The Financial Times rebukes China for its use of industrial policy

The world has changed; but China has not. China has responded to the world financial crisis with what seems to be great success. But this is an illusion. China’s solution – a surge in spending on investment – will create greater excess capacity. China’s high-savings, high-investment economy is costly for its people and destabilising for the world.

Part of what’s going on here may be that the commentariat is upset at having wrongly predicted China’s demise. I must confess that my loudest shouts last fall where over the fate of the People’s Republic. It did seem at the time that collapsing world trade would spell disaster for China. That prognostication was wrong.

Moreover, China is still a poor country still has hundreds of millions of rural farmers who presumably would love to move to the city to produce and consume at near-Western standards. However, doing so will require more apartments, more factories and more industrial capacity. This is exactly what China is building. The transition might not be smooth and China might yet face a severe, lasting downturn. However, I can’t see industrializing the world’s largest country as a “absurd waste”