The financial crisis has seemed to be one long and painful lesson in our inability to predict the future. But there’s still much at stake in trying. Economists’ views differ wildly on the sustainability of China’s current growth model, as well as the ability of the government to shift to a consumption-driven form of growth.
Compared to the stagnant West, the China growth story is often an easy sell.
Bullish analysts typically believe that the country’s economic growth will slow in coming years, but only gradually and in line with central government targets.
Morgan Stanley’s former chief economist argues that rebalancing is an urgent task. However, past feats by the country’s economic planners have given Roach faith in Beijing’s ability to carry out this dramatic reform. “I am confident that China can rise to this aspect of its challenge as well,” he said.
The China economist at Bank of America – Merrill Lynch firmly believes that China is headed for a soft landing. Recent data has shown the country’s economy to be quite resilient, Lu said, leading her firm to maintain a forecast for 9.3% GDP growth in 2011.
The World Bank
In a recent study entitled “Multipolarity: The New Global Economy,” the World Bank forecast that China would account for one-third of global growth by 2025, by far the world’s biggest driver. However, the assumptions for the bank’s base case were big ones, like the reform of institutions and the emergence of a strong domestic market for consumer goods.
Commentators who see rebalancing as both urgent and unlikely would counsel companies and countries against tying their success to the Middle Kingdom’s continued growth. Naturally, there are no investment bankers in this group.
A professor of finance at Peking University, Pettis argues that China is currently the beneficiary of a global increase in underlying liquidity – just one of many such surges in the past century. “Every single one of them has ended,” he said.
This Northwestern University professor rose to bullish fame by arguing that official figures grossly underestimate debt. Due to this leverage, he argues the biggest risk to the economy is capital flight; that by moving just part of their wealth overseas, the country’s rich could destabilize the financial system, triggering a plunge in growth as early as 2013.
‘Finance’s Prince of Darkness’ founded a research company after successfully predicting the financial crisis. He has long been bearish on China’s prospects, especially decrying excess construction. “There is no rationale for a country at [China’s] level of economic development to have not just duplication but triplication of those infrastructure projects,” Roubini has said.