Originally published in the New York Times
THE “plum rain” that envelops Shanghai every summer — a confusing mix of drizzle, fog and smog — is a handy metaphor for the murkiness that currently enshrouds China’s economy.
A drumbeat of negative views about China’s economic prospects dominates the country’s image. The financial weekly Barron’s recently proclaimed in a cover story that “it looks like the Great China Growth Story may be falling apart.” On Friday, China is expected to announce new, subpar growth figures.
But consider a less prominent fact: a Bloomberg survey of economic forecasters yielded an average projected growth rate for China of 8.2 percent for 2012. If that’s the oft-predicted “hard landing” from the heights of China’s historic double-digit rates, let’s all wish for a similar fate for the United States. No other major country — not even Brazil or India — will grow at a rate near China’s this year.
As a China believer who recently made a return trip to the country after eight months, I was eager to assess whether the optimism evident there during my past visits had ebbed. I met with businesspeople and investors, mostly Chinese. To be sure, almost every meeting included an acknowledgment of relative soft spots in the economy and worries about things like declining exports, weakening Western economies, a housing bubble, too much investment and a failure to spur domestic consumption.
But on balance, the people I met were firmly optimistic that the fundamental “urge to surge” remained. If anything, the intervening decline in the Chinese stock market had made them more enthusiastic about investing.
“China wants you to misunderstand this economy,” one very successful investor said, suggesting that it serves China’s interests to be underestimated by the United States.
Concerns about China’s economy are often exacerbated by anxieties about its political stability amid a leadership transition, rampant corruption and official economic data of questionable veracity. But put those emotions and knee-jerk skepticism aside, and the economic picture looks rosy, at least to me.
Take, for example, China’s extraordinary investment rate of 48 percent of gross domestic product. High investment is a hallmark of an emerging economy; China’s capital stock per capita is still only about a tenth of the United States’, which suggests room for further investment.
All that spending gives China a feeling of lunging further and further into the 21st century. Visiting Pudong, Shanghai’s shiny new financial district, I recalled that when it was built, in the late 1990s, the vast project was ridiculed by critics as unlikely to ever be fully utilized. Today, Pudong is a major money center.
No doubt a portion of China’s investment has been misdirected. But misdirected overinvestment won’t bring down an economy; it simply represents lost consumption for Chinese families. In any event, I’d prefer some misdirected investment to the United States’ alternative: a modest 16 percent investment rate.
As for concerns about the housing market, here’s what passes for a burst bubble in China: a 2.2 percent decline in housing prices over nine months (and then a small increase in June). Compare that with the 33 percent drop in the United States between July 2006 and January 2012.
And what of the economic downturn in the West? Though it has indisputably hurt Chinese exports (which are still growing, albeit at a rapidly decelerating rate), China is now far less dependent on its exports; their share of G.D.P. has dropped from almost 40 percent in 2007 to 29 percent.
China may be totalitarian, but its leaders still behave as if they had 1.3 billion customers whom they need to keep happy by delivering steady and rapid progress up the economic ladder. Interest rates were cut in June and were just lowered again. Constraints on bank lending have been relaxed. The luxury tax was reduced. And notably, the managed appreciation of China’s currency over the past two years or so has been slightly reversed as China continues to pursue its neomercantilist strategy of manipulating everything from technology transfers to trade barriers.
While China has instituted only modest measures to stimulate consumer spending, the investors I met with are buying up businesses ranging from car dealerships to dairies, betting that the Chinese will step up their expenditures.
The “pessimists-lite” — those who argue that China’s growth rate may not re-accelerate — may be right. No economy can expand indefinitely at China’s historic double-digit rate. But for me, China’s economy still pulsates with the confidence of its growing entrepreneurial spirit, an important factor that doesn’t fit neatly into statistical models.