China’s slowdown, everybody’s problem

By Lucky Gold

Is China, the world’s second largest economy after the U.S., slowing down and heading for a crash landing? Ian Bremmer, President of the Eurasia Group, has looked at China’s latest economic indicators and concludes, “The United States and Europe would kill for numbers like that, but of course the reality is they won’t. And the Chinese will and can.”

Appearing Wednesday on Amanpour, Bremmer, the author of “Winners and Losers in a G-Zero World,” admitted, “I’m being a bit flippant but I also mean that somewhat literally. Because the Chinese…don’t have a banking system, so you can’t have a run on Chinese banks. They can move people around, they can extract labor, they can do things that are utterly implausible for a democratically-elected state that will allow them to maintain the kind of growth that they know they have to have if they want to ensure their own political sustainability as leaders.”

Asked if he sees a hard landing in China’s near future, Bremmer said, “Absolutely not. But the things that they will do to ensure they don’t have a hard landing are going to be much more un-sustainable over the long term. And that does have to worry us.”

No one is kicking a bigger can farther down the road

Also worrisome, said Bremmer, are the lengths to which China must go in order to forestall a slowdown: “They have to put enormous amounts of bets on domestic infrastructure that they don’t need. They have to bet on state-owned enterprises that are very inefficient. And they have to take the kind of steps that will make it more difficult for them to ultimately change their system toward being a consumer-led, rule-of-law driven, open economy - as opposed to a state capitalist one.”

In a world where the U.S. and Europe are kicking the fiscal can down the road, Bremmer suggests that “no one is kicking a bigger can farther down the road than the Chinese government - soon to be the world’s largest economy. That should concern us.”