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On worrying about China

By Brian Hennessy - posted Wednesday, 2 March 2016


It is February 2016, and I'm sitting in the Lian Luo Coffee house in Chongqing, a huge metropolis on the Yangtze River upstream from the Three Gorges Dam.

I was also sitting here in 2009 when I wrote an article questioning Western predictions that the Chinese economy was about to go under.

The same experts who had failed to predict a financial crisis in their own backyard were opining – shamelessly – that rising China was about to fall. To sink in fact.

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And here we go again. The big-picture guys are predicting that China's long run of economic success is over, and that it is just a matter of time before ex-President Zhang Zemin's 'Socialism with Chinese characteristics' unravels. Spectacularly.

Given their long history of predicting doom for China, I hope that you will forgive my cynicism. It has been shaped by long experience with the Western commentariat.

I remember 2009 vividly. China was concerned about a world-wide recession, and here in Chongqing, government officials were preparing for the worst.

Rather than laying off people though, the pain was to be spread evenly – all employees would have to accept fewer working hours.

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Laid-off migrant workers were returning home and the police and other internal security agencies had been directed to be 'proactive' in nipping any 'social disorder' in the bud.

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China was readying itself for an economic hard landing.

While this was going on, I noted that housing construction had stalled and that apartments were going cheap. Restaurants had fewer patrons, belts were being tightened, and there was a sense of apprehension in the air.

Then the Chinese ship of state righted itself after the $550 billion stimulus programme got things moving again.

Today, in February 2016, government employees are safe, and there is no threat of social disorder. Although the housing market has cooled, this is the result of deliberate government policy. Further, too many apartments have been built – Chinese people prefer to invest in hard assets – and getting credit today is much more difficult than it used to be (the negative side to the stimulus).

Nevertheless, restaurants are busy, consumers are spending, and the mood on the street seems to be OK.

A word of caution, though.

Last night I had dinner with friends at a local hot-pot restaurant near my home in Jiangbei District. It's a humble place catering to the laobaixing(ordinary people) who keep the economy ticking over at ground level.

Zhou Ming is a salesman for a company which imports mining machinery from Germany. It also manufactures products for export.

He lost his job last week. And last month, a friend of his who works in the local coal industry also lost his job.

Both are upset, not so much at being laid off (believe it or not), but by the lies their employers have been telling. Both companies have been hiding their losses, and providing false statistics to local government overlords.

We can presume then, that these government officials will also be padding their stats to their masters. The system they belong to encourages this type of dishonesty. In fact, it's a traditional survival skill.

When a country has a five-year plan specifying production targets, nobody wants to admit failure. China is a scapegoat society, and failure is always punished.

So, you can see where I'm heading with this. China has been here before. Most notoriously, during Chairman Mao's disastrous Great Leap Forward.

During that time, and as a direct result of doctrinaire policies, crop yields fell disastrously. However, because of the fear of political retribution, leaders at each level in the hierarchy lied about agricultural production – all the way up to the top.

The result of these self-serving distortions was that Beijing had no idea how bad the economy really was at that time. Famine followed. Tens of millions died.

Now, I am not suggesting that today's situation could be the harbinger of another catastrophic period in China's history. Rather, I am making a point about the consequences of feeding unreliable statistics into the mix. How do you know what is really going on?

That said, can we argue that Zhou Ming and his friend are modern day canaries in a coal mine?

I don't know. Maybe this is part of China's re-balancing from a manufacturing to a consumer society, and maybe not. China is an opaque society.

Who or what do I believe? Western analysts? Government statistics? My own eyes?

Anyway, what would I know? I'm no economist, I've never run a business, and I wouldn't recognise an economic theory if I tripped over one.

I'm street-wise though, and my impression is that things seem to be OK for the moment.

As long as unemployment is confined to the manufacturing sector, China might muddle through.

We'll see.

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About the Author

Brian is an Australian author, educator, and psychologist who lived in China for thirteen years. These days he divides his time between both countries.

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