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It’s impossible to know, at least from this layman’s perspective, whether or not the drama currently unfolding in the Chinese stock exchange is simply a huge blip or the start of something worse.

Economics is a notoriously subjective art: only this morning Tom Watson, the front runner for Labour’s deputy leadership, has questioned the competence of Jim O’Neill, the Infrastructure Minister and former chairman of Goldman Sachs Asset Management, because the latter dismissed concerns over the Chinese economy in a January article.

One man who did see clouds on the horizon was Mark Field, the MP for Cities of London and Westminster, who in May last year set out for ConHome readers his case for a cautious approach to the Far East’s pre-eminent power. His key points were:

  • “Amidst the praise and exciting economic figures, uncomfortable realities are creeping to the surface. As the dangers of the West’s debt bubble became evident six years ago, China set about inflating its own.”
  • “With pricing signals dampened, it became harder to ascertain which investments would eventually produce returns, and capital began to be misallocated on a major scale.”
  • “Since 2008, China’s credit gap – the increase in private sector credit as a proportion of economic output – has risen by 71 percentage points, with a lot of new credit now being used to roll over existing loans rather than fuel growth.”
  • “Total debt stands at 230 per cent of GDP, a figure that last year caused Fitch to downgrade China’s sovereign credit rating for the first time since 1999.”
  • “Reliance is mounting on the unpoliced and rapidly-expanding shadow banking system, and China remains vulnerable to default by Western debtors.”
  • “The figures highlight China’s central dilemma: how to shift the economy away from investment spending (which bestowed China with high growth and low unemployment and now accounts for nearly half the economy) to greater consumption, all the while avoiding economic pain and social disruption.”
  • “The squeeze on the labour market as a result of the demographic impact of its one-child policy (in contrast to a healthy US fertility rate) is also placing upward pressure on wages, and thus reducing China’s competitiveness and further undermining exports.”
  • “China faces well-documented problems over air pollution and land contamination that are cutting life expectancies and harming quality of life. Rapid urbanisation is exacerbating inequities between existing city dwellers and migrant workers which have the potential to cause considerable social unrest.”
  • “Endemic cronyism blights the political and economic sphere, and foreign multinationals are finding China an increasingly challenging country in which to do business as sweeping new consumer protection laws, fickle consumers and high profile corruption probes deter further engagement.”

You can read the full piece here.

12 comments for: Turmoil in China – and in the markets. In praise of Mark Field, who last year saw trouble coming

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