On worrying about China

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Brian Hennessy. China Australia Consult. September, 2016

Western analysts are reporting that the Chinese economy is a worry: too much debt, misallocated capital, a pegged currency, and a political system which refuses to reform itself. The fear is: if China sinks, the rest of the world may go down with her. Is a collapse imminent? Here's an opinion from an expat in Chongqing, China.


       Everything seems to be OK…for now. Maybe.

 

On worrying about China

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It is September 2016, and I’m sitting in a coffee house in Chongqing, a huge metropolis on the Yangtze River upstream from the Three Gorges Dam. 

 

I was sitting here in 2009 when I wrote an article questioning Western predictions that the Chinese economy was about to go under.

 

The same experts who had failed to predict a financial crisis in their own backyard were opining – shamelessly – that rising China was about to fall.  

 

And here we go again. The big-picture analysts are predicting that China's long run of economic success is over, and that it's just a matter of time before ex-President Zhang Zemin's 'Socialism with Chinese characteristics' unravels.

 

Given their history of forecasting doom for China, I hope that you will forgive my cynicism. It has been shaped by long experience with the Western commentariate. 

 

I remember 2009 vividly. China was concerned about a world-wide recession, and here in Chongqing, government officials were preparing for the worst.

 

Rather than laying off people though, the pain was to be spread evenly – all government employees would have to accept fewer working hours.

 

Laid-off migrant workers were returning home and the police and other internal security agencies had been directed to be ‘proactive’ in nipping any ‘social disorder’ in the bud.

 

China was preparing itself for an economic hard landing. 

 

While this was going on, I noted that housing construction had stalled and that apartments were going cheap. Restaurants had fewer patrons, belts were being tightened, and there was a sense of apprehension in the air.

 

Then the Chinese ship of state righted itself after the $550 billion stimulus programme got the economy moving again.

 

Today, government employees are safe, and there is no threat of social disorder. Although the housing market has cooled, this is the result of deliberate government policy. It is also the result of oversupply. 

 

Restaurants are busy, consumers are spending, and the mood on the street seems to be OK. 

 

A word of caution, though. 

 

Last night I had dinner with friends at a local hot-pot restaurant near my home in Jiangbei District. It’s a humble place catering to the laobaixing (ordinary people) who keep the economy ticking over at street-level.

 

Zhou Ming is a salesman for a company which imports mining machinery from Germany. It also manufactures products for export.

 

He lost his job last week. And last month, a friend of his who works in the coal industry also lost his job.

 

Both are upset; not only because they have been laid off, but also because their employers have been hiding their losses, and providing false statistics to the Chongqing government. 

 

The lying doesn't stop there though. We can presume that local government officers will also be padding their stats to their masters. 

 

When a country has a five-year plan specifying production targets, nobody wants to admit failure. China is a scapegoat society, and failure is always punished. Inflating statistics is a survival skill.

 

So, you can see where I’m heading with this. China has been here before. Most notoriously, during Chairman Mao’s disastrous Great Leap Forward (1958-61).

 

During that time crop yields fell disastrously, and leaders at each level in the hierarchy lied about agricultural production – all the way up to the top.

 

The result of these self-serving distortions was that Beijing had no idea of how bad the economy really was in the provinces. Famine followed. Tens of millions died.

 

Now, I am not suggesting that today's situation could be the harbinger of another catastrophic period in China's history. Rather, I am making a point about the consequences of feeding unreliable statistics into the mix. How do you know what is really going on?

 

That said, can we argue that Zhou Ming and his friend are modern day canaries in a coal mine?

 

I don’t know. Maybe this is part of China’s re-balancing from a manufacturing to a consumer society, and maybe not. China is an opaque society.

 

Who or what do I believe? Western analysts? Government statistics? My own eyes?

 

At street-level, my impression is that things seem to be OK for the moment. 

 

As long as unemployment is confined to the manufacturing sector, China might muddle through.

 

We’ll see.


–oo0oo–






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