1、Stop exaggerating Chinas slowdownJune 29, 2012: 11:56 AM ETEmail Print Yes, Chinas growth is slowing. But the unfolding economic debacle in the developed world is wounding China, not killing it. It has plenty more room to grow.By Bill PowellFORTUNE - Some of the last words I hear before nodding off
2、to sleep most nights here in Shanghai are uttered by a pasty-faced guy in the United States, nattering on CNBC about how the sky is falling (economically speaking) in China. Ive become somewhat inured to the inanities of cable television - youd go insane if it were otherwise - but in these days of h
3、yper-concern about the global economy (quite legitimate concern mind you, given the unfolding debacles in Europe and the United States), its useful for everyone to take a deep breath and put Chinas current slowdown in some context.Chinas economy for the past year has been slowing out of necessity. I
4、ts consistent 10%-plus real GDP growth rates for most of the past decade had contributed to a broad inflation, as well as severe distortions in the economys composition (a significant over reliance on fixed asset investment as the driver of growth). The government tightened policy as a result, and p
5、ut shackles in particular on the residential housing market, which was at once overbuilt and still unaffordable for the vast majority of Chinese, thus contributing to social tensions here. (Overbuilt and overpriced is, to be sure, an economic oxymoron, but well leave the explanation for that for lat
6、er.)MORE: Bernanke fiddles while Obama burnsThe tightening measures worked, arguably a bit more than the government intended, as it became clear in the first two quarters of this year that China was decelerating rapidly. Prime Minister Wen Jiabao in March officially lowered the governments growth ta
7、rget for 2012 to 7.5%, and that should be considered a target that Beijing will be lucky to hit this year. The data these days - industrial production, electricity consumption - are weak, and the global slump in commodity prices, with inventories piling up in everything from coal to iron ore to crud
8、e oil, is obviously closely tied to macro weakness in China. Its the unwinding of the decade-long, China-driven bull market in commodities that is now over.Part of the China slow-down is driven by the disaster in Europe - what polite economists call a “recession,“ but which is, lets face it, nothing
9、 less than a depression in countries like Greece and Spain. Europe is Chinas biggest trading partner, and China is plainly not immune to its deepening pain. The U.S. is Chinas second-largest trading partner, and its weakening economy is obviously not helping Chinas growth, either.So a government-led
10、 deceleration, which was necessary, now has weakness in external demand added to it, and the result is not pretty. Thats particularly true for companies the world over that convinced themselves that China would grow at 10% per year forever, and scaled up capacity accordingly. Expect earnings disappo
11、intments from multinationals everywhere with big China businesses to increase.But, having said all that, its critical not to exaggerate the current weakness. China is not in free fall. The macro issues it confronts pale in comparison with those now front and center in Europe and the U.S. Remember, f
12、irst, that China can no longer accurately be characterized as an “export led“ economy, so the damage the outside world can do is limited. Beijings current account surplus as a share of its economy is now slightly less than 3%. Thats down from 10% eight years ago. The unfolding economic debacle in th
13、e developed world is wounding China, but not killing it.MORE: Yao Mings second actSecond, and more important, China has policy options that it has begun to use - the recent interest rate cut (signaling emphatically that growth has replaced inflation as the central banks primary concern) being only t
14、he most obvious. Quietly, as a recent research note from Jiming Ha, chief investment strategist at Goldman Sachs investment management division in China noted, provincial and local governments have begun to try to stabilize the housing sector. Banks in a variety of provinces are now offering mortgag
15、es to first time buyers that are available at a discount to the current benchmark rate (in the past theyd have to pay a 5%-10% premium over the PBOCs benchmark rate.) The central government is looking the other way, and there are signs that housing markets, particularly in second and third-tier citi
16、es outside Beijing and Shanghai, are now rebounding a bit.Chinas consumers still want and need housing - and, critically, they can afford it. Real wage growth remains strong, despite the macro deceleration, and that in turn means consumption has held up pretty well. This is part of the reason the ce
17、ntral government has not panicked in the wake of the growing global crisis. Believe me, in 2008 and 2009, the central government DID panic in the wake of the first phase of the global financial crisis. The site of tens of thousands of suddenly unemployed migrant workers clogging the trains stations
18、in eastern China, headed home to much poorer interior provinces, tends to have that effect. Beijing dumped money furiously into the economy in order to stabilize it, succeeded in doing so, and then paid the consequences down the road in terms of higher inflation and a still unknown amount of bad loa
19、ns. This time, the steps it is taking, in addition to loosening controls on housing sector, are so far all little tweaks - subsidies for the sale of energy efficient appliances, some targeted business tax cuts, quicker approval of investment plans by regulators - the small kind of stuff that doesnt
20、bespeak panic.The more important point is that Beijing can do more if needed. Part of the bearish case on China is that all of the government driven capital investment that we saw in the last decade - and in particular in the last four years - is now over; it resulted in excessive growth overall and
21、 too much investment in heavy industries that are now plagued by over capacity. Its resulted in a disfigured economy, with consumption comprising only 39% of GDP, a historically low figure even for developing countries. Simply put, Chinas growth model is supposed to be dead, and if it doesnt shortly
22、 turn into a manic consumption driven clone of the United States, well, the abyss is right over there. Proceed accordingly.MORE: Why Romneys job outsourcing record mattersThis makes for a nice tidy bear case of the sort that short sellers and magazine editors love. The problem is, its not nearly tha
23、t simple. Arthur Kroeber, the Beijing based Managing Director of GK Dragonomics Research, points out that despite the mind-bending amount of capital investment thats taken place here over the past ten years, Chinas total stock of fixed capital -infrastructure, industrial plants and housing - is stil
24、l not all that high compared to the size of its economy or its overall population. In the developed world, Kroeber notes, a countrys capital stock tends be a bit more than three times the size of GDP. In China, its about two and a half times its GDP, or about where Japan was in the late 1960s.China
25、can, and indeed should, continue to invest for at least another decade. Kroeber believes its possible that overall capital spending can continue to grow by 10%-12% annually for the next couple of years before decelerating, while consumption growth continues to pickup at around 8% a year.I admit that
26、 to anyone who has, like me, been here for most of the past decade, this is counterintuitive, to say the least. This country has been nothing but a construction site for that entire period of time. What Kroeber urges us to remember, though, is the sheer scale of China. As manic and as rapid as Chinas “catch up“ phase has been, he argues, its still not over.Chinas got lots of room to grow, lots of people to move from the countryside into the cities, and given that, it also probably has the wherewithal to withstand the intensifying crisis in the West.
