A Chinese economic slowdown is good for the world. In time, it’ll be good for China too
- Richard Harris says consolidation after the rapid growth of the 2000s will lower prices and curb interest rate rises, thereby stimulating the global economy. Beijing, too, could use the help to rein in runaway debt and retool the economy
Last summer I, and most of China, went to Florence. I paid homage at the tomb of one of my favourite thinkers, Niccolo Machiavelli. It was he who first said: “Never waste the opportunity offered by a good crisis.”
It has stubbornly remained in the 6-8 per cent range for years. It’s not the figure; it’s that it has remained so stable against the volatility of every other economy. Surely 1.3 billion people should be making an even bigger splash at that pace?
The Financial Times recently reported Professor Xiang Songzuo of Renmin University as saying that academics in Beijing have estimated GDP growth to be as low as 1.67 per cent in 2018. Even in 2014, Professor Harry Wu of Hitotsubashi University in Tokyo, who has spent 20 years refining his models, put growth that year at 3.9 per cent against the official 7 per cent.
The problem for analysts is that we can see the impending current account deficit, the debt mountain, the excessive amount of real estate in the economy, and a more hostile trading environment. We know the picture is bad; but we don’t know quite how bad, or the true dollar size of the economy, or where the bottom is likely to be – so we don’t know when to buy again.
But a slowing economy in China is not all bad. It will solve the government’s most immediate problem of controlling the runaway debt and housing bubble which destabilised the economy enough to generate the current predicament. Eight-per-cent growth doesn’t preserve social stability; social stability is preserved if you have a home that is not breaking you financially.
For the rest of the world, China’s slowdown means a brighter economic future. China is the world’s factory and less overheating means lower prices for exports, lower inflation, fewer interest rates rises and cheaper commodity markets.
Such a stimulus from the slowdown (including a low oil price) would be positive for global growth, which in time will be positive for China. China depends on growth from the rest of the world because it relies so much on the state and core industries rather than the domestic consumer. They used to say that if the US sneezes, then Europe catches a cold. These days, China is confined to its bed for a week. China’s economy is still not enough of a keystone in the global economy for it to work the other way around.
China is and will remain the world’s second-largest economy and the weight of numbers ensures it will inevitably become the world’s largest economy. Just not by 2025. Nothing goes up in a straight line. History is likely to show the 2010s as a necessary consolidation to the extraordinary growth of the 2000s. A weak economic patch in China has one long-term blessing – it will support the global economy and postpone a worldwide crash that would have come with untrammelled growth.
The irony is that while Mao Zedong preached the Marxist doctrine of permanent revolution, change is the essence of a healthy economy – and economic crises should be embraced; never wasted. The communist ethic of individual sacrifice for the greater good may be about to be played out on a wider stage.
Richard Harris is chief executive of Port Shelter Investment and is a veteran investment manager, banker, writer, broadcaster, and a financial expert witness
