Why the China doom­say­ers are get­ting things wrong

The Pak Banker - - OPINION - Jeremy Gar­lick

THERE has been a great deal of anx­i­ety re­cently among global in­vestors and fi­nan­cial ex­perts over the state of the Chi­nese econ­omy. This ap­pears to have reached its peak dur­ing the 2016 World Eco­nomic Fo­rum at Davos, where Ge­orge Soros opined that China is fac­ing a 'hard land­ing' be­cause of mis­man­age­ment of its cur­rency and other fac­tors, pro­vok­ing a fu­ri­ous re­but­tal in the pages of this news­pa­per and else­where in the Chi­nese me­dia.

Other ma­jor Western me­dia out­lets such as The Econ­o­mist and The Wall Street Jour­nal have weighed in with neg­a­tive fore­casts of China's econ­omy. Even Gold­man Sachs, the US in­vest­ment bank, has warned its clients to with­draw from China be­cause of the pos­si­bil­ity of im­mi­nent eco­nomic col­lapse.

Now it seems that calmer heads in the Western fi­nan­cial com­mu­nity have be­gun to urge peo­ple not to suc­cumb to un­nec­es­sary panic, given that the data do not war­rant such an ex­treme re­ac­tion. Am­brose Evans-Pritchard of the UK's The Daily Tele­graph has ad­vised against what he calls the 'hys­te­ria' which he be­lieves has re­placed ra­tio­nal de­bate both out­side and within China.

Yet there still seems to be great con­fu­sion over the di­rec­tion of China's econ­omy among Western fi­nan­cial and eco­nomic ex­perts. Some claim a de­val­u­a­tion of the yuan is im­mi­nent, oth­ers deny it. There ap­pear to be al­most as many ver­sions of China's eco­nomic fu­ture as there are ex­perts.

Thus the sit­u­a­tion is one of tur­moil, both in the mar­kets but also in peo­ple's heads. Part of this dis­or­der is gen­er­ated by the dif­fi­cult trans- for­ma­tion that is cur­rently oc­cur­ring in China's econ­omy, as this con­ti­nent-sized na­tion of 1.3 bil­lion at­tempts the in­evitable shift from in­dus­trial pro­duc­tion to a ser­vice econ­omy that is un­prece­dented in hu­man his­tory in terms of size.

How­ever, part of the prob­lem is also now be­ing en­abled by an emerg­ing cli­mate of fear, at least in part gen­er­ated by Western me­dia and fi­nan­cial pun­dits.

Eco­nom­ics is un­for­tu­nately not a pre­cise sci­ence, and is sub­ject to the highs and lows of hu­man emo­tions at least as much as it is to the in­flu­ence of num­bers. Many have noted that mar­kets move up and down on waves of greed and fear.

The present wave of un­jus­ti­fied fear and the scare­mon­ger­ing it has en­tailed is in­dica­tive of three things. The first is that it is clear ev­i­dence that China is now the most sig­nif­i­cant driver of global eco­nomic growth. There is now a largely un­spo­ken recog­ni­tion in the West that what hap­pens in China is go­ing to af­fect the fu­tures of the whole of hu­man­ity in the twenty-first cen­tury.

The se­cond point is that this tacit ad­mis­sion of China's cen­tral sig­nif­i­cance to the world, de­liv­ered in a flurry of prog­nos­ti­ca­tions about China's econ­omy, be­trays the sense of mis­giv­ing that many in the West have about China's in­creas­ing global im­por­tance. Fear about China's econ­omy also re­veals an un­der­ly­ing anx­i­ety that China is on the cusp of re­plac­ing the West as the dom­i­nant his­tor­i­cal force of our time, and that this de­vel­op­ment, what­ever its end re­sult may turn out to be, is be­yond the con­trol of Westerners.

The third and last is­sue is that, in all prob­a­bil­ity, large Western fi­nan­cial in­sti­tu­tions sus­pect that the global econ­omy may be on a down­ward spiral be­cause they know full well that they have not suf­fi­ciently re­formed their prac­tices since the 2008 melt­down, and that due to their con­tin­u­ing mal­prac­tice (well­doc­u­mented and sub­ject to fines for banks such as HSBC in the bil­lions of dol­lars) there is likely to be an­other bank­ing cri­sis on the cards be­fore long.

In short, the ' panic' (if such it be) among fi­nan­cial pun­dits at Davos and else­where is in­dica­tive of a deep-seated mis­trust of China, what it stands for, and where it is headed, as well as a de­sire to pre­emp­tively pass the buck if an­other crash comes. Jeremy Gar­lick is lec­turer in Univer­sity of Eco­nom­ics in Prague.

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