Probably the single most widely heard voice on the other side has been Martin Wolf, chief economics commentator of the Financial Times. As Martin Wolf has a well deserved reputation as one of the world’s leading, and most statistically informed, economic commentators it is therefore a matter of significance that in today’s Financial Times he puts forward his new evaluation of China’s stimulus package. The article should evidently be read in full but its conclusions are clear. Martin Wolf writes:
‘China has emerged as the most significant winner from the global financial and economic crisis. At the end of 2008, many questioned whether China would achieve its growth target of 8 per cent in 2009. Who now dares to do so?...
‘How has China responded to the crisis? Is its resurgent growth sustainable?...
‘The answer to the first question is: astonishingly. According to data reported at the end of last week, industrial output expanded 12.3 per cent in the 12 months to August, up from a 10.8 per cent increase in July...
‘Behind this is growth of bank credit at close to 30 per cent, year-on-year, since March 2009. It is no surprise, then, that fixed-asset investment has also been growing at over 30 per cent, year-on-year, since March and by 33 per cent in the year to August. Year-on-year growth for the second quarter of 2009 was 7.9 per cent, up from 6.1 per cent in the first quarter. Third-quarter figures seem sure to be higher still.
‘The expectation now is that China will achieve the 8 per cent target by a comfortable margin...
‘Is this growth surge sustainable? In a word, yes. Inevitably, the torrid growth of bank credit and money is spilling over into asset prices, particularly equities. But there is little danger of excessive inflation in an economy with an appreciating currency, fully embedded in a world economy still threatened more by deflation than by inflation, at least in the near term. Moreover, the government is solvent. As premier Wen Jiabao noted in Dalian, “we... kept budget deficit and government debt at around 3 per cent and 20 per cent of the GDP respectively”. Should bad loans increase, China is well able to recapitalise its financial system...
‘China’s response to this crisis is globally significant. It has prospered, while advanced countries have floundered. China has noticed. So must its partners.’
Martin Wolf argues that China’s economy is not large enough to pull the world out of recession by itself, which is certainly true, and he still raises issues regarding the nature of this growth which are still erroneous. However it is a considerable act of intellectual honesty to now so straightforwardly state the success of China’s stimulus package.
There of course remains the more general discussion of the analysis which led to the failure to accurately foresee the success of China’s stimulus package. The present author would argue that this is due to errors in the framework in Martin Wolf’s book Fixing Global Finance. Discussion of these more general issues regarding ‘global imbalances’ will of course go on. But in the famous phrase attributed to Keynes, and it is a compliment: ‘When the facts change, I change my mind. What do you do?’
The facts of the success of China’s economic stimulus package now speak for themselves. Discussion should now focus on the fundamental reasons for that success.
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