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China as Economic Bogeyman

Summary:
Many Western economists presume that governments are not very good at identifying industries that merit support, and that domestic consumers and taxpayers incur the bulk of the costs. By the same logic, if Chinese policymakers effectively targeted activities where social benefits exceed private benefits, then it is not clear why foreigners should complain. CAMBRIDGE – As COVID-19 spread from China to Europe and then the United States, pandemic-stricken countries found themselves in a mad scramble for medical supplies – masks, ventilators, protective garments. More often than not, it was to China that they had to turn. Understanding the Pandemic Stock Market Drew

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Many Western economists presume that governments are not very good at identifying industries that merit support, and that domestic consumers and taxpayers incur the bulk of the costs. By the same logic, if Chinese policymakers effectively targeted activities where social benefits exceed private benefits, then it is not clear why foreigners should complain.

CAMBRIDGE – As COVID-19 spread from China to Europe and then the United States, pandemic-stricken countries found themselves in a mad scramble for medical supplies – masks, ventilators, protective garments. More often than not, it was to China that they had to turn.

By the time the crisis erupted, China had become the world’s largest supplier of key products, accounting for half of all European and US imports of personal protective equipment. “China has laid the groundwork to dominate the market for protective and medical supplies for years to come,” according to recent reporting by the New York Times.

When China first turned toward global markets, it had the advantage of virtually unlimited supplies of low-cost labor. But as everyone recognizes by now, China’s manufacturing prowess is not the result of unfettered market forces.

As part of its Made in China 2025 policy, the Chinese government targeted ambitious increases in domestic producers’ share of global medical supplies. The New York Times report explains in detail how the government provided cheap land to Chinese factories, extended subsidized loans, directed state companies to produce key materials, and stimulated domestic supply chains by requiring hospitals and firms to use local inputs.

For example, Sichuan, China’s second-largest province, reduced by half the number of categories for which...

Dani Rodrik
I am an economist, and a professor at the Harvard Kennedy School. My most recent book is Economics Rules: The Rights and Wrongs of the Dismal Science (Norton, 2015). I was born and grew up in Istanbul, Turkey. I still follow Turkish politics very closely, as you will find out if you spend any time with this blog.

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