The Chinese economy is in better shape than headlines suggest.
CAPE TOWN – In the wake of the recent market volatility a lot of the talk has been about the Chinese economy. Much has been made of how China is coming off the boil and may even be in some kind of crisis.
Headlines around the world tell a story. “The Chinese economy is on a slippery road to nowhere” was one in Australia, while MarketWatch carried the warning that “China’s economy may be in worse shape than people think”. The Wall Street Journal even ran an article under the headline: “A global recession may be brewing in China” and Forbes asked “Will China collapse?”.
The largely accepted narrative is that China’s economy is not only slowing, but also heading into a debt crisis. The big drop in Chinese stocks during August and the decision to devalue the yuan have been taken by many as confirmation that the economy is in big trouble.
However, this view is not universal. Although largely drowned out by the negative sentiment, a number of other headlines propose a different view of the situation.
The Economist carried an article under the headline: “Why Chinese economic worries look overdone”. The Wall Street Journal published a contrarian view too: “What if the China panic is all wrong?”.
And according to Dr Martyn Davies, the managing director for emerging markets and Africa at Deloitte Frontier Advisory, the panic is indeed ‘all wrong’.
“I’ve heard commentators say that China is not growing at all, but that’s nonsense,” Davies says. “The fundamentals of China’s growth have not changed. There are problems such as rising debt levels, but China is not falling off a cliff.”
While he acknowledges that the Chinese economy is changing, he says this is something that will play out over many years. It is not a sudden, disruptive event.
“China rebalancing is a long term story, it’s not a short term impact,” he argues. “People are sweating the detail of China’s growth, but in reality that is a red herring discussion.”
He points out that concerns around China are usually rooted in what has happened to the commodity cycle. Most people assume that the significant drop in commodity prices has been due to a similarly big fall in Chinese demand.
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