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Why doom predictors always get it wrong when it comes to China

By Yao Shujie (China Daily)    10:01, February 02, 2016

The first month of 2016 witnessed the Chinese stock market in panic selling mode and the RMB depreciating unexpectedly against the greenback. China's GDP growth in 2015 also hit a 25-year low.

There seems to be a new surge of predictions about the "coming collapse of the Chinese economy and the end of the Chinese model". However, looking back at China's development journey from the late 1970s up to today, many pessimistic predictions, especially forecasting the "China breakdown", have been proved wrong.

In 1996, Lester Brown, an American agricultural economist predicted that China would not be able to feed its large and fast-growing population and economic reforms would lead to malnutrition and hunger.

In the late 1980s and early 1990s, many Chinese pessimists predicted that economic reform without political reform would lead to a total collapse of China. In the Asian Financial Crisis of 1997-98 and the World Financial Crisis of 2007-08, many Chinese pessimists predicted that the Chinese model would not be able to sustain those drastic external shocks.

All those predictions were wrong. Since 2012, China has changed its economic development strategy from export and foreign direct investment driven to endogenous growth which emphasizes internal structural change, innovation and industrial upgrading to escape the so-called middle income trap.

In doing so, China has to eliminate excess industrial production capacity of steel, coal and other environmentally polluting products, and to promote high-end manufacturing, services, urbanization and rural modernization.

Economic slowdown is an inevitable outcome of the new development strategy, but given the tough external economic environment and surging domestic factor costs, China's growth of 6.9% in 2015 was still the best among the world's 10 largest economies except India. In particular, while the Russian and Brazilian economies are contracting sharply, and while many other developed economies are still struggling to move out of their own crisis, China continues to be a potent engine of growth for the global economy.

So why do doom predictors always get it wrong when it comes to China?

Firstly, some pessimists always look at China's short term challenges and ignore its long term development capability and potential. Short term challenges and difficulties are temporal, they can be overcome if the government and the people have a strong will for success.

Secondly, some pessimists do not understand that the Chinese government is far better than they thought, and that political stability is the basic foundation of China's success.

Thirdly, doom predictors of China underestimate the ability and determination of the Chinese people who are not only hard working and intelligent, but also resilient to all kinds of challenges and shocks.

China today is different from its past. The economy is well above 10 trillion US dollars, second only to the US, twice as large as Japan, and four times as large as India. A 6.9% growth is more than one-quarter of India's annual GDP, and bigger than a medium-sized economy in the world.

China's richest city, Shenzhen, erected from a small fishing village in 1980, now has a population of over 10 million people. Its per capita GDP is higher than that of Taiwan and is still growing at nearly 8% per year. China's biggest city by population, Chongqing, has over 30 million people. The city's GDP expanded by 11% in 2015 and the government's plan is to achieve 10% growth in 2016.

The Chinese economic fundamentals are sound and robust: unemployment rate is low, people's incomes are growing faster than GDP, income inequality is narrowing and energy intensity is declining.

If those pessimists were in China, they would see that all the Chinese regions are still ambitious in making their 13th Five Year Plan, which is to sustain China's economic growth at a much higher rate than many other economies in the world. The policy objective is to build an all-round well-off society and to eliminate absolute poverty by 2020.

The author is professor of economics at Chongqing University and Nottingham University.

(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Editor:Kong Defang,Bianji)

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