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China's Short-Term Gains Won't Erase Its Long-Term Problems


On the home page of the WSJ‘s web edition this morning was a story suggesting that China’s economy is “showing signs of stabilizing after a six-month slowdown, a prospect that could boost the outlook for world growth as the U.S. steadily improves and Europe edges out of recession.”

Other newspapers and analysts have also been cheering Beijing’s recent efforts to stabilize and boost the economy. “China’s exports and imports rebounded by more than estimated last month, adding to signs that the economy is stabilizing following a two-quarter slowdown,” Bloomberg reports today. “The worst seems to be over,” said analysts from Moody’s.

Let’s leave aside the short-term complexities of an economy as large as China’s for a moment. Data can be misleading, growth often fluctuates, and analysts and reporters can cherry pick evidence to support whatever “improving” or “crashing” argument strikes their fancy on that particular day. In the long term, we must always remember, China faces a whole slew of economic hurdles that could trip it up.

On his blog Sinostand, China-based journalist Eric Fish laid out some of those challenges: “China doesn’t have just one big hole in its raft, it has (at least) four”—an aging population, pollution, a water shortage, and a gender imbalance. One could add other challenges to the list, but these four should be enough to give pause to any long-term investor in China. All of these are challenges that will grow more difficult with time. Because of the one-child policy, China’s aging population will pile more stress on young families and the economy in general. Despite efforts to combat pollution, the environment is dramatically worsening. Policy-makers in Beijing have a lot of work to do and a lot of difficult choices to make. Little rays of sunlight and there might cheer short-term investors, but they will do little to make the dark clouds on the horizon any less menacing.

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  • rheddles

    Data can be misleading, especially data from China where it is all produced by communist apparatchiks to meet the center’s demands.

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