Is China More Capitalist than the US?

The markets were atwitter this morning over Greece. But chances are you already know that. It’s China we have on the brain.

And so does Joe Six-pack. ABC News and The Washington Post just polled 1,000 Americans and found…

  • 41% say the 21st century will be the “Chinese Century”
  • 40% say it will still be an “American Century”
  • A slim majority says the US will play a smaller role in the world economy this century
  • But a majority also says that will be either a good thing or, at worst, neutral.

We’re trying to be optimistic and take that last point as a sign that the protectionist monster among the masses is at bay.

In the meantime, there are other concerns…

China has just postponed several military “exchanges” between Beijing and Washington – visits by high-level officials and such. It’s the first real, tangible retaliation for the US sale of $6.4 billion of military gear to Taiwan.

Rumor has it China will buy all 191.3 tons of gold the International Monetary Fund said last week it would put on the open market. So far, only Russian news agencies are reporting this; it’s yet to be confirmed by Western sources.

We take note of these developments with a couple of looming deadlines in mind…

  • Next month, the Pentagon issues its annual assessment of China’s military. It usually has alarmist language, and Beijing usually issues angry replies, but most of the time, it’s just theater. This time? We’ll see…
  • April opens the official window in which the Treasury Department could label China a “currency manipulator.” We’re hearing buzz from Washington that the Obama administration is keen to boost jobs by boosting exports – which means a weaker dollar in general, and a weaker dollar versus the yuan in particular. We’ll watch this one closely.

All of this weighs on our mind as we evaluate something we encountered on a private message board we belong to from someone who’s lived in China for 12 years. “What people fail to grasp,” this individual writes, “is this place is much more capitalist than the States now:

  • No capital gains tax
  • No property tax
  • No local or state taxes
  • A reasonable 35% tax rate for the highest earners
  • Corporate tax rates of zero percent for 3 years and 15% per year after that.

“Also, most importantly, it’s not a casino economy like the States. China will sell 30% more vehicles this year than in the US… 93% of those vehicles will be purchased cash upfront.

“For a home loan, you need 30% down. As a private business, to get a loan you have to put up the assets of the company, i.e., plant and equipment. There are no leverage games here.

“It’s a one-party state, but at least it is focused on its own people. We have a two-party system that has sold us down the river. All the Asian Tiger economies needed a strong central government to launch themselves out of poverty. Not a good system for our culture, but it works for them.

“High-speed train systems going on line, 50 new airports in that last five years – you must see this place to believe it.”

We’ll be traveling to China in May. We hope to establish a business in Beijing. But what say you? Is China, for all its flaws, more capitalist than the United States now?


Addison Wiggin
for The Daily Reckoning