A few bullets for all you new Boomers from the Newsweek article Everything You Know about China is Wrong. No real news here for anyone who knows much about the place but still a nice synopsis.
- China has become an economy driven almost entirely by state investment, which in the first half of 2009 accounted for 88 percent of GDP growth—a share for which it is hard to find any parallel, in any country, at any time.
- Even government officials now admit that 60 percent or more of the stimulus money has ended up in stock and real-estate markets, fueling worries about dangerous new asset bubbles.
- "Take a drive on one of those new rural highways; you won't see many cars," says Ming Huang, a finance professor at Beijing's Cheung Kong business school and Cornell University. "It's going to take a long time for this sort of investment to result in any kind of consumption boost."
- State companies have easy access to 3 percent loans from state-owned banks, while private companies pay double-digit rates and are often forced to tap underground markets for funding. Since 1992, growth in private-sector fixed asset investment has been rising at about 10 percent per year, compared with state-sector growth of between 20 and 50 percent. Since the 1990s, the average size of a successful private business in China has flatlined at about 30 employees, due mainly to their difficulties raising capital.
- State-controlled companies represent some 70 percent of the major stock markets. "I have no doubt that after this crisis, the state will control a larger share of the overall economy," says Wang Shuo, managing editor of China's Caijing economic journal.
- Quite simply, there is little real innovation or branding ability in China," says Beijing University professor Michael Pettis. The obstacles include weak legal protection for intellectual property and contracts, and an educational system focused on rote learning and metrics rather than creativity and innovation.
- "Blurry rules and corruption fosters short-term thinking here," says Huang. "Entrepreneurs don't feel safe—there are many examples of the government taking over private businesses or changing the legal landscape—so they take their profits as quickly as they can." Meanwhile, richer state companies (think Sinopec or Chinalco) use their giant war chests to make acquisitions to feed domestic demand, rather than investing in research or branding. Why spend money to become more globally competitive when you have a monopoly in the world's most populous country?