New media article: The "pessimism" of China's economy is very wrong

Singapore's Straits Times website published an article on October 22 titled "China's Economic Pain Will Intensify, But It Will Still Be Necessary in the Long Run" by Ge Yihao (Arthur Krober), founding partner of Longzhou Jingxun Consulting. The recent pessimistic predictions about China's economy are wrong. Economic pain will be inevitable in the short term, but Beijing will continue to rely on a hybrid model of state guidance and market forces to promote economic growth in the long run. As it has been for decades, this proven model will continue to work. The full text is excerpted below:

Pessimistic predictions about China are likely to be wrong.

Indeed, in the most recent quarter, China's economic growth has slowed. But in the coming years, China is likely to regain momentum — in part because of the tough task it is now on.

The biggest concern at the moment is the crisis of Evergrande Group. Previously, the authorities asked real estate developers to reduce their liabilities, and Evergrande Group's plight was partly derived from this. It is the latest move in an effort to make China's debt manageable.

According to statistics, China's total debt level is equivalent to about 290% of GDP, which is comparable to that of rich countries with developed financial systems, but it is still high for middle-income countries.

China knows that to avoid a financial crisis or to repeat the mistakes of Japan's stagnation of the last century, future economic growth must drastically reduce its dependence on debt. The problem is that by addressing debt in the real estate sector, regulators risk extinguishing a powerful growth engine.

But this does not lead to a "Lehman moment," where a broader financial or economic collapse is triggered by the bankruptcy of a heavily indebted company. China has a huge pool of savings. And the authorities are now also good at dealing with the bankruptcy of big companies.

Despite its desire to strengthen state regulation, China has not rejected the market – dynamism will be maintained. Some countries are prudent in their regulation.

To cure the economy's preference for debt, the action to regulate the real estate sector is an important part. Similarly, the power shortages that plague many of China's industrial regions are largely due to efforts to drastically reduce reliance on coal.

China has said it will strive to peak its carbon emissions by 2030 and become carbon neutral by 2060. One way to deal with energy shortages is to deregulate electricity prices. This will allow power companies to pass on some of the impact of rising coal prices to end users. Therefore, it is not true that the Chinese authorities do not value market forces.

As in past decades, Beijing will continue to rely on state guidance and market forces: the state sets the direction for investment, and the day-to-day outcome is determined by the market.

China's restrictions on large private tech companies have led some to worry about whether it can become a true innovation leader if it tightens its grip on its most successful startups.

However, China's regulatory action on the Internet industry is not really aimed at suppressing private companies: Private companies in many industries, including technology hardware, are doing well. Instead, regulatory action addresses concerns about big tech companies that governments around the world are grappling with: irresponsible power, monopolies, weak consumer protection, and rising income inequality.

China will never manage its economy in a way that satisfies pure free-market theorists. But it proposes an efficient mixing model. Despite the current pressures, this model will continue to work.

Source: Reference News Network