China changes leaders at critical economic crossroads

Workers watch a live broadcast of the opening of the 18th Communist Party Congress a factory in Zhuji, east China's Zhejiang province on November 8, 2012.

The Chinese Communist Party convened its 18th Party Congress today which will end with President Hu Jintao passing the baton to the country's next leader. The handover comes at a crucial time for China's economy: Depending on which economist you talk to, China is either on a steady path to overtake the U.S. as the world's number one economy or it's on the verge of economic collapse.

Today and tomorrow, we'll outline the arguements from both sides -- the bulls and the bears. Today, we'll hear from the bulls, but the first lesson when talking to a China economist who's a bull: Don't call him a bull.
 
"I usually describe myself as a skeptical optimist," says Arthur Kroeber, managing director of the Beijing economics research firm GK Dragonomics. "There's always been people predicting collapse or doom or slowdown or some huge problem for the Chinese economy, and they've always been wrong," he says.
 
That's Kroeber's skeptical side. Here's his optimist side: "The track record of this society responding to challenges and overcoming them is very, very powerful."
 
The one thing China bears and bulls usually agree on is that China's economy is relying too much on infrastructure investment for growth and not enough on consumer-led growth.
 
China bears say the country has gone past the point of no return, the economy is dangerously unbalanced, and that China has never faced anything like this. Kroeber rolls his eyes at this notion.
 
"Thirty years ago, this was a communist totalitarian country with a planned economy run from Beijing and there was no private sector and all the prices were set by the government. And China orchestrated a transition out of that much more successfully than any other post-communist economy," he says.
 
Kroeber thinks China will continue to defy expectations.
 
Shanghai economist Andy Rothman, another bull, says China's already in a state of defiance: Investment is slowing and consumption is gaining speed. Accordint to Rothman, China's economy is making the necessary adjustments to rebalance, "but the combination of slightly slower growth in investment and the steady growth of consumption means that every year for the foreseeable future, the Chinese economy is going to grow a little more slowly," he says.
 
The bulls say that'll be necessary as leaders make financial reforms to move money from the state sector to the private sector. No small task, and the bulls' optimism usually hinges on whether China's new leaders will be able to do this.

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.

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