It’s interesting contrasting the views on display at the World Economic Forum (WEF) in China.
On the one hand, you have those like former Prime Minister and current Government member, Kevin Rudd, who believes that China’s economy is experiencing only a moderate slowdown in growth, which will pick-up again once government stimulus roles out (see above video):
KEVIN RUDD, LABOR MP: The virtue of being here at the World Economic Forum is being able to talk to not just Chinese officials and Chinese ministers about this subject, but also those who study professionally the Chinese economy. I think the overall conclusion is this: there is some modest slowing in the Chinese economy, but this is not a disastrous slowing. Furthermore, in the debate which now surrounds whether there’s gonna be a hard landing on a soft landing, I’m firmly of the view that it’s going to be a soft landing. We’re still likely to see growth north of 7.5 per cent for the year. That’s good, that’s strong, with further stimulus measures from the Chinese Government kicking in in the third and fourth quarters. Overall therefore, good for Australia and good for the world.
LEIGH SALES: Well we have had some debate here in Australia within the Government about whether the mining boom is over or not. It sounds like you would think that it’s not over.
KEVIN RUDD: I think it’s – it gets pointless sort of throwing words around about boom, bust, somewhere in between. Any student of the history of commodity prices know that it’s much more complex than that. What’s the reality? For us, this market’s very important, number one trading partner. But also, when you look at the structure of Australia’s exports more generally, about 15 or 16 per cent of our GDP comes out of the resources sector. It represents some 60 per cent of exports and then you look at 20 per cent of our exports coming out of iron ore and the largest customer, China. So what happens here is important. Prices have come off. Martin Ferguson’s absolutely right to point that fact out. And because prices are now at their lowest that they’ve been since 2009 – 30 per cent off in the last short few months – but medium term, long term, frankly, there is robust demand here still. It’s a country with a huge population, growing domestic demand, a rising middle class and frankly, there is, I think, great opportunity still for us here in the resources sector and beyond into the future.
Now compare Mr Rudd’s testimony to the Financial Times’ on-the-ground report from the WEF:
In contrast to the optimism of many international attendees in Tianjin this is what one highly respected Chinese economist told the FT:
“I believe China is going to experience a very serious economic downturn and I think it has already started. The government is trying now to stabilize the economy but the instruments they have are very limited. If it can’t turn things around then I expect huge and widespread social unrest.”
The striking views of this economist, who asked not to be named because he did not want to offend his superiors in the Communist party, are surprisingly common among Chinese academics and officials who just a couple of years ago were still very bullish on the country’s prospects…
While many in the international business community seem to credit China’s leaders with superhuman powers of wisdom and foresight, those on the inside are much more sensitive to the inefficiencies and perversions of a system that lacks an independent legal system or a transparent mechanism for economic and political decision-making…
After a series of private meetings with Chinese officials and analysts at the WEF this week one senior executive from a very large western fund manager told the FT that he was doing just that [reassessing his assumptions about what is going on in the Chinese economy]:
“After what I’ve heard I’m really worried now about being the dumb foreigner sitting across the negotiating table from the locals who are packed and ready to run to the airport.”
Who to believe?!
Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
