China: a 'Soft Landing' is a Helping Hand to Overdue Reforms

The preceding Chinese government proved able in denouncing economic risks without causing the country to explode in crisis.  On the contrary, the Chinese GDP continued to grow at a rate exceeding expectations and was envied in all corners of the world.  Since 2007, ex-prime minister Wen Ja Bao has reiterated that the nation’s economic trends presented four future traps, all adjectives beginning with the prefix “un”: unstable, unbalanced, uncoordinated, and unsustainable.  He continued to repeat this litany until abdicating his position to the younger Li Keqiang.  Denouncing the dangers was not equivalent to fixing them.  The GDP continued to grow without resolving the economic problems, which had by then become structural.  Instead, a development-intensive model exacerbated economic inconsistencies, where the “obsession with growth” (according to Chinese president, Xi Jin Ping) prevailed over every other priority.  A slowing of the Chinese economy is plausible, and it’s relatively secondary to ask oneself by how many percentage points it will occur.  It is more importance to examine how the global economy will be affected by this deceleration. Forecasts are pessimistic.  China has become the prime importing power, a destination for goods and raw materials hailing from across the globe.  Technology and raw materials—along with the more limited presence of consumer goods—en route to Beijing create revenue and employment in the countries of origin.  The predominant situation is for countries suffering from the economic recession to entrust China’s growing markets with their hopes of recovery.  In the same international vein, a decrease in Chinese exports would reduce the availability of low-cost goods.  Increasing a multinational corporation’s operating costs in China would cause it to lose a competitive position.  Ironically, the dragon poses a possible threat to countries experiencing stalling economies.  On the other hand, a few years ago the attack was conducted via expansion.  In reality, China is in an advantageous position—especially compared to the US and Europe—because of its greater margins of maneuverability resulting from its 2% fiscal deficit, a debt to GDP ratio of 45%, and a net positive position over foreign countries of $2.5 billion.  Under certain aspects China’s landing, while not violent, could even be considered desirable.  Economic policy tends to eliminate imbalances, even at the cost of growth rates.  The most recent decisions are unequivocal: monetary authorities came down on interbank circulation, private banking of the wealthy, management of monetary reserves, and unregulated loans from Beijing’s financial institutions.  This maneuver has the scope of preventing the flow of funds toward undesirable terminals, which are not in the nation’s best interests.  The most pressing macroeconomic argument remains, however: how to avoid the umpteenth hike in investments out of fear that the incremental diminishing will usher the country toward uncontrolled oversupply.  HSBC’s Purchasing Manager Index (PMI, which signals business trends) fell bellow the psychological threshold of 50, which denotes the crest between expectations of growth or slackening conditions.  At the same time, exports fell while attempts to grow consumption at the expense of investments continue to flounder in the face of consumers’ uncertain futures.  Even consumption is suffering from the demolishing of investments, whereby the famous balance between consumption and investment becomes an unattainable chimera.  It is possible, therefore, that the contraction of the GDP is stronger than predicted (the most pessimistic expect growth to decline to 4.5% in 2014) and that the 7.5% annual goal will not be attained.  This could be downright useful to the government to defeat resistance to reforms, which would become, in fact, inescapable in the face of crisis afflicting a 30-year-old model of success.  The next plenary meeting scheduled for October could become an historic event.  Nevertheless, it’s possible that these efforts could have been in vain, that monetary restriction provokes not an improvement but a downward spiral of decreasing faith that would cause the GDP to fall to negligible levels of 4.5%.  It would be a serious problem for China, but more than anything for industrialized nations cemented in an irreversible picture of globalization.