Photo by: Reuters
CAPE TOWN (miningweekly.com) – A very serious structural problem is playing itself out in China and not merely a reorienting to a consumption-led economy, says Council on Global Enterprise and Emerging Markets director Dr Harry Broadman.
Broadman, who delivered the second keynote address at the 2016 Investing in African Mining Indaba, is also a John Hopkins University senior Foreign Policy Institute fellow.
“What is driving the problems in China is systemic, stemming from basic contradictions in the fabric of the economy that continues to pursue Deng Xiaoping’s dictum of a socialist market economy.
“If you think about the juxtaposition of those two words, they end up themselves in a contradiction.
“What’s been happening is that contradiction is now coming to the fore,” says Broadman, who has been studying the Chinese economy since 1993.
Perhaps the most glaring contradiction, he adds, is what is going on in China’s “so-called stock market”, where there is a lack of understanding that when the market falls money is lost.
That is not tenable in a place like China that depends heavily on maintaining social security so the government steps in and props up share values.
While the Chinese are vocal about reorienting their economy as a consumer-oriented economy, Broadman contends that this will not happen with household consumption accounting for only one-third of China’s gross domestic product (GDP).
In the US, for instance, household consumption accounts for a “very different” two-thirds of GDP,
“So what’s going on in China is a far more serious problem than I think most people understand,” says Broadman.