The slowdown in the Chinese economy has been a growing cause for concern for the Australian casino industry, which has been a major benefactor of the boom in Chinese tourism over the past five years.
Depending on which pub philosopher you speak to, the global superpower is either facing complete meltdown; an imminent financial death-spiral that will drag the global economy down with it (in which case we’re all doomed), or, alternatively, it’s much, much worse than all that.
But, meanwhile, for all the horror stories, Chinese tourism in Australia continues to flourish, and the emergent Chinese middle-classes still flock to our shores.
So, what gives?
Well, for a start, it suggests that the aforementioned Chinese middle-classes haven’t heard the horror stories we’re so fond of broadcasting outside of China.
And if they aren’t overly concerned with the devaluation of the yuan and the growth in personal debt, then why should anyone else be? After all, these are the guys driving the Chinese economy, aren’t they?
The Pessimist’s View
The pessimistic view was summarized eloquently by Tom Holland this week, writing ironically in the South China Morning Post.
“Rich Chinese are losing faith in their economy and the yuan,” he explained. “As growth slows and debt mounts, Chinese, fearful of an impending crisis, are shifting their wealth offshore and into foreign currencies. These outflows are putting pressure on the yuan, which is weakening in response,” he explained.
“In turn this weakness is prompting more and more mainland Chinese to try to preserve their capital by seeking safety in foreign currencies. The result is a self-reinforcing feedback loop that threatens to precipitate the very crisis those fleeing the yuan hope to escape.”
Reasons to be Cheerful
But Holland also points out that, while the yuan has fallen 13 per cent against the US dollar, the Canadian dollar has fallen 20 per cent, and British sterling has dropped 21 per cent, and the euro 24 per cent.
Thus, what we are seeing, he says, is not so much a weakening of the yuan, which has actually remained relatively stable against the global economy, but the growth of the dollar. He also says that the scale of capital flight is grossly exaggerated.
Beijing has a Plan
Meanwhile, Rodney Jones, the Beijing-based principal of Wigram Capital, believes the Chinese government is in control and has a plan; it’s just we don’t quite understand it yet.
“We are watching something historic, we just don’t understand it,” he enthused to the Irish Times. “We know it’s historic and we don’t know how. There are no precedents for this. It’s like financial Star Trek, boldly going where no one has gone before, we are stuck on that journey.”
“Chinese leadership has concluded that Western economics and the Western model is profoundly flawed,” he continued. “They looked at the global financial collapse, they’ve looked at Trump and they’ve looked at Brexit and they’ve decided that Western economics doesn’t work. Our model is better, [they think].”
It may be, then, that fears of meltdown are based on a flawed Western understanding of the Chinese government’s methods of controlling its economy, and all the figures from Tourism Australia would seem to bear that out.