China's Growth in Western Eyes
Foreigners often describe China as "different"; a mysterious land whose people have a perplexing way of getting things done. Yet, when it comes to economic data, foreign "experts" look at China as they would look at any other country. I am not talking about those who ignore the fact that China's government tweaks economic indicators to fit pre-defined goals. Enough has been written about that (here, here, here and here, for example). I am talking about the way in which well-regarded western publications look at real indicators, and the assumptions they make in the process.
This morning, for example, I received a newsletter from RGE Monitor, Nouriel Roubini's consultancy firm. Reading it, I learned that 'unlike many global markets, the residential property market in China is showing some signs of stabilization'. The facts are correct. The free fall in residential prices has stopped, and in some places there are even slight increases. A sign of recovery? not necessarily.
The newsletter did not mention the fact that China is (still) full of empty residential projects, and that the current growth is the result of aggressive government (proxy) investment in real estate projects. This means that China's real estate bubble not only far from being over, but it is actually being perpetuated and inflated. The "recovery" seen in the numbers is not driven by market forces and thus cannot be taken as an indication of local demand.
This superficial approach is not unique. The Economist just published an article vindicating "decoupling", the theory that 'emerging economies had become more resilient to an American recession, thanks to their strong domestic markets and prudent macroeconomic policies'. The author uses China as the theory's 'Exhibit A' since its 'economy began to accelerate again in the first four months of this year... Fixed investment is growing at its fastest pace since 2006 and consumption is holding up well'. The author did not, however, mention the fact that 20-30 million Chinese lost their jobs in the last six months (and that's only according to official figures) or that the 'fixed investment' is done directly or indirectly by the government and thus says very little about the true market sentiment.
The author did note that 'China's rebound will only be sustained if the economy shifts further from state-sponsored investment to private consumption', but by doing so he implies that the current "recovery" in China is indeed a result of private consumption. It isn't.
In reality, China's consumers will not start spending until the government provides them with access to adequate healthcare and education. Even if this was China's top priority, it would take many years to implement. But is it really a top priority? A look at China's $586b stimulus package shows that most of it is devoted to infrastructure (read: real estate + extravagant government projects), disaster relief (read: pre-planned projects in Sichuan), and only 9% is dedicated to education and healthcare. For comparison, about 14% of America's stimulus package is devoted to healthcare education. This is out of a larger package ($787b) in a country with an educated population and markedly better healthcare facilities.
Even during peaceful times, when the global economy is functioning "properly", experts talk mostly about China's GDP growth, investment in fixed assets, and the real estate and stock markets. By doing so, they are missing a big part of the story, or even the whole plot. Lao Zi once wrote that 'ruling a kingdom is like cooking a small fish', It should be done with great care and sensitivity. When it comes to China, westerners seem to be 'judging a kingdom like meeting a fat kid' - they evaluate the country's development based (mostly) on its overall economic weight.
Imagine meeting a potential business partner online and evaluating him according to his weight. He tells you that he weighs 80kg and - judging from your own experience - you assume that he is a mature individual. If you were to go and meet him in person, you would discover that he is actually an overweight 8-year-old kid. Not only is he not fully mature, but he also has severe health problems. Not exactly the type of person you want as a business partner. But you'll never know unless you visit.
China is a fat, unhealthy kid. Its ignorant friends in the west encourage it to keep eating the same stuff in order to "maintain growth". Sadly, this encouragement might mean that China will stick to its non-viable development model and never grow up.