U.S. Turning Left? China Turning Right?

Just eighteen months ago, U.S. Treasury Secretary Henry Paulson told an audience at the Shanghai Futures Exchange that China risked trillions of dollars in lost economic potential unless it freed up its capital markets.
``An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention,'' Paulson said.
That advice rings hollow in China as Paulson plans a $700 billion rescue for U.S. financial institutions and the Securities and Exchange Commission bans short sales of insurers, banks and securities firms.
For a long time, the U.S. financial system was regarded as a model, and the rest of word especially emerging markets tried their best to copy whatever we could. Suddenly they find their teacher is not that excellent this time.
The recent moves by Paulson, the former chief executive officer of Goldman, contradict what the U.S. told Asian governments over the past decade. Thailand, South Korea and Indonesia were urged to let unviable banks fail during the 1997-98 Asian financial crisis.
In 1989, when the Berlin Wall fell, socialism was discredited and the whole world turned right. Now financial capital has been discredited and the whole world, including the U.S., is turning left. It's ironic Paulson has become the manager of many large financial institutions. He will have to ask the Chinese leaders about their experience of managing state-owned assets. I am joking here of course.
Eventually, China's leaders will have to take a cue from the U.S. and western Europe by allowing more competition to provide cheaper funding for companies and consumers. It’s believed that China doesn't have any choice except to continue with the U.S. model because there is no competing system. More people die in cars than they did on horses, but are people going to say we should stick with horses?
Since joining the World Trade Organization in 2001, China has gradually opened its markets to foreign competition, allowing international investment banks to form joint ventures with local partners and permitting the biggest state banks to sell shares on overseas stock exchanges. In the past three years, China dropped a decade-old currency peg to the dollar, introduced foreign- exchange swaps and forwards that allow investors to hedge or bet on currency fluctuations, and expanded the bond market. Plans to introduce many financial products, including derivatives, may be shelved as China focuses on improving risk- management. Financial innovation is a two-edged sword, Chinese market can't just concentrate on product innovation and overlook the need to build the financial system.
But as financial turmoil spread, at this point, China's made it clear it won't listen to these snake-oil salesmen who come from Wall Street, even if they're wearing suits issued by the Treasury Department.