For three decades now, many of the world’s most insightful observers have predicted the imminent demise of ’s system. But these same three decades have also seen China confound expectations. China’s economy turned in double-digit growth rates. China lifted 600 million people out of poverty. While 35 years ago China’s per capita income was only $300 (just 2% that of US per capita GDP) and 800 million Chinese lived in extreme poverty, today it boasts more US dollar billionaires than any other country.

But is its much-expected collapse finally at hand? The first week of 2016 sent alarming signals. One respected financial analyst in London voiced what many others thought: “So far, China in 2016 appears to be everyone’s worst nightmare come true.”

The reasoning that predicts China’s collapse has two bases.

“China’s System is Different”

First is the long-standing view that China’s system differs from what has worked everywhere else. China couples to free-market capitalism a degree of political control many observers consider incompatible with sustained growth. The mix might have worked—so the reasoning goes—for the last however many decades, but as a matter of logic the system cannot continue.

Observers advance this hypothesis on a sliding scale, beginning at one extreme with the view that liberal democracy is the only solution to the fundamental problems of human history, through to how “authoritarian capitalism” (a description typically applied to Singapore’s system) might succeed for a time, but cannot endure.

Every gyration in China’s economy is, then, evidence on the contradictions of capitalist China. On asset markets in particular, these writers contrast Chinese leaders’ proclivity for control with how these markets need to be self-regulating and free.

Notwithstanding all the obvious benefits to people of individual freedoms, whether entire nations perform better when their citizens have untrammeled free choice is a proposition with neither mathematical proof nor definitive empirical support. No generalization exists of the Fundamental Theorem of Welfare Economics that might allow convincing pronouncement on the optimality of free political outcomes. Winston Churchill once quipped that democracy is the worst form of government, except for all others that have been tried. But H.L. Mencken noted: “Democracy is a pathetic belief in the collective wisdom of individual ignorance.” As a matter of analytical logic, it is Mencken’s that convinces.

What of empirical evidence? In the world at large, economies obtain social outcomes through different combinations of states and markets. Singapore’s mix of political intervention and free markets brought it from a poor British colony with no natural resources to first-world per capita GDP. In the West, no advanced economy practices the extreme market fundamentalism that allows financial markets to be only self-regulating and free.��Or if any had done so before, exactly zero did so after the 2008 Global Financial Crisis.

Political freedoms matter ultimately for economic success. This is hypothesis, not fact. China’s own pathway to development differs from that elsewhere. But, in this writer’s view, it is more prejudice than science that dismisses, on that basis, China’s economy as doomed to fail.

China’s Slowing Economy and Its Most Recent Crises

The second basis for predicting imminent collapse, for many observers, is China’s cycle of economic and financial crises. Just the most recent of these came during the first week of 2016.

After the financial market volatility of summer 2015, China’s regulators had announced circuit-breakers to be installed in the new year. When the market shifts more than 5%, trading halts for 15��minutes—more than 7% suspends trading for the day. Awkward for China’s regulators was that on the first day of operation their circuit-breakers had shut down the market by 1pm. Then, only three days later, on January 7, the , this time just 29 minutes after the morning opening.

Two other developments fueled unease. In December 2015, China’s foreign exchange reserves fell a record $108 billion, ending a year that saw their first ever annual decline. Reserves were down 17% since their June 2014 peak to $3.33 trillion—China was burning through foreign exchange reserves to defend its currency. Even so, the renminbi fell 6% against the US dollar over 2015, showing markets’ lack of confidence in China’s economic future.

The other large concern on observers’ minds was China’s slowing real economy. A long way now from showing double-digit growth, China’s GDP was widely expected to turn in perhaps only 6.9% expansion over 2015. While this growth rate would be the envy of any other large economy, it would also be China’s lowest for 25 years.

Many observers have quickly drawn from these signals deeper questions. Given China’s assured economic policymaking since 1990, why this sequence of missteps? Is President Xi Jinping’s consolidation of political power drawing focus away from economics? Has China returned to a Maoist era with ideology back in control? How well-designed are China’s policy mechanisms for its now-modern economy, no longer agricultural and enjoying smooth, easy urbanization? Are China’s policymakers credible and competent, now that the economy needs to transform in a hurry from low value-added manufacturing to higher-tech, knowledge-intensive activity?

For these observers, all indicators point in one direction: China’s downturn will be significant. The only question is how hard the landing will be.

“Well, Maybe No …”

Is this analysis correct? Sure, no large mature economy grows faster than 3% a year for any significant duration. So too will China at some point. But is that time now?

Perhaps not. First, consider the significance to the real economy of China’s slowing growth rate. Recall that in 2005 China’s GDP amounted to $2.3 trillion. At a 12% growth rate then, China generated an increase in real economic value of $274 billion. In 2015, however, China’s GDP came to $11.3 trillion. A 7% growth in this economy increases value by $790 billion—i.e., almost��three times��that a decade ago during China’s halcyon days of economic growth. A 7% growth is no meltdown. And if productivity were to grow as in 2013, 7% growth in today’s China will generate 53 million new jobs.

Steep challenges lie ahead. China’s pile of debt is a tricky mix of privatized, local governmental and national obligations, and there remains considerable uncertainty how this debt hangover will work out.��

At the end of 2015, China’s non-manufacturing PMI stood at 54.4, a 16-month high. Perhaps the low manufacturing PMI correctly signals a dramatic slowdown. Or it might simply show China navigating its structural transition.

Next, take China’s currency. Against the US dollar, the renminbi has indeed slid 6% since August 2015. But measured against a basket of trade-weighted currencies, China’s currency never dipped below its January 2015 level all last year.��Between 2006 and 2015, China’s currency appreciated 20% against the US dollar and 22% against the euro. The BIS reckons that since 2010, China’s currency has soared 30% against its major trading partners. Factoring in inflation, the renminbi real exchange rate strengthened more than 50% in the last decade. This is no currency in distress.

But numbers form only part of the story here. The world flip-flops constantly in what it asks of China’s exchange rate policy. On the one hand, observers worry how China spent half a trillion dollars of reserves supporting the renminbi. On the other hand, if China hadn’t done so but instead permitted the renminbi to fall, outcries of competitive devaluation would have deafened.

In August 2015, China followed advice from the International Monetary Fund (IMF) and allowed each morning’s exchange rate fix to hew to the previous evening’s close—i.e., to be more market-oriented. Global markets promptly panicked and charged China with depreciating its currency to bolster manufacturing exports. It’s damned if you do and damned if you don’t.

Finally, take China’s stock markets. Equity markets, in theory, reflect the best forecast of the future profits stream in business enterprises. This results from the agglomerated action of many, many investors trading on new information they are expertly interpreting. So, in theory, when equities decline, bad times beckon.

Beijing © Shutterstock

But what of China’s stock markets? These are thin, with most of the relatively few participants only retail investors. One astute observer noted last week: “China’s stock market is easy to understand. It’s a casino. There are winners. There are losers. Luck is in charge. It’s never had anything to do with the real economy.”��Yet another writer, following last summer’s stock market gyrations, observed: “China’s market is … detached from fundamentals. It neither contributed much to economic growth while it was rising, nor threatened the economy when it collapsed.”��(Indeed, even for advanced economies, Paul Samuelson famously quipped in 1962 that Wall Street was so good at prediction, it had been able to forecast nine out the last five US recessions.)

China’s government has learned from advanced economies that business should raise more financing from equity markets, and that those markets can offer attractive options to consumers otherwise bereft of high-yielding savings opportunities. But China’s financial markets remain woefully underdeveloped.��Do their vagaries reflect this lack of maturity—observed across most of Asia’s developing economies—or inept policymaking? Likely both, but not primarily the latter.

What about China’s circuit-breaker system? Its function is to give pause to excessive movement in markets driven by panic selling or faddish enthusiasm. That seems sensible, but any such system carries at least two design faults. First, it prevents immediate recovery, and second, it incentivizes panic selling once the market is visibly headed down.

Were China’s circuit breakers fundamentally ill-judged? China’s system did not appear out of nowhere. Following China’s stock market gyrations last summer, a system was proposed in September, after which policymakers sought and accepted input from market participants for its final design.��A similar system had been put in place in the US after October 1987.

As no circuit-breaker can come without those two faults previously described, it cannot be the logic of the design that accounts for the difference between a successful US system and a failed Chinese one. Instead, the explanation must lie only in the parameters chosen. The US system has thresholds that, relative to American stock markets, would have kicked in only three times since the 1930s.

And what of China’s circuit-breaker parameters? Given China’s markets, its circuit-breakers, had they then been in place, would have tripped 20 times between June and August 2015. China’s circuit-breaker errors were not anything deep in logic or politics, merely in numerical parameters.

No Meltdown

Indeed, recent events in China’s economic trajectory have set off alarm bells for many observers. But these same incidents, set against a slightly more textured background, are actually nuanced in their implications.

China is not imminently in meltdown.

None of this is to say China’s economy will continue growing at double-digit rates forever. Nor does it argue that China’s policymakers have consistently done the right things. But neither are those policymakers obviously guilty of incompetence or excessive interventionism.

Steep challenges lie ahead. China’s pile of debt is a tricky mix of privatized, local governmental and national obligations, and there remains considerable uncertainty how this debt hangover will work out.��China’s industrial restructuring, its anti-corruption campaign, its transition past the Lewis Turning Point and out of the middle-income trap, and its environmental and demographic challenges all remain daunting. These challenges are substantive and long-term, and China’s policymakers will have to deal with them in a properly measured and considered way.

But China’s exchange rate and stock market gyrations? They have likely already attracted far too much attention relative to substance.

*[This article was originally published by��.]

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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What does China’s growth slowdown mean to you?

I ask here not about the New World Order, global power shifts or whether the United States retains its position as a global hegemon. Nor do I mean the on the world economy, a colossal actual thing, but still a relatively abstract concept.

No, I mean, what does this slowdown in 2015 mean for you, in the rest of the world, looking to as an export market; or you, in China, seeking employment as your economy’s labor market to its new normal.

In 2014, China’s gross domestic product (GDP) grew by��, its slowest rate of increase since 1990. This seems to be a monumental change from when it regularly turned in double-digit growth. The effect of this slowdown on those who sell to China and on those working in the country��must be extreme.

But maybe not.��Why? Let’s do the arithmetic.

Suppose the year is not 2015 but 2005, exactly a decade ago, and you’re an exporter, somewhere in the rest of the world, predicting China will grow by around 12% over the coming 12 months. China’s GDP then was $2.3 trillion at market exchange rates; Purchasing Power Parity correction did not matter. What determined the size of China’s footprint in the global market place — and still does so today — was the rate of exchange that saw actual financial value changing hands.

You expect China’s marketplace would have increased by $274 billion (12% of $2.3 trillion). Whatever fraction of that market you sell to, that’s what counts for your bottom line.

Now fast forward to 2015. China’s growth might be as low as 7% in the next 12 months, but it has also become a lot larger than it was in 2005. The ‘s��(IMF) World Economic Outlook October 2014 that for 2015, China’s economy, at market exchange rate, will come in at $11.3 trillion. At this scale, growth of a “mere” 7% will increase the size of China’s footprint in the global economy by $790 billion over the next 12 months.

To put matters in perspective, this increase of $790 billion is 2.8 times the size of the increase of $274 billion ten years ago. Thus, even at an expected growth rate, a full five percentage points lower than someone a decade ago might have optimistically forecast, China will generate economic growth in absolute magnitude almost three times larger than it did then.

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The Global Context

But, wait, the world today overall, not just China, has changed. A representative exporter will gauge prospects for selling to China based not just on the country’s��scale, but also that of their��own economy.

Suppose you’re an exporting business in the US. Ten years ago, GDP in America was $13.1 trillion; the IMF reckons that in 2015, the US economy will produce GDP equal to $18.3 trillion. Relative to the size of the US economy, China’s expected 7% expansion in 2015 will be an increase in a potential export market of 4.3%; ten years ago, that same ratio was just 2.1%. Put differently, China’s expansion over the next 12 months – even at only 7% – will represent for a typical US exporter, relative to the economy he lives in, more than a doubling of the increase in size of this potential export market.

And what if you’re not in the US? If you’re in the , China’s expansion is even more of an increased opportunity. Only if you’re a fast-growing economy like the -5��does China’s 7% growth mean something not quite so large. But even then, the worst you can say is that China’s 7% growth means you can expect simply the same relative increase in export business with China as you did a decade ago. That’s hardly a catastrophe.

Impact on Employment in China

But finally, what about the capacity of China’s economy to create jobs? In , the latest year reported in the��World Bank’s World Development Indicators, China’s labor force numbered 793 million. China’s average productivity (using IMF World Economic Outlook��GDP numbers) was therefore $11,900; this had grown by 12% from the previous year.

If were to continue to grow at that same rate, then an expansion of China’s GDP by $790 billion will generate 53 million new jobs. Since China’s rural population is about 500 million (slightly less than half of its total population), if all those 53 million new jobs were urban, this would still absorb 10% of the rural population as migrants.

Simply put, China in 2015 is a very different economy from even just ten years earlier. China has changed far more than the world has in this time. A 7% growth rate is obviously lower than an 8% one. So, whatever good comes from a 7% growth rate, at the margin, a growth rate a little higher will be even better. But quantifying the changes that have taken place in the global economy, a 7% growth rate for China today means something even more positive than did a 12% growth rate ten years ago.

One can of course imagine scenarios where China’s slowdown ends up much worse for, say, ASEAN, than that indicated here. If spillovers — not from trade connections but something else — unfurled across the rest of the world as a consequence, then a Chinese shock would come with far more damaging effects on the ASEAN economy.

But just as plausibly, a Chinese slowdown might itself be caused by a resurgence in US manufacturing. Then, the overall effects on ASEAN or anywhere else in the world will depend on the relative strengths of the two opposing effects: the US driving ASEAN exports, against China slowing them.��However that unfolds, the final effect on ASEAN will not be caused by just a slowdown in China’s growth.

Finally, if China’s growth slows from having switched to greater reliance on domestic consumption, then export opportunities for the rest of the world will be correspondingly larger.

*[A version of this article was originally published by .]

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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Across all recorded history, 99%��of humanity has never invented a single thing. Yet, it is a truth universally acknowledged that long-run sustained progress in economic well-being arises from human creativity and innovativeness. In this regard, the average human —��and indeed the great majority of humanity over the last seven million years —��provide a completely misleading guide to what is possible. Misapplied, the Law of Averages misinforms.

This is why, seemingly against all odds, every nation exhorts its people��to be creative and innovative. It is why, apparently against all common sense, every country wants to claim Nobel Prizes for its citizens. Now and then, a place��as unlikely as�� triumphs. For human success the average is not at all informative��as an indicator of what is possible. Otherwise, humanity would still be where it was 7 million years ago.

China’s Unsustainable High Growth

Yet, when we contemplate the economic success of nations we are easily tempted��to fall back on what we know about the average of��nations: cannot keep growing at better than 6% a year because no other country has for as long.

For at least two reasons, we should resist that seductive appeal. First, success is, as just described, necessarily different from the norm. The average or even the great mass of the distribution of people or of nations simply��isn’t revealing as a guide to what can happen. Second, perhaps even the typically regarded growth decelerations and crashes��in the data samples we do consider aren’t really failures after all.

, in one of the most spectacular of economic accelerations, saw its per capita GDP grow at over 6% per annum for over a decade. But on how�� Singapore’s growth rate plummeted after 1980��to a figure four percentage points lower than during that period of success. They note that Taipei, China and the Republic of displayed similar trajectories. All these economies saw��a growth spurt. Then��they all��crashed.

The theme that Singapore’s growth trajectory is fraught with imminent failure is, of course, long standing. Twenty years ago this year, soon after the collapse of the , Singapore was the target when the world’s most influential economist : “From the perspective of year 2010, current projections of Asian supremacy extrapolated from recent trends may well look almost as silly as 1960s-vintage forecasts of Soviet industrial supremacy did from the perspective of the Brezhnev years.”

If China’s Economy Goes South

Pritchett and Summers use these��examples to draw��a salutary lesson on how China’s economy to-date has already massively defied the statistical odds. It��cannot continue to do so. The harsh reality of statistics alone tells us China will almost surely crash as well.

But if China were to go the same way, would that��be so awful? What has actually been achieved by the abortive runs of economic overheating in Singapore and other East Asia’s false miracles?

��Today, China’s population is 4.3 times that of the US. Even if that ratio declines to 4 and China grows only as Korea has done, China’s economy will be 2.5 times that of the US��within decades. If China grows as Singapore has, its economy will be 4.5 times that of the United States.

In the first half of the 1960s, Singapore’s per capita GDP amounted to��16% of the United States’s, Taipei and China made up 13%, and Korea 7%. from the University of Pennsylvania’s , typically��used to study cross-country statistical regression to the mean, shows what unfolded in the��across 167 countries between 1950-2011. By 2007-2011 the US economy was witnessing a��dramatic slowdown from��the (GFC). But then so were��all other economies. Indeed, throughout this period pretty much all economies rose, fell, grew fast, and slowed dramatically in turn. Fluctuations are a fact of economic life.

But what happened in the end? Averaged over the last five years of the sample,��Singapore’s��per capita GDP had grown��to 116% that of the US, that of Taipei and China to 65%, and Korea��to��62% of the US GDP. Even before the 2008 Global Financial Crisis, Singapore had already overtaken the US.

Given the impression that these are��economies that had��crashed and burned, Singapore, Taipei, China, and Korea��have not done badly at all. Indeed, Singapore today��is more of a First World country than the US.

Failing Spectacularly Is Not a Bad Thing

Perhaps looking at growth accelerations and sudden slowdowns isn’t informative for the economic question that really matters: How have varying patterns of economic growth advanced a nation’s��well-being long term? Statistically-defined growth decelerations certainly featured in the growth trajectories of Singapore and other East Asian economies. But does that mean those economies have failed? ��No.

This is not to underestimate the significant political and social problems now emerging in the fabric of Singaporean society. is high. The historical social contract��between the population and the ruling party badly needs updating. But all that textured variety of economic and political life is��not the principal contention here. Interest lies simply��in the statistical behaviour of measured per capita GDP.

Today, China’s population is 4.3 times that of the US. Even if that ratio declines to 4 and China grows only as Korea has done, China’s economy will be 2.5 times that of the US within decades. If China grows as Singapore has, its economy will be 4.5 times the that of the United States.

China might, of course, do even��better than all these others in the future. But to succeed, perhaps all that China really needs to do is to fail as spectacularly as��Singapore.

*[A version of this article was originally published on .]

The views expressed in this article are the author’s own and do not necessarily reflect 51�Թ�’s editorial policy.

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