China: collapse or threat? Xu Jianguo discusses where China is heading.

• Author: Jianguo, Xu
• Position: Report

Many Western commentators vacillate between contradictory conceptions of the implications of China's rise--the so-called 'China Collapse Theory' and the 'China Threat Theory'. China faces numerous economic problems, including mounting inflation and the danger of a property bubble. But these problems are being addressed. The Chinese economy has shown itself to be extremely resilient. Strategy and commitment underlie its successful approach. The threat theory is equally off the mark. China is not an expansionist power; its priority remains to boost economic growth and raise living standards; and it is committed to being a good international citizen, as reflected in its striking contribution to UN peacekeeping.

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Recently, with the tightening up of China's real estate policy and the slump of its stock market, some specialists and media veterans in Western countries concluded that China will end its long-term high economic growth momentum and fall into chaos. This has led to the re-emergence of the 'China Collapse Theory'. However, at the same time, the 'China Threat Theory' never faded from sight in the international stage, especially with the upgrading of South China Sea disputes. The co-emergence of these two completely contradictory theories reflects the complicated and diversified views of the international community, especially of the Western world, in positioning and perceiving a fast changing China, as well as their ignorance of China's development characteristics.

Where is China heading? Does China have to make the choice between 'collapse' and 'threat'?

Now, let us analyse the first choice. It is true that China has mounting inflation and the risk of a property bubble, but that should not lead to the 'China Collapse' conclusion. Actually since late last year, the Chinese government has gradually increased interest rates, reined in bank lending and taken several measures to deter real estate speculation. Had these practices not resulted in a slowdown, the Chinese policy would be considered as a failure.

There will, of course, be inevitable adjustment in the banking sector because of the straightening out of the real estate market, but that will not result in a systematic financial crisis. Home buyers in China have to make a relatively high downpayment of at least 30 per cent. Compared with 'zero downpayment' in some other countries, the individual housing mortgage loans risk in China is much lower. In addition to that, both the state and non-state owned enterprises in China have some idle funds at hand, which can sustain them during the tightening up policy.

Positive outlook

The various latest annual reports and statistics of the first quarter of the year show that China and the Chinese enterprises still have a positive outlook for development in the future. The World Bank recently forecast that the Chinese economy was on course to expand 9.3 per cent this year with inflation up 5 per cent--numbers that are still the envy of 192 other countries.

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China ranks first among 22 emerging Asian economies as the country most likely to maintain steady and rapid growth over the next five years, according to the Bloomberg Economic Momentum Index for Developing Asia. China scored 76.2 per cent as number one in a ranking of sixteen areas, including economic competition, education level, urban migration, high-technology exports and inflation, that measure a country's ability to continue delivering high growth.

In 'Analysis--Too soon to call time on China's economic boom', global economics correspondent Alan Wheatley says,

China's economy is nothing if not resilient. In recent years it has defied predictions of a hard landing due to everything from bad loans to investment-led overheating, food inflation that exceeded...