THIS short primer on threats to the Chinese economy is a useful antidote to predictions that the country is headed for an economic “hard landing.”
Every slowdown in the growth of China’s GDP is seized on by excitable Western journalists as a sign that the wheels are about to come off after nearly four decades of spectacular expansion.
No matter that the Chinese government not only plans for slower growth but has actively applied the brakes to the economy in recent years, both for environmental reasons and to hold back the growth of asset bubbles in the property market.
Nor that China’s current growth rate (6.7 per cent last year) continues to put most of the world’s to shame.
Ann Lee looks at the issues that some say will sink the Chinese boat, from shadow banking and high corporate debt to some of the dubious financial models used by local government to fund development.
But in each case she demonstrates why China is actually at far less risk than Western economies. Most Chinese debt is held within the country, giving the government greater control over handling any default, while strict capital controls prevent mass capital flight.
“Experts” from the World Trade Organisation constantly badger the Chinese to “liberalise” their financial systems and privatise much of the enormous public sector.
But as Lee points out, the fact that China’s banks are publicly accountable is one of the system’s greatest strengths, preventing the sort of crash that hit the West in 2008 since Beijing was able to stop reckless speculation and — crucially — order banks to lend and invest when and where the need arose.
“The recommendation that China needs to step up financial market reforms is self-serving on the part of those who have Wall Street interests,” she notes.
As for the pressure to privatise, she observes drily that “private ... firms are not necessarily better at managing assets.”
Lee doesn’t always convince. Her apparent belief that China experienced “full communism” under Mao will not be shared by many Marxist economists, and she underplays the threat of war between China and the United States with a recklessly aggressive new president in the Oval Office.
But these lapses of judgement are rare, and it becomes evident that it is not China which is unsustainable, but global capitalism, since “workers’ endeavour and productivity need to be tied to reward” — something she recognises no longer happens in the West.
“We need to find a more sustainable model in which each person is valued for what they can contribute and the diversity of the world’s resources is valued more than the acquisition of money,” she muses at the end. Indeed we do.