Mark DeWeaver on the Chinese Situation

The Mises Institute has recently just interviewed Mark DeWeaver on the Chinese situation with regards to the economy, booms and busts, malinvestment and his new book Animal Spirits with Chinese Characteristics.

Here is an excerpt from the interview:

Mises Institute: There is a great deal of confusion concerning the Chinese economy and its trade and monetary policy and mystery concerning its ability to generate double-digit rates of economic growth. Let us start by giving us a description of the Chinese economy and whether it is socialism or capitalism at work.

DeWeaver: China has well-developed product markets but can hardly be called capitalist, given that most of the means of production are at least partially state owned.At the same time, the Chinese economy has also never really been centrally planned. Most economic decision making takes place at the local-government level, much as was the case during the Maoist period. The system might be best described by the seeming double oxymoron, capitalism with limited private ownership, socialism with limited planning.

Mises Institute: What is the connection of its monetary and foreign exchange rate policy to its trade policy? Is this just a modern form of mercantilism or is there something unique about the China situation that we should be aware of?

DeWeaver: Yes, Chinese monetary and trade policies are clearly a modern form of mercantilism. The central bank’s interventions in the foreign exchange market result in an undervalued exchange rate, which in turn helps to generate China’s balance-of-payments surplus with the rest of the world. In China, this policy appears to be primarily motivated by the desire to strengthen state control over the economy by reducing the country’s exposure to the vagaries of international capital flows.