August 10, 2013
China's Economy Slows but its Global Influence Continues to Rise

by Joshua Kurlantzick

But although China's economy is slowing somewhat from its years of torrid growth, it is not going to crash: Beijing's government is actually anticipating a cooling down to about 7 per cent annual growth, which would be red hot for any other country. The Chinese economy, the second-largest on Earth, is not going to melt down any time soon, allowing Beijing to continue building up its global power.

Almost since it began reforming in the 1970s, China's economy has attracted naysayers. By focusing too much on export-driven growth, they argue, China has remained too dependent on foreign consumer markets. And China's opaque banking sector has made it hard for outsiders to estimate the total amount of non-performing loans in the country's four biggest banks.

At least since the Asian financial crisis of the late 1990s, sceptics have regularly predicted that China's problems would lead to an economic collapse, one that also would threaten the legitimacy of the government, since the Communist Party's strength comes from capable economic management, and since it does not have real elections to fall back on as another source of legitimacy.

But while China is slowing to its weakest growth in two decades, a real collapse is highly unlikely.

For one, China's state and private companies may be getting too easy credit from state banks, but that does not mean these firms are actually unproductive, zombies doing nothing - like some of the Thai and Indonesian firms caught up in the 1997 Asian financial crisis.

Chinese firms, nearly all of them state-owned, alone occupied 73 of the top 500 slots in Fortune's 2012 ranking of the largest companies in the world by sales revenue.

China's score has steadily risen on the Global Competitiveness Index, the World Economic Forum's ranking of nations' international economic competitiveness; China recently surpassed Japan as the country with the second largest amount of spending on research and development in the world.

In fact, China's forecast growth for this full year is far higher than that of the average developing country, which is projected at 3.3 per cent growth in 2013.

Even with this slowdown, China's urban middle classes, the type of people who have led revolts across the Middle East over the past three years, and who led the 1989 Tiananmen protests, are unlikely to turn against Beijing.

In the most comprehensive recent face-to-face survey of Chinese opinion about the government, political scientists Wenfang Tung, Nicholas Martini, and Michael S Lewis-Beck found that the average person's support for the government in Beijing was about 8 on a 10-point scale.

The three political scientists attributed this high level of support for the government to "political trust - a belief in the legitimacy of the government - [which] appears as the dominant reason for their broad support of the political system".

Since the Beijing government has actually responded to the slowdown with clear direction and economic reforms designed to slowly wean the economy off state spending, credit, and exports, it has won continued support from many Chinese urbanites. As a result, Beijing has ensured that China will remain increasingly influential in the world.

Indeed, top Chinese leaders, realising they retain strong public support, are hardly acting wounded in the global arena.

Read more: http://www.thenational.ae/thenationalconversation/comment/chinas-economy-slows-but-its-global-influence-continues-to-rise#full#ixzz2tuji0DWd

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