Misunderestimating China

David Goldman has just about had it. At the risk of sounding like a curmudgeon—as though there is something wrong with that—Goldman essays, yet again, to enlighten us as to the facts about China.

As you know, American journalists and pundits have consistently misunderestimated China. They have, in other words, misunderstood the basis for Chinese success, and underestimated its staying power.

Why is China succeeding?

Goldman answers:

  

China is succeeding despite many problems (including authoritarian administration) because the Chinese are working very hard. The most important New York Times dispatch about China was the magazine item last week that reported on the cram schools that offer rural students a shot at admission to top universities. China now produces as many PhDs as the U.S., and twice as many STEM PhDs. Western commentators tend to dismiss Chinese as uncreative imitators, and there is some truth to the charge. China’s merciless meritocracy makes university admission entirely dependent on examination scores. It is a transparent, rules-based system that cannot be gamed. One can bribe a public official in China by covertly paying the college tuition for a child at an overseas university, but not at a university in China itself. Any transparent, rules-based system requires inflexible rules; inevitably, a great deal of effort is devoted to memorization. That is the secret of China’s social cohesion: not only have living standards soared, but even the rural kids portrayed in the Timescram school story have a chance to grab the brass ring. You can’t fund a new building at Peking University and get your kid accepted: it’s the raw exam score, and nothing else.

It's hard to believe that China has done so well without affirmative action... without even a nod to diversity. Who would have thunk it?

In America we want every child to become a creative free spirit. Goldman replies that an economy does not need very many creative types. It needs people who can get things done:

No matter: memorization also requires work. An economy doesn’t need a lot of creative people. It needs a few creative people and a great many people who are simply competent.

Ironically, for all our emphasis on creativity we Americans have lost some of our capacity for innovation.

In Goldman’s words:

If we want to compete more effectively against China, we should look toward our capacity to innovate. But we aren’t innovating. Half the CapEx among tech companies in the S&P 500 is conducted by just five firms (Apple, Microsoft, IBM, Micron, HP). Take out the monopolies and the cupboard looks pretty bare. The rest of the tech world is investing less (in current dollars) than in 1999. We no longer have a tech sector: we have consumer electronics monopolies run by patent trolls whose job is to crush innovation.

According to Goldman, China’s detractors—indulging their wishful thinking—also misrepresent reality:

I’m also tired of hearing about the imminent collapse of the Chinese financial system. China had the best-performing stock market in the world last year (see above chart), and the big Chinese banks outperformed the overall market index.

The next time you hear that China is about to decline or even implode, keep these sobering facts in mind.