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Author Howie: World Realizing 'China Not Nearly as Competent as Thought'

Author Howie: World Realizing 'China Not Nearly as Competent as Thought'
(Photo illustration: Dollar Photo Club/Rob Williams)

By    |   Tuesday, 25 August 2015 06:00 AM

China faces a major trust issue. For years it acted as perhaps the primary engine of global economic growth, but now things are looking bleak.

The government reported second-quarter economic growth of 7 percent, conveniently matching its target. But outside economists say the true figure is closer to 3 percent to 5 percent.

The Shanghai Stock Exchange has dropped 38 percent since June 12, the government devalued the yuan two weeks ago, pushing it down 3 percent, and authorities are set to flood the financial system with liquidity to prevent an economic downturn.

"Views about China’s economic prospects appear to be shifting from serious concern to near panic," Eswar Prasad, a Cornell University economist who formerly headed the IMF's China division, told The Wall Street Journal.

Some U.S. commentators sounded a note of panic earlier this year about the potential for China's economy to exceed the United States in size. But now things look a little different.

“The world is starting to realize China is not nearly as competent as thought, especially in the economic sphere where everyone gave it good grades,” Fraser Howie, co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise,” told The Journal.

Recall that Japan's economy took the world by fire in the 1980s, creating worry that it might usurp us as the world's leading economy. But the last 25 years have been desultory for Japan.

Now that China's economy is hitting turbulence after soaring for the last 25 years, it's natural to ask "is China headed for a Japan-like era of economic stagnation?," as Steve Forbes, editor-in-chief of Forbes Media, puts it on Forbes.com.

His answer is quite ironic, given communism's usually damaging effect on economies. "Not likely, and the reason is the survival of the Communist regime," Forbes says. "A prolonged slowdown would be politically catastrophic for the Party. The economic boom that has existed since 1978 is what gives the regime its legitimacy."

China's economic slowdown will actually force positive reforms, Forbes says. "These will include major tax cuts and . . . liberalizing capital markets."

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China faces a major trust issue. For years it acted as perhaps the primary engine of global economic growth, but now things are looking bleak.
Howie, China, not, competent
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2015-00-25
Tuesday, 25 August 2015 06:00 AM
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