Fitch’s cut on China’s credit outlook is politically bias, intellectually fraught
US Treasury Secretary Janet Yellen’s recent visit to China, during which she complained about the country’s “overcapacity,” is politically biased and intellectually fraught. They cannot comprehend the shift that Chinese authorities are now executing, namely toward more high-quality and hightech growth.
International credit rating agencies are known to be politically biased and intellectually limited. They tend to favor governments that follows neoliberal policies, which they believe, will promote growth and fiscal health. However, since neoliberal policies limit the amount of debt incurred, the idea would be that the small amount of debt will be of relatively high-quality.
Chinese polices that promote longterm stable growth are the opposite of neoliberal policies. The country’s pro-growth policies involve significant government activity and spending, particularly through investment in the country’s people, infrastructure and productive economy. This would require substantial borrowing and deficits. However, the growth produced would make this debt sustainable. This understanding is reflected in China’s Ministry of Finance’s statement that Fitch’s downgrade “failed to effectively anticipate the positive role of fiscal policies in promoting economic growth.”
Historically, Western financial institutions have been known to want to invest in and profit from markets that they do not care to know very much about. This also applies to their relationship with China. While they follow developments in China more closely than other countries, the fact is that they cannot comprehend the shift that Chinese authorities are now executing: toward more high-quality and high-tech growth.
They do not understand how it will work and produce growth. They think that now that the phase of expanding
housing investment is over, there is no further strategy for growth, at least not one they can grasp. Finally, they tend to think that only private investment produces growth, not public investment, which they tend to regard merely from the point of view of government expenditure. China’s foreign debt is relatively small, so even if some investors are turned away by it, this is hardly a big problem. And the fact is that the first quarter growth rate of 5.3 percent has been higher than analysts’ projections and is a strong start to the year. I expect this to continue, and if it does, there is no doubt Fitch will have to change its outlook to positive.
The ‘China collapse theory’ arises from neoliberal ideology. The ideology prevents Western commentators from seeing that China’s economic strategy, which is not neoliberal but involves well-judged and pragmatic forms of state intervention to keep growth going and improving in quality, cannot be acknowledged by the West without fundamentally questioning neoliberal policy. And they cannot afford to question neoliberal policy because Western governments are creatures of the corporate and financial elites that profit without producing and like to keep things that way.
I believe the Chinese central government has the right idea. It is trying to direct funds into high-tech sectors and support those industries and the rest of the economy. When Western governments intervened more heavily in their economies in the first three decades after the WWII, they had consistently higher growth than they did under neoliberalism after 1980. Another reason why China’s approach is correct is that many of the new technologies are best developed as public utilities or heavily regulated private industries. China’s successes will serve as an example for the world.