Fragile China?

19 10 2010

Despite my reservations, an evening in the basement of the Asian Civilisations Museum with the Economist was fascinating. No relation whatsoever to Night at the Museum (1 or 2)…

My abiding impression is just how polarised positions and beliefs around the future of China are – and no one even mentioned the current spat with Japan and threat to the world supply of rare earths. In broadest terms it was: China has the healthiest, most unleveraged credit market in the world, and that always correlates to political stability; versus the Chinese economy is still only the size of France’s, the burgeoning middle class is actually only a thin layer of froth signifying nothing, and the Chinese property bubble – and the Chinese economy and political establishment – will implode within the next year or so (at which point the Australian economy will be found to consist entirely of digging things out of holes in the ground, for which there is no longer a market).

Fascinating stuff. I couldn’t help feeling that on both sides it was the mostly the unspoken assumptions that meant the most. I don’t think either side of the argument was working from the 1.4 Billion Chinese times 50 cents each equals a market just waiting to be plucked; but the naysayers did seem to have an underlying religious conviction about free markets as the universal good. If whole sectors of Western business have gone into the Chinese market and failed to secure market share or make a dollar, then ipso facto the Chinese economy is either broken or largely illusory.

One has to take serious note of the reservations, but I can’t help feeling the Chinese (not just their government) march to the beat of a different drummer – and I don’t mean the late Chairman. It seems to me that unlike western free-market democracies, for whom a week can be a very long time and 4 or 5 years the ultimate time horizon, China still runs on dynastic time.

The CCP has always known that the jury would be out for decades as to whether it signified the start of a new dynasty or was simply the latter-part of the Sun Yat Sen-inspired interregnum upon the fall of the Yuan (Manchu) dynasty. The last 30 plus years of consistent investment in moving China to the global manufacturing cutting edge has been premeditated and extremely well executed. Westerners – and there were one or two last night – still sometimes imagine it is all about cheap quality and cheap labour. Cheap China has passed – I think. All the high-tech kit I use professionally seems to have been built in China, not because it was cheaper but because only China had the capacity to execute.

But I may be wrong. The great thing about political economy is that it becomes converted into history at a steady and predictable rate: one day at a time!