I happen to disagree with just about everything that Yasheng Huang has ever said about the Chinese economy. First of all, we won’t know for other year how well or badly the Chinese economy reacts to the recession, but my assertion is that it will do relatively well, because there is enough cash cushion in the economy to keep a crisis from happening, while people figure out what to do next.
I think part of the reason is that he comes from a management background and I come from a finance one, so what he sees as inefficiency, I tend to see as prudence. Also Huang sees the 1980’s as some sort of golden age, an idea I find flawed, since a lot of the reassertion of government control in the early 1990’s happened when a lot of the credit institutions of the 1980’s went broke.
In the case of Chinese wages, a lot of GDP growth hasn’t been put into wages, but they have been put into 1) paying off the transition from central planning to the market 2) making sure that the banks and the corporations are very well capitalized so that they can withstand economic shock and 3) building up factories so that the economic won’t collapse when everyone retires. These three items are quite costly, and so by increasing GDP, you are able to pay for these things while keeping wage growth relatively high. If you try to reduce production while keeping wages high, chances are that you will end up reducing risk reserves which makes the entire economy more vulnerable to economic shocks.
Also if supply is more than demand, the solution isn’t to cut supply but boost demand. You can do this in a number of ways, of which increasing consumption is only one of them. You can boost investment or else boost government spending.
Also the problem with land is that both in the US and in China, you end up with land being bought not at the “fair market price” but the “bubble price.” If you try to make farmers rich by selling land to developers, you end up with the same thing happening as in the United States, that wealth comes from the banking system which means that you end up with a larger crisis when everything falls apart. Also, if all else fails, peasants with land can go back to farming it. Once the peasant no longer has title to agricultural land, it’s not clear what happens to the peasant if everything falls apart.