Newspaper article The Evening Standard (London, England)

China's Progress Brings Hopes and Fears

Newspaper article The Evening Standard (London, England)

China's Progress Brings Hopes and Fears

Article excerpt

Byline: city comment Anthony Hilton

MARKETS are nothing if not irrational. In Japan last year, the stock market soared when Prime Minister Shinzo Abe announced his "three arrows" policy of monetary and fiscal stimulus and structural reform. It has kept on rising despite growing evidence that his failure to stand up to big business means the policy is not going to deliver and carries a growing risk of ending in tears.

In India, the stock market has also soared. All that has actually happened so far is that a politician Narendra Modi has been elected whom the markets think might embark on a policy of pro-business change. There is as yet no reform no detailed proposals about what might be done, still less how these will be piloted through India's glue-like bureaucracy.

Contrast this with China, where reform long talked about in the Politburo might actually be beginning to happen on the ground. Yet the markets are convinced that China remains in a nose-dive of plunging growth and political inertia.

Diana Choyleva of Lombard Street Research thinks China deserves a closer look. She should be listened to more than most because she was the first almost four years ago to warn that the country's growth rate, then well into double digits, was likely to halve. It was a brave call and not many believed her at the time, but that is more or less where we are.

However, now that her lone voice has become the consensus, she has moved on again. At a seminar in London yesterday, she made the point that things in China did appear to be changing, and that the leadership of President Xi Jinping deserved more recognition for the progress quietly being made. She was not a China bull not yet anyway because reform would mean at least another year of low growth and financial sector distress. But properly handled, this financial cleansing could pave the way for a further prolonged period of rapid expansion.

The consensus view, meanwhile, is that China has to reform and develop its domestic economy because it has wrung all the growth there is to get out of cheap exports. But the leadership remains reluctant to face up to this fact because switching to domestic consumer-led growth means it will have to confront very powerful vested interests with large stakes in the economy as currently constituted.

The big debate for many is whether China will duck the reform issue and respond to its slowing economy with yet more stimulus or whether it will instead take the opportunity to tighten credit, squeeze bad loans out of the system, let weaker businesses go to the wall and gamble that this will position it for a new kind of growth.

The consensus probably also thinks that, when it comes to it, China's leadership will duck the challenge. Choyleva says this ignores the reality on the ground a reality that strongly suggests the reforms will go ahead. …

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