Giant on the move
By Nicholas Consonery
The opinions expressed are his own.
When the global economy broke down in 2008, China was the savior. At that time Beijing rolled out a massive stimulus that was one of the biggest—per size of the economy—that the world has ever seen. The resulting benefits bolstered China’s economic strength at a time when the rest of the global economy was staggering under the weight of failing banks and surging public debt.
But the success of Beijing’s stimulus has masked underlying weaknesses in the country’s growth model. And the market is now waking up to the realization that global economic growth might remain suppressed for years to come.
In this environment, investors should be aware that the Chinese economy won’t be able to serve as the beacon of global growth indefinitely. Exports and investment overshadow household consumption. Public pressure is growing on the government to make growth more sustainable. The yawn between rich and poor is widening. And the Chinese leadership struggles to negotiate such difficulties with a homogeneous 1.3 billion person population dispersed throughout a country that is in different stages of development at the same time.
Reigning over this conundrum is the Chinese Communist Party—the 80-million member strong political apparatus in the unenviable position of being responsible for ironing out the country’s massive economic imbalances.
Heard any new theories about the likely shape of the global economic recovery?
At a financial forum in Hong Kong this week, Zhou Yuan, a senior executive from China Investment Corp (CIC), the $200 billion sovereign wealth fund, offered a mischievous twist on some previous formulations, as well as a nod to the importance of China in any global recovery.
In an effort to lighten the mood among a group of foreign economists, who had been arguing about whether the global recovery would be W-shaped or V-shaped, Zhou offered a perspective he said he’d heard from another source.
“Whether China’s consumers will lead the world into a more prosperous stage of economic development, I don’t know, but we certainly hear some comments to that effect,” said Zhou, CIC’s head of special investments.
“It’s clear that the economy (recovery) is something going into the V-shape,” said the English-speaking Zhou. “Someone also told me that the economic development worldwide will take the shape of www.v.cn.”
After a moment’s reflection, his audience understood and broke into laughter.
Zhou explained: Since shortly after the collapse of the Wall Street bank Lehman Brothers last September, global markets have experienced volatility that has often seemed to take a “www” shape.
Now, Zhou said, we are starting to hear more and more economists talking about a V-shaped recovery, although some remain cautious because they are worried there may be a so-called “double dip” in the financial crisis, the worst since the Great Depression.
Whether it’s a V or W shaped recovery, Zhou joked, the ultimate solution to the crisis is China, eg “CN”.
Zhou noted that China’s urbanization in the next few years — turning villages into mordern towns or farmers moving to nearby cities to become workers — will be a key attraction for foreign investments in China, which will in turn help China continue its contribution to global economic growth.
From urbanization comes consumption. And if China can produce enough consumption to help lift the global economy, www.V.cn may sum up the real path of this financial crisis. Or at least some Chinese bankers are banking on it.
China has long said that its biggest contribution to a world racked by financial turmoil would be to ensure that its own economy grows strongly, implying that a rising Chinese tide will lift all boats. The latest data show that Beijing has delivered on one part of the bargain; its economy, the toast of the world over the past five years, is once again ahead, far ahead, of the pack.
Many investors and companies are confident that the second part of the bargain will follow – that China’s recovery will be just the cure for markets still woozy from the financial battering. Such faith is not yet justified.