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Friday, 31 October 2008
China Shows Us How It’s Done
With central banks scrambling around the world to cut interest rates and kick-start their economies, China is starting to look like the poster child of how to get things done.
SINGAPORE – With central banks scrambling around the world to cut interest rates and kick-start their economies, China is starting to look like the poster child of how to get things done.
China is often portrayed as some sort of big, bad economic wolf, prowling the world in search of resources, doing deals with shady governments, keeping its currency artificially low to give its exporters an unfair advantage, snubbing international trading norms and trashing the environment.
Now, its critics have gone a little quiet; we haven’t even had much, if any, China bashing as we head into the final stages of the U.S. presidential election.
Indeed, officials and politicians are falling over themselves to note the importance of the Chinese economy to the rest of the world, and its role in keeping the rest of Asia afloat. Chinese demand for imports – especially commodities – is just as crucial as the exports it pumps out to other countries.
Please keep going China, people are saying, because we need you to.
To that end, analysts are fulsome in their praise of the aggressive action taken by Beijing, after its third rate cut in seven weeks; China is showing its determination to support its economy, they say, and the rate cuts are a positive/welcome/smart/proactive step.
Certainly officials in Beijing are due some acknowledgment.
They haven’t mucked about like others have, by chopping and changing policy on the run.
They’ve seemed focused and assured as the crisis worsens, while their counterparts in a fair few countries have floundered caught out by the impact and pace of the global economic slowdown and by the gyrations in financial markets.
They’ve also been lucky.
China has had a bit of time to develop some foresight, as the economy has come into this crisis with a lot more fat on its bones than other places, and there’s been no massive exposure by its banks to the subprime debt mess in the U.S.
It has had some leeway to sit back and watch as things unfolded first in the U.S. and then Europe and Asia. It has had time to witness the policy blunders of other nations, including their sluggish reactions to the increased risks to growth and the fading inflation threat. It saw central banks hike rates in some places, only to cut them a few weeks later.
Having seen how other countries are coping and the various strategies they are deploying – from the fiscal to the monetary – Beijing has cherry-picked the best bits and used them for itself.
It has realized that rates are a blunt, and laggard, instrument. So it is taking very targeted fiscal action to support key sectors of the economy, and loosening the reins on the property sector; it has slowed the gains in its currency, the yuan, while still prodding exporters of low-value, cheap goods to move up the food chain to the higher-end of town.
While cutting lending rates it has moved periodically to protect deposit rates.
That’s not to say China doesn’t have its problems.
Longer-term there are large structural issues as the country matures, with the rural masses at risk of being left behind and as cities struggle to cope with large influxes of people. The financial markets there lack depth and its citizens are reliant on the government periodically propping up the stock market. There are enormous environmental challenges.
But even as things worsen, and especially given the action taken by policymakers, it’s hard to see the Chinese economy contracting. People are now fretting over the possibility that growth could slow to something like 5% - the kind of growth many other countries would find positively delightful right now.
That China is acting decisively and calmly is good news for the rest of us. In the end, whether it’s by good luck or good management, or a combination of both, the main thing is the economy does in fact hold up.
1 comment:
China Shows Us How It’s Done
By ROSALIND MATHIESON
30 October 2008
SINGAPORE – With central banks scrambling around the world to cut interest rates and kick-start their economies, China is starting to look like the poster child of how to get things done.
China is often portrayed as some sort of big, bad economic wolf, prowling the world in search of resources, doing deals with shady governments, keeping its currency artificially low to give its exporters an unfair advantage, snubbing international trading norms and trashing the environment.
Now, its critics have gone a little quiet; we haven’t even had much, if any, China bashing as we head into the final stages of the U.S. presidential election.
Indeed, officials and politicians are falling over themselves to note the importance of the Chinese economy to the rest of the world, and its role in keeping the rest of Asia afloat. Chinese demand for imports – especially commodities – is just as crucial as the exports it pumps out to other countries.
Please keep going China, people are saying, because we need you to.
To that end, analysts are fulsome in their praise of the aggressive action taken by Beijing, after its third rate cut in seven weeks; China is showing its determination to support its economy, they say, and the rate cuts are a positive/welcome/smart/proactive step.
Certainly officials in Beijing are due some acknowledgment.
They haven’t mucked about like others have, by chopping and changing policy on the run.
They’ve seemed focused and assured as the crisis worsens, while their counterparts in a fair few countries have floundered caught out by the impact and pace of the global economic slowdown and by the gyrations in financial markets.
They’ve also been lucky.
China has had a bit of time to develop some foresight, as the economy has come into this crisis with a lot more fat on its bones than other places, and there’s been no massive exposure by its banks to the subprime debt mess in the U.S.
It has had some leeway to sit back and watch as things unfolded first in the U.S. and then Europe and Asia. It has had time to witness the policy blunders of other nations, including their sluggish reactions to the increased risks to growth and the fading inflation threat. It saw central banks hike rates in some places, only to cut them a few weeks later.
Having seen how other countries are coping and the various strategies they are deploying – from the fiscal to the monetary – Beijing has cherry-picked the best bits and used them for itself.
It has realized that rates are a blunt, and laggard, instrument. So it is taking very targeted fiscal action to support key sectors of the economy, and loosening the reins on the property sector; it has slowed the gains in its currency, the yuan, while still prodding exporters of low-value, cheap goods to move up the food chain to the higher-end of town.
While cutting lending rates it has moved periodically to protect deposit rates.
That’s not to say China doesn’t have its problems.
Longer-term there are large structural issues as the country matures, with the rural masses at risk of being left behind and as cities struggle to cope with large influxes of people. The financial markets there lack depth and its citizens are reliant on the government periodically propping up the stock market. There are enormous environmental challenges.
But even as things worsen, and especially given the action taken by policymakers, it’s hard to see the Chinese economy contracting. People are now fretting over the possibility that growth could slow to something like 5% - the kind of growth many other countries would find positively delightful right now.
That China is acting decisively and calmly is good news for the rest of us. In the end, whether it’s by good luck or good management, or a combination of both, the main thing is the economy does in fact hold up.
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