China transition in world’s best interests, forum hears

Despite concerns over bad loans and economic challenges, there is an incentive to support China’s transition to consumption-driven growth as the world is reliant on its success, experts agree.
China transition in world’s best interests, forum hears

While commentators continue to raise concerns over bad loans and challenges in China, there’s a strong incentive to support its economic transition as the world has become reliant on its success, a forum heard.

Speaking at Asia’s Independent Research Summit organised by Asia IRP in partnership with AsianInvestor, XTE China principal Tim Summers suggested there were many reasons to be optimistic not just about China’s growth and innovation, but about how its transition from an investment- and export-led economy to one driven by domestic consumption will reshape the global landscape.

“Globalisation will not be led by the US or Europe in future. China’s transition could change the world,” Summers told the forum last week during a debate entitled The Chinese dream – can transition work?. The title references “China’s Dream”, the slogan introduced by president Xi Jinping last year to encapsulate the nation’s efforts to raise domestic consumption to create a broadly prosperous society.

Peter Perkins, global strategist and partner at the Macro Research Board, noted that while it’s easy to outline what China’s transition strategy is, it’s not something that has been attempted on such a scale before.

“China is still figuring out its process of development, but the rest of the world is highly reliant on the success of its transition,” he said, underlining how developed nations were still embroiled in deleveraging and restructuring.

He suggested investor concerns over China’s growth path and its impact on the global landscape were distracting them from investment opportunities in the country.

At the same time he pointed to a dilemma for the US. “If China screws up today, policymakers in the US will work to see whether they can support it,” Perkins said, while pointing out that that could help China weaken US hegemony.

Panel moderator Stuart Leckie, chairman of Stirling Finance, split China’s evolution from a planned to a market economy into three stages. The first spans the creation of the People’s Republic of China from 1949 to 1979, a difficult period encompassing the Cultural Revolution; the second stretches from 1979 to today, with China regularly delivering economic growth of more than 10% to become the world’s second largest economy; and the third is from now onwards.

With reference to the latest segment, Leckie asked the panelists whether what lay ahead for China’s economy would be good or bad.

In response the panelists were generally positive about China over the longer term, looking beyond short-term challenges such as corruption, lack of governance and transparency. They suggested they were comfortable even with the prospect of a crisis associated with shadow-banking or a property bubble.

Bill Stacey, chief economist at Vanda Securities, expressed confidence that China could resolve its problem of bad debts. He noted how China had spread risk to avoid a financial crisis in 2009 by allowing loans to be guaranteed in some cases by Hong Kong and Singaporean banks.

Benjamin Schmittzehe, chief executive officer of Schmittzehe & Partners, said the negative side of China’s debt problem was that it would take longer for the country to enter its next growth phase.

But the panelists were less enthusiastic about China’s urbanisation project to more than halve its rural population to 300 million, saying it created big question marks over the creation of jobs and provision of health care and social security.

Nevertheless, the dynamics of China’s economic growth will hang on this urbanisation effort.

Schmittzehe argued that locals were less keen to move to big cities, which was good news for the growth of new cities. At the same time he suggested that increasing unbanisation would hurt the agricultural industry and create legal traumas through changes to the nation’s entrenched hukou system.

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