Speculators and Alarmists Unduly Exaggerate Concerns over China’s Economy

However, to paraphrase Mark Twain, "the reports" of China’s long term economic decline have been "greatly exaggerated."

Speculators and Alarmists Unduly Exaggerate Concerns over China’s Economy


According to the preliminary estimates of the National Bureau of Statistics of China, the gross domestic product (GDP) of China increased by 6.9 percent in 2015. Nevertheless, while this rate of growth of China’s economy compares very favorably with the U.S. growth rate of 2.4 percent, alarmists have offered dire assessments of the state of China’s economy as 2016 got underway and China’s stock market took a nose dive. Some even questioned the accuracy of China’s 6.9 percent growth figure without offering any evidence to back up their skepticism.

Sensationalistic Western media articles, think tank reports, and investment management analyses have appeared with attention-grabbing titles such as “The Great Fall of China” (the Economist), “The Coming Chinese Crackup” (Brookings Institute) and “Walled In: China’s Great Dilemma” (Goldman Sachs). The common thread running through such commentaries is pessimism over China’s decelerating growth trend line, which, the commentators contend, exposes deep-seated structural fault lines in China’s economy.

Such dire warnings tend to feed on themselves and spark the kind of needless panic selling in stock markets around the world that we witnessed last month. Not grounded in hard data or rigorous analysis, these doomsday forecasts lean towards the irresponsible. Longtime China observer and economist Nicholas Lardy of the Peterson Institute for International Economics put the state of China’s economy in a more proper perspective in his New York Times article last August. He wrote that “the popular narrative is not well supported by the facts.” He added that “recent events should be seen as part of the conscious liberalization and rebalancing of the Chinese economy. Even if that means a sell-off in stocks, it is not a sell-off in the fundamentals of the Chinese economy.” The panic selling this January does not change the truth of Dr. Lardy’s observation.

Even worse than the alarmist commentators, whom at least are trying to tell what they believe to be true, is George Soros, the multi-billionaire speculator. Soros is a veritable wrecking ball of institutions and economies he bets against in order to enrich himself. Soros now appears to have his greedy eye on China.  Evidently trying to create a self-fulfilling prophesy that would enable him to profit from shorting China’s currency, he lambasted China’s economy last month at the World Economic Forum in Davos. “A hard-landing is practically unavoidable,” Soros declared. “I’m not expecting it, I’m observing it.”

Soros is dissembling about the state of China’s economy in order to exploit the doubt and uncertainty that he sows with his public remarks. As the more objective China expert and economist Dr. Nicholas Lardy stated in his New York Times article:

“Wage growth is running at about 10 percent annually; the pace of creation of nonagricultural jobs is stronger than in any recent year; both real disposable income and consumption expenditures of Chinese households are growing strongly. It is not the picture of an economy heading for a hard landing.”

Soros, it may be recalled, is known as the “the man who broke the Bank of England” after precipitating a British financial crisis back in 1992. He did this by short selling the British sterling on an unprecedented scale – going “for the jugular” as he put it. Soros’s currency maneuvers cost British taxpayers billions of dollars, while his firm walked away with a profit of over a billion dollars. Soros is said to have also helped cause the Asian financial crisis of 1997, incurring such wrath in Thailand that he was called an “economic war criminal.”

George Soros is the classic vulture capitalist willing to make billions of dollars in speculative profits on the backs of ordinary people, who suffer the consequences of the economic havoc his currency speculation creates.

China is standing up to the currency speculator, who has referred to himself in the past as “some kind of god.” For example, a government official warned in an article published by the People’s Daily that “Soros’ challenge against the renminbi and Hong Kong dollar is unlikely to succeed, there is no doubt about that.”

Stock price and currency volatility, fueled by vulture capitalists like Soros and distorted in alarmist reporting, may cause some temporary destabilization in China’s markets. China’s growth rate may plateau at its current level and even lose a bit more steam in the short run, as the World Bank has predicted. However, China’s economy, according to knowledgeable experts, is on a sound footing, looking ahead to a more sustainable level of stable growth.

“China has launched deep structural reforms to lift incomes and living standards, seeking a ‘new normal’ of slower, safer, and sustainable growth that relies more on services and consumption and less on commodity-intensive investment and manufacturing,” wrote Christine Lagarde, the Managing Director of the International Monetary Fund, in a January 5, 2016 article published by Project Syndicate.

All economies experience ups and downs as well as adjustments during transition stages. The United States certainly has gone through its own boom and bust cycles, as most recently evidenced in the financial meltdown and Great Recession following the bursting of the housing bubble in mid-2007.

China is a part of the global economy, and thus experiencing the economic impact of events beyond its control. However, it is worthy to note that China has outperformed all other major economies since the Great Recession. As Graham Allison and Lawrence Summers wrote in their forward to an article entitled “Overcoming the Great Recession: Lessons from China” by Chinese economist Liu He, “the brute fact is that since the 2008 financial crisis, nearly 40% of all the growth in the global economy has taken place in just one country: China, despite its having only 15% of the world’s population and less than 20% of its income.”

China is transitioning from an export driven, manufacturing economy to a more balanced knowledge-based service economy that is also increasingly consumer-oriented. The World Bank noted in its January 2015 Global Economic Prospects report on East Asia and the Pacific that “rebalancing from industry to services activity has proceeded rapidly.” This may be partly demonstrated in the larger growth in the value added of the newer technology industry in 2015, as reported by the National Bureau of Statistics of China, compared with the more traditional industry sector.

The World Bank also observed that “while China’s export market share continues to rise, its current account surplus declined to 2 percent of GDP in 2014 from a peak of 10 percent of GDP in 2007.” Since a large current account surplus can evidence an unbalanced economy, the fact that China still retains a current account surplus, albeit at a lower percentage of its GDP than in previous years, can be considered a positive indicator. Reserves, meanwhile, remain ample.

Gross investment as a percentage of China’s GDP was approximately 45% in 2015, according to a figure appearing in the World Bank report, while consumption was approximately 50%. According to data reported by the National Bureau of Statistics of China, in 2015 the investment in fixed assets (excluding rural households) was 2.9 percentage points slower than the previous year in real terms. The total retail sales of consumer goods, on the other hand, experienced a real growth of 10.6 percent after deducting price factors. This data also would appear to evidence a more balanced economy, as China’s economic planners have been striving to achieve as part of their structural reform program.

While the World Bank noted some short-term challenges and risks in the implementation of China’s reform program, the World Bank’s report was positive about the overall direction in which the reforms were heading. “Progress is being made in implementing reforms in China,” the report stated, before listing the “positive impacts” that ongoing reforms are expected to have on various sectors of the economy.

China is also engaged in scaling up renewable energy in order to reach its ambitious climate targets set in conjunction with the Paris COP21 climate change agreement. As one example, the World Bank described a clean energy initiative the World Bank is supporting in Beijing schools involving the installation of rooftop solar PV systems:

“The ‘Sunshine Schools’ program is designed to achieve multiple benefits: generating clean energy for schools to meet their electricity needs, providing bluer skies and healthier air for Beijing residents, serving as a tool for raising green awareness among young students, and contributing to the country’s efforts to expand use of renewable energy and to address climate change.”
Honesty and proper perspective are needed in assessing the true health of China’s economy. Speculators like George Soros should be dismissed out of hand for the charlatans that they are. Soros and his ilk are out to line their pockets with windfall profits from currency speculation that hurts ordinary people.

The alarmists who look only at short term market volatility and risks are missing the forest for the trees. Yes, China’s economy will have its bumps. Yes, the markets for its equities and currency may roil for a while longer. And China is going through complex structural reforms that will not always work out as planned. However, to paraphrase Mark Twain, “the reports” of China’s long term economic decline have been “greatly exaggerated.”


Joseph A. Klein
Pro Deo et Constitutione – Libertas aut Mors
Semper Vigilans Fortis Paratus et Fidelis
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