Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

Continue to pay attention to China

Not than anyone reading my blogs could do anything to influence what happens in China. However, we should pay attention because what happens there will affect all of us elsewhere.

Walter Russell Mead, at Via Meadia, is watching China, so it would be good to look at his blog, including a recent post, IMF: China Isn’t Ten Feet Tall.

The rapid growth of the Chinese economy, reported to be running at 9% for many years combined with the massive migration of people from farms to cities is astounding.  If, or rather when, that massive growth slows the adjustments will be painful.

Mr. Mead points to a new report from the IMF calling attention to warning signs within the Chinese economy. Some of the challenges mentioned in their report are:

soaring property prices, excessive bank lending and mounting local government debt

Mr. Mead explains in wonderful detail four overall factors that will make it extremely difficult to sustain that type of growth and will make any resulting adjustment very difficult:

First, as the IMF report suggests,China faces a dynamic of inexorably mounting complexity:

Even a dictatorship needs to be attentive to various interest groups in the country which increase when the economy grows. Think about all those messy, icky compromises needed in a democratic system for competing groups to all be acceptably happy.  National leadership will have to start making more and more of those kinds of compromises.  Mr. Mead has a great word picture of a juggler, which you should check out for yourself.

Second,China’s development model will not work forever. 

No economies can go straight up forever.

Even more so when much of that growth is tied to exports which are based on the assumption of being the world-wide low-cost producer, which is no longer a valid assumption. 

Third, over a long period of nearly unbroken prosperity, a lot of bad habits have gotten hardwired into Chinese life. 

As we’ve seen in U.S. real estate, sloppy, low-quality loans work out okay as long as real estate prices are attached to a rocket sled. When prices fall off the rocket sled and houses can’t sell, a lot of loans look really lousy.  

Mr. Mead suggests the same thing will happen in China.  Growth of 9% has hidden a lot of sloppy stuff that will look really bad when growth is 1% or negative.

Fourth, there is the global situation. China can’t control the global economy and can’t even influence it very much. 

What happens in Europe will affect Chinese exports.

There is wonderful joy in the midst of what has happened.

The social and economic transformations now taking place in China are the biggest, deepest and fastest transformations that a group of people this large have ever experienced. 

Sustained 9% growth has increased the wealth, standard of living, and quality of life for millions upon millions of people across China. Don’t have a link handy, but I recall reading that the middle class in China is now about the size of the U.S. population.  We can all rejoice without reservation in that increased prosperity.

The very serious challenge is how to handle a transition from sustained 9% growth to more reasonable and sustainable levels. The ride ahead could be bumpy.

Please check out Mr. Mead’s post. He is more eloquent and more detailed than me.

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2 thoughts on “Continue to pay attention to China

  1. Pingback: Keep an eye on developments in China « Nonprofit update

  2. Pingback: Keep an eye on developments in China « Attestation Update – A&A for CPAs

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