Has China’s longer-term economic outlook been compromised?

CIARAN RYAN: For decades China has been the driving force behind global economic growth. Since China began to open and reform its economy in 1978, GDP growth has averaged about 9% a year, and more than 800 million people have lifted themselves out of poverty.

So countries like South Africa would’ve benefitted greatly from those higher commodity prices, and those have been some of the key things that also happened within the context that the government adjusted its strategy, which was previously quite focused on government spending on that same infrastructure, to one more oriented towards consumer spending – which was deemed to be more sustainable over time.

You can see it in the corporate debt level. So corporate debt-to-GDP, which largely sits in that property space, is well over 150% of GDP, which is unique for that level of leverage in the private sector. ADRIAAN PASK: That’s the tricky part, because I think the risks are well known at this point; the things that I’ve mentioned before. But I think what’s important, especially with something like property in China, is quite important from a systems perspective … [the risk] is so well integrated into the economy, into the wealth system with households, you’ve got to think where ultimately the second-round effect risks are going to land.

On the other hand, if there’s complete oversupply and they can’t bridge their liquidity issues, you run into a very complex set of problems around social unrest, erosion of wealth, and private wealth. What is happening at the governmental level in China to counter some of these risks that we’ve been talking about?

Unfortunately, they don’t have a very good track record in this space, in terms of planning appropriately for what type of regulations can have what kind of impact long term. So the demographics are something to keep a very close eye on.

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