Schuyler On China's Economy

John Schuyler On China’s Economy

By Scott Benjamin

China now faces huge challenges after using an export-based economy over the last decade to lift more people out of poverty than any country in the world.

Accountant John Schuyler of Marcum in Hartford said the Chinese should focus on greater domestic consumption, develop better intellectual property rights and find solutions for a population with too few workers to support the growing number of elderly citizens.

He criticized the country for largely restricting its markets to foreign companies, but noted that also was true of the United States through World War I.

“Countries are usually reluctant to allow foreign products into their country when they are dependent on exports,” Mr. Schuyler told students Apr. 3, 2014 in a section of PS 104: World Governments, Economies And Cultures at Western Connecticut State University.

He said China is pushing to further expand its export-driven economy, nothing that the country is negotiating a possible pact with the 28-nation European Union. That proposed agreement would encompass about 1.8 billion people.

The United States and China have had permanent normal trade relations since 2001.

Nevertheless, Mr. Schuyler said the growth that vaulted China to second in the world in gross domestic product, behind the United States, has slowed. He said the Asian country needs to have more goods and services purchased by its own population, whose average salary is only 18 percent of what it is in the United States.

He said that although, the labor costs are low, they have risen to the point that Vietnam, Bangladesh and Cambodia have become the low-wage manufacturing countries.

That is partly due to the competition for work among the thousands of rural peasants who have migrated to the cities in search of work.

“They are trying to build new cities to delegate the population movement from the rural towns,” said Mr. Schuyler, who was part of a trade delegation led by Connecticut Gov. Dannel Malloy that toured China in 2012.

He said China has built many smokestack factories that are similar to the ones that manufactured goods in the United States during the industrial revolution about 120 years ago. He said that has resulted in severe air pollution in some Chinese cities.

Mr. Schuyler said China, which has the world’s largest population with an estimated 1.3 billion people, needs to boost private enterprise, noting that the four largest banks primarily lend to the government-owned enterprises.

Additionally, the accountant said some of the banks have made “bad loans” and corporate debt has “reached the danger point.”

In fact, Mr. Schuyler said China may soon have the kind of debt overhang that plagued the United States in the 1930s during the Great Depression and Japan in the 1990s during its Lost Decade.

Furthermore, he said an increasing number of the wealthy Chinese have opted to seek a better life in the United States, where there are more high-paying jobs and the government doesn’t censor the Internet.

“YouTube is blocked in China,” Mr. Schuyler said.

Business consultant Bruce Vakiener, who used to live in Connecticut, has said there is no equivalent of the American Civil Liberties Union in China.

“When someone is being arrested, they’re not being read their Miranda rights,” said Mr. Vakiener, who some years ago headed the Asian operations for the Lochtite Corp., which makes Superglue, as well as other products.

Stamford corporate attorney Paul Edelberg, who travels regularly to China, has said there is an enormous gap between China’s wealthy and its rural peasants.

“There is a very skewed income distribution,” Mr. Schuyler said.

He said the country is struggling to develop a large middle class.

“The typical Chinese person has a high rate of savings, but there is no social safety net, no Social Security program,” Mr. Schuyler said.

Plus, as is the case in the United States, Japan and in parts of Europe, the younger generation may have to pay part of the bill for the retirements of a large group of elderly.

“They have the four grandparent problem,” Mr. Schuyler said. “Since China has somewhat adhered to a one-child policy in the recent years, you have one grandchild who might have to play a considerable role in supporting four grandparents.”

Additionally, he said the emphasis on bringing boys into the world has created a 2-1 ratio of males to females.

“There are some young males that just won’t have the opportunity to get married,” Mr. Schuyler said.

On another topic, he said the Chinese have a poor system of maintaining intellectual property rights on patents. In contrast, that has been a strength of the United States, which is noted for its innovation, through such companies as Google, MicroSoft, Facebook and ESPN.

“There are very few legal statutes in China, period,” Mr. Schuyler lamented.

On a separate subject, the accountant said that President Xi, who took office in 2012, has largely been effective in consolidating power and has eliminated some of the government corruption that existed under the previous administration.

News reports have indicated that, at least for the time being, it is unlikely that there will be political reform in China.