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.
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.
The ideas came pouring in, with variations centered on the rising might of China’s economic powerhouse, fresh from memories of Beijing’s triumphant hosting of the Olympic Games and following years of double-digit economic growth that have made China the world’s third-largest economy after the United States and Japan.