Location makes a difference for successful industries, but government can help, argues NYU economist Heleen Mees against New York Times columnist Paul Krugman. In Post-Syndicate, she explains why China’s growth model makes sense, and uses the trade explosion province of Yunnan as an illustration.
According to Mr Krugman, it is often merely an accident where an industry locates. Silicon Valley owes its existence in large part to two young men named Hewlett and Packard, who started a company out of their garage. New York is New York because of a river, which mainly serves tourist boats these days. But even though it is mostly chance that determines where a particular industry locates, it doesn’t mean that you can’t lend chance a helping hand. And that is exactly what the Chinese government is doing with its large-scale investments in infrastructure, and to a somewhat lesser extent with its investment in housing.
Yunnan, one of the poorest provinces of China that is mostly known for its cuisine, saw international trade explode in the first quarter of 2013, rising by almost 50% compared to the previous year, while exports throughout China rose by a modest 13%. The most significant gains in Yunnan’s trade came in the mechanical and electronic sectors, neatly fitting the new trade theory. It is hard to imagine that mountainous Yunnan, which is not located on the Chinese coastline but is bordering Tibet, Laos and Vietnam instead, would have experienced the same growth without the central governments’ years of investing in Yunnan’s infrastructure.
That is not to say that China’s growth model has no drawbacks. It obviously has. The smog in China’s metropolis is smothering large swaths of the population, even though the air pollution in Delhi is often worse. Food scandals are undermining consumer confidence. Environmentalists are raising alarm bells about the central government’s plan to build a series of hydropower dams in the Nu, China’s last free flowing river. The project may force tens of thousands of ethnic minorities in Yunnan to relocate. These are serious issues that the Chinese leadership needs to address.
That being said, within the framework of the new trade theory, China’s investment-led growth model makes more sense than western economists give it credit for.
Heleen Mees is expected to join us next week at the China Weekly Hangout, as we discuss the changing labor force in China on Thursday 23 May, with Inno founder Dee Lee, who runs since 2007 a workers’ hotline from Guangzhou. You can read our announcement here, or register directly for our hangout here.
Can the growing environmental NIMBY protest stop China’s ambitious nuclear power program? The China Weekly Hangout discussed that issue on November 22, 2012. You can get a full overview of our hangouts here. When you register at our Google page, you get regular updates on upcoming sessions.