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|Look East, where bad news is good news|
The Times - April 16th 2012
Do you want the good news or do you want the bad news? How many times, when someone has said that to you, have you wanted to wring their neck? Well, to save you that trouble, the point of this column is that in this, as in so much else, China is different. Right now, in China the bad news is the good news.
Financial markets, and those who comment upon them, have been worrying rather a lot about China lately. Is the world’s second largest economy going to save us or sink us? Might there be a military coup there, or a descent into anarchy? It is all getting a bit overwrought. More important, it is missing the point.
Perhaps the markets just need something to worry about, and got bored with worrying about a collapse of the euro. After all, the Greek elections that might shift the political balance there away from austerity and reform are a whole three weeks away. So is the second round of the French election that could bring in a president promising a 75% top income tax rate and a renegotiation of Europe’s fiscal pact.
Much better, then, to worry that China’s quarterly economic growth rate in January to March clocked in at a terrifyingly slow rate of 8.1%. Oh, and to worry that the country’s ruling Communist Party has just purged a hardline rabble-rouser who worshipped Mao and whose son drove around Oxford in a Ferrari.
The Bo Xilai affair is, admittedly, gripping stuff. The arrest of Mr Bo’s wife on suspicion of murdering Neil Heywood, a British businessman straight out of the spy thrillers, makes it more irresistible still. She might be being charged because there is evidence that she is guilty, or it might just be part of the Communist Party’s discrediting of her husband. We will probably never know.
That is, to be sure, a large part of the trouble with China. It is governed by a huge party bureaucracy whose workings are largely opaque. There are law courts, and laws, which are even increasingly enforced, but then the Communist Party itself is above them. It is the law.
There is nothing new about that, however. So when deciding how much to worry about current events in China, it is surely best to focus on what is new, and what is known.
Let’s start with the purging of Mr Bo, son of a Long Marcher, powerful regional boss of Chongqing, China’s version of Chicago, and candidate this year for one of the party’s nine top jobs in the Standing Committee of the Politburo. This is the first downfall of a really top Chinese leader since the Tiananmen atrocity in 1989, as many have pointed out. But the contrast with that occasion is telling.
The man who fell then, and was held under house arrest until his death in 2005, was Zhao Ziyang, who was by Chinese standards a liberal reformer, a sympathiser with the Tiananmen students. That time, the bad news really was bad. This time, it is a hardliner who has fallen, a dictatorial, if populist, figure who encouraged the singing of “red songs” and erected a huge statue of Mao in his city. It is the relative liberals who seem to have seen him off. The bad news is good.
That is not an entirely safe conclusion, as nothing ever is in China. The seeing off of a hardliner does not necessarily portend a period of political reform. But it does swing the balance. And the way the Bo affair has opened a window on the corrupt and usually unaccountable behaviour of powerful party figures is likely to lead to some sort of fresh clampdown.
The economic news that spooked markets last week might, actually, prove to be more important in the longer term. It is, for starters, absurd to be alarmed when a country is still growing like the clappers. But also, this mild slowdown, and the data that underlies it, represents almost exactly what people have been wanting to see from China for years.
Those people start with Premier Wen Jiabao, the Chinese number two who some believe is the winner in the Bo affair. Be that as it may, he has been making speeches for a good five years calling for the country’s economy to be “rebalanced”, in the fashionable parlance, with less reliance on exports and investment and more on consumption, with less environmental damage, and with more attention being given to the country’s widening inequality.
Outsiders have been most worried about overheating, as rapid Chinese growth caused domestic inflation that was also exported, through high oil and food prices, worldwide, and about the enormous size of China’s balance of payments’ surpluses, which in 2008 reached 10% of the country’s GDP. The good news in the latest economic figures is that these worries are fading.
Inflation is down to a British-style 3.6%, the growth in Chinese demand for oil has slowed, and the current-account surplus is now one-fifth of its peak level. Most encouragingly for Premier Wen, three-quarters of the growth in the latest three months came from household consumption, helped by rising incomes.
Three months is not a trend, as we are all taught as cub financial reporters. But a slowdown to rates of growth still above 8% is pretty benign. So was the announcement, at the end of last week, that the Chinese central bank plans to allow larger daily movements in the exchange rate of the Renminbi. It might not necessarily lead to the much-called for rapid revaluation of the currency, but it does make one possible.
There is more than enough to worry about. The economic weather forecast for Britain and the eurozone is pretty squally. The Atlantic is full of icebergs, and perhaps our economies remain Titanics. Asia, however, should not be among our worries, at least on current evidence. Burma has got a bit nicer, North Korea failed to get its rocket up, and China is edging modestly in a better direction. No wonder David Cameron preferred to spend his post-Easter week in Asia. Life is a lot more worrying at home.