There's been a lot of hand-wringing about the Chinese economy's slowdown recently. In the space of a month, Shanghai's stock index suddenly dropped by 30%, and the Yuan was suddenly devalued by 4.4% against the US dollar. It has been speculated that the official figure of 7% annual GDP growth may well be exaggerated, and we may be talking about "only" 4 or 5%.
Quite frankly, all the concern sounds a bit over the top to me. The stock market's drop of 30% followed a rise of 150% over the previous year. The Yuan's devaluation wasn't really that huge, and it is a far cry from the years in which it was much more severely undervalued. What is true is that the Chinese authorities will always take draconian policy measures to try and fix any economic problem which presents itself, as can be seen from how they attempted to stop the stock market from dropping further. They are just congenitally incapable of not interfering heavily and unpredictably in the economy. Then again, leaving financial markets to fix themselves through market forces also produces dangerous imbalances, as the 2008 financial crisis in the US has shown.
The bottom line is that China's economy cannot continue growing by 10% a year for ever (and if it did, the world's natural environment would suffer all the more as a result). Even 4 or 5% growth is above the global average after all, and there's no reason why it shouldn't be satisfactory. China is already a moderately well-off country, and most of its problems are caused by social and political factors. Further GDP growth won't make them go away. Only political reform will. Even the dire poverty which still exists in the countryside and among the migrant workers could be ameliorated simply by distributing the wealth more evenly. After all, China has one of the most unequal distributions of wealth in the world (going from one of the most equal in the early eighties).
Quite frankly, all the concern sounds a bit over the top to me. The stock market's drop of 30% followed a rise of 150% over the previous year. The Yuan's devaluation wasn't really that huge, and it is a far cry from the years in which it was much more severely undervalued. What is true is that the Chinese authorities will always take draconian policy measures to try and fix any economic problem which presents itself, as can be seen from how they attempted to stop the stock market from dropping further. They are just congenitally incapable of not interfering heavily and unpredictably in the economy. Then again, leaving financial markets to fix themselves through market forces also produces dangerous imbalances, as the 2008 financial crisis in the US has shown.
The bottom line is that China's economy cannot continue growing by 10% a year for ever (and if it did, the world's natural environment would suffer all the more as a result). Even 4 or 5% growth is above the global average after all, and there's no reason why it shouldn't be satisfactory. China is already a moderately well-off country, and most of its problems are caused by social and political factors. Further GDP growth won't make them go away. Only political reform will. Even the dire poverty which still exists in the countryside and among the migrant workers could be ameliorated simply by distributing the wealth more evenly. After all, China has one of the most unequal distributions of wealth in the world (going from one of the most equal in the early eighties).
