Bloomberg Columnists
William Pesek Jr. is a columnist for Bloomberg
News. The opinions expressed are his own.
Asia's Fear: China's Undercooking Its Books: William Pesek Jr.
Nov. 6 (Bloomberg) -- For years now, the suspicion has been that China was cooking the books, overstating
gross domestic product. Now it seems the only thing cooking is growth, and increasingly observers wonder if
Beijing is understating it.
China's National Statistics Bureau said it may revise GDP figures for Asia's second-biggest economy for the first
nine months after economists at home and abroad questioned the accuracy of its report of 8.5 percent growth
between January and September.
One cause of suspicion: China's 31 provinces and municipalities each reported 2002 growth rates higher than the
official national figure of 8 percent. Another: much of the nation's vast underground economy isn't being
counted.
``It's probably stronger than the official numbers indicate now,'' says Andrew Rothman, Shanghai-based
strategist at CLSA Emerging Markets.
All this raises two new questions. First, is China's economy closer to overheating than we know? Second, is Asia
ready for problems in its most vibrant economy as Beijing takes steps to cool things down?
Too Hot?
It'll be a while before we answer the first question. A lack of transparency makes it difficult for analysts and
investors to track progress in one of the world's fastest-growing economies. Yet anecdotal reports and steps
taken by the central bank to reduce excesses suggest China indeed may be getting too hot.
China's broadest measure of money supply, M2, rose 20.7 percent in the first nine months of the year, 4.2
percentage points faster than the same period in 2002. Such rapid expansion recently prompted the central bank
to raise reserve requirements for banks and tighten the supply of bank loans in property markets.
An overheating China is a huge risk for Asia. Traveling around these days, China's outlook is Topic A because of
its emerging role as a growth locomotive. In the first nine months of 2003, Chinese purchases of goods from
abroad jumped 41 percent. At that rate, China this year will pass Japan as the world's third-largest importer. It's
now the biggest trading partner of South Korea, Asia's fourth-biggest economy.
The dynamism flowing from North Asia is increasing at a time when the U.S., Europe and Japan are becoming
less-reliable growth engines. China's 8 percent-plus growth is not only sucking up foreign direct investment, but
also pulling in a growing share of commodities and agricultural goods.
Panic or Profit?
Not surprisingly, Asia has stopped panicking over China's rise and now is figuring out how to profit from it. The
Bush administration seems to be easing pressure on Beijing to scrap its currency peg to the dollar. Perhaps
Washington wants to tread more carefully on a nation that's buying a fast-growing share of U.S. Treasury bonds
and exports.
The risk is that Asia relies too much on one country for growth. The region made that mistake with the U.S.
economy and may be repeating it with China, a developing and untested one.
That brings us to the second question: could Asia withstand problems in China's economy, or a slowdown? Given
how dependant economies here have become on China, and how hopeful they are China will replace Japan as
regional anchor, it may already be too late. Rather than work faster to boost domestic demand, many economies
are looking to China to bail them out.
``Reluctant to embark on the heavy lifting of post-crisis restructuring, Asia thought it found in a China a new
recipe for prosperity,'' says Stephen Roach, chief economist at Morgan Stanley & Co. ``As China now slows, my
sense is that the region doesn't have a clue as to what is coming.''
Panacea?
The extent to which China envy has morphed into China dependence was clear at last month's summit of
Asia-Pacific leaders in Bangkok. There, two major shifts were apparent. First, U.S. dominance in Asia is eroding,
while China is ascendant. Second, many nations see China as a near-panacea for their problems.
This latter point -- that China is THE answer -- could indeed be valid. After all, economies like Indonesia, Korea,
Malaysia, the Philippines, Singapore, Taiwan and Thailand are well placed to ride the coattails of an economic
boom for which there are few precedents in modern history.
It was the U.S. alone, remember, that kept the world afloat during the 1997 Asian crisis. The hope is that China
will do the same. Many compare China to Japan in the 1950s. The difference is that China boasts a growing 1.3
billion-person market. Japan was certainly a huge economic force in the post World War II years, but on a much
smaller scale than what China aims at becoming.
Problems?
Yet much could go wrong, too. China's financial system harbors an even bigger bad-loan problem than Japan. Its
markets suffer from a lack of transparency and unsteady regulation. Social stability is hardly a given as the
economy opens up further to competition, a process that will toss millions out of work.
Concerns about bubbles in markets like property pose additional challenges. An economy is only as strong as
the infrastructure beneath it. China's is still shaky, at best.
Even if China doesn't experience the financial crisis some observers fear, slower growth may lie ahead. It's
unclear Asian economies are ready for a sudden downshift in Chinese growth. It's all the more reason for the
region's policy makers to use today's good times to prepare for tomorrow's setbacks.
Last Updated: November 5, 2003 11:01 EST |
