The Great Firewall really censors trade

My favorite weekly China-related podcast, Sinica, answered one of my questions on their latest episode, "Revenge of the Call-in Show".  Hosts Kaiser Kuo and Jeremy Goldkorn, who are far more knowledgeable about China than I’ll ever be, conclude that the Great Firewall is first and foremost about censorship (or more precisely, social stability), and the fact  that it helps Chinese internet companies is a happy bonus, but not the goal itself.  Kaiser adds that non-Chinese competitors fail, even without the GFW, because they are usually late and poor competitors.  YouTube, he notes, was a distant runner up for video service, and Twitter/Facebook were plagued by poor performance relative to domestic competitors long before they were blocked.

But wait a minute...would Facebook, which is no government-resisting anarchist, really hesitate to give the Chinese authorities access to their servers if that’s what it took for admission to the world’s biggest market?  That’s why I’m not convinced this is just about censorship.

Facebook and YouTube and many others were once themselves behind the market leaders in other countries, including the US (MySpace, Friendster) when they started. They suffered the same poor performance and incumbency problems in Japan (hardly a place devoid of domestic competitors) and many other places but won anyway.

Countries rarely enact trade barriers explicitly “to prevent trade”. The Japanese bureaucrats who restricted US imports for so long had no shortage of good non-trade-related reasons:  Japanese stomachs are smaller, and they wouldn't digest well the larger Florida oranges; Japanese snow, which falls on an island, is different and might present a safety hazard for skis designed for continental precipitation like Europe or America.  Even in the US, small family farms are prevented from selling their goods to willing and educated buyers for "food safety reasons", not because the large politically-powerful agribusinesses don't want the competition (that's just a bonus).

Kaiser and Jeremy are right about the explicit goals for the Great Firewall (“promote domestic harmony”), but policymakers might be better off thinking about it instead as a trade issue and not a human rights one. China can argue that, as a sovereign nation, it should be allowed to control information within its borders, but blocking foreign competitors for purely anti-competitive reasons runs afoul of the spirit of the international trade organizations of which China is a part -- and big beneficiary.  That argument, it seems to me, is more likely to win in the end.

[Book] Restless Empire by Odd Arne Westad

This is one of the best books I've read about China in a while. It helped me think about China’s modernization as a long, still unfinished process of slowly-increasing engagement with Westerners like me. At some point I’ll write up my thoughts and opinions generally, but meanwhile since iBook makes it easy for me to dump direct quotes that I underlined while reading, I’ll leave the following excerpts.  .

Chapter 1: Empire

• This pervasiveness of the state was closely linked to dreams of expansion. Qianlong believed that Qing rule was in form universal, in the sense that its principles should be applied by all peoples who were culturally advanced enough to appreciate and use them.

Chapter 1: Metamorphosis

• The Protestant religious awakenings in Britain and the United States in the 1820s and 1830s, combined with the increase in trade, meant that many Christian missionaries were able to operate on the edges of the empire. The first complete Bible in Chinese was published in British India in 1822, and other versions appeared over the next thirty years.

Chapter 2: Imperialisms

• Its control of the key bases and depots for the developing trade—Singapore, Hong Kong, and to a large extent Shanghai—anchored its primacy. But while the British controlled the structure, the Chinese supplied the infrastructure—the depots for East Asian trade were all Chinese cities, run as much by Chinese networks as by British authorities.
• Few societies have ever put more emphasis on the value of education in its various forms than did Qing China. Basic literacy rates were reasonably high compared to the rest of the world. Between a third and a half of men and up to ten percent of women could read. There were many schools in major cities, but competition for entry was fierce.
• Building on the knowledge transmitted by pioneers who had left earlier—people like Rong Hong (known in the West as Yung Wing), who had graduated from Yale in 1854 as the first Chinese with a US college degree—both the government and individual families began sending young people to America and Europe, and, as we shall see, a bit later also to Japan.
• “The English and the Americans are closely related, they have much in common, but they also differ widely, and in nothing is the difference more conspicuous than in their conduct,” observed Wu Tingfang, one of China’s first ambassadors to Washington. The democratic politics in the United States puzzled those who came: How could there be, many asked, collective decision making on administrative matters, when there was such extreme individualism in economic matters?

Chapter 5: Foreigners

• The numbers of foreigners in China varied year by year according to conditions in the country and internationally, but it is likely that the average in the first half of the twentieth century was between 300,000 and half a million (maybe surprisingly, the figures in 2005 were about the same). Of these, about half were Japanese subjects; the British, who long were the most influential, were never more than 15,000.
• The Salt Administration, which collected the salt tax that the state levied on both producers and importers, in the 1920s provided close to twenty percent of the state income.

Chapter 6: Abroad

• 9,000 Chinese wives went with their American husbands back to the United States after World War II. A number had married at a time when US immigration laws still forbade them from ever living in their husband’s country.
  [World War I was] by far the biggest and most concentrated mass transport of Chinese workers ever to go to another continent. It would have major consequences in terms of spreading information about Europe into even the remotest parts of China.
• The US government banned Chinese immigration in 1882. It is the only restriction Congress has ever enacted directed against all citizens of a specific country. The ban lasted up to 1943.
• Kim Il-sung, who after 1945 became the leader of North Korea, had an even closer relationship with China. Born in 1912, he grew up in a Christian Korean family in Manchuria and studied in Jilin City, where he started his activities against the Japanese occupation of Korea.
• [M]ore than 350 million people of European origin live outside Europe today, while only 40 million people of Chinese descent live outside China. Of the 3.5 million Chinese living [in the United States and Canada] two-thirds were born abroad.
• More than half of those over twenty-five have earned a college degree (as against a quarter of the general population), and they have a higher-than-average family income.
• By the 2000s, Singapore, with 77 percent of its population ethnically Chinese, was rated top on the free-market index alongside Hong Kong, even though the government continues to control around 60 percent of the total GDP.

Chapter 7: War

• In this second Sino-Japanese war, begun in 1937, two very different images of China came into conflict. One, held by most Japanese, came out of the nineteenth century and saw China as less a state than a geographic region with different power holders: Rival governments, local strongmen, and foreign representatives combined in different ways to keep some semblance of order, while advanced powers, such as Japan, promoted development within China. It was the advent of a nationalist central government, in the form of the Guomindang, with the stated purpose of resisting Japanese policies, that imperiled the image of a quiescent, pragmatic Chinese approach to international affairs.
• The war [with Japan] made it possible for the party to mobilize in its new bases in the northwest and behind the overextended Japanese lines, where the GMD state had collapsed. When the war began, the CCP was a small group, but in 1945—with 1.2 million members and 900,000 men and women under arms—it was a force to be reckoned with. Even more important than its numerical expansion, though, was the ability the party had gained to work with all segments of Chinese society through a system of centralized decision making. The war had made it possible for Mao Zedong and the group who had promoted his leadership to achieve two very different goals at the same time: Make all party members obey a secret and cloistered Mao-centered inner organization but present a moderate and cooperative outward image.
  Japan lost 400,000 men fighting in China (and 1,500,000 more in the other wars that the war in China started). China lost at least two million men in battle, and twelve million Chinese civilians died as a direct result of warfare.

Chapter 8: Communism

• But the detailed understanding of capitalist modernity that Marx had attempted was not at the center of Chinese Communism. Das Kapital, Marx’s main work, had not been fully translated into Chinese before the outbreak of the Sino-Japanese War in 1937.1 While the United States gave the GMD government more than $1.9 billion in assistance between 1945 and 1950, equaling more than $40 billion in today’s money, it could neither control its policies nor determine China’s political trajectory.

Chapter 9: China's Asia

• Koreans feel a cultural and historical closeness with China. In opinion polls in South Korea in 2005, China was ranked equally with the United States—South Korea’s long-term ally—as a country South Koreans viewed favorably. Among those under forty, China had a clear lead in terms of being seen as friendly In the 1980s seventy percent of all Japanese felt an affinity to China, far more than for any other nation.
• [China] for the first time since the fifteenth century [has] a blue-water navy, with fifty submarines (ten nuclear) and seventy major warships.

Comparing China and 70’s high-growth Japan

Interesting chart via Financial Times Alphaville from a presentation by C.H. Kwan at Nomura's Institute of Capital Markets Research:

The right-hand column (ICOR – incremental capital output ratio) shows how extremely unproductive China’s capital is compared to Japan, South Korea and Taiwan during their transformational expansions. And that Chinese capital productivity has actually worsened in recent years:

It's hard to look at the Chinese government's approach to development and wonder how that can be a sustainable way to grow. When 48% of the economy is capital investment, much (most) by centralized, all-powerful bureaucrats, the word "bubble" seems too bland to describe the inevitable crash.