By Richard Spencer World Last updated: April 3rd, 2009

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You would not expect me to show much sympathy for the new ultra-nationalists in China, many of whose followers have opened both barrels on me in comments on my blog in the last three years.
And it’s true that a lot of the arguments in books like the fashionable Chinese best-seller Currency Wars seem nonsensical to the western reader. The idea that Wall Street’s finest, while organising the United States’ economic collapse, were all along motivated by the desire to do down China, does not seem convincing.

And yet I do. I have never felt that the kids who threw stones at Japanese restaurants, all along taking pictures on their Canons and Sony mobiles, were about to get on their horses and head across the Steppe to Europe like Genghis Khan’s hordes or – as some liked to portray – Hitler’s stormtroopers. Nationalism is a scourge which can afflict any country at any time, and we should always be vigilant, but the time to really worry is when as many Chinese homes fly national flags as American ones do.

In particular, while China Inc has done well out of its relationship with American capital in the last decade and a half, China itself hasn’t been so lucky, as Yasheng Huang, the writer more and more of us are reading, has pointed out.

I think that Huang overstates his case a little, but I would just like to point out one feature of the fall-out from the financial crisis that fits with his thesis, and it is in slight contradiction to my thoughts yesterday about how China has no solution to the world’s economic crisis.

Huang argues that too much money has been spent on state-led growth in China such as infrastructure development since 1989/90, at the expense of private enterprise and, thus, of the incomes of ordinary people which have failed to keep pace with economic growth. All true.
He also points out that attempts to rebalance the economy – in part by state spending on welfare, health and education to boost private consumption - are welcome but have come too late to save the economy from the financial crisis. Also true.

It has therefore been argued by many – including me – that China’s fiscal stimulus will not help to save the world’s economy because it puts too much emphasis on that same state-led infrastructure spending. To the extent that it will boost consumption, again it is all too little, too late.

Well, that was true last autumn and, so far as the problems are the same as last autumn it’s true now. China’s stimulus has done nothing to lessen the trade downturn.

But in many ways the situation is worse than last autumn. It’s no longer a trade downturn, but a rout. The banking crisis has spread into all aspects of the world economy and it was looking at one stage as if no asset, no element of economic activity was safe.

We can’t be sure yet that the world economy has stabilised but there are some signs, so the economists and various indicators tell me. One is that shares prices in the US are going up; another is that house prices in Britain are going up, or at least are not falling as fast; and a third is that the Chinese purchasing managers index – used to gauge company confidence – is now in expansion mode.

Key economic players may believe then that those three countries’ stimulus packages are working. Let’s talk about China’s. The PMI figure contradicts one by the CLSA, the investment bank, which showed it contracting. The difference, I’m told, is that the government’s index concentrates more on state enterprises, CLSA’s on private ones.

That makes sense: the stimulus package, focused as it is on infrastructure like the railways and rebuilding Sichuan, will benefit state enterprises rather than private ones.

Under Huang’s analysis, then, the problem for ordinary people is not getting better, but worse: their incomes will start falling further behind that of China as a whole. How can that be? Well, it’s pretty clear, as you would expect, that a fair proportion of China’s stimulus package is not being spent wisely. Some of it, as the government is just about prepared to admit, will be funnelled off by corrupt officials and local governments, and a lot of it has gone into ramping share prices rather than anything useful.

Who benefits then, apart from corrupt officials? Commodity prices is the answer to that, and oil and other such commodities have seemed to bottom out and started to rise again. You need oil, coal and steel (and copper, aluminum and all the rest) to build railways and state-run factories. Oil is over 50 dollars again.

This benefits Australian mining companies and the Gulf oil states, who can once again start investing in high-end properties in central London, their second home of choice. And indeed, Gulf News’s business section tells me today that Dubai-based property companies have begun opening offices there. And so confidence slowly returns, at the level of economic fundamentals, as cash that has been hoarded  comes out to play again. At least for now. Liquidity, as the man said, is confidence rather than banknotes.

China’s stimulus package is only part of the story, of course, but it is playing its part. It will do the world economy a bit of good. But it may not do a whole lot of good for China, if its gains are balanced by more corruption, more boondoggles, more resentment, and a stock market that is even more of a roulette table and even less open to change than before.

And that’s not a new story: often what has been good for China Inc has also been good for the West and western business, but not so good for ordinary Chinese.

So yes, the nationalists may well be right: the Chinese people may not have benefited as much as they ought to have done from their engagement with the world economic system, and things may get worse before they get better.

It may not be for the fashionable, New Left reasons that the authors of Currency Wars and China is Unhappy give; but superficially popular though New Left ideas may be I have found not so much support for them outside a narrow circle, often not even in their proponents’ own university departments.

http://blogs.telegraph.co.uk/news/richardspencer/9372993/Will_China_get_unhappier/