China’s stock-market correction was predictable after its wild rise, but it does not signal a sustained economic slump. However, “China shock” did influence the U.S. and European stock markets, despite the effect being psychological and temporary. During the first half of September, U.S. and European markets have been rising steadily, despite the lingering struggles for Chinese stocks. With an expected mild rebound by the end of the year and beyond, it is likely that China’s imports will gradually pick up, thus contributing more to the world commodities demand recovery.
In 1997, at the height of the East Asian currency crisis, I wrote an article, “The Sky is not Falling (天塌不下来),” basically saying that the Chinese economy would be able to emerge from the crisis more or less unscathed.
While China’s National Bureau of Statistics’ (NBS) reporting on GDP growth grates have been called into question by international observers, there is acknowledgement that the structure of China’s economy is changing. The real test of the reliability of official reporting, therefore, will come when NBS issues its Q3 headline GDP figure.
A close bilateral relationship is always accompanied by more differences, frictions or even conflicts, including profound structural contradictions. So long as both regard and handle their relations from a strategic and long-term perspective, there will be no difficulty that China and the US cannot overcome.
The gravest threat to American global leadership is neither Russia nor China but continued interest group-driven Congressional abandonment of the kind of balanced strategy that won the Cold War.
China’s economy has shifted to a slow gear, having a bigger impact on those resource-exporting countries which highly depend on China’s market, but having no remarkable impact on European and the US economic growth. In particular, China’s slow economy is not the “culprit” of the recent US stock market slump, which was caused by the American market’s own problems.
The IMF holds a cautiously optimistic view about the prospects of the Chinese economy, recognizing that the important reason for a slowdown in China’s economy is the change in its development strategy. The services industry is rising, R&D is expanding slowly, and the financial system is modernizing. These changes take time and patience: If China chooses to slow down a little bit, it will be easier for the country to succeed and achieve the long-term goals it has anticipated.
National security concerns in the U.S. and China have been used to bar certain types of foreign investments. Subjecting a legitimate commercial deal to arbitrary and protectionist exercises may only invite a similar action by the affected state, thus creating a potential spiral adverse to foreign investments.
The lens of government intervention in China has led foreign observers to misinterpret some of the most important developments this year in the foreign exchange market and the stock market.
Many of today’s most successful Chinese entrepreneurs such as Alibaba, Xiaomi, and Tencent know that they are riding and contributing to a historic wave of economic activity. These Chinese entrepreneurs have thrived, in part, because they created companies able to change as China changed.
Moderate growth, low inflation, low labor participation rate and a growing wealth gap will be business as usual for a considerable period of time. Fundamental, systemic changes needed for the US to breakthrough its economic doldrums are unlikely in the divided political climate from now until the 2016 elections.
The downturn of global financial and foreign exchange markets, is causing concerns in the Americas. A Chinese trade and investment focus on the “Pacific Pumas” would be a prudent strategy and help reduce tensions and suspicions between the U.S. and China in the region.
The shifting exchange rate reflects the strength of the dollar, not weakness of the RMB. The two nations and business communities should focus on identifying the complementary sectors and products of the two countries and seeking a sustainable pattern of stable growth based on mutual benefit.
A long-term stable RMB exchange rate with a two-way volatility is conducive to maintaining the financial asset price, to preventing a large-scale capital outflow, to controlling foreign-debt risk, to reducing the cost and burden of debt financing and to stabilizing economic growth anticipation.
As China allows more market influence to determine the value of the RMB, the exchange rate will become more volatile. Allowing the market to determine the value of the yuan is precisely what the West has long sought, and it will serve global interests, whether China’s currency rises or falls.