What’s Missing in the China Story?

Over the past month, there has been a lot of “China drama.” The volatility in the Chinese stock market, the yuan devaluation, and now the Tianjin warehouse explosion have all raised China chatter to a new level of anxiety. Some of the anxiety is understandable. These events have real consequences—above all for the Chinese people. At the urging of the Chinese government, tens of millions of Chinese moved to stake their fortunes not on real estate but on the stock market—the most unfortunate used their real estate as leverage to invest in the market and are now desperate for some good news. The Tianjin warehouse explosion has thus far left 121 Chinese dead, more than seven hundred injured, and over fifty still missing. Globally, the yuan devaluation has triggered a rate rethink by central bankers in Europe and the United States, and the stock market slide has contributed to steep drops in Asian and U.S. markets.

Events such as these in any country would garner international attention. In the case of China, however, the noise around such events is amplified by the absence of three mitigating factors:

Dramatic events will always prompt breathless speculation and commentary, but real understanding should begin by paying attention to real experts. In the case of the Chinese economy, reading studies by China economists and analysts—for example Nick Lardy, Barry Naughton, Patrick Chovanec, Dan Rosen, Fraser Howie, George Magnus, Michael Pettis, and Victor Shih—would be a good place to start. They represent a wide range of views and, if brought together for a discussion, would be hard-pressed to arrive at a consensus; but anyone taking the time to read or listen to a constellation of them will inevitably become smarter about the Chinese economy. The other much needed commodity is humility.  One of my favorite discussions of the Chinese currency devaluation is David Dollar’s interview in the Nikkei Asian Review. He argues that the devaluation is a “move toward a more market-oriented system but not a blatant effort to push up exports.” But, he then continues on to say, “If I’m wrong….”  This ability to acknowledge what we don’t know with regard to China is at least as valuable as sharing what we do know—and certainly worth more than pontificating about that which we only think we know.