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China, the fragile 21st century mercantilist state

By Arthur Thomas - posted Wednesday, 3 February 2010

Mercantilism: "The economic theory that trade generates wealth and is stimulated by the accumulation of profitable balances, which a government should encourage by means of protectionism."

Trade imbalance is crucial to the survival of a mercantilist state and directly responsible for the national welfare and key to national policy. The tools for a successful mercantilist state include:

  • currency manipulation;
  • selective and non reciprocal trade barriers and tariffs on imports;
  • lack of reciprocity in bilateral investment;
  • illegal, unacceptable and/or unfair trade practices on foreign direct investment;
  • unfair conditions on foreign investment involved crucial technology;
  • barriers to foreign participation in domestic projects or trade;
  • government subsidies for export manufacturers;
  • export price fixing;
  • illegal/unacceptable trade practices including piracy of intellectual property;
  • opaque national accounting to conceal fault lines in the economy;
  • media control to direct and manipulate the flow of information to maintain confidence in the government; and
  • media control and manipulation to distort and/or conceal economic fault lines in the economy, civil unrest, human rights.

To be a successful 20th century mercantilist state, China secured representation in world trade and financial institutions including the United Nations with the full support of developed nations. China gained international recognition and a major support base of compliant developing and developed nations.

China is the modern world's most successful mercantilist state. Its policies have developed China into a global industrial, economic and military power and in so doing, reportedly accumulated the largest foreign exchange reserves in history.

China claims its cheap goods drive the world's consumer economies, and while that may be, a mercantilist nation generates its trade surpluses and foreign exchange reserves at the expense of its trading partners’ own exports, trade imbalances and employment opportunities.

When operating in a co-operative global trade community, mercantilist policies are self-destructive, and can create division and friction between the state and its trading partners. Successful mercantilist economies require compliant trading partners, and their continuing annual increase in demand for its goods.

China's poor track record in data reliability and lack of transparency to date raises a red flag for analysts assessing China's reports of rapid economic growth in the post GFC economy. As the effects of the global financial crisis and rising unemployment continue into 2010, plus China's destructive role in Copenhagen, the patience of the importing nations upon which China is reliant, is wearing thin.

There is evidence from within China to indicate rapidly growing fault lines that are appearing through the smoke and mirrors of the state media image of China and its economy.


The role of the media

Control of the media and information develops a population reliant on the only source of information available; the state media. That information is only what the government wants the population to know, and includes continuous doses of propaganda to feed nationalist fervour.

To maintain confidence in the CCP in times of uncertainty, state media rolls out an effective series of articles and "official statistics" that dispute any "wild, ill founded, or scandalous claims" by enemies of the state, or jealous parties. The CCP is never at fault

Predictability and the media

Beijing's command economy philosophy, total media control, and rule by military might, are key elements in both domestic and international politics. "Do and believe what Beijing tells you, and we will get along fine."

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About the Author

Arthur Thomas is retired. He has extensive experience in the old Soviet, the new Russia, China, Central Asia and South East Asia.

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All articles by Arthur Thomas

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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