CHINA – THE MAKE-BELIEVE ECONOMY

It is reassuring that the world is coming to a more sober view on the Chinese economy. The truth about the downturn in the second half of 2015, and confirmed by market and currency events at the beginning of 2016, is that these are the result of long-term structural weaknesses in the economy and should not be seen as sudden inevitable shocks.

China is a big and important economy and will so remain, but it is not. and has not been, as big and dynamic as the Chinese leadership has boasted and the world, headed by the World bank and the IMF, has mostly believed. Too much of it has been in the nature of digging hols in the ground and filling them up again: economic activity with no value being produced. Too much of it has been unproductive over-investment, funded by a merry-go-round of state-induced debt.

Well into the middle of last year, it was good gospel among economic experts that the Chinese economy was overtaking or had overtaken the American one in size. But this was just smoke and mirrors and inflated GDP statistics, believed uncritically by gullible and starry-eyed lookers-on inside the bubble of China watching.

There are two lesson to be learnt:

  • Never take Chinese official boasts on face value.
  • Always look to China through a lens of skepticism and try to see beneath the surface.
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s