Policymakers
in most parts of the world tie themselves in knots over how to speed
up the economy. In China, they worry about how not to go too fast.
But before you hit the envy button, consider this: Moderation of
the reckless is often more difficult than stimulation of the sluggish.
And always more thankless; the risk of a catastrophe is not something
everybody can plainly see.
The task that China has set for itself, to
keep its economy within safety limits of growth, is by no means
easy. But it is of huge importance to the rest of the world, which
is why analysts are watching so closely. It helps that the country's
objective has been spelt out clearly: to slow its GDP growth rate
from nearly 10 per cent to a less blistering seven per cent or so.
This is not a precision science, but Chinese analysts reckon that
double-digit growth could result in a sudden flaring-up of the economy,
followed perhaps by a crash if key indicators burst out of their
control gauges. With an economy so fraught with activity, safety
is the need that emphasises itself.
This is not the first time China has attempted
such a thing. It did so in 1992, leaving external observers marvelling
at the country's sense of self-appraisal. The economy's lower limit
then, as now, was judged to be seven per cent. Anything slower than
that, China figured, could spell mass dissatisfaction-to which the
Chinese are not exactly unaccustomed. The upper limit, interestingly,
has not changed much.
But China's role in the global economy certainly
has. Its rapid emergence doesn't cease to startle. Apart from producing
almost every second gizmo and utility product bought in the world,
China already accounts for half of all cement used on the planet,
a third of all steel, and-do take note-nearly a tenth of all crude
oil. If global commodity prices have been so buoyant lately, it
is partly because of China's ravenous appetite for just about everything,
not just Coca-Cola (a brand, which in Chinese says 'thirsty mouth,
happy mouth').
What, then, would the slowdown imply to business?
Prices of assorted tradeables have already declined in response.
So this is broadly what international market analysts expect: lower
Chinese demand for everything, and so, lower prices too.
However, to stop there is to assume that all
will go as planned. This could be assuming too much. Remember, China
tried talking its economy down earlier in 2004, even using what
many consider a blunt tool: direct choking of bank credit. It is
only now, and for the first time in nine years, that it is using
the classic monetary device of raising interest rates overall. The
People's Bank of China has recently hiked its one-year yuan lending
rate-by 27 basis points, from 5.31 to 5.58 per cent. This is how
brake pedals are pressed in functional market economies. Just how
well it works in an economy that is still given to the old habits
of state-driven allocation of funds, is open to question.
Moreover, for all its pragmatism, China's banking
sector remains an opaque engine, and some observers worry that it
is so delicately balanced on a legacy of uneconomic wirings that
any little circuit snap could result in a breakdown.
There's also the issue of China's trade relationship
with the US. For now, China can't get enough of us Treasury bonds
and the us can't get enough of China's exports, but if these cosy
equations get messy, the ensuing instability could rattle the world.
In other words, a plan is only a plan until
it is executed. Still, with the big picture in mind, it is entirely
in the world's interest that China's concerns don't just remain
concerns. It would not have held up its moderation flag without
a keen calculation of the risk in reckless expansion. On that, give
the Chinese credit for some sharp analysis. On what the appropriate
policy responses are, though, more debate would be welcome.
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