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Everything You Know About China Is Wrong

Posted by Author on October 18, 2009

By Rana Foroohar | NEWSWEEK,  Oct 17, 2009 –

The conventional wisdom is that China is steaming through the global financial crisis by building on the momentum generated by its 30-year boom. Indeed, ever since it sailed through the last big global crisis—the Asian contagion 10 years ago—Beijing has been feted for uniquely steady helmsmanship in financial storms. So perhaps it’s natural for forecasters to assume that the Chinese supertanker of state is not turning sharply now, particularly since it continues to grow rapidly even as other economies sink in the recession. Yet this crisis is different—bigger and more damaging than any seen in generations—and it is exposing limits and forcing change in just about every key piece of the China model: the supremacy of the one-party state, the smart economic management, the export-driven growth, the emerging consumer class, the burgeoning private sector, the headlong focus on growth at any environmental cost, and the drive to build world-class companies. What follows is a look at why these common assumptions about China are increasingly inaccurate or just plain wrong.


No, the financial crisis is splitting the party, pitting the rural populists against the urban growth-firsters. The populists include the current top two, President Hu Jintao and Premier Wen Jiabao, who favor slower growth, distributed more evenly to poorer rural Western regions, governed with a more careful eye to protecting the environment and less devotion to the free market. Opposed to them are the elite factions based in urban coastal cities, led by Shanghai, who want high-speed growth, more freedom for the free market, and greater support for entrepreneurs and the private sector. While it’s too early to tell which faction will win out, it’s clear that the new leadership will take China in new and possibly unexpected directions. “Perhaps the biggest myth about China is that it is only developing economically,” says Cheng Li, a China expert at the Brookings Institution in Washington. “In fact, it’s also evolving politically.”


On the day in September 2008 when Lehman Brothers fell, China began planning the swift rollout of a $600 billion stimulus that would prove to be the largest (as a share of GDP), swiftest, and, many say, most effective in the world. The results—China continues to grow at a world-beating pace, now 8 percent—have confirmed the reputation of the party elders as macro maestros. While most economists agree that Beijing has done a strong job of solving the short-term problem, which was how to keep growth high enough to offset massive unemployment and subsequent political unrest, there is growing unease about how the massive stimulus could distort the economy in the long term. China has become an economy driven almost entirely by state investment, which in the first half of 2009 accounted for 88 percent of GDP growth—a share for which it is hard to find any parallel, in any country, at any time.

The dangers of this lopsided boom are real. The pro-market faction worries that the liberalization of financial markets and the privatization of strategic sectors (which include most of the richest industries such as banking, telecoms, and construction) are being forgotten in favor of “bridge to nowhere”–style projects. Even government officials now admit that 60 percent or more of the stimulus money has ended up in stock and real-estate markets, fueling worries about dangerous new asset bubbles. In some coastal cities, property sales are three times what they were last year; the Shanghai stock market is up over 60 percent this year. “It’s just a stopgap measure—all the stimulus has been concentrated in building new infrastructure and reheating the property sector,” says Chinese independent economist Andy Xie.

This could spell trouble for Hu and Wen. The Chinese government debt, once negligible, is now officially about 30 percent of GDP, but some Western economists put the real figure as high as 70 percent. While these figures are still low compared with Western nations (the U.S. debt-to-GDP ratio will reach about 100 percent next year), they have Chinese politicians fretting. Last month Wen told a group of VIPs at the World Economic Forum in Dalian that China’s rebound was “unstable, unbalanced, and unconsolidated.” A week earlier Chi Fulun, a member of the Chinese People’s Political Consultative Conference was blunter: “Chinese leaders,” he said in an interview, “should rethink the country’s reform package.”…… (more details from Newsweek)

One Response to “Everything You Know About China Is Wrong”

  1. Shiju Joseph said

    The news of construction of dam on (Yarlung Zangbo River) Brahmputra river is now out in open. Indian Satellites have captured crystal clear view of Dam construction. Chinese leadership is full of liars, it lied to its neighbors that it is not constructing the dam. This country will bring severe catastrophe to all the neighboring countries and is a big threat. It has a selfish motive, and its leaders are liars to their own people as well to the entire world.

    A country which reaches to other parts of world with the hand of friendship (Pseudo), but does not have good relationships with its neighboring countries, cannot be trusted.

    They have killed unknown number of Tibetans and few of ethnics belonging to certain ethnic provinces, which are in minority, has an aggressive bent of mind to capture territories of other countries by any means. China is by no means a peaceful country, it will always finger around everywhere.

    It is exploiting Africans for their resources and in return providing money & weapons to the separatists and terrorists, which in turn protect the interests of chinese in africa.

    The infrastructure projects in Africa is a coverup, the real motive is something else.

    I have never heard china being constructive, its roles are dubious in nature. From North Korea to Pakistan, Iran to Myanmar, China is involved in clandestine nuclear and missile proliferations.

    Some day it will put all the dangerous countries which don’t want to gel with the remaining peaceloving countries of the world,sitting on time bomb waiting to explode and create an enormous destruction.

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