By Hao Li: Subscribe to Hao's RSS feed
October 16, 2010 1:48 PM EDT
The economic history of Germany in the 20th century offers lessons for China in the 21st century, said Mark Clifford of the Asia Business Council in an op-ed for Caixin, a Beijing-based newspaper.
After World War II, West Germany experienced a period of Wirtschaftswunder -- German for "economic growth" -- which was marked by low inflation, increasing international trade, and rising prosperity for its citizens.
Partly due to Germany's large pool of skilled but cheap labor, it enjoyed a manufacturing boom and exports surged at the beginning of the period. In response, Germany opened its domestic market to imports and appreciated its currency several times. Exporters and certain politicians vehemently protested the currency revaluations at the time, said Clifford.
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However, the currency revaluations and openness to imports kept inflation under control and made Germany's industries more competitive, as they were not subsidized through cheap currency. A stronger German Deutsche Mark was a key ingredient of the economic success in this period.
Similarly, the Chinese enjoyed a competitive advantage in manufacturing partly because of its cheap labor, leading to a surge in exports. However, China keeps its currency artificially undervalued. As a result, overheating and inflation -- in the form of skyrocketing real estate prices -- threaten the stability of its economy.
In choosing this policy, China is subsidizing established factory owners at the expense of the average citizen and entrepreneurs. The nation's economy has grown at an astounding pace, but this growth was achieved by churning out cheap goods for the Western world.
As a result, wages and the standard of living in China since 2001, the year it joined the World Trade Organization, have risen much slower than economic growth. The capital that was used to subsidize manufacturing also could have been used more intelligently, for example in consumption or research.
Germany in the 1930s serves as a warning for China in 2010.
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