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China's state-fueled growth

Its economic successes are built on a foundation of government spending on transportation, education, and more.

By Steven Conn

I recently took a ride on the world's only commercially operating "maglev" train. As its name suggests, the train uses high-powered magnets to levitate above its track. There are no wheels and no friction, and it moves fast - really fast. The trip was about 19 miles long, and it took eight minutes, for an average speed of about 143 m.p.h.

I rode the train in Shanghai, from the edge of the city's Pudong district to the airport. It felt like riding the future.

So does China as a whole when one visits places like Shanghai and Hong Kong. Walking down the streets, I could see and feel the energy.

China's meteoric economic rise has a lot of Americans worried. Our politicians have increasingly railed against the Chinese "threat." What they don't mention as often is that China's economic success directly contradicts American conservatives' free-market orthodoxy. Under their economic theories, China's booming economy simply can't exist.

A visit to China quickly reveals that its economy is being built not by the miracle of the free market and the private sector alone, but also by public spending on a huge scale.

Forget that many of the key sectors of the Chinese economy, such as the big banks, are still largely controlled by the state, or state-run enterprises, as they are often called. (And forget for the moment that China's banking sector weathered the financial collapse better than many big American banks.) Where you really see the importance of government spending is in infrastructure projects of all kinds.

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Moving people

Shanghai, for example, has grown rapidly as workers have poured into its factories, which could have choked transportation. But workers are getting around via an efficient subway system and a network of huge new roads.

Most major Chinese cities are now connected to each other with high-speed trains, which often start and stop in impressive new stations. And for those who don't want to take the train, air travel within China is getting easier and easier. A state-run airline handles domestic flights in and out of dazzling new airports - any one of which would rank as the nicest, most efficient airport in America.

All these things make it possible for people to move, and as people move, so does the economy.

Much of China's economy is built on exports, of course. To position the country even more advantageously for that, the government is investing in new port facilities. My host in Shanghai told me that the government there is building what will be the largest deepwater port in the world.

Chinese public investment doesn't stop with transport. Thanks to government initiative, China will soon become the largest generator of renewable energy in the world (if it isn't already). There are more solar cells producing electricity there than in any other country.

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Funding universities

Chinese universities and research institutes, meanwhile, are already big, and they are growing rapidly because the government has decided to invest heavily in them. Chinese scientists are expected to soon be publishing more articles in scientific journals than their American counterparts.

And all of this is because of government spending. In other words, the Chinese economy has taken off because the Chinese are doing what Americans used to do: making large-scale public investments to stimulate and foster the private market.

We Americans used to build railroads and highways, and we used to fund our education system generously, making it the envy of the world. Now, of course, we don't. In the last 30 years, our economic policy has shifted away from public investment and toward enriching big corporations and wealthy individuals through tax breaks and giveaways.

For proof of that, look no further than the latest education budgets in virtually every state, including Pennsylvania. Compare the gutted budgets of state universities here with the growth of Chinese universities, and you have a pretty good measure of who will "win the future."

My host told me that the Chinese have different ideas about time. They think in the long term, looking ahead decades instead of to the next quarterly earnings report. That maglev train to the airport doesn't make money yet. But it will eventually, and, as with so much else going on in China, the public investment will pay handsome dividends.