Wrong analyses of China - listed by author and date

Numerous authors make wrong analyses predicting an economic crash or drastic slowdown in China and then, when these fail to occur, nevertheless continue to present themselves as ‘China experts’. The ability to do this rests on readers forgetting what they predicted. Given that the test of an analysis and a theory is its ability, or otherwise, to predict real developments this periodically updated article conveniently lists, for reference, by author and date such wrong predictions of coming economic disaster in China so that readers can use it as reference to judge the track record of various analysts they read.

This article was last updated on 24 December 2011

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Bremmer, Ian: 12 November 2011

‘The world’s three largest economies can’t continue along their current paths, and everybody knows it. Investors watch nervously for signs that China is headed toward a hard landing, that America will sink back into recession, and that the euro zone will simply implode.

‘In all three cases, kicking the can down the road has staved off disaster so far, but the cans are getting bigger and heavier. Which economy will be the first to stumble on its problems?…

‘In China… It has been… three years since the financial crisis made clear that China’s growth remains dangerously dependent on exports to Europe, America and Japan.

‘To ensure long-term economic expansion (and political stability), Beijing must figure out a way to encourage Chinese consumers to buy more of the products that local manufacturers make. This will demand a massive transfer of wealth from the state and China’s state-owned companies to Chinese households.

‘But Beijing is moving in the opposite direction. The leadership responded to Western market turmoil not by boosting consumption but by increasing state and private spending on fixed investment, which now accounts for nearly half of China’s growth. The result has been an explosion in residential and commercial real estate, more state spending on infrastructure and more cheap loans from state-owned banks to state-owned enterprises.

‘Indeed, a key obstacle to reform is that China remains so heavily invested in its state-managed model of capitalism. Of the 42 Chinese companies listed in the 2010 edition of the Fortune 500, 39 were state-owned enterprises, and three quarters of China’s 100 largest publicly traded companies are government controlled. Party officials with a stake in the success of state-owned enterprises have amassed considerable power within the leadership, and they ferociously resist efforts to transfer away their wealth to private enterprises and ordinary citizens.

‘China has the cash and foreign reserves to postpone a crisis. But growth is slowing, financial stresses are rising, and there is good reason to fear that China’s days of can-kicking are numbered as well…

‘Make no mistake: The challenges that the U.S. faces are formidable, and persistent political gridlock could delay badly needed fiscal and structural reforms. But everything is relative, and the best can to be kicking down the road just now is undoubtedly the one made in America.’ (Written with Nouriel Roubini)

Chang, Gordon: June 2002 The Coming Collapse of China pxxiii

”A half-decade ago the leaders of the People’s Republic of China had real choices. Today they do not. They have no exit. They have run out of time.’

Duncan, Richard: 17 February 2011

‘regardless of what happens in the US, China is facing a much more difficult future than is generally believed. Every boom busts. Every bubble pops. China will be no exception.

‘It is a serious mistake to believe China’s economy will continue to grow at 8 per cent or more for the next decade. That’s what people believed about Japan in 1989. Today, Japan’s economy is no larger than it was in 1993, if you don’t adjust for deflation. 2 per cent to 4 per cent annual GDP growth would be an excellent outcome for China over the decade, in light of the enormous capital misallocation that has occurred there over the past 10 years.’

Economist, The: 15 June 2002 ‘A dragon out of puff’

‘In the coming decade, therefore, China seems set to become more unstable. It will face growing unrest as unemployment mounts.’

”the economy still relies primarily on domestic engines of growth, which are sputtering. Growth over the last five years has relied heavily on massive government spending. As a result, the government’s debt is rising fast. Coupled with the banks’ bad loans and the state’s huge pension liabilities, this is a financial crisis in the making.’

Pettis, Michael: 14 August 2009

‘I continue to stand by my comment last year… that the US would be the first major economy out of the crisis and China one of the last.’

Roubini, Nouriel: 12 November 2011

‘The world’s three largest economies can’t continue along their current paths, and everybody knows it. Investors watch nervously for signs that China is headed toward a hard landing, that America will sink back into recession, and that the euro zone will simply implode.

‘In all three cases, kicking the can down the road has staved off disaster so far, but the cans are getting bigger and heavier. Which economy will be the first to stumble on its problems?…

‘In China… It has been… three years since the financial crisis made clear that China’s growth remains dangerously dependent on exports to Europe, America and Japan.

‘To ensure long-term economic expansion (and political stability), Beijing must figure out a way to encourage Chinese consumers to buy more of the products that local manufacturers make. This will demand a massive transfer of wealth from the state and China’s state-owned companies to Chinese households.

‘But Beijing is moving in the opposite direction. The leadership responded to Western market turmoil not by boosting consumption but by increasing state and private spending on fixed investment, which now accounts for nearly half of China’s growth. The result has been an explosion in residential and commercial real estate, more state spending on infrastructure and more cheap loans from state-owned banks to state-owned enterprises.

‘Indeed, a key obstacle to reform is that China remains so heavily invested in its state-managed model of capitalism. Of the 42 Chinese companies listed in the 2010 edition of the Fortune 500, 39 were state-owned enterprises, and three quarters of China’s 100 largest publicly traded companies are government controlled. Party officials with a stake in the success of state-owned enterprises have amassed considerable power within the leadership, and they ferociously resist efforts to transfer away their wealth to private enterprises and ordinary citizens.

‘China has the cash and foreign reserves to postpone a crisis. But growth is slowing, financial stresses are rising, and there is good reason to fear that China’s days of can-kicking are numbered as well…

‘Make no mistake: The challenges that the U.S. faces are formidable, and persistent political gridlock could delay badly needed fiscal and structural reforms. But everything is relative, and the best can to be kicking down the road just now is undoubtedly the one made in America.’ (Written with Ian Bremmer)

John Ross is currently Visiting Professor at Antai College of Economics and Management,Shanghai Jiao Tong University, where he leads research on globalisation and on China and the international financial crisis.
Check out his blog: http://ablog.typepad.com/keytrendsinglobalisation/ , or follow him on twitter @JohnRoss43

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