Western tales of China's imminent collapse are a bit rich

If the EU or US had the kind of growth experienced by China, it would be termed an unparalleled success, not a crisis
Chinese workers making television sets
'China’s economy is not in a crisis comparable to the west.' Photograph: Mark/EPA

Western tales of China's imminent collapse are a bit rich


For three decades, the gap between China's rapid economic growth and western economies' increasingly poor performance has widened. Throughout the 1980s, China's economy grew on average 6.7% a year faster than OECD economies. During the 1990s, the lead increased to 7.4% and since 2000, it has been 8.4%.

But with China's increasing lead in economic growth came the claim that its economy faced an imminent meltdown. As such claims clearly bore no relation to the facts, they functioned as propaganda. For this reason, they were particularly emphasised at various points during the western economic slowdown.

It is therefore unsurprising that, as the latest data shows US GDP growth slowing to 1.5% and the EU's economy contracting at an annualised -0.6%, articles duly appeared warning of immense crisis in China. A typical example appeared in the New York Times, where under the dire headline "China confronts mounting piles of unsold goods", the author advanced the following analysis: "The glut of everything from steel and household appliances to cars and apartments is hampering China's efforts to emerge from a sharp economic slowdown." The article lists various data regarding China's housing and car markets, and argued that "problems in China give some economists nightmares".

Let's examine what's really happening instead: the market economy necessarily continuously has sectors with shortages, and others with excess supply – the market exists to create the adjustments arising from this. As there are always "unsold goods" in individual sectors, it does not prove anything as they may be balanced by others in which shortages exist.

Take current examples from China. Its car makers are currently facing difficulties, in part due to city authorities making car ownership more difficult (they realised that given China's population, attempting to have the same balance between public and car transport as in the west creates gridlock). But in another sector, China's mainland smartphone producers are currently enjoying huge competitive success, seizing 54% of China's market (now the world's largest) from non-mainland producers. Chinese firms such as Lenovo, Coolpad, Huawei and ZTE are pushing ahead of Apple and Taiwan's HTC in market share.

Only the average of all sectors shows the real economic situation, and that trend is clear: China's economy has slowed moderately. Its year on year GDP growth in the second quarter of 2012 was 7.6%. Over the same period, the US economy grew by 2.2%, the EU's was up by 0.2% and the UK's shrank by 0.5%. China's GDP growth was therefore three times that of the US, 74 times that of the EU and going in the opposite direction to the UK. This is quite sufficient to show that China's economy is not in a crisis comparable to the west: what is claimed to be crisis in China would be unparalleled economic success in the US or Europe.

This does not mean China faces no economic problems. In the last decade, China has undergone the most rapid increase in per capita GDP in a major economy in human history; it is impossible to undergo such growth without problems – among the most notable being serious environmental issues and a socially destabilising level of income inequality.

In the first half of this year, China's economic policy making was also hampered by influences stemming from the erroneous World Bank Report on China, which advocated abandoning the economic policies inaugurated by Deng Xiaoping, which have produced such success. It recommended that China should instead adopt a western economic structure – a somewhat strange proposal given the current crisis of the US/European economic model. This led to initial hesitation in launching sufficient state investment to reverse economic slowdown, a mistake corrected in July when premier Wen Jiabao stated "currently the main task is to promote reasonable investment growth" followed by China's regional authorities rolling out wider investment-based stimulus programmes.

There are serious economic policy issues to be discussed on China. The latest blooming of the hardy perennial "the coming collapse of China" is not among them.