Why does the West abound with misreaders of China’s economy?

Mar 11, 2024
Chinese dragon figurine on the background of various monetary symbols.

As 2024 marks the Year of the Dragon in the Chinese zodiac, whether this mythical creature should be named “Dragon” or “Loong” in English has puzzled many and stirred heated discussions.

The two creatures vastly differ in their shapes, legends and the cultural symbols they represent. And in recent years, more and more Chinese people have become inclined to use “Loong” rather than “Dragon.”

This trend and the discussions shed light on why the West abounds with misreaders of the Chinese economy: They use existing icons, ideas or social phenomena in their cultures or countries to characterise or define seemingly related things about China, particularly the Chinese economy.

Such superficial and sometimes far-fetched comparisons can easily invite mistakes. And in the history of Western “China forecasts,” many jokes were made.

In his book “The Coming Collapse of China” published in 2001, Gordon G. Chang, an American academic and writer, foretold that China is “a paper dragon,” and “is in long-term decline and even on the verge of collapse.” Yet the Chinese economy saw rapid growth after the historic event and was crucial in steering the world economy out of the 2008 global financial tsunami. Nevertheless, Chang wouldn’t quit, and went on with his futile attempts. Foreign Policy magazine named Chang’s theory of China collapsing one of the “10 worst predictions of the year” twice in a row.

And in 2015, David Shambaugh, a long-time American expert on China, wrote in The Wall Street Journal that China’s “endgame” had begun. His forecast was as wrong as similar attempts by other Western scholars. Most recently, a new wave of “China collapsing” predictions is making headlines in mainstream Western media, despite the fact that China was one of the fastest growing major economies of the world last year.

China’s rise over the past four decades has been truly phenomenal. Its economic connections with the rest of the world have also flourished in depth and width. That is why countless politicians and economists worldwide are attempting to figure out the secrets behind China’s success and forecast its future.

But why have many of them failed to get China right?

Economic predictions are complex indeed. There are too many factors in this world of rising uncertainties that can determine the direction and speed of an economy. See how many Nobel laureates in economics we have. Yet we can still neither sound a timely alarm for major economic crises, nor figure out effective ways to prevent them.

For some hard-core China hawks, their deeply-entrenched and, sometimes ideological, bias toward China has clouded their rationality, making it hard for them to read the Chinese economy in a balanced and comprehensive manner.

Another major reason that makes predicting China’s economic future a tremendous challenge is the differences between the Chinese and Western economies.

China is a big country. It is roughly the same size as the European continent in geographic terms. It has over 1.4 billion people, a large labor force of more than 900 million and a middle-income group of more than 400 million. Its super-size consumer market is also unparalleled globally. These distinctive features have made economic predictions about China genuinely challenging.

Yet some economists in the West tend to look at China via models or methodologies they usually employ to study the economies of their own countries whose inherent conditions are very different from China. Plus, those models, many of which are rigid and out of date, have lost validity and reliability. No wonder their forecasts have been off the mark from time to time.

China and the West also view the real and virtual economies, as well as the relationship of the two differently.

Europe is the birthplace of the modern financial industry, where the banking and stock markets originated. Across the Atlantic, with its dollar supremacy, the United States is the world’s only financial superpower. Also, the existing global financial order, created in the post-war era, is U.S.-led, with the West controlling the IMF, the World Bank and other Bretton Woods institutions.

Those preponderant financial institutions have brought the West huge benefits in economic trade-offs with developing countries and the least developed ones. However, excessive expansion of the virtual economy is also damaging for the world as a whole, evidenced by successive financial crises.

China has a tradition that stresses the real economy. In the eyes of decision-makers in Beijing, a healthy financial sector is needed to serve as the booster for the dynamic growth of the real economy, not the other way around.

Also, China has a unique governance system to run its economy. While emphasising the decisive role of the market in allocating resources, a well-functioning government also plays its due part in the stewardship of society and the economy to ensure healthy and robust economic development as well as social justice and the general welfare of the people. This has much to do with China’s culture and history.

In traditional Chinese culture, the Chinese tend to prioritise “yi,” which means righteousness or justice, over “li,” meaning gains and benefits.

Meanwhile, pursuing profits is always put front and centre in the capitalist economy of the West. Take the persistent quality issues at Boeing. The jetliner manufacturer wants to cut costs at all cost, even if that means putting the lives of passengers on the line. Using the excuse of limited resources and expertise, the FAA, the U.S. aviation authority, has simply delegated some of its oversight power to the firm in the past years. That is unimaginable in China.

Similarly, some Westerners wonder about Beijing’s policy choices, like China’s massive reforestation plan, which was mocked by some Western experts and media as a vanity project. Planting trees may not deliver economic benefits in the immediate future. Yet making the country greener is in the long-term interests of the country and its people. That is the same logic when China decided to eradicate extreme poverty, an integral part of practicing “yi.”

As the global economy is tottering, more misreadings of the Chinese economy could lead to more bad decisions by and lower confidence among policy-makers and business investors worldwide. Those are the least desirable at the moment.

To avoid that scenario, a deeper and more comprehensive understanding of China is needed. The controversy surrounding the Chinese zodiac “Loong” suggests that we need more robust exchanges between China and the West to bridge the understanding gap in the first place.

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