Watch out for the friendly
skies of China?--Tom Plate looks for the safest flight plan for China's
Friday, July 28, 2006
Some time in the eighties, like
a lumbering jumbo jetliner, packed with more than a billion people and
untold historical baggage, China began to move forward. Inch by inch,
then yard by yard, then mile by mile, struggling to gain ground speed,
this giant finally, slowly, almost miraculously began to take off.
Struggling with all that weight, it gradually lifted skyward.
And then, sometime in the
nineties, the Chinese economy actually began to soar -- and at a
respectable cruising altitude. By the new millennium, it had come to be
fully airborne, seemingly stable and cruising along.
But let us hope that this
historical anomaly never runs out of jet fuel. If it does, it would
probably drop out of the sky and plummet to earth faster than you can
say -- oh --"Summer Olympics."
But precisely such a
crash-and-burn scenario was postulated few years ago by some honest and
concerned Western pessimists, not to mention by the usual mixed bag of
China-bashers and ill-wishers. But as the months rolled on and the
Chinese economy continued to roar with consistently astonishing growth
rates, another fear surfaced: Though it would not crash and burn, the
Chinese economy would inevitably have to come down to earth for a
landing -- for rest, repairs and a refuel.
The only question was: Would
the Chinese landing be hard or soft? Would the inevitable pause be
disruptive and painful, perhaps with negative economic ripple effects
throughout East Asia (if not the world)? Or would the landing be smooth,
almost businesslike, causing very little disruption or economic
dislocation at all?
Only a few economists went
against the grain of the conventional wisdom. Only a few boldly
tip-toed around the question of whether China would have a hard or a
soft landing by predicting that its economy would have no landing at all
-- it would just keep on soaring.
And that -- as fate would have
it -- was exactly what happened. This economy just won't stop. Sure,
some day it might: After all, a successful flight path is not at all
preordained; and, we know, with China, if its checkered history tells us
anything at all, it tells us that almost anything (especially the
unpredictable) can happen.
Until now, however, the problem
is not whether the Chinese game plan is good, the question is whether it
is a little too good. Just the other day Wen Jiabao, China's overall
number two, raised his hands as if to suggest that China needs to slow
down a little.
He told China's powerful State
Council that the economy has become so hot that the government may need
to hose it down with specific cooling measures. Wen warned that
"forceful measures must be taken to help resolve the striking
contradictions that exist to prevent rapid economic growth from becoming
To stretch the jumbo-liner
analogy to the limit, Wen worries that China's air speed could morph
into the shakily supersonic and the government will lose its ability to
pilot the plane, making substantial changes of direction very difficult,
if not impossible. No one can predict, after all, what unexpected
turbulence or uncharted mountain ranges lie ahead for the Chinese ship
of state. Smashing into one of them at top speeds could prove far worse
than even the hardest of hard landings on the bumpiest runway.
Westerners listening to Wen's
important speech might be led to hope that China will now decide to let
its currency become more valuable in comparison to the American dollar
as part of the premeditated cooling-off process. And this is indeed a
possibility: It was always obvious that Beijing was not going to
re-value its dollar simply because the U.S. Congress pined for it with
such evident and open devotion, but would only do so when such a
significant and inherently risky monetary move was in its immediate
It may be that this epochal
revaluation moment is drawing closer, but there is a serious worry that
must be honestly faced.
The problem is that the Chinese
leaders do not know how much they can throttle back on the controls
without the overloaded aircraft losing minimum air speed and falling
into a downspin. This Chinese economy is clearly if anything unique;
there are no existing flight manuals, if you will, that offer the
guidance of precedence.
What in fact would be a minimum
air speed? Throttle back too much, and you may wind up unintentionally
triggering the biggest economic crash since 1929. Throttle back not at
all or not very much and -- well, what?
Well, what? Some inflation,
some rising prices, etc., etc. But at least the giant jumbo jet stays in
the air, cruising forward, getting re-fueled mid-air.
What we are suggesting here is that no one really knows how to fine-tune
this historically unprecedented economy. So China's leaders, by their
nature rather cautious, probably won't try to do too much. And that, in
fact, may prove the safest flight plan.