In the following article, which was originally carried by Sidecar, the blog published under the auspices of New Left Review, on 8 September 2023, Nathan Sperber addresses some typical but fundamental western misconceptions concerning the Chinese economy.
He begins with the observations of Nobel Prize-winning economist Paul Krugman that “China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits…the only question now is just how bad the crash will be”; only to then note that Krugman had been writing in the summer of 2013.
In fact, China’s GDP grew by 7.8 percent that year and in the ensuing decade its economy has expanded by 70 percent in real terms compared to 21 percent for the United States.
Similar dire predictions were made, the article points out in the early 2000s, “when runaway investment was thought to be ‘overheating’ the economy; in the late 2000s, when exports contracted in the wake of the global financial crisis; and in the mid-2010s, when it was feared that a buildup of local government debt, under-regulated shadow banking and capital outflows threatened China’s entire economic edifice.” Today, the trigger for such doom mongering is the relatively low growth figures for the second quarter of 2023.
Sperber asserts that the existence of structural weaknesses in the Chinese economy is not in dispute. But he also considers that a fundamental weakness in much Western coverage of the Chinese economy is that it responds to the needs of the ‘investor community’:
“The most salient preoccupations of Western commentators reflect the skewed distribution of foreign-owned capital within the Chinese economy. China’s economy is highly globalized in terms of trade in goods but not in terms of finance: Beijing’s capital controls to a large degree insulate the domestic financial sector from global financial markets. Overseas financial capital has only a handful of access points to China’s markets, meaning international exposure is uneven. China-based companies with foreign investors, offshore debt or listings on stock markets outside of the mainland (that is, free of China’s capital controls) generate attention precisely in proportion to their overseas entanglements.”
To illustrate his argument, he notes how countless news articles have been devoted to the travails of real estate giants Evergrande (Hong Kong-listed and reliant on dollar-denominated debt) and, more recently, Country Garden (Hong Kong-listed and again carrying offshore debt). Readers of the Wall Street Journal or the New York Times will be far less likely to read about State Grid, the world’s largest electricity provider, or China State Construction Engineering, the world’s largest construction firm – “two companies less dependent on global finance and over which international investors are unlikely to lose any sleep.”
Noting how the “slow-motion collapse” of Evergrande has been portrayed in the Western media as a “calamity in waiting for the entire Chinese economy”, Sperber adds that this “elides the fact that the Chinese government deliberately prevented highly indebted property developers, including Evergrande, from accessing easy credit in the summer of 2020… Of course, no large-scale corporate default and restructuring is desirable per se. But it appears that failures like Evergrande’s have been treated by Chinese authorities as the price of disciplining the property sector as a whole and reducing its weight in the broader economy.”
Although not mentioned by Sperber, his above point also serves, inter alia, to underline how, again contra to much western reportage (even by some progressive scholars not unfriendly to China), China has not strategically departed from President Xi Jinping’s insistence that homes are for living in not for speculation. Against the common western narratives, Sperber argues that a more level-headed approach would be to put China’s current economic moment in a longer-term perspective. China’s economy was comprehensively transformed in the 1980s and 1990s, and “since this era of intense institutional restructuring ended in the early 2000s, China’s GDP has more than quadrupled in real terms but the country’s fundamental economic structure has remained stable, in terms of both the balance between state-owned enterprises and private capital, and the precedence of investment over consumption.”
Nobel Prize-winning economist Paul Krugman does not mince his words:
the signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.
That was in the summer of 2013. China’s GDP grew by 7.8 per cent that year. In the decade since, its economy has expanded by 70 per cent in real terms, compared to 21 per cent for the United States. China has not had a recession this century – by convention, two consecutive quarters of negative growth – let alone a ‘crash’. Yet every few years, the Anglophone financial media and its trail of investors, analysts and think-tankers are gripped by the belief that the Chinese economy is about to crater.
The conviction reared its head in the early 2000s, when runaway investment was thought to be ‘overheating’ the economy; in the late 2000s, when exports contracted in the wake of the global financial crisis; and in the mid-2010s, when it was feared that a buildup of local government debt, under-regulated shadow banking and capital outflows threatened China’s entire economic edifice. Today, dire predictions are out in force again, this time triggered by underwhelming growth figures for the second quarter of 2023. Exports have declined from the heights they reached during the pandemic while consumer spending has softened. Corporate troubles in the property sector and high youth unemployment appear to add to China’s woes. Against this backdrop, Western commentators are casting doubt on the PRC’s ability to continue to churn out GDP units, or fretting in grander terms about the country’s economic future (‘whither China?’, asks Adam Tooze by way of Yang Xiguang). Adam Posen, president of the Washington-based Peterson Institute, has diagnosed a case of ‘economic long Covid’. Gloom about China’s economic prospects has once again taken hold.
That there are structural weaknesses in the Chinese economy is not in dispute. After two waves of dramatic institutional reform in the 1980s and 1990s respectively, China’s economic landscape has settled into a durable pattern of high savings and low consumption. With household spending subdued, GDP growth, slowing over the past decade, is sustained by driving up investment, enabled in turn by growing corporate indebtedness. But despite this slowdown, the current bout of doomsaying in the English-language business press, half investor Angst, half pro-Western Schadenfreude, is not an accurate reflection of the fortunes of China’s economy – plodding, but still expanding, with 3 points of GDP added over the first six months of 2023. It is rather an expression of an intellectual impasse, and of the flawed conditions in which knowledge about the Chinese economy is produced and circulated within the Western public sphere.
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