This week, the Chinese government announced that China's
economy had expanded by a stronger-than-anticipated 10.7 percent in the last
quarter of 2009 and that it had grown 8.7 percent for the entire year. This
news, however, was not greeted with relief but with the skepticism that
has typically met such news emanating from China in recent years. The
Wall Street Journal ran a story on its front page
with the headline "China Seeks to Tame Boom, Stirs Growth Fears."
Because the news was accompanied by higher inflation, primarily the
result of higher food prices, global markets reacted negatively, under
the assumption that the government would soon begin to curtail credit
extended by banks and would look to cool off the economy before it
"overheats." Beijing will almost surely try to curtail promiscuous
credit, but only when domestic demand is strong enough to supplant it.
And as for food prices, they remain a backdoor way for the government
to transfer wealth from the cities (where most of the food is consumed)
to the poor rural areas (where most of it is produced).
There
is no dearth of China skeptics, some of whom are actually in the
Chinese government. But those have reason to worry--they are charged
with maintaining the path that China is on and they need to be attuned
to the slightest breeze that could develop into a fatal storm. Many who
sell China short--some literally like hedge fund manager Jim Chanos--have less to stand on. The fact that China's growth continues to be
driven by state spending is seen as a critical flaw, and the ratio of
consumer spending to trade and state-spending is seen as imbalanced and
untenable, especially by long-time China watchers like Morgan Stanley's
Stephen Roach or the perma-pessimist Gordon Chang.
Most
news on China is greeted with suspicion, or the suggestion that the
numbers are cooked. The recent Google China controversy fueled that
suspicion and obscured the degree to which some sectors of the Chinese
economy--namely the New Economy of information and entertainment--are
becoming robust and innovative and can compete with a dynamic
powerhouse like Google.
As for the official statistics, sure,
they are far from accurate, but then again, no government is able to
precisely gauge in real-time what's going on. The United States still
revises GDP numbers years after the fact, sometimes substantially. But
even inaccurate numbers give an indication that whatever formulas China
is using to muddle through are working. Its much-criticized domestic
consumptions rose nearly 20% for the quarter and 15% for the year, in a
year when much of the world was mired in recession. Critics say that
domestic buying was "artificially" boosted by government subsidies, but
how is that any different from tax relief and domestic stimulus
throughout Europe and the United States? And trade fell only 12 percent for
the year, in a year when the global economy and trade contracted more
sharply than in decades.
No doubt, China's trajectory will
include bubbles forming and popping (or most precisely, being popped by
government policy). No doubt, that will have an effect on stock prices
and sentiment in the short-term, mostly negative. But make no mistake:
this story is not Japan in the 1980s, and it isn't a flash in the
proverbial pan. It is real; it is shaping the global system; and it
will remake the economic landscape as surely as the emergence of the
United States in the early 20th century did. Skepticism is healthy, but
not when it becomes dogmatic and blinds the eye to real change.
Overestimating China is a risk, but the consequences of underestimating
it are far worse.
Photo credit: uniquebuildings/flickr
This article available online at:
http://www.theatlantic.com/business/archive/2010/01/chinas-growth-still-for-real/34054/
