What’s Missing in the China Story?


Over the past month, there has been a lot of “China drama.” The volatility in the Chinese stock market, the yuan devaluation, and now the Tianjin warehouse explosion have all raised China chatter to a new level of anxiety. Some of the anxiety is understandable. These events have real consequences—above all for the Chinese people. At the urging of the Chinese government, tens of millions of Chinese moved to stake their fortunes not on real estate but on the stock market—the most unfortunate used their real estate as leverage to invest in the market and are now desperate for some good news. The Tianjin warehouse explosion has thus far left 121 Chinese dead, more than seven hundred injured, and over fifty still missing. Globally, the yuan devaluation has triggered a rate rethink by central bankers in Europe and the United States, and the stock market slide has contributed to steep drops in Asian and U.S. markets.

Events such as these in any country would garner international attention. In the case of China, however, the noise around such events is amplified by the absence of three mitigating factors:

  1. Transparency. A lack of transparency in China compounds the challenge of understanding what is going on. What, for example, is behind China’s devaluation of the yuan? Is it part of Beijing’s bid to push forward on its economic reforms by making the currency more responsive to the market? Is it an effort to persuade the International Monetary Fund that the yuan should become part of its basket of currencies before Beijing has to wait another five years for its currency to be considered? Is it an effort to prop up China’s ever-declining export numbers? Or is it a confluence of all three?
  2. Context. While the human toll inflicted by the Tianjin warehouse explosion was devastating, no one should be surprised by the disaster itself or the political aftermath. The pattern of Chinese behavior—including the corrupt environmental impact assessment system that allowed for the placement of the factory so close to people’s residences, the lack of knowledge of what precisely the warehouse stored, the generosity of the Chinese people trying to help those affected, and the attention paid by the Chinese government to assigning blame and shutting down information transmission and popular commentary via the Internet—is one that repeats itself frequently.
  3. Perspective. Drama surrounding China is also heightened by the tendency of outside observers to lose a bit of perspective. The media, as well as China analysts—and those who play them on TV— are rewarded for bold statements and predictions. I looked back at what people were saying about the Chinese stock market at the end of 2014 and early 2015 when the market was surging. At that time, unsurprisingly, there was a lot of triumphalism punctuated by a few dark warnings. The Economist, for example, produced a piece, “Super-bull on the rampage,” that focused 95 percent of its attention on all the excitement the stock market was generating, with only five percent at the end mentioning some of the potential weaknesses underpinning the rise in the market. Kudos to Gwynn Guilford at Quartz, however, who pretty much called it all back in 2014, seeking out commentators who underscored the dangers in the stock market’s reliance on leverage, shadow finance, and government public relations.

Dramatic events will always prompt breathless speculation and commentary, but real understanding should begin by paying attention to real experts. In the case of the Chinese economy, reading studies by China economists and analysts—for example Nick Lardy, Barry Naughton, Patrick Chovanec, Dan Rosen, Fraser Howie, George Magnus, Michael Pettis, and Victor Shih—would be a good place to start. They represent a wide range of views and, if brought together for a discussion, would be hard-pressed to arrive at a consensus; but anyone taking the time to read or listen to a constellation of them will inevitably become smarter about the Chinese economy. The other much needed commodity is humility.  One of my favorite discussions of the Chinese currency devaluation is David Dollar’s interview in the Nikkei Asian Review. He argues that the devaluation is a “move toward a more market-oriented system but not a blatant effort to push up exports.” But, he then continues on to say, “If I’m wrong….”  This ability to acknowledge what we don’t know with regard to China is at least as valuable as sharing what we do know—and certainly worth more than pontificating about that which we only think we know.

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Elizabeth C. Economy is C.V. Starr Senior Fellow and Director for Asia Studies at the Council on Foreign Relations. She is an expert on Chinese domestic and foreign policy and U.S.-China relations and author of the award-winning book, The River Runs Black: The Environmental Challenge to China’s FutureThis post appears courtesy of CFR.org and Forbes Asia.

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