China’s “new normal” economic slowdown is giving the “coming collapse…” crowd new hope. They will, however, be disappointed and proven wrong, again.
China will certainly pull out of its slump, continuing to grow and prosper. Xi Jinping’s “China Dream” will increasingly be materialized, with tremendously positive consequences not just for the Chinese people, but for all the world’s people.
I am in Shanghai now, staying in the flat we purchased 20 years ago in a small quarter of Puxi (Dapuqiao) then a slum of shabby, ramshackle tenements, on the south side of what had been a fetid trench that was the boundary of the “pre-liberation” foreign concession area, hardly reachable by narrow roads.
Today, around our complex of 33 story apartment towers, are highrise office buildings, hotels, and very busy shopping malls. We walk across an eight lane, busy boulevard (waiting to cross, I amuse myself by sighting Maseratis, Ferraris, Bentleys, and Porches that pass) to enter a subway system that is as extensive as Tokyo’s or New York’s; hop into cabs or local Uber-like online call-cars that enter nearby intersections of elevated freeways; and have a choice of literally dozens of restaurants and cafes–including McDonald’s, KFC, Starbucks, Dunkin’ Donuts, and Pizza Hut–at which to relax and eat.
The development of Dapuqiao is hardly exceptional. Rather it is typical of what has happened in a majority of districts in Shanghai, and in many, many cities, towns, and villages large and small throughout China.
Has such development and growth stopped? Decidedly not. When the skeptics and nay-sayers auger “collapse” or “hard landing” they ignore or unduly discount how China–by which I mean the hundreds of millions of actors within the Chinese economic, social, and political system–has overcome seemingly insurmountable obstacles and deprivations to achieve a pace and depth of economic, social, cultural–and, it should be fairly acknowledged, political–advance virtually without precedent or parallel in human history.
To bet (or wish) that China has lost its touch is not only self-deluding, it is also an unpardonably obtuse and self-defeating business strategy.
This is a point also made by one of Japan’s most perceptive and expert analysts, Seguchi Kiyoyuki, senior researcher at the Canon Institute for Global Studies (CIGS), in a October 21 post on the CIGS website. Seguchi writes that growth in manufacturing may be slowing, or even declining, but Chinese living standards, disposable income, and consumer spending continue to rise, with no end in sight.
Chinese tourists’ “explosive buying” (bakugai) of Japanese goods while in Japan has become a lifeline for some manufacturers, while constituting vital support for whole industries. Seguchi stresses that Chinese tourists are still only a small fraction of the total number of Chinese whose rising incomes and increasingly discriminating tastes make them potential customers for high quality Japanese products.
Seguchi observes that the “middle-upper” income threshold of GDP per capita of USD 10,000–at which ordinary purchases are seen to include Japanese made products and services–was reached by some 100 million city dwellers in 2010, and had risen to 300 million in 2013. By 2020 it is forecast that 700-800 million Chinese will reach the threshold. This is a massive “new” potential market providing vital growth for Japanese companies that prepare to compete in it.
Seguchi notes that the remarkably vibrant and agile Chinese E-commerce sector is grasping the commercial opportunity of Chinese consumers’ appetite and capacity for Japanese products. Vendors like JD.com are stocking warehouses in China with popular Japanese products, purchased and imported in bulk under contracts with Japanese makers.
There can be no doubt that China’s economy is laboring under some enormous and highly intractable imbalances, distortions, and dead weight. Overcapacity in a range of industries is at levels guaranteeing severe price depression–and not just in China, but globally–for years. Massive industry-wide contractions and consolidations are inevitable, with massive consequent job losses.
The problems extend across the state-owned (SOE) sector to the private sector, though clearly for the government (and the Communist Party) SOE reform remains the most urgent and difficult challenge, but one that must be met.
It is axiomatic that severe structural imbalances in an economy are eventually reflected in the form of bad loans on the books of a country’s banks. This is certainly also true for China, which means that the asset quality and profit numbers being published for Chinese banks are grossly inaccurate and inflated.
At some point major asset-writedowns and recapitalizations of banks (and probably also securities, insurance, and trust companies) seem inevitable. They will be the third or fourth such industry-wide recapitalizations I have seen during the past 20 years.
I have no doubt China will find a way, or ways, out of these problems (including the most sensitive one, job losses and unemployment) and will go onward and upward in the future. But what ways will it follow? Experimentation and innovation are being asked for and will be seen.
The Party has approved guidelines for the 13th Five Year Plan (2016-2020) the details of which will be worked out in time for passage by the government’s National People’s Congress next spring. It is official Party doctrine that the market should be allowed to perform the dominant role in economic activity.
Much of the overcapacity burden weighing on the economy is traceable to the non-market “stimulus” policies (part of the worldwide reaction, led by the U.S.) of the Hu Jintao-Wen Jiabao period.
It is probably a coincidence, but the Shanghai Academy of Social Sciences Press published in September a 1975 Chinese translation of Ludwig Von Mises’ classic treatise in free market Austrian economics, Human Action.
The book was sold out when I went to buy it at the Shanghai Book City on Fuzhou Lu last Friday, so I left an order. The order came in today.
Is it absurd to think that the free market philosophy and insights of Human Action will to some, perhaps even a large, degree inform China’s plans and policies in the future? I submit that it is not absurd, and that such ideas are not at all foreign or inapplicable to China; rather that they are increasingly being placed in action.
This is good news for China, for China’s people, and for foreign companies, particularly, perhaps Japanese companies, that make the commitment to the China market.
