http://www.forbes.com/2009/03/24/china-capitalism-crisis-markets-economy-socialism.html?partner=alerts
A Chat With Yasheng Huang China Said To Be Leaning Away From Capitalism Robyn Meredith<http://search.forbes.com/search/colArchiveSearch?author=robyn+and+meredith&aname=Robyn+Meredith>, 03.24.09, 05:40 AM EST Looking at the U.S. crisis, Beijing feels its economic philosophy vindicated, says Yasheng Huang of MIT. China is turning away from capitalism just when it needs it most, China scholar Yasheng Huang of MIT said Monday. Halfway around the world from Wall Street, there is an unfortunate side effect of the current global economic crisis: Communist Party leaders have begun to question capitalism. Beijing is pointing at the U.S. government taking big stakes in banks and financial firms like *American International Group *(nyse: AIG<http://finapps.forbes.com/finapps/jsp/finance/compinfo/CIAtAGlance.jsp?tkr=AIG>- news <http://search.forbes.com/search/CompanyNewsSearch?ticker=AIG>- people <http://people.forbes.com/search?ticker=AIG>) and extending credit to other leading companies, such as *General Motors *(nyse: GM<http://finapps.forbes.com/finapps/jsp/finance/compinfo/CIAtAGlance.jsp?tkr=GM>- news <http://search.forbes.com/search/CompanyNewsSearch?ticker=GM>- people <http://people.forbes.com/search?ticker=GM>), as evidence that capitalism has failed. "In China, there's a view that socialism works and that a state-controlled banking system <http://topics.forbes.com/banking%20system> works," said Huang, professor of political economy and international management at the Sloan School of Management at MIT. China is being hit hard by the current downturn because poor Chinese consumers cannot buy enough to replace the plunge in exports as far richer American and European consumers cut back. China is in a race to create jobs to replace those being lost to the slowdown, and Huang maintained that China's only hope is encouraging the development of small and medium-sized businesses that will quickly hire workers. "The only way to promote employment is through economic liberalization," said Huang, who studied China's three decades of economic reforms for his latest book, Capitalism With Chinese Characteristics.<http://www.amazon.com/Capitalism-Chinese-Characteristics-Entrepreneurship-State/dp/0521898102/ref=sr_1_1?ie=UTF8&s=books&qid=1237802098&sr=1-1>"Business income is the best protection rural households have and it had almost no growth" in recent years. Incomes for rural China, where 800 million people live, have stagnated since the 1990s because sources of rural financing dried up as Beijing prioritized developing China's cities. That model worked as long as there was strong demand for exports from Chinese factories since fast job growth at the factories in coastal cities helped soak up rural workers who would otherwise have been unemployed. As Chinese factories close, at least 20 million Chinese who had moved from the countryside to the coastal regions for work have returned, jobless, to their villages. Those migrant workers were one of the only sources of income growth for rural Chinese over the past decade, Huang said. Beijing is concerned that high rural unemployment might lead to political unrest and has been experimenting with measures to help rural residents. There are discounts on white goods and reductions in school fees and taxes in certain regions. Officials are rightfully preoccupied with the plight of China's rural residents--both in political and economic terms, said Huang. "Everything comes down to the countryside." Comment On This Story<http://www.forbes.com/2009/03/24/china-capitalism-crisis-markets-economy-socialism.html?partner=alerts#comment> China faced massive layoffs in the 1990s, as it began to dismantle many of its money-losing state-owned enterprises. But, back then, many workers were old enough to retire. Today, those being laid off are typically in their 30s, Huang said. Also, in the 1990s, foreign companies were racing to open factories in China, and they hired tens of millions of workers pouring in from the countryside. A real estate boom, which has since ended, helped cushion the economic blows at the time as well. But none of those mitigating characteristics is present now. "Today's situation is much more severe," Huang observed. "Today you have the most efficient private enterprises in trouble," not Communist relics. "I'm not optimistic at all" about China's economic prospects, he added. One of Beijing's few available tools to help its exporters--and in turn to boost employment at Chinese factories--is to devalue its currency. Since July of last year, China has kept it in a narrow range of 6.81 to 6.80 yuan to the dollar. [Non-text portions of this message have been removed]
