THE BLOG

Is Osborne Complacent on China?

21/07/2015 09:42 BST | Updated 20/07/2016 10:59 BST

In August 2007 the storm clouds that gathered ahead of the global financial crises came out of a clear blue sky. Eight years later, fixed on Greece we anxiously monitor the horizon for signs of another downturn but could we be facing the wrong way, with the hurricane coming from the east?

Today George Osborne appears Commons ahead of the summer recess. As his wont he will be boastful, hubristic yet utterly complacent about the affect of China on the global economy.

We've all been watching the unfolding economic horror show in Greece. Last week IMF almost jeopardised the deal between Greece and its creditors by warning the country's debts could rise to 200% of national income in the next two years unless more stringent reforms are agreed.

Meanwhile, a few thousand miles away, it was quietly announced that - right now - Chinese businesses and households have debts totalling 207% of national income. Throw in the Beijing government's debts, and that figure climbs towards 300%.

If all this borrowed money was funding sensible investments with big returns, and being matched by strong and sustainable growth, then the Chinese debt boom might not be a cause for concern.

But China's annual growth is on a slow downward trajectory even as debt soars. Across the country, we see the evidence: thousands of empty cities, ghost airports and unfinished skyscrapers - investment in infrastructure that will never provide a return.

We see the Shanghai stock exchange soaring to farcical highs on the back of a debt-fuelled share mania, and only panicked intervention from the Chinese government halting the inevitable crash.

And we see the continued rise in China's shadow banking system; trillions of dollars in promissory notes being exchanged as if they were gold coins, rather than worthless pieces of paper with no supporting collateral.

Now bear in mind that China's economy is roughly 60 times the size of that in Greece, responsible for almost half of world economic growth last year, and the leading global importer of cars, mobile phones, computers and most major commodities.

China is not just an export market, but a major global investor. The UK government expects China's stake in Britain's transport, real estate and energy sectors to break £100 billion by 2025. In short, we all have a lot to lose if the Chinese economy falls apart. And yet where are the IMF's admonishing words about the latest Chinese debt figures? Where is George Osborne's statement of concern about its unsustainable stock market?

Instead, the western economies wink and say: China will sort itself out; if we don't look behind the curtain, the illusion of Oz will continue, and we can all live happily ever after. In other words, Greece must live in the real world, but let's all carry on indulging what could turn out to be a Chinese fantasy.

It is not just a double standard, but a hugely dangerous game.