China bears will be proven wrong again

By Xu Gang Source:Global Times Published: 2013-8-15 17:53:01

Illustration: Liu Rui/GT

Illustration: Liu Rui/GT

As China moves aside from the fast lane of economic development with a slower GDP growth of 7.5 percent in the second quarter of this year, almost everyone claims that they have found many dangerously exposed elements of the economy: local debts and the shadow banking system, the bubble of real estate in urbanization, overcapacity and the shrinking foreign trade.

These problems are truly disconcerting. As the world economy steps in a period of deep change, and the international market roils dramatically, China's economy, mainly driven by investment and export, is showing its limitations, and the unwanted side effects of the massive economic stimulus package, introduced at the start of this economic crisis in 2008, are now more obvious.

Economic restructuring and paradigm changing have already become China's only option. But still, for Chinese, who have been getting used to a relatively smooth journey to economic prosperity, facing a helter-skelter economic situation is disturbing.

Such worries seem to be exacerbated by external voices that short China. From rating agencies and investment banks to some renowned economists, there is global skepticism against China's economic outlook.

Nonetheless, such skepticism was never lacking in the last decade. Everything about the country, from its methods of rule to its model of development, has been criticized. This year, the world argues that a Chinese recession is coming on the same grounds that have been heard for years.

When observing China's economy, the West always ignores its particularity and complexity. A mechanical analysis based on certain economic theories or international experiences always leads to dysfunctional predictions.

The advocates of Chinese decline have chosen a clever time. China is transforming its economic structure, and global economy is also seeing a new trend - an economic changeover between developed countries and emerging economies.

Last year, the IMF lowered its prediction of world economic growth, mainly because emerging markets are slowing down their economic development, especially the BRICS members which some believe are losing their advantage in economic growth.

Meanwhile, the developed countries are gaining strength in the recovery of their sluggish economies. Now, since the US, Japan and Europe are not in dire need of the stimulus and support from emerging economies, they are expecting a reflow of capital to drive up domestic investment and employment.

The decreasing dependence on emerging economies makes them more determined to "kick down the ladder." The US has implemented an exit strategy from its quantitative easing policy, and the G8 is cracking down on international tax avoidance. The rhetoric about "shorting China" is just part of their plan - what they want is more "bear" markets in emerging economies.

Nonetheless, rational observation finds that the Chinese government has made productive efforts in stabilizing economic growth, adjusting economic structures and eliminating financial risks.

Chinese economy is heading to a stable growth trend. Consumption is enlarging its role in economic growth, employment is stabilized due to the economic slowdown, financial fluctuation caused by de-leveraging is appeased, and the risk of a hard landing has been enormously reduced.

The China bears, through having revealed some risks and potential crises, seek to undermine global confidence in the Chinese economy.

Without confidence, economic credit cannot be established, which will have a negative impact on the development of China's modern economy. China needs patience, stamina and self-confidence to carry forward its economic transformation at this critical moment.

And as the pivot to boost global economic development, China has to be both open-minded and sober-minded while facing Western "prescriptions" of "healing" the Chinese economy.

Neither an all-are-welcome attitude nor a self-isolation policy will work.

The author is an assistant research fellow at the Institute of World Economic Studies, China Institutes of Contemporary International Relations.

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