Friday, November 25, 2005

Will China have the last laugh?

Will China have the last laugh?
By William Pesek Jr. Bloomberg News
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Sometimes it takes a bit of humor to make sense of the global economy. In that spirit, the American pop icon Ben Stein offers an amusing and useful view of China's rise.
Yes, his biography highlights roles in films like "Ferris Bueller's Day Off" and mentions that he attended high school with the Hollywood celebrities Sylvester Stallone and Goldie Hawn. But the former host of "Win Ben Stein's Money" also wrote speeches for Presidents Richard Nixon and Gerald Ford of the United States and remains a commentator of some note.
What is Stein saying about China? Don't believe the hype.
"It all reminds me a lot of how the news media and the Central Intelligence Agency went berserk after the launching of Sputnik in 1957, and it was forecast that the Soviet Union would soon be the world's technological and economic hegemony," he wrote in August. "That talk was based on a number of faulty assumptions and a good deal of hysteria. Obviously, it didn't happen."
I was reminded of Stein's point during conversations I had in Russia in September. Ask citizens of Moscow or St. Petersburg if China will soon rule the world and you'll get a roll of the eyes and some variation of: "Well, isn't that what the Soviet Union was supposed to do? Look at us today."
Now superimpose those sentiments over President George W. Bush's recent visit to Kyoto, Japan. There, as Bush was en route to South Korea for the summit meeting of the Asia-Pacific Economic Cooperation forum last week, he reminded the world not to take Japan for granted when predicting Asia's future. It was a good point.
What's disturbing is that leaders of the biggest economies are fretting over China's strengths, not its vulnerabilities. A financial crisis there would have huge implications for the global economy. Rather than asking officials in Beijing what they are doing to shore up the financial system and avoid social instability, world leaders are focusing on China's currency.
With so many serious people missing the big picture, perhaps a humorist like Stein can help out.
"One disadvantage of being 60 is that you have to get up in the middle of the night, often more than once," Stein wrote recently. "But a big advantage of advancing age is that you get to recognize news media silliness when it happens. This comes to mind in terms of the economic relationship between the United States and China."
This column has made the argument before that the hype over China resembles the dot-com extravagance of the late 1990s. Back then, analysts and journalists who dared to question the wisdom of buying stocks like or were dismissed as dinosaurs who couldn't grasp the "New Economy." Those raising doubts about questionable accounting tactics were shushed.
The reaction to China's advance feels a lot like that. Want to annoy a room full of executives or investors? Just express a bit of skepticism about China's ability to sustain economic growth of more than 9 percent.
Watch how red faces become when you question the wisdom of buying shares in China Construction Bank or other state-run lenders. See how folks shift in their seats when you suggest that Chinese industrial growth could entail environmental disaster, or that the Communist Party cannot maintain social order indefinitely.
It's not that China, with the world's seventh-biggest economy, is likely to collapse; the economic potential is astounding.
What is out of kilter is the sense that nothing will go wrong, that China's leadership is superior to that of other countries, that Asia's "New Economy" has suspended the rules that apply to all national economies. Skeptics are ridiculed or ignored.
Even Stein has been dropping the humor of late. Last week, he told CNBC that "no bubble goes on forever. We know that from history. The Chinese bubble won't go on forever."
Much optimism about China is based on the size of its population. Rising incomes there may lead to vast markets for companies and investment banks everywhere. What is transpiring in China is rivaled, though, by developments throughout the continent. India and Southeast Asia are ready to roar, too.
Developing economies are looking inward, trading more among themselves and creating unprecedented relationships. Increasingly, China needs India to ensure its growth, and vice versa. The symbiosis that exists in this region is bigger than China.
And don't forget Japan. "Now, because of the recovery in Japan, Japanese savers and investors may be more willing to take risks abroad," says Masahiro Kawai, special adviser to the President of the Asian Development Bank. "That means more capital could flow to Asian countries that need it."
So rather than giving China too much credit or fearing its ascent, world leaders should be seeking assurances that it can handle the risks facing the economy. If China hits a wall, so might large parts of the global financial system. And that, unlike some of Stein's musings, will be anything but a laughing matter.


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