Is Chi­nese econ­omy go­ing to col­lapse?

The Pak Banker - - OPINION - Wang Qingfeng

CHI­NESE econ­omy is ex­pe­ri­enc­ing dif­fi­cul­ties which are not unique to China but al­most ev­ery coun­try in the world is fac­ing an eco­nomic slow­down un­der cur­rent global eco­nomic sit­u­a­tion. The US has ex­pe­ri­enced 47 re­ces­sions since 1790. The 1929 crash of the stock mar­ket caused the Great De­pres­sion with 26.7 per­cent de­cline in GDP and 24.9 per­cent un­em­ploy­ment rate, no re­ces­sion af­ter World War II came any­where close to that. Not many still care about the 1929 crash. We care more about the most re­cent 2007 sub­prime mort­gage cri­sis which orig­i­nated from the United States. It then quickly spread to the rest of the world. Those who pre­dict the melt­down of US econ­omy are nowhere near the re­al­ity. United States has be­come stronger and more pow­er­ful af­ter all those re­ces­sions and not weak­ened. No man on earth dare to claim he will never be ill or at least it is not wise or safe to say so. I hope read­ers would agree with me that ev­ery econ­omy has its weak­ness as a re­sult of the om­nipres­ence of hu­man weak­ness em­bed­ded in ev­ery fi­nan­cial sys­tem. When peo­ple get ill, they need a doc­tor. When econ­omy is "ill", it needs wise doc­tors who are spe­cial­ized in han­dling the "ill­ness" and can give right treat­ments.

Bruce Lee once said that "Do not pray for an easy life, pray for the strength to en­dure a dif­fi­cult one." But­ter­flies are much more beau­ti­ful than cater­pil­lars, yet that trans­for­ma­tion from the cater­pil­lar into the but­ter­fly can be very painful. Th­ese are ex­actly what China is ex­pe­ri­enc­ing at the mo­ment with its econ­omy, so­cial and political ar­chi­tec­ture, by un­der­tak­ing tremen­dous eco­nomic, so­cial and political re­form for the bet­ter not for the worse. For China, there is much more to hope for than to feel des­per­ate. Suc­cess of the re­form would not only ben­e­fit 1.3 bil­lion Chi­nese, its neigh­bor­ing coun­tries but also the sta­bil­ity and pros­per­ity of the world. Debt cri­sis and de­fla­tion in Euro zone has con­vinced Euro­pean cen­tral bank to cut a key in­ter­est rate and ex­tend its bond buy­ing pro­gram through­out the re­cent global fi­nan­cial cri­sis. In 2014, Euro­pean cen­tral bank even in­tro­duced neg­a­tive in­ter­est rate to boost economies of its mem­ber coun­tries. Ja­panese Cen­tral Bank adopted neg­a­tive in­ter­est rates to stim­u­late its eco­nomic growth on 29th of Jan 2016. And, this is not the first time Ja­pan im­posed neg­a­tive in­ter­est rates.

As de­pos­i­tor, we ex­pect to re­ceive in­ter­est from banks in­stead of pay­ing banks to just hold our money. It might be safe to say that there is much to worry for Ja­pan and Europe than for China. Chi­nese econ­omy is still grow­ing in 2015 at a rate close to 6.9% even though that is at its his­tor­i­cal low. Now, China has sur­passed Ja­pan in be­com­ing the world's se­cond largest econ­omy af­ter years' ac­cu­mu­la­tion of its wealth. Slow down of China' econ­omy is in­evitable and can be safely pre­dicted es­pe­cially with years' con­tin­u­ous fast growth and with cur­rent eco­nomic size. Is China ex­pe­ri­enc­ing hard land­ing? Kaushik Basu, World Bank chief econ­o­mist, said China's econ­omy is very un­likely to ex­pe­ri­ence a hard land­ing, a com­ment he made at 2014 World Eco­nomic Fo­rum. Is Chi­nese econ­omy go­ing to col­lapse? World econ­omy is grad­u­ally re­cov­er­ing. Signs of re­cov­er­ing have been emerged in the United States e.g., with more jobs added to its econ­omy, much im­proved pur­chas­ing man­agers' in­dex in the Euro zone. China will fully ben­e­fit from world eco­nomic re­cov­ery. Let's as­sume for the worst and to em­brace for the worst. Is China able to pre­vent its econ­omy from col­lapse - is the more mean­ing­ful ques­tion to ask than the ques­tion - is China go­ing to col­lapse? China is fully ar­mored to com­bat any slow down or hard land­ing or col­lapse. Chi­nese banks per­formed among the best dur­ing the most re­cent global fi­nan­cial cri­sis, they were not only very prof­itable but also hav­ing the world's low­est rate of bad loans.

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