Column

A recent study conducted by a US-based language analysis group established that the top news story of the newsy, eventful decade gone by was China's rise as a political and economic power. The study, whose findings were based on a program that tracked words and phrases used in the media, found that as a news story, China’s ascendance trumped other vastly consequential events of the decade like the 9/11 terrorist attacks and the Iraq war.

In an unconnected, recent opinion poll conducted by the Pew Research Centre, a stunning 44% of Americans said they considered China to be the world’s leading economic power. Strikingly, only 27% of Americans considered the US to be the pre-eminent economic power. That’s a remarkable change from February 2008 – before last year’s wrenching crisis on Wall Street - when 41% Americans said the US was the top economic power, against just 30% who put China on that pedestal.

China has undoubtedly begun to ‘colonise’ the minds of people by implanting itself as an economic and political force of considerable weight. This effect is probably somewhat more pronounced in the US, where a sense of despair appears to have gripped large sections of the population consequent on the rapid unravelling of the bubbly-frothy American dream since last year.

And viewed through that prism of despair, China, registering over 8% GDP growth and gradually enhancing its profile on the world stage, perhaps appears bigger and more powerful than it is. Nor does it uplift the American spirit to see that even Statue of Liberty souvenirs – which symbolise the shining ‘beacon of liberty’ spirit of America – are mass-manufactured in Shenzhen!

Nothing succeeds like excess, of course, and the media’s glowing and breathless attention to China’s ascendance is a narrative that continually grows with each telling. Yet, such overly adulatory commentary fails to do full justice to the complexity of the China story if doesn’t also reflect the numerous challenges that confront China.

For there is, on the other side, a large and growing body of economic and political thinkers who increasingly believe that China’s mind-numbing, too-good-to-be-true, supernormal economic growth of recent decades may perhaps mask a house of cards that’s as fragile as the bubble economies that burst spectacularly last year.

For instance, in his most recent book The Corruption of Capitalism, economist and analyst Richard Duncan notes that “the China boom”, which was kept alive by an export-led growth model that’s now broken, is over. And if the Chinese government attempts to prop up GDP growth through vastly enhanced credit – as it did over the past year – it could result in “complete economic collapse” in a few years, he reckons. In any case, even if a crashlanding is averted, it would, he adds, be a serious mistake to continue to extrapolate China’s rapid economic growth rates of the past decade into the future.

Likewise, legendary billionaire and fund manager James Chanos, who heads the hedge fund Kynikos (which, in Greek, means ‘cynic’) is putting his money where his mouth is and betting against China. Chanos argues that China’s GDP numbers are “massively inflated” by under-depreciating a very shaky capital asset base. In his estimation, demand in China is overinflated, and so he’s looking to short-sell commodities that are riding the current China investment boom – which he expects will go bust at some point.

Chanos points to the irony that Western investors – who rile against US government intervention in financial markets or in healthcare reforms – are ready to embrace China, where 25 all-knowing members of the Communist Party polit bureau micromanage the country’s rapidly growing economy.

Equally bearish analysts at Pivot Capital Management argue that China’s capital spending boom – which is propping up GDP growth this year – cannot be sustained, and that chances of a “hard landing” are increasing. They caution that the “coming slowdown in China” has a potential to shake world markets in the same way that last year’s reversal of the US subprime and housing boom did.

This isn’t the first time that prophesies of a “coming collapse” in China have been made. Conservative Chinawatcher Gordon Chang authored an eponymous book in which he outlined a bearish scenario under which one-party Communist rule would unravel in China by the end of this decade. That deadline is near at hand, but China’s Communist rulers retain an authoritarian grip on the levers of power, and superficially face nowhere near a serious challenge to their authority as they did during the 1989 Tiananmen Square protests.

Even so, there is a discernible turn in the tide of smart money thinking about China. However implausible a hand landing scenario may appear to those in awe of China’s rise, the coming year promises to be an exciting one for China watchers of all persuasions.