Is 'China crisis' disproportionately overblown?

RAINY DAYS AHEAD. Chinese leaders Xi Jinping and Li Keqiang are now bracing a stormy weather as the economy is growing at its slowest pace in more than 25 years, a situation that has incited serious concerns among international observers.

(Photo courtesy of Andy Wong / Associated Press)

China is on top of minds of international media and economic policymakers recently as its equity markets nosedived and its currency fluctuated wildly. The world's second-largest economy is estimated to record only 6.9 percent of gross domestic product (GDP) growth throughout 2015, the slowest annual expansion in more than twenty years, and investors' major fear factor is that China could record another deeper-than-expected slowdown this year. 

Stock indices around the world saw massive sell-offs on fears the collapse of China may take the whole world with it. Market speculator George Soros cautioned that recent China-triggered volatility might mean the 2008 global financial crisis is bound to repeat. 

But, as the world is on edge over possible crash in China, citizens living in the Mainland now might be wondering perplexingly: Where's the crisis? 

Here in Beijing, consumer spending is as strong as ever as people are still flocking into shopping centers. malls and supermarkets remain crowded despite the recent boom of e-commerce businesses, which encouraged more people to turn to internet startups such as Taobao (China's version of Amazon) to buy online their necessities from food, clothes, to detergent.

My friend who is working in a global consumer goods company admitted that her company noticed declining sales throughout China, but noted that it was caused by fiercer competition due to strong growth of local Chinese brands, not by weaker demand. 

Outside the capital, local tourists still passionately flocked into sightseeing spots. The last time I traveled outside the city with a high-speed train, whose tickets are considered generally expensive for the standards of Chinese locals, it was full and there wasn't any single vacant seat as far as my eyes could see.

Unlike in 2008. when the stock and housing market crash in the US rippled to its real sector through rampant layoffs and morgage closures in a zap, optimism among the Chinese people remains intact despite the slowdown and the constant, worrying drop in stock markets in Shanghai and Shenzhen since mid-2015.

Most importantly, the phases of "economic crisis" or "market crash" were never mentioned by my economics professors in Peking University, a campus that is known for a culture of being critical towards the Chinese government. They just showed no gestures of worry at all. 

One of my professors cooly explained that Chinese policymakers might have decelerated growth by purpose, as the too fast economic growth predisposed the country into overheating. This is why, despite the lingering slowdown, China's fiscal and monetary policy stances were still set in a rather "tight" setting, not expansionary. 

The no-big deal viewpoint of my professors is shared by most Chinese: Their country is growing slower, but it is far from falling into an economic destruction. In short, the nation is just experiencing a rational slowdown needed to steer the economy into a healthier and sustainable growth path, which would mean more efficient utilization of resources and less pollution. 

Over the two decades, annual GDP growth in China has averaged around an impressive 10 percent, underpinned by mostly investments, as well as exports. 

As China's reliance over investments grows, its efficiency also falls, hence the long-run unsustainability of this growth model. As capital accumulates, the output-capital will trend lower, meaning that China would need higher and higher level of capital if it wants to record the same level of growth. 

For China to stubbornly rely on investments will only lead to piling up of debts, inefficient usage of resources and overexploitation of environment. This is why China wants to shift its growth driver away from investments, which now account for 46 percent of its GDP, to household consumption, which fills 36 percent of GDP (that's a meager level of consumption for the world's most populous country with 1.3 billion of population). 

Some of China's leading economic indicators, such as manufacturing index and factory output, are indeed slowing. However, those readings are sensible in a country where its government is now aggressively shutting down many factories and enacting various regulations to force industries to adopt cleaner, more efficient technology, in response to China's serious pollution problem. 

Chinese underperforming provinces that became the biggest laggards to national growth, for example, are either exposed to dirty commodities, or are known for their inefficient and polluting factories that make them soft targets of the government's environmental crackdowns.

For example, annual GDP growth fell to 2.7 percent in the first half this year in Shanxi, which is the country's top coal producer. Other Chinese provinces that also experienced sharp growth slowdowns were Inner Mongolia, which provides around one-third of China's coal supply; Hebei, a leading steel producer; and Heilongjiang, a manufacturing base with substantial oil production. 

Meanwhile, in the capital or other China's emerging provinces, growth remained robust, thanks to the booming service sector. GDP growth in Beijing, which has a population of 22 million, or twice Jakarta's, is expected to hit at least 7 percent throughout last year. Where in the world a crisis-threatened country still sees its capital growing by 7 percent?

Another possible reason why some provinces have reported lower growth than in recent years could also be related to the clampdown performed by the Chinese central government to regional leaders who are suspected to "inflate" their statistics (I've read reports saying output or investment figures in some provinces could be inflated by more than 20 percent).

This is because in China, regional leaders are appointed by the central government, not elected, and promotion or demotion will depend largely on their performance of managing their areas, which is indicated by economics statistics. Now, they might have to settle with reporting lower, but more credible, growth figures. 

China's economy has its defects, namely the lack of policy oversight, rampant corruption and the underdevelopment of its financial sector, among others. However, I see many fears about China were overblown as foreign media and economists take a too simplistic view by labeling its policy implementation inefficient, its economic future risky; just because China is a non-democratic country with an idiosyncratic policymaking approach. 

Quite the reverse, China's centrally planned economy, where all economic organs could be flawlessly steered to a specific direction, actually made it extremely efficient. The well-coordinated, communist-style implementation of fiscal stimulus in the aftermath of the 2008 global financial crisis was the reason why China could return to 10 percent growth only two years after the crisis - an economic recovery that is faster than any countries in the world.

For Indonesia, China is its largest trading partner and every economic developments in the Mainland would have a significant impact outlook for Indonesia's exports, economic growth and even its rupiah. The two countries were so heavily linked that the International Monetary Fund (IMF) has estimated that every 1 percent of slowdown in China could trim down Indonesia's growth up to 0.5 percent. 

Nevertheless, the situation in China might not be as scary as global policymakers imagine. Indonesia and the rest of the emerging markets world just have to deal with the "new normal" of global growth as the Asian giant seeks a slower, but more sustainable, economic expansion. 

The article was published in The Jakarta Post on Friday, January 15 2016  

Climate Change: The Failure of Reaching the Consensus

NOWHERE TO HIDE. Thanks to human's deeds now it is just a matter of time before increasing global temperature and thawing ices cause animals, like this Polar Bear, to be left with almost no place to live.

During the Copenhagen Summit, no common ground was established and the end result of the conference was a shocking loss for all environmentalists. The expectations from the summit is to see whether if countries leaders who set their foot at Copenhagen can assemble specific numbers of carbon emission cut or anything necessary to solve the climate change problem. In such predictable end, the output from the conference turned into zilch, which left many people wonder: if there was no tangible outcome generated from the summit itself, then why wasting time being at Copenhagen anyway?

Few were surprised when those conferences in Copenhagen –as well as at Kyoto or Bali– failed to deliver a solid way out from the climate change issue. Thanks to mankind deeds now the earth is getting sicker. The doomsday’s sign is becoming clearer as global temperature is becoming hotter, yet human beings –who are considered as the most responsible party for the whole problem–stand still and do almost nothing to evade the looming catastrophe.

Also, efforts from countries all over the world were always considered courteousness and there was actually no such thing as tangible actions from them to cure mother earth. World leaders who attended such conferences (which were deemed by them as integrated efforts to fix the climate change problem) walked away from the conferences with huge expectations on their shoulders yet did almost nothing at home. We must accept a bitter fact that so-called integrated endeavour from countries all over the world to fix the situation, in fact, is still yet to be defined.

Indeed, there is still clash of interests among both parties involved. On one hand, environmentalists argue that finding a way out from the hotter-than-ever earth is necessary before the situation becoming any worse in the long run. The ending of the story of our earth and all human beings, of course, will be scary if that happens. But the policymakers, especially those who currently run countries with booming industries like China, still observes things in the short-run as they think that strict regulations, as carbon emission limitation, will disrupt their industries and eventually hamper the massive surge of their economic growth.

This is the decade which will be best remembered by the story of how developing countries are dominating the world’s economy. Economy in China and India are growing at unprecedented rate, and if the condition remains unchanged, it is only a matter of time before they take over the lead from developed countries like United States and United Kingdom. The rise of China –and other developing countries as well– comes with a predictable repercussion: as the economy surges, so does the carbon emission which it generates from their booming industries. It is, indeed, an absolutely distressing fact for the environmentalists.

When great power is not always followed by great responsibility

When the economy of United States grew rapid in the mid-90s (thanks to the scrumptious blend of economic policies from Bill Clinton and Alan Greenspan), the country drew many criticisms from all over the world for the massive pollution it generated as well as its ignorance in the environmental issues. By the end of 2000, United States generated 24% of the world emission, making them the world’s largest polluter at that time.

Most of the questions pointed to United States’ government simply were why it can be so unaware of the environmental problem amid the fact that it has more than enough power to help reducing the emission which it produced. Many can understand if developing countries, who have insufficient funds to apply environmental-friendly technologies to reduce carbon emission, was lagging behind on the effort of tackling the environmental issue. But people wondered why it can occur in United States, a well-developed country which was deemed as one of the economic superpowers during that period.

Yet what happens today is China, not United States, who is actually making headlines on newspapers like Wall Street Journal or Financial Times. Today’s generation are the beholders of how China is pushing very hard to overtake United States as the new economic superpower: its economy is growing with a seemingly unstoppable rate, and it seems only economic overheating can stop its economy from growing as even the financial woes of 2008 could not curb it.

But as China’s economy grows, so does its carbon emission –or to put it in a better way: its ignorance to the environmental issue. According to Netherlands Environmental Assessment Agency, in 2007 the soaring economy of the Chinese saw their carbon dioxide pollution to swell to the level of 24%, while United States is trailing behind at the second place with the level of 22%, two percent adrift behind the new champion.

In various matters like the olympics and the economy China has been breathing on United States’ neck for years and ready to overtake it any time, but in terms of carbon emission production currently China has become the new leader in the pack, successfully overtaking the US in 2005. Massive growth of economy in China yields not only rising GDP but also an increase in carbon emission production, which lately has been deemed as responsible for environmentalists’ resentment towards the country. India, according to the Energy Information Administration, is also predicted to have significant growth rate of carbon emission over the next 20 years. According to the Energy Information Administration's Emissions of Greenhouse Gases in the United States 2004, carbon emissions are expected to surge in Asia over the next 20 years, and based on the same report, the emerging markets will have the largest growth rate of carbon emission over the same period of time.

Environmentalists vs. Industrialists: The clash of the convoluted interests

Source: Energy International Agency

This 2007 data shown clearly that China, India, South Korea, and Australia (countries that are involved in the ASEAN free trade treaty) can become vulnerable preys for environmentalists’ condemnation as they go well within the environmentalists’ shooting range because of their carbon emission numbers. In addition, the ASEAN free trade treaty will intensify their trade activities as well as their industries further –and thanks to the ASEAN’s zero-tariff policy as well, those countries will see their industries rising to an unforeseen level and it is very likely they will be more ignorant towards the carbon emission which they generate.

Led by BRIC Countries: Brazil, Russia, India and China, the economies of emerging markets will be growing significantly which is indicated by their staggering number of GDP growth. So, if there is question asking whether economies activities are the major cause of carbon emission or not, the answer will be mostly yes since it means the use of fuel for production activities and the consumption of products which are the major sources of carbon emission.

And f the original purpose of the installment of the Kyoto Protocol was to reduce the global carbon emission, then we can say that it fails to fulfill the initial expectation. Based on our present situation we can see that –irrespective of the limitation from Kyoto Protocol– the world has seen a rise in carbon emission numbers, which are not only driven by developed countries such as United States and European Countries but also emerging economies like China and India, who have seen a considerable increase in the global emission they produce.

The problem of climate change is trapped in a difficult deadlock and therefore we might well ask whether there is a key or not to break this lingering standstill. Looking at how the world progresses at the moment, it is clear that so far we simply have not done anything. The major difficulties in overcoming this unsolved issue is that many countries, especially developing countries with massive growth like China, fear that the limitation of gas emission will decrease industries’ efficiency and eventually engender a slower economic growth.

Today, environmentalists are like cats on the hot bricks –and what was shown by our carbon emission number we have at the moment may make their blood runs even colder. The earth currently is in a terrible health and the signs of doomsday caused by global warming are becoming more apparent. As if as An Inconvenient Truth movie with its various signs of imminent armageddon are not enough, the cumulative number of world emission continues to surge for years and, unfortunately, it shows no sign of stopping for years to come.

This article was part of the 20-page paper presented at Young Economists' Convention 2010 in De La Salle University, Manila, Philippines. The paper, titling "The Integration of ASEAN and Taking Advantage of the ASEAN Free Trade in Tackling Climate Change", was the first-prize winner in the competition.