[Marxism] New Republic economist sees Chinese economy growth continuingr

Fred Feldman ffeldman at bellatlantic.net
Thu Sep 17 20:57:00 MDT 2009

Interesting article answering views that the Chinese economy is headed for a
big breakdown in the near future. He argues that China's continued expansion
is powering the recovery in the imperialist bloc, but warns that
underestimating Chinese future growth can lead to major miscalculations that
can damage the major capitalist economies.

Worth reading, I believe.

Published on The New Republic (http://www.tnr.com)

This Giant Isn't Sleeping
Why do we keep underestimating the Chinese economy? 
Zachary Karabell September 17, 2009 | 12:00 am 

It's now widely believed that the global recession is coming to an end, but
the path out has been far from typical: This time around, China, not the
U.S. has led the global recovery. With its $600 billion stimulus package and
with banks lending with abandon, China has become the engine of global
manufacturing and industrial activity. Its demand for commodities,
especially copper and iron ore, has driven up prices, and its domestic
market has been a rare source of strength for American companies ranging
from Caterpillar to Intel, General Motors to Procter & Gamble.

But even after a decade of robust and unexpected Chinese growth, investors
and economic analysts still focus on when and how the Chinese miracle will
end. It's not that anyone deeply questions the short-term reality of China's
strength, but no one seems quite able to believe that the locus of the
global system has in fact shifted. When global stock markets swooned at the
beginning of September, the commentary was abuzz with talk of Asian
contagion and the cascade effects of a sharp pullback in Chinese equities.
Noted Asia analyst and former strategist for Morgan Stanley Andy Xie
announced [1] that, having fallen more than 20 percent in August, Chinese
stocks could plunge another 25 percent. His reasoning? China's economic
recovery is likely to stumble badly when the central government attempts to
constrict the flow of easy credit. Even in China, when Premier Wen Jiabao
cautioned [2] Chinese citizens in late August for being too "blindly
optimistic" about China's economic recovery, that was taken both in China
and abroad as further proof that the heady run in China was about to hit a
wall. Wen then repeated these concerns to an audience of the World Economic
Forum in Dalian on September 10.

All this skepticism is much more than a forecasting problem. China's economy
is showing no signs that it's about to collapse or even contract. Growth
figures have been accelerating, from perhaps 5 percent at the beginning of
the year toward 10 percent now. While many question the recipe that China
has followed, the results speak for themselves. The problem is that too many
are convinced that the growth is a house of cards. It's a mindset that goes
back many years and that has many dangers.

At almost any given point in the past decade, economists and strategists
were convinced that good China news was simply a prelude to bubbles and
shattered dreams. In part, those beliefs were an outgrowth of past
experience with "hot" emerging economies, many of which had succumbed to the
runaway inflation that invariably accompanied turbo-charged expansion. The
economies of Latin America in the 1970s and of Southern Asia in the late
1990s were taken as harbingers of what China risked, and the fact that so
much of China's growth has been fueled by state-spending channeled through
banks to projects of dubious merit was seen as a critical weakness that
would end with a banking crisis followed by economic contraction. This doubt
was also fueled by a series of false starts in China in the 1980s and early
1990s: China suffered along with the rest of Asia during the currency crisis
in 1998, and banking reforms inside of China during those years led to some
periods of much slower activity.

Those slowdowns did not seem to have long-term consequences, though. China
has produced more growth over the past 25 years than any country, ever
(averaging more than 9 percent a year). And after stalling in the fall of
2008 and in the early months of 2009 along with the rest of the world, China
has been growing at an astonishing rate in the past six
months--manufacturing has been expanding, exports have been surging (more
than $20 billion a month [3] to the United States alone), property prices
and activity have soared, and stocks are on fire. Interior cities have
replaced the coastal provinces as the engine of growth, and that process has
barely begun.

But China's resilience does not seem to have convinced analysts to consider
the possibility that China may be on a more stable trajectory today. In the
past few years, among those talking down China's economy has been Stephen
Roach, now chairman of Morgan Stanley in Asia and one of the most
influential voices in the highest circles of politics and finance. Since
2002, Roach has relentlessly assailed [4] the China growth model; this year
he has emphatically warned that China's response to the financial crisis
could be setting the world up for another round of financial shocks next
year. Others have echoed those concerns, ranging from Harvard pundit Niall
Ferguson [5] to New York Times columnist Paul Krugman [6]. China skepticism
is embedded in Wall Street as well.
Full: http://www.tnr.com/article/politics/giant-isn%E2%80%99t-sleeping

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