if you count the European Union as one region, China is third, behind the US and Europe).

We first visited Hong Kong, where lots of new construction is going on. As I wrote last month, Hong Kong has the best transportation system in the world, with hardly any traffic bottlenecks or potholes, and that’s incredible in a place of 6 million residents. I had lunch with Simon Lee, Bill Staley, and other founders of the free-market think tank Rock Lion Institute. They told me that the talk of the town is a large apartment overlooking Hong Kong selling for $1 billion in HK dollars! Sounds like the top of a market to me.

If the flights to Hong Kong and Shanghai are any indicator, the Chinese economy is slowing. Both flights were far from full. We also saw lots of empty buildings in Shanghai, an indication of over-building. We were in Shanghai to speak at the Austrian economics seminar hosted by Li and Ken Schooland. Ken is the author of one of my favorite books, “The Adventures of Jonathan Gullible” (available on Amazon).

Li is Chinese and confirmed that I am one of the most well-known economists there, due to the translation of several of my works. Not that the Chinese government is paying attention to my policy recommendations! In one of my lectures, I suggested that Austrian economics may provide the best solution to the economic crises of the 21st century: the need for stable monetary policies, productive savings, capital infrastructure, and austerity (balanced budgets).

The Austrian economists have warned repeatedly that China’s economic growth is part genuine and part artificial. It has grown rapidly from a low level, adopting Western technology, capital investment, and a new consumer society, but the Bank of China is also engaging in easy-money policies with the money supply growing at a 30% rate. This suggests overheating and an eventual bust. No emerging market has ever escaped a hard landing at one time or another.

 

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Adam Smith Goes to China

On my way to China, I read a fascinating book, Adam Smith Across Borders, about how The Wealth of Nations, the declaration of economic independence published in 1776, influenced the rest of the world.

Smith’s classic work was translated into German in 1776, French in 1778, Spanish in 1792, Russian in 1802, Japanese in 1870, and Chinese in 1902 (but not Arabic until 1959!).

Everyone in the 19th century wanted to know the secret behinds Britain’s success story and how the tiny area of the British Isles became the economic superpower. Adam Smith’s answer would have been: by spurning protectionism, monopoly and mercantilism, and adopting laissez faire, free trade, and economic liberalism.

Yen Fu, a Chinese scholar who first translated Adam Smith, thought Smith’s book was all about money and power. He noted that while the Scottish professor opposed deficit spending, the English were never free of debt. Their dynamic economy always grew fast enough so that the national debt was never a burden. He saw Smith’s “theory of natural liberty” as an improvement over Confucius. Smith defended the commercial society as it encouraged industry, thrift and education. Not so Confucius, who detested material gain. Chinese intellectuals avoided talking about profits, money and interest. But like Smith, Confucius adopted a laissez faire attitude toward the state’s economic policies. The state should refrain from interfering too much with commerce and industry. To quote Lao Tsu, “governing is like cooking a fish. Too much tinkering ruins dinner.”

Mao and the Great Leap Backwards

Unfortunately, the Yen Fu translation was poor and Smith’s doctrines didn’t catch on. Two decades later, Karl Marx’s “Capital” was translated and the Chinese fell under the control of Mao Zedong and the radical Marxists. What I call “The Anti-People’s Republic of China” took over in 1949 and gradually destroyed the Chinese economy and culture with the “continuous revolutions” of the Great Leap Backwards and the Anti-Cultural Revolution.

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One of the most popular books in Hong Kong right now is historian Frank Dikötter’s “Mao’s Great Famine: The History of China’s Most Devastating Catastrophe, 1958-1962.” It sets the record straight about the so-called “Great Leap Forward” campaign of Mao in 1958-1962. It should be called the “The Road to Serfdom,” because up to 45 million Chinese were starved or worked to death in the misguided attempt to collectivize agriculture and industry and meet Mao’s lofty goals. Millions were maimed, raped, shot, diseased, and cannibalized. Mao and his henchmen also destroyed a third of China’s housing and did irreparable damage to the environment. Mao demanded the elimination of all rats, flies, mosquitoes, and sparrow in 1958. Sparrows were targeted because they ate grain seeds. Because the Chinese made the sparrows almost extinct, there was a huge pest problem afterwards, where locusts and grasshoppers (normally eaten by the sparrows) devoured 15% of the crops in subsequent years. It was China’s “descent into hell,” says the author, and confirms Mao Zedong as one of history’s greatest monsters.

And yet the official policy of the Chinese Communist Party is that Mao had “seven good fingers and only three bad ones.” This is also the political party that destroyed the traditional Chinese family with its one-child policy, with disastrous cultural and economic effects (premature aging of the population, shortage of females, etc.). But the government propaganda machine is still working well. Mao is on all the banknotes and statues and is universally revered by the Chinese people. They say he unified the country, ended feudalism, and proclaimed equal rights for all, including women and girls. Okay, I’ll give him three good fingers. But the other seven are all bad.

Fortunately, China’s leaders have had the foresight to return to Adam Smith’s market-friendly vision. But to return to greatness, it must adopt democratic, not authoritarian, capitalism.

You Blew It: Britain’s Stupid Tax Laws Keep Usain Bolt Out of Competition

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Everyone is mesmerized by the world’s fastest runner, Jamaica’s Usain Bolt.

He has energized track and field as a sporting event. But he won’t be coming back to Great Britain as long as they have arcane tax laws that tax Bolt and other international athletes at ridiculous levels.

Bolt paid no taxes during the Olympics. During the Olympics, host countries have agreed not to tax athletes. London was a tax haven.

And now that the Games are over and the whopping taxes are back, he’s not returning anytime soon.

Like many countries, the current UK tax on appearance fees and prize money is 50 percent.

“But unlike most other tax authorities, Her Majesty’s Revenue and Customs also demands a cut of an individual’s money from sponsors such as sportswear manufacturers, watchmakers and purveyors of shaving products. This is worked out by dividing the number of days a sportsman competes in the UK by the number of days he competes elsewhere,” stated a UK tabloid.

Those numbers add up, and Bolt knows it. He has not stepped one foot in Britain since 2009, and won’t be doing it anytime soon after the Olympics.

It’s a problem for athletes in other sports, too. Earlier this year, Rafael Nadal refused to play at the pre-Wimbledon Queen’s tournament for tax reasons (Wimbledon play is tax-exempt for athletes).

Yours for peace, prosperity, and liberty, AEIOU,

Mark Skousen

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