The Two Faces Of A Two-Faced China

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China’s GDP is going to do remarkably well over the next year. No, it is in real trouble. Maybe both statements are true, but that would defy logic, at least the brand that economists use.

Over the weekend, China’s president said that the global recession could hurt his county’s growth which might lead it to become less competitive as the world’s largest supplier of goods.

There is evidence that the impression that China is in trouble is right. According to Bloomberg, "China’s manufacturing shrank by the most on record and export orders plunged."

On the same day that the head of the world’s most populous nation said his economy was headed to hell, another senior official said GDP would grow 10% next year, keeping its on pace with recent annual increases. The Chinese news agency reports that "Although dim world economic situation has led to weak overseas demand, domestic consumption and investments, vast development potential decided the country’s economy will grow at fast paces," said Zhang Liqun, the Development Research Center of the State Council researcher.

The trouble in predicting the course of the Chinese economy is that the situation as it stands today is unprecedented, which makes it almost impossible to use for forecasting.

The expansion of the Western economies which just ended has lasted the better part of five years. By some measurement, if the effects of 9/11 are backed out, rapid GDP growth has existed for the better part of a decade. That relentless improvement has been the engine of prosperity on the mainland.

China’s GDP in 2000 was 8.9 trillion yuan. That number has been growing by a rate of about 11% for seven years now. There is no other economy in the world of this size that has been growing at this rate.

To put a point on it, making forecasts by looking back on data which has no precedent is hardly a look worth taking at all. But, the impression that China is in trouble probably has more merit than the one that everything is fine.

If China is expecting to rely on consumer spending within the nation to keep up economic growth, its middle class has to continue to expand. With a substantial drop-off in export growth, it is nearly impossible to see what the source of that rising wealth will be. It is actually more likely that the size of the middle class will shrink as the number of manufacturing jobs could hardly keep pace when export improvement is losing steam.

China is moving into a period of deep economic trouble, whether the government wants to acknowledge that or not.

Douglas A. McIntyre