As China’s first full year of rebalancing draws to close, how has President Xi Jinping done? Reasonably well, it seems. Growth appears to be moderating gently, stocks continue to soar and most economists still foresee a soft landing rather than market-shaking meltdown for the world’s second-largest economy.
Next year, however, Xi’s team will have to get to the hard stuff: taming an opaque, unwieldy financial system. My question isn’t so much whether China will or won’t crash. It’s whether the rest of Asia is ready for the possibility of 5 percent or even 4 percent Chinese growth, as predicted by pundits like Larry Summers and Marc Faber. It’s almost certainly not.
Historically, hedge funds betting against China haven’t done very well. This week, in fact, the government is expected to revise 2013 GDP figures upward by as much as $275 billion, which on paper should help meet its target of 7.5 percent growth for the year.
For anyone who thinks China is operating even close to that number, though, I have two words: iron ore. Even more than the precipitous drop in oil, the halving of prices for these pivotal rocks and minerals – as well as a 44 percent plunge in oil and tumble in coal and other commodities – suggests that China may be braking rapidly.
That means China’s neighbors can no longer put off the task of rebalancing their own economies – away from dependence on China’s. They, too, need to develop vibrant, diversified domestic economies that are driven more by services and innovation than exports.
The to-do list is long. Despite a flurry of bilateral trade negotiations and talk of a more unified market in Southeast Asia, trade barriers within the region are still far too high. Above all, nations need to draw up contingency plans for China-related market turmoil.
But several years of painful and unpredictable restructuring lies ahead. No matter how skillful Xi is, there’s a decent chance the whole thing will go haywire. And just as Asia once used to rise and fall with U.S. consumers, the region would be devastated by a sudden and deep Chinese slowdown.