Doing things its own way has helped China to be where it now stands economically
By ANTHONY ROWLEY 11 March 2010
Few, if any, are promoting ‘collapsist’ theories about China of the kind often heard in relation to North Korea, but the notion of a China ‘bust’ seems to be gaining ground.
Another columnist argued recently (not in this newspaper) that such a bust is inevitable and adduced support for the idea from gurus such as former International Monetary Fund (IMF) chief economist Kenneth Rogoff.
Personally, I am not convinced, not so much because of the size of China’s economy and its ability to absorb shocks as because of extraordinary skill that Chinese policymakers have shown over the past 30 years in steering their economy to the point where it will overtake Japan as the world’s second largest, if it has not already done so.
It is as if China was not so much a ‘sleeping dragon’ throughout the period from 1949, when Mao Zedong founded the People’s Republic of China, until 1979, when Deng Xiaoping began his modernising reforms, as a chrysalis in which a quiescent surge of energy was waiting to be released.
I recall around 1980, during my first visit to Beijing I was granted an interview with one of China’s vice-ministers of finance. On being shown into a gloomy office, I waited for him to arrive, and was puzzled when someone I took to be a bus driver, clad in Mao suit and a shiny black cap, turned up instead.
I was even more surprised when the man seated himself behind the ministerial desk and an interpreter sprang to attention. This, I realised, was the vice-minister, and the moment he began answering my questions I was impressed by his clear analysis of the challenges facing China’s economy as it stepped out of obscurity.
Around the same time, I was startled while attending a conference in Shanghai to see one of the tea ladies ask for the microphone during question time and ply the guest speaker, a German central banker, with penetrating questions about banking reserve policies outside of China.
Mao suits or tea ladies’ aprons could not disguise intelligence in either case.
I mention these incidents simply to illustrate the point that appearances can be deceptive and the idea that China has somehow managed to stumble through the first three decades of its modernisation led by a bunch of former Maoist bumpkins is mistaken. So, too, I believe is the notion that they are riding for an inevitable fall.
While it is risky to extrapolate too freely from the past into the future, a track record such as that established by Chinese policymakers gives cause for comfort, not concern.
It has been an incredible balancing act to juggle the interests of urban and rural populations totalling over one billion while maintaining breakneck rate of economic growth, reforming state enterprises, modernising the financial system, building a strong infrastructure base, modernising the armed forces and projecting a global diplomatic presence.
Against these achievements, the challenges facing China now - from finding ways to maintain economic growth high enough to absorb rural unemployment to dealing with a possible property bubble in various Chinese cities - pale into relative insignificance.
It used to be often said about Japan that this smaller, island-nation excelled by doing things in the ‘Japanese way’. But China is arguably doing things in its own way to a far greater extent than Japan has done.
A good example is the way in which China is managing its currency. Having seen how Japan suffered by allowing its currency to be dramatically appreciated under the Plaza Accord of 1985 (prompting the bubble economy and then a decade or more of economic stagnation and deflation), China is doing things its own way with regard to the yuan.
Maintaining a stable exchange rate has, undoubtedly, not only enabled China to steer clear of a Japan-style slump or an Asian financial crisis but also allowed it to become a growth pole within Asia that has pulled much of the rest of the region - including Japan - along in its wake.
Unlike Japan, too, China is doing things in its own way with regard to managing its foreign exchange reserves (nowadays twice the size of Japan’s). Instead of holding on to a depreciating US dollar like grim death as Japan has done, China has diversified into the euro and gold and bought up huge amounts of foreign resources.
Having challenged the US dollar’s ability to continue much longer as the world’s key reserve currency, Beijing is pushing to have the yuan included in the basket of currencies making up the IMF’s Special Drawing Rights, which could well emerge in some form as the new global reserve currency of first choice.
I am reminded too by a former senior World Bank official who played a seminal role in helping modernise banking and capital market system in Asia that China insisted on doing things in its own way in this regard too. While Thailand and others were overwhelmed by hot money inflows and outflows, China kept its embryonic stock market relatively closed.
It would be foolish to say that China does not face huge economic, demographic and possibly political challenges in the future. But its ability to deal with them based on the record of past performance is reassuring. And it does not have the deadweight of fiscal deficits that are crushing Western economies as a result of their past financial indiscretions.
If a bust is going to happen anywhere, it is more likely to occur in the so-called advanced nations where fiscal deficits are dangerously high. The fiscal Greek tragedy is not yet fully played out and Portugal, Spain and Ireland - not to mention the UK and the United States - are among the dominoes waiting to fall.
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A China bust? No way; better worry about West
Doing things its own way has helped China to be where it now stands economically
By ANTHONY ROWLEY
11 March 2010
Few, if any, are promoting ‘collapsist’ theories about China of the kind often heard in relation to North Korea, but the notion of a China ‘bust’ seems to be gaining ground.
Another columnist argued recently (not in this newspaper) that such a bust is inevitable and adduced support for the idea from gurus such as former International Monetary Fund (IMF) chief economist Kenneth Rogoff.
Personally, I am not convinced, not so much because of the size of China’s economy and its ability to absorb shocks as because of extraordinary skill that Chinese policymakers have shown over the past 30 years in steering their economy to the point where it will overtake Japan as the world’s second largest, if it has not already done so.
It is as if China was not so much a ‘sleeping dragon’ throughout the period from 1949, when Mao Zedong founded the People’s Republic of China, until 1979, when Deng Xiaoping began his modernising reforms, as a chrysalis in which a quiescent surge of energy was waiting to be released.
I recall around 1980, during my first visit to Beijing I was granted an interview with one of China’s vice-ministers of finance. On being shown into a gloomy office, I waited for him to arrive, and was puzzled when someone I took to be a bus driver, clad in Mao suit and a shiny black cap, turned up instead.
I was even more surprised when the man seated himself behind the ministerial desk and an interpreter sprang to attention. This, I realised, was the vice-minister, and the moment he began answering my questions I was impressed by his clear analysis of the challenges facing China’s economy as it stepped out of obscurity.
Around the same time, I was startled while attending a conference in Shanghai to see one of the tea ladies ask for the microphone during question time and ply the guest speaker, a German central banker, with penetrating questions about banking reserve policies outside of China.
Mao suits or tea ladies’ aprons could not disguise intelligence in either case.
I mention these incidents simply to illustrate the point that appearances can be deceptive and the idea that China has somehow managed to stumble through the first three decades of its modernisation led by a bunch of former Maoist bumpkins is mistaken. So, too, I believe is the notion that they are riding for an inevitable fall.
While it is risky to extrapolate too freely from the past into the future, a track record such as that established by Chinese policymakers gives cause for comfort, not concern.
It has been an incredible balancing act to juggle the interests of urban and rural populations totalling over one billion while maintaining breakneck rate of economic growth, reforming state enterprises, modernising the financial system, building a strong infrastructure base, modernising the armed forces and projecting a global diplomatic presence.
Against these achievements, the challenges facing China now - from finding ways to maintain economic growth high enough to absorb rural unemployment to dealing with a possible property bubble in various Chinese cities - pale into relative insignificance.
It used to be often said about Japan that this smaller, island-nation excelled by doing things in the ‘Japanese way’. But China is arguably doing things in its own way to a far greater extent than Japan has done.
A good example is the way in which China is managing its currency. Having seen how Japan suffered by allowing its currency to be dramatically appreciated under the Plaza Accord of 1985 (prompting the bubble economy and then a decade or more of economic stagnation and deflation), China is doing things its own way with regard to the yuan.
Maintaining a stable exchange rate has, undoubtedly, not only enabled China to steer clear of a Japan-style slump or an Asian financial crisis but also allowed it to become a growth pole within Asia that has pulled much of the rest of the region - including Japan - along in its wake.
Unlike Japan, too, China is doing things in its own way with regard to managing its foreign exchange reserves (nowadays twice the size of Japan’s). Instead of holding on to a depreciating US dollar like grim death as Japan has done, China has diversified into the euro and gold and bought up huge amounts of foreign resources.
Having challenged the US dollar’s ability to continue much longer as the world’s key reserve currency, Beijing is pushing to have the yuan included in the basket of currencies making up the IMF’s Special Drawing Rights, which could well emerge in some form as the new global reserve currency of first choice.
I am reminded too by a former senior World Bank official who played a seminal role in helping modernise banking and capital market system in Asia that China insisted on doing things in its own way in this regard too. While Thailand and others were overwhelmed by hot money inflows and outflows, China kept its embryonic stock market relatively closed.
It would be foolish to say that China does not face huge economic, demographic and possibly political challenges in the future. But its ability to deal with them based on the record of past performance is reassuring. And it does not have the deadweight of fiscal deficits that are crushing Western economies as a result of their past financial indiscretions.
If a bust is going to happen anywhere, it is more likely to occur in the so-called advanced nations where fiscal deficits are dangerously high. The fiscal Greek tragedy is not yet fully played out and Portugal, Spain and Ireland - not to mention the UK and the United States - are among the dominoes waiting to fall.
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