At the beginning of July, a mix of the most thoughtful Chinese and foreign policy makers, academics and market practitioners gathered in Shanghai for the annual Lujiazui financial forum. The economic backdrop wasn’t great. Europe continues at the edge of the precipice while the US has lost momentum and emerging markets are also slowing. The world still hasn’t recovered from the global financial crisis made in the US and swiftly exported to much of the world.
Meanwhile, hopes that China will save the planet look increasingly forlorn. Exports, a lagging indicator, came in at a relatively strong 11.4 per cent while far weaker imports, a leading indicator, at just over 6 per cent, suggest as much.
One of the lessons that China learnt from the global financial crisis is that the west doesn’t have much to teach it when it comes to building a financial system. Yet China is outgrowing the system that served it well up to now. So change is inevitably coming and the Communist party, obsessed with control, may not be able to control the process. No matter what the pace or degree of change, it is likely to be a painful process for the beneficiaries of today’s system, and also likely to present painful trade-offs for those in charge of the process.