A round-up of news and opinion.
When US Vice President Joe Biden visited China earlier this month he went on a charm offensive. ”Our mutual success will benefit the whole world,” he told his audience. “As the two largest economies in the world … I think we hold the key together to not only our own prosperity but to generating growth and jobs world-wide.”
In fact, research suggests that China may overtake the US in the not-too-distant future. According to IMF figures, China could have the world’s largest economy as soon as 2016. Since the downturn of 2008, China has maintained a growth rate of around 9% GDP, and it has done much to boost the global economy while other nations faltered.
Internally, China has problems of its own. Changing demographics mean that the labor market is shrinking, causing wages to rise. Inflation is high, which hurts ordinary citizens and is a source of possible unrest. There have long been signs of a housing bubble. And social tensions, between rich and poor, were highlighted just this week in New York Times piece that explored the fate of migrants who move illegally to cities.
The high rate of growth has led observers to fear it is unsustainable. Many analysts worry that China exports too much and imports too little — a trend that is hard to reverse unless its 1.3 billion citizens become wealthy enough to be true consumers.
Writing in the Wall Street Journal recently, the economist Michael Pettis was gloomy. He warned that “Beijing’s export-oriented strategy can’t continue forever” and said, “With Europe in crisis, and Japan and the U.S. struggling with their debt, demand for China’s exports will stagnate.”
A small but rising number of Chinese economists are beginning to predict sharply lower annual growth rates of 6% to 7% over the next few years. But the arithmetic of adjustment suggests growth is likely to be even lower, perhaps half that level.
The Economist, however, was a little more upbeat. ”Chinese debt burdens are manageable and its property market dynamics are quite different from those that prevailed in western bubbles markets prior to the crash.” It reached a wary conclusion: “It’s going to end at some point. Maybe not with an economic crash.”
The Chinese government insists that everything is fine, and offered a breezy overview of the situation earlier this summer: “Back in January this year, economists debated whether China’s economy was becoming over-heated. But six months later, worries about too much growth have all but dissipated. Instead, the latest flurry of economic data suggests the world’s second-largest economy is putting its foot on the brakes.”
Challenges remain though. The New York Times says that China’s politicians are finding it hard to redirect growth from large, state-directed projects (in infrastructure or export manufacturing) to more individual consumer spending. Next year a leadership transition is expected, adding political change to the mix.
Still, the consensus seems to be that a soft-landing is most likely. China’s second-quarter growth this year stood at 9.5%. For China it was part of a “slowdown … deliberately engineered by the authorities” (NYT) ; for politicians elsewhere, it would be the stuff of dreams.