Just more than 10 years ago, on my first visit to China, I wrote: “I have seen the future. It is China’s communist-capitalism. And it works.”
I cringe a little at the gushing enthusiasm now, but take comfort in the fact that, for all but the past few months of the past decade, I was right. China was the world’s great economic success story of the past three decades, and after the financial crisis of 2009 it almost single-handedly pulled the rest of the world out of the mire.
So, as I concluded in Shanghai in 2005, China’s mix of entrepreneurial dynamism controlled and directed by top- down economic policy – “communist-capitalism” – really did work. But how much longer it will be possible to say that is another matter.
A top-level party from the Dubai International Financial Centre is currently in China on another business-generating trip, and they will return with their own take on the country’s current economic situation.
They have, to a large degree, aligned the future of Dubai as a financial hub to the fortunes of China. Over the next decade, the DIFC will seek to treble in size, and a big slice of that growth is forecast to come from China’s relentless appetite for oil, commodities and other trade with the Middle East, and with Africa via the Arabian Gulf region.
The DIFC has not put all its eggs in the China basket, of course. India and the other Asian economies are also potential partners over the next decade, and if China slows they can compensate to some degree.
Nor, it should be noted, has the DIFC entirely given up on the West. America and Europe still comprise a very big part of its business, and the DIFC could easily look westward again if eastern growth looked to be slowing.
But China is such a huge economy, and figures so high on Dubai’s future horizon, that its economic fortunes are crucial. How does China stand?
The bear case is simple. The argument goes that China has reached a stage in its economic development where it has to move away from the basic model of export-led cheap manufacturing that has served it so well for three decades. Instead, it must focus on domestic consumer demand as the engine of growth.
It is not as easy as it sounds to turn round a supertanker such as the Chinese economy, and it raises problems in four main areas: markets; finance; economic policy; and politics.
Chinese stock markets have led the world downwards for most of the summer. Expert opinion is divided as to whether that decline is justified, but it has become self-fulfilling. The rest of the world is convinced Chinese equity markets are overvalued, and will continue to sell them until they reach a value level again. At the moment, nobody can say where that level might be.
Simultaneously, the financial system is creaking. High levels of debt, coupled with suspicions that the real figures are not yet in the public domain due to lack of transparency, is casting general doubt on the well-being of the country’s banks.
Economic policy, which should be so simple in a “communist-capitalist” system, is looking increasingly uncertain. The devaluation of the yuan a few weeks back was a justified measure, but it turned into a symptom of panic and confusion.
The political system has been the great strength of the past three decades. Swift decision-making by a meritocratic elite led to certainty and predictability of policy. But now that has all changed. Succession issues, corruption and bureaucratic inefficiency seem the order of the day.
All that is the bad news. Set against it is the country’s vast financial reserves, built up by its exporting machine, the high power of its industrial economy, which can still churn out goods the rest of the world wants, and the pent-up demand of its 1.4 billion consumers, led by a rising middle class. What is needed is a bit more of the old certainty in policy making.
The DIFC’s take on it all will be fascinating. Much is at stake for Dubai, and for the world.
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