China has been in the news a lot recently on topics ranging from the Olympics to commodity prices, but what seems more and more apparent is that we have no idea what is really going on in China in economic terms. There are so many distortions in their economy that policy impacts can be twisted out of all intent but they are an increasingly important player on the world stage, and what happens in China more and more has knock on effects for the rest of the world. We need to understand what these impacts will be if the world economy is to integrate smoothly with China. We seem to be failing.
Last week, the day China announced gas price increases, the price of oil fell $4, only to rebound the next day as traders realized that the increase in oil price might actually increase demand! How did our economists and especially our oil traders not know this?! This would seem to be important knowledge to have about one of the largest and fastest growing consumers of oil in the world.
Again today, I was pointed in the direction of an article in The Globe which set up a different situation for China. In the lead up to the Olympics production is spiking in many dirty, commodity intense industries as firms attempt to build stockpiles for the coming shutdown during the games. This means that commodity prices may spike now, only to drop sharply as demand does not recover to its pre games heights. How much market instability will this generate? What will be the volume of the drop? How sustained will it be? These are all questions not only without answers, but which do not even seem to be getting asked.
This gives me some cause for concern. If we do not understand either what is going on internally, or how a given policy is likely to impact China’s economy, and through it the world, how is anyone supposed to attempt to manage the global economy? I’m told that the world might be in for a bit of a rough patch economically in the near future, and it would probably help if we could figure some of these things out. Until then, I’m not believing anything I read about China.
1 comment:
I agree wholeheartedly, and I believe our general ignorance of Chinese culture, history, and politics leads to distorted views of the Chinese economy (i.e. blaming our woes on the overvaluation of the renminbi) the role of the CCP in daily life (significant, but not Soviet-esque) and China's long-term strategic goals and how their military dovetails with these (claims that China has hegemonic ambitions are very possibly overstated).
Not knowing lets our worst assumptions and worst-case projections get the best of us. We read the most sinister of intentions in Chinese actions, and then let a wave of grassroots Sinophobia do the rest.
The Chinese must be very confused. We ask them to play by our rules. They comply and then we complain that they play too well.
Post a Comment