Might China's economy stumble?
- 17 June 2011
- From the section Business
China, along with other emerging countries, is the great hope for global economic growth.
The developed economies, bruised and aching, are pulling themselves slowly back to their feet after the Great Recession.
As Western consumers and governments struggle to get on top of their debts, they are not going to be the source of booming demand for goods and services they were in the last decade.
China by contrast slowed down a bit in the recession and then rapidly got back to something like full speed.
From 2007 to 2011 China accounted for as much of global economic growth as the G7 leading industrial countries combined.
China is a very important market for suppliers of commodities; Australian coal and iron ore and Brazilian soy beans for example.
It must be said China is also a big exporter, with a hefty trade surplus. That means in terms of global demand for goods and services overall it takes more than it gives.
But imports are growing so China is providing an increasingly important market for some.
But will the powerful performance be sustained?
There are some of sceptics.
The Wall Street Journal recently declared "after years of housing prices gone wild, China's property bubble is starting to deflate".
The result is usually painful. Just look at the US, Ireland, Britain, Spain where bad property market loans have been a central feature in the financial crisis.
The Chinese authorities are getting increasingly uneasy about inflation.
They have repeatedly raised bank reserve requirements, a measure intended to curb the growth of credit.
And then there is Dr Doom himself, Nouriel Roubini, the New York University Professor, prophet of the financial crisis, warning about China slightly further into the future. He says China could face a "hard landing".
He thinks the economy is too dependent on investment. Very high rates of investment create excess capacity and they can't be sustained.
They can leave debt problems in their wake as borrowers who built housing or commercial buildings don't get the income from them that they anticipated.
Looking even further into the future, there are some longer term issues that could slow China down.
One key element in China's growth has been shifting millions of workers from relatively unproductive work in the countryside to industrial employment in the cities.
That won't go on for ever.
Professor Barry Eichengreen of California University also warns that fast growing economies do invariably slow down at some stage and it comes sooner in countries with a large proportion of elderly people.
China's one-child policy and rising life expectancy will put China in that category, he argues.
Jim O'Neill of Goldman Sachs, who coined the term BRICs, for the large emerging economies of Brazil Russia India and China agrees that China will slow down this year, to growth of about 8%.
But he sees what he calls a "happy landing", which will help bring inflation under control.
And he doesn't buy the talk of bubbles.
What is pretty clear is that China's pattern of growth will change. At some stage, the astronomical rates of saving, investment and exports will surely give way to an increasing role for consumer spending.
Investing for exports is not the easy living it was when consumer spending in the developed economies was booming.
Chinese business will increasingly have to sell their goods either to other emerging economies or to Chinese consumers.
The country's rising and increasingly affluent middle class probably will provide that growing market.
But watch out for a stumble in the near term.