Saturday, January 9, 2016


When China catches a cold, the world sneezes.  China's woes have reverberated and stocks have plunged.  Questions are raised with regard to the sustainability of the China rise.  In certain media the pessimists rule the waves, the realists are on the defensive.  Exaggerations abound, going as far as suggesting that Xi Jinping's management model might be in jeopardy.

One might argue that the Chinese leadership miscalculated. Getting a first-class seat in the IMF and making the yuan a reserve currency, equal to the dollar, comes with consequences in terms of transparency and greater accountability.  The "Forbidden City culture" needs a reset.
Still, the People's Bank of China is in most professional hands. The likes of Zhou Xiaochuan and Xi Gang are sterling professionals.

President Xi accelerated a move which is supposed to make China less dependent on exports and manufactured goods and more consumer oriented. This creates unbalances in the short- term and automatically weighs on commodity prices everywhere, given an excess capacity which blurs short-term improvement. China is the main client for iron, steel, copper, and a diminished demand will have a negative effect on their value worldwide.  At a time of oil prices in free fall, the snowball effect is unavoidable.  The Chinese stock market is equally hostage to the mentality of a large section of still less-sophisticated players who gamble more than they think rationally.

The Chinese growth rate will certainly slow and as a consequence social unrest and unemployment will be harder to avoid or correct.  It would be foolish to doubt the professionalism at the top, as some are tempted to do. Another thing is that the leadership can no longer play with the growth numbers and cover- up problems which cannot be solved in camera.  Becoming a global player comes with a price, called scrutiny. Even the brightest can no longer hide the facts. Accepting a macro responsibility comes with a price tag, too.  China has to come to terms with a new situation wherein economical and financial facts are no longer on a political leash. President Xi Jinping knows too well that, as was the case with Deng Xiaoping , economy runs faster than policy.

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