Strong China sees off these prophets of doom
By John Ross |
July 19, 2011, Tuesday
|
Print Edition
Print Edition
John Ross is currently Visiting Professor at Antai College of Economics and Management, Shanghai Jiao Tong University. He was consultant to Fortune Global 500 companies and from 2000 to 2008 London's director (currently equivalent to deputy mayor) for economic and business policy. He has written on China's economy for 20 years.
China's 9.5 percent GDP growth in the last quarter once more refuted those predicting a hard landing for its economy. Individual problems, particularly food price inflation, exist but the fundamental reality is that China's economy continues to expand rapidly.
This is far from the first time that predictions of slowdown in China's economy have been proved wrong. I have written on China's economy for 20 years, and find it astonishing that analysis which has persistently been proved incorrect continues to get an airing in sections of the media, without it being pointed out that those making such an analysis have a track record of being wrong.
In business, someone who made repeatedly wrong predictions would get the sack or lose huge sums. How expensive mistakes can be in emerging markets I saw first-hand in Russia in the 1990s when George Soros, acting on erroneous advice on the dynamics of Russia's economy, got involved in privatization of the telecommunications company Svyazinvest and lost US$1 billion.
But on China analysis which has been proved wrong, and which will similarly result in losses, continues to get an airing. To take some examples, in 2002 Gordon Chang wrote a book "The Coming Collapse of China." This concluded: "A half-decade ago the leaders of the People's Republic had real choices. Today they do not. They have no exit. They have run out of time." A decade later China's economy has more than doubled in size - but Chang still makes appearances to promote pessimistic analyses of China's economy.
The Economist magazine in June 2002 published a supplement "Out of puff" which analyzed: "In the coming decade… China seems set to become more unstable. It will face growing unrest as unemployment mounts." A decade afterwards, China clearly did not become unstable - but the mistake was never admitted or analyzed.
To take a contemporary example - US financial analyst Michael Pettis's prediction regarding the international financial crisis that "the US would be the first major economy out of the crisis and China one of the last." Actually, China was the first major economy out of the crisis and the US has recovered far more slowly but Pettis continues to be cited to justify a pessimistic analysis of China.
Given such persistent mistakes, it is worth explaining why China's economy is so strong and, therefore, continually refutes predictions of disaster.
Statistics such as that China has the world's greatest number of internet users or car sales are important. But they are not China's greatest strength. That lies in finance.
Economic analysis, including the IMF's, shows China's GDP will overtake the US within 10 years. But it is not so generally realized that China has already overtaken the US in the finance it has available for investment - not as a percentage of GDP but in absolute US dollar terms.
As the chart shows, in 2009, the last year for which full data is available, China's finance available for investment, ie its savings, was US$2.6 trillion, compared to the US's US$1.6 trillion - a lead of a US$1 trillion. China grew faster than the US in 2010, and when that year's figures are published China's lead will be greater.
This financial strength is why China repeatedly surmounts economic difficulties it faces. It is not that China has no problems. It is that China has the financial resources to overcome them. "Problems will arise and they will be overcome" is the basic dynamic of China's economy.
Because they have not grasped the implications of the fact that China is the world's financial superpower, prophets of doom on China economy are repeatedly shown to be wrong.
China's 9.5 percent GDP growth in the last quarter once more refuted those predicting a hard landing for its economy. Individual problems, particularly food price inflation, exist but the fundamental reality is that China's economy continues to expand rapidly.
This is far from the first time that predictions of slowdown in China's economy have been proved wrong. I have written on China's economy for 20 years, and find it astonishing that analysis which has persistently been proved incorrect continues to get an airing in sections of the media, without it being pointed out that those making such an analysis have a track record of being wrong.
In business, someone who made repeatedly wrong predictions would get the sack or lose huge sums. How expensive mistakes can be in emerging markets I saw first-hand in Russia in the 1990s when George Soros, acting on erroneous advice on the dynamics of Russia's economy, got involved in privatization of the telecommunications company Svyazinvest and lost US$1 billion.
But on China analysis which has been proved wrong, and which will similarly result in losses, continues to get an airing. To take some examples, in 2002 Gordon Chang wrote a book "The Coming Collapse of China." This concluded: "A half-decade ago the leaders of the People's Republic had real choices. Today they do not. They have no exit. They have run out of time." A decade later China's economy has more than doubled in size - but Chang still makes appearances to promote pessimistic analyses of China's economy.
The Economist magazine in June 2002 published a supplement "Out of puff" which analyzed: "In the coming decade… China seems set to become more unstable. It will face growing unrest as unemployment mounts." A decade afterwards, China clearly did not become unstable - but the mistake was never admitted or analyzed.
To take a contemporary example - US financial analyst Michael Pettis's prediction regarding the international financial crisis that "the US would be the first major economy out of the crisis and China one of the last." Actually, China was the first major economy out of the crisis and the US has recovered far more slowly but Pettis continues to be cited to justify a pessimistic analysis of China.
Given such persistent mistakes, it is worth explaining why China's economy is so strong and, therefore, continually refutes predictions of disaster.
Statistics such as that China has the world's greatest number of internet users or car sales are important. But they are not China's greatest strength. That lies in finance.
Economic analysis, including the IMF's, shows China's GDP will overtake the US within 10 years. But it is not so generally realized that China has already overtaken the US in the finance it has available for investment - not as a percentage of GDP but in absolute US dollar terms.
As the chart shows, in 2009, the last year for which full data is available, China's finance available for investment, ie its savings, was US$2.6 trillion, compared to the US's US$1.6 trillion - a lead of a US$1 trillion. China grew faster than the US in 2010, and when that year's figures are published China's lead will be greater.
This financial strength is why China repeatedly surmounts economic difficulties it faces. It is not that China has no problems. It is that China has the financial resources to overcome them. "Problems will arise and they will be overcome" is the basic dynamic of China's economy.
Because they have not grasped the implications of the fact that China is the world's financial superpower, prophets of doom on China economy are repeatedly shown to be wrong.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
