Column

The heart bowed down by the weight of woe will cling to the weakest hope. That might explain why, after a brutal year, when the global economic turmoil weighed down hearts around the world with a double-dose of woe, even the faintest stirrings of an economic recovery have triggered a bout of irrational exuberance. And when that weak hope is multiplied by a ‘China factor’, as it invariably is in a world looking to China to do the heavy lifting, it’s given way to over-the-top hype.

Thus, for instance, we’ve heard breathless accounts of how China will, having already recovered from the downturn, lift the world’s economy with its turbo-charged growth; and how the Chinese currency, the renminbi, will become the “almighty” global reserve currency as the US dollar buckles under the weight of record US deficits and loss of investor confidence.

There’s been fevered speculation of how China is poised to acquire strategic overseas assets and will soon “own the world”. And picking up on some verbal cues from China’s policymakers, commentators are talking of the rise of Shanghai as the pre-eminent international financial centre.

The sobering reality, however, is that none of this is going to happen anytime soon — if it will ever happen at all. Far from looking to “save the world”, the Chinese economy can, at best, save itself, and even that’s conditional on a lot of things falling in place. It’s true that headline GDP statistics point to a revival in the Chinese economy, thanks to a mammoth stimulus package and borderline reckless lending by state-owned banks. But the quality of that economic growth appears poor and doesn’t inspire confidence that the structural readjustment that China needs to see is under way.

Likewise, for all the chatter about the ‘almighty renminbi’, the currency is decades away from becoming anything like a global reserve currency that you’ll likely have in your wallet when you travel overseas. That’s because it isn’t even fully convertible, which is the absolute first step — with many more ahead — towards inspiring faith in it.

Just one episode is illustrative of the levels of insecurity over the currency: when the government hinted two years ago that it would permit mainland Chinese citizens to invest in the then booming Hong Kong stock market, it triggered such an enormous flight of capital from China — literally, money stuffed in suitcases and hand-carried across the border — that the plan was abandoned. That isn’t exactly a glowing symbol of a confident ‘reserve currency in waiting’.

Perceptions about China’s plans to “take over the world” by buying up strategic assets are, similarly, overly hyperbolic. If anything, the few halting attempts by Chinese companies and agencies to bid for assets reveal an artless and ill-coordinated effort that has only whipped up nationalistic sentiments in the target countries.

Last week’s announcement of the planned acquisition of the gas-guzzling Hummer brand by a little-known Chinese company that isn’t even in the automobile business is illustrative of China’s inchoate ‘assets acquisition strategy’. It seems primarily motivated by a desire by small companies to acquire an “international” profile by buying established Western brands.

Perhaps the biggest ‘China hype’ relates to perceptions that the shocks experienced by Wall Street will translate into an imminent emergence of Shanghai as the pre-eminent global financial centre. But international capital doesn’t work in that linear fashion, and in any case, shifts its base only at a glacial pace.

Among the first things it will want to see is an enabling atmosphere that exudes confidence — such as the ability to receive news uncensored, a shift in mindsets away from a state-ist model, and a society governed by rule of law. And China is a long way from crossing that threshold. In the interim, hype might carry the day, but it’s a poor substitute for hope.