Kevin Rudd, our own home-grown stimulus expert, was one of the very first out of the box to shower praise on China back in 2008. “I regard that as very good news for this economy, very good news for the regional economy, very good news for the global economy, and it is certainly consistent with many discussions that the Treasurer and myself have had with various Chinese counterparts in recent weeks,” he said at the time.
While the federal government’s economic statement last week did finally right Treasury’s ludicrously bullish forecasts for China?—?8% for next year has been cut to 7.25% for 2013?—?is this finally accurate?
“More moderate growth is now expected for China, with authorities’ actions to address financial market risks and promote more sustainable growth expected to result in less accommodative credit conditions than assumed at budget,” the government’s statement says. “China’s medium term growth potential remains strong, with growing signs that the new government will make the necessary structural reforms to secure this potential. Supported by a modest pick-up in China’s exports to advanced economies, solid growth in China is forecast to underpin strengthening growth among Australia’s major trading partners in 2014 and 2015.”
Now this may well be the case, but it is the bull case?—?once more handing China’s policymakers credit in advance when their form over the past five years says otherwise. Granted, new Chinese Premier Li Keqianq heads a new but untested team.
Next year’s 7.5% growth forecast is at the very top end of estimates, many of which are now below 7%; beyond that it’s anybody’s guess?—?but the trend is down, not up.
Yet would Australia’s opposition do any better in understanding China (and indeed the rest of Asia) economically? The Coalition?—?Julie Bishop, Malcolm Turnbull and Andrew Robb aside?—?is weak on China. Tony Abbott has visited just once as Opposition Leader?—?in late July, his first visit since 2007. The recent trip was a whistle-stop visit to Beijing only, where he told the Chinese he really didn’t want any state-owned companies controlling Australian assets. This would have stopped over $6 billion in investment. His putative treasurer Joe Hockey claims not to trust Treasury, so on China he had a point. But Hockey has never been to China as shadow treasurer.
Treasury clearly needs to lift its game on China?—?they got it wrong in May and may well be wrong again.
Still, as noted above, it’s certainly not all bad for China and there are plenty of reasons not to panic. China’s economy is twice as big as it was seven years ago so growth of 7% now is the same as growth of 12% in 2000. There is still plenty of urbanisation to be carried out with about 50% of people living in agrarian poverty. Li Keqiang has said that the urbanisation of these people is a top priority but he needs to tread very carefully and make sure he does not put the cart before the horse or he will have an unprecedented urban slum problem.
Finally, as a sop to its constituents China has showed increasingly unsettling signs of militaristic nationalism. China’s commander-in-chief Xi Jinping last week tightening his grip over the huge military apparatus, appointing six allies as full general. And regional insecurity creates economic risks.
So, the risks in China?—?and the region?—?continue to grow and are ever more relevant to Australia. During this election the Australian people need this to be explained to them by politicians on both sides who actually understand what’s going on. Right now you can probably count them on one hand.
This article originally appeared on Crikey.
