The Clueless Ivory Tower China Bears
AsiaPacificMarket.com View, September 18, 2015
Watching US politicians, media commentators and economists trumpeting China's demise in recent weeks could be entertaining.
Donald Trump, the republican presidential front-runner, claimed in an interview with Fox News anchor Bill O'Reilly that "China is killing us!" and they have been devaluing their currency for years.
Apparently, Trump knew nothing about China's monetary policy, and unaware that Chinese Yuan had actually appreciated for around 30% since 2005, leading to IMF's statement on May 26 that Renminbi is no longer undervalued.
Arrogance bred ignorance, a common characteristic of ivory tower China bears.
Paul Krugman, a New York Times columnist who since 2011 saw time and again "the bubble is visibly bursting", but had to back-pedal later: "it's so hard to know what's really happening (in China)... I'd turn to real China experts for guidance, but no two experts seem to be telling the same story."
Nevertheless, Krugman found it convenient in recent weeks to call China's leaders "clueless", and even offered his ivory tower formula for curing China's ills: invest less and consume more.
In a down-turn economy, a well-placed investment shall always be appreciated. This is particularly true today as monetary policies in developed countries have not gained traction in the real economies, and weak demand has deeply suppressed commodity prices, causing severe and unexpected fiscal shortfalls in many developing countries. The world is desperately in need of a mechanism to transfer money from banks' balance sheets in the West to real world economic development projects in the emerging countries.
China sponsored infrastructure development initiatives, including its "One Belt One Road" project, and its co-founded Asian Infrastructure Investment Bank (AIIB) and BRICS Bank, offer a plausible approach to put money to use in creating demands and jobs, and to unlock the huge growth potentials that emerging countries present.
According to the Asian Development Bank, Asia would need $8 trillion for energy, transportation, telecommunication and water/sanitation development from 2010 to 2020. Africa and Latin America face similar needs. China has the technical and production capacity on a wide and affordable scale to fill such gigantic infrastructure development gaps. The United States, and other developed countries could also play a strategic role in this massive undertaking by providing additional funding and expertise in finance and project management.
Domestically, China's urbanization process is far from over. Its large-scale agricultural modernization and industry upgrade projects have just got started. Rather than investing less, the challenge is how efficiently and effectively the country can switch its enormous construction capacity away from speculative property developments to initiatives described above and in a way that is sustainable.
On the issue of "consume more," the Chinese government has actually done a very good job in raising the country's minimum wages, and in taking measures to beef up the country's social security system, so citizens feel more secured and safer to spend.
According to economic data released early this month, China's household consumption now contributes around 60 percent of the growth, with the service sector accounts for half of the country's GDP, and consumer demands for information, cultural, tourism and health products are booming.
In less than three years, China's current leadership has achieved great progress in fighting against corruption, squeezed out a substantial amount of bubbles in the property market, and set in motion a profound transformation of its economic development pattern. As Warren Buffett and Charlie Munger, two veteran long term value-investors, pointed on May 3, 2015: "China is currently doing great in their reforming process." The country is well on its way to a more sustainable growth model.
