What's Going on with the Chinese Economy ?

The Chinese economy continues to slow due to the global recession. What is different here is that China is not battling a structural problem but rather a slow down. China's financial system remains the same as before the recession started. This is the primary difference between China and the rest of the world.

In the 1920s and 1930s the US depression did not have the benefit (or the challenge) of a gloabl interconected media. News was not as ubiquitous as it is today. The Media did not have a strangle hold on setting people's expectations about recovery or the depth of the problem.

Today the Media is a critical player in people's expectations. The Media can raise or dampen people's expectations or hopes very easily if they do not have direct knowledge and experience of a given situation.

China's current economic situation is a good example.

When times were good from 2002 - 2008 the Media questioned China's rapid economic advancement stating that it was not a rapid nor as thorough as stated. There is of course some truth to this, however now the Media is pressing the point that China's economy is also not as rosy as stated. Regardless of the perspective the Media is terribly under informed.

My view is that China is experiencing a slow down. This is a fact. China is however NOT experiencing a structural economic problem. The US and the West are going through a major change in the structure of the economy. The preponderance of debt-driven growth is now coming home to roost. The West is faced with a goliath of a problem of considering how to reignite growth.

Taking a 36% stake in CITI bank is a good example of the revolutionary changes at work in the US. One year ago this would have been unheard of. The media in particular would have launched at such a suggestion. Today it is a reality that is being welcomed by the stock market as a necessary action.

China on the other hand is not changing its structure in reaction to the current crisis. it is using its existing financial system and government policy ability to manage throught the slow down. it is not changing its structure.

As a student of Chinese history I am aware that major events and major shifts in China are often a result of outside influences rather than internal manifestations. China's entrance into the WTO was the major catalyst for the lat 8 years of rapid expansion. Today's global problems will also give China the opportunity to reform and refine its policies and system to meet the challenges of the next 10 years.

On this point China can be praised as being open to identifying these major outside influences and reacting to them. The reaction is not always correct but at a minimum it causes change and change creates progress.

So my bottom line is that China's slow down is not a systemic problem. It is a shift rather than a revolution. It is not the crash and burn situation often described in the West.

A final note...China's problems remain as before. The difference is that these problems are turning into advantages rather than shortcomings !

Wait long enough and everything comes back into fashion !