The impending China slowdown — is anyone listening?

Morgan Stanley has issued a dark, somber (yet sober) warning about the latest fear in Asia, i.e., the overheating of the Chinese economy and the disaster that could follow in its wake.

This topic is everywhere, including the front covers of Fortune and Business Week. And yet it seems no one is taking any notice.

This is urgent; it could affect the lives of all of us living and working in Asia, where so many stars have been hitched to the so-called unstoppable engine of the Chinese economic miracle. Morgan Stanley economist Stephen Roach writes, in near-apocalyptic language:

Asia is not prepared for a China-led slowdown, in my view. Midway through this two-week Asian tour, I am struck by a growing sense of complacency in the region. Memories are amazingly short these days. A seven-month run in the stock market did the trick, I guess. Not unlike the case in post-bubble America, the post-crisis Asian economy seems to have all but wiped out the painful lessons of five years ago. I spent a few days over this past weekend at the Boao Forum for Asia in Hainan, China — a relatively new pan-regional celebration of the Asian miracle modeled after the World Economic Forum in Davos. Heads of state and policy makers spoke eloquently and predictably of the new potential for pan-regional integration and resilience. But the real message, in my view, was the widespread acceptance of an unmistakably Chinese-centric character to the region’s growth dynamic. To some extent this is the inevitable outgrowth of the Asian crisis of 1997-98 — a region that has subsequently turned inward after having been burned by the hot-money capital flows from the West. There was a real sense of self-congratulations in the air in the halls of Boao. China’s spectacular performance over the past five years has given the rest of the region great confidence in the payback from such a strategy.

But there are no guarantees that this latest incarnation of the Asian model will perform any better over time than earlier growth strategies. If the slowdown in the Chinese economy materializes as we suspect, the rest of Asia will have to face the consequences of its new strain of dependency. And that could well unmask many of the region’s lingering structural deficiencies — namely, shaky financial systems and inefficient corporate sectors. Reluctant to embark on the heavy lifting of post-crisis restructuring, Asia thought it had found in China a new recipe for prosperity. As China now slows, my sense is that the region doesn’t have a clue as to what’s coming.

Wow. I’d have to agree; virtually all of the companies I meet tell me how their plans for revitalization and growth are based on those mythical 1.2 billion Chinese consumers, the Holy Grail of world trade. If that engine sputters, a lot of plans and hopes will be dashed.

Link via T-Salon — thanks!

The Discussion: 9 Comments

the best solution to avoid this tragitic clip-down is get out of asia or go to hell!!!!

November 6, 2003 @ 4:52 am | Comment

Thanks always, George, for your depth of insight, acuity of wit and unique ability to frame even the most complex issues in language that makes them clear and meaningful to all of us. Keep visiting!

November 6, 2003 @ 5:06 am | Comment

do you know a lot of westners lose their job when appoaching the age of 40, so you are lucky enough to get a job in asia, well paid !

November 6, 2003 @ 7:42 am | Comment

Someone once said that if even your taxi driver is giving you stock advice, it’s time to get out of the market.
Prolly the same applies to China. All is not lost for the region, after all, it was doom and gloom during the asian crisis, but today, as the article said, it’s now been somewhat forgotten.

November 6, 2003 @ 8:32 am | Comment

Factory, that was Joseph Kennedy, patriarch of the K. clan who said that and he had a good point.

I really don’t think I can exaggerate just how tightly everything here is tied to China at the moment. Every hope, every dream — whenever someone has trouble with sales, the answer is always the same: we need to focus on China. They are the last big untapped market. China will make us RICH!

Yeah, just like Internet stocks made you rich the last time. How soon we forget how easy it is to harbor illusions and chase after pipe dreams. I learned a hell of a lot from the dot-com crash, and its parallels with the China craze are undeniable.

November 6, 2003 @ 9:09 am | Comment

Listening to China

Richard the Peking Duck asks a very pertinent question: is anybody listening?Morgan Stanley has issued a dark, somber (yet sober) warning about the latest fear in Asia, i.e., the overheating of the Chinese economy and the disaster that could follow…

November 6, 2003 @ 11:10 am | Comment

Hello factory: so you get over here too.

“They are the last big untapped market.”

You’re forgetting India. The information market is going to India.

BTW: I just linked to this in an op-ed for Living in China.

November 6, 2003 @ 11:19 am | Comment

Thanks for the link, Edward! Yeah, the information market is going to India — no one is safe. We white-collar workers were always so certain our IT jobs were secure and would always pay us 6 figures. Surprise!

November 6, 2003 @ 11:55 am | Comment

China news round-up

China happenings. Two Brits, Ed Jocelyn and Andy McEwan, have finished walking the entire distance of the Long March. It took them 384 days while the original took 370 days under somewhat more stressful conditions. 80% of all jailed internet…

November 6, 2003 @ 3:36 pm | Comment

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