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《福布斯》杂志:How China Keeps Fooling The New York Times, The BBC, And Other Wishful Thinkers

23/02/2014|Eamonn Fingleton  Forbes
One of the most hilarious media hoaxes of all time was the BBC’s famous “spaghetti harvest” spoof of 1957. In a television “documentary” broadcast on April 1 of that year, a deadpan Richard Dimbleby, then the BBC’s most prominent presenter, reported that spaghetti grew on special “spaghetti trees” and that farmers in an Italian-speaking canton of Switzerland were enjoying a record “harvest.” The BBC props department did the rest. Many viewers were so impressed that they phoned in to ask how to grow spaghetti trees of their own. They were reportedly told to plant a sprig of spaghetti in a can of tomato sauce “and hope for the best.”
Last week the BBC again hoaxed millions. It was a performance that in time will come to rank up there with the spaghetti harvest as an epic example of the suggestibility of the human mind. But this time, far from being the instigator of the spoof, the presenter,  BBC economics editor Robert Peston, was as much a victim as his viewers.
In a one-hour program predicting the coming collapse of China, Peston spoke in apocalyptic terms about alleged fatal weaknesses in the Chinese banking system. In doing so he fell for one of the most sophisticated propaganda ploys of modern times. For nearly two decades now,  Beijing has worked through various witting and unwitting surrogates, many of them Westerners,  to persuade the United States and Europe that China’s rise is somehow an illusion. Beijing is playing on an apparently limitless capacity  for wishful thinking in the West and, to anyone who has been following the story, the motive is obvious: to foster complacency and procrastination. The point is that the slower Westerners are to understand how profoundly the map of world power is changing, the less effective will be any Western efforts to moderate Beijing’s ambitions. As China’s rise has been built in substantial measure on theft of Western intellectual property as well as a certain “amnesia” about market-opening promises, Beijing has good reason to try to delay an effective Western response.
Hence repeated episodes since the 1990s of Beijing-inspired predictions of China’s financial collapse. At the center of most of these predictions are reports of the supposedly dire state of China’s  big four banks, Bank of China, China Construction Bank, ICBC, and the Agricultural Bank of China. With each succeeding cycle, the caliber of victims in the West who are fooled rises.
Last week’s program was a terrible aberration for one of the most astute financial journalists in the English-speaking world. Peston has deservedly won several awards for the excellence of his work; and certainly on home ground, covering the British economy, he is hard to beat.
One thing can be said for sure: all previous predictions of Chinese economic system’s demise have proved premature. Here are some examples:
·         In January 1998, the New York Times reported that the Chinese central bank was dealing with an “epidemic” of bad debt. Central bank chief Dai Xianglong mentioned unprompted that rumors were circulating that bad debts were running as high as 40 percent.
·         In October 1998, the New York Times reported that China’s biggest banks were “technically insolvent.” An anonymous analyst with an unnamed ratings agency was quoted saying, “there’s a big black hole, and nobody really knows the extent of the problems.”
·         In several reports in January and February of 1999, just as China was in the crucial final stages of negotiating what turned out to an extremely one-sided trade deal with the United States, the Economist reported China was suffering from “deflation” and “huge” corporate debts, the four big banks were “insolvent,” and exports were “stuttering.”
·         About the same time, the New York Times reported China’s state-owned companies, accounting for 40 percent of the economy, were “dying,” inventories of “products that no wants” were piling up, factories were “idle,” the Chinese budget deficit was hitting “record levels,” and a “broken” financial system was “buckling” under bad loans amounting to 30 percent to 40 percent of GDP. A Goldman Sachs analyst was quoted saying Chinese citizens were “very jittery.”  The Times added: “The only big spender in China is the government, which is pouring money into concrete, bricks and mortar for bridges, dams and other projects, even if they crumble thanks to hasty construction or corruption.”
·         A few weeks later, Philip Bowring, a longtime Hong Kong-based British observer, wrote an editorial article in the Times’s international edition asserting preposterously that China was having to make “huge concessions” to join the World Trade Organization. These were “heightening China’s sense of vulnerability.” Trade was “static,” and China was suffering “the impact of years of ill-judged investment leading to excess capacity and a bad debt crisis in the banking system.”
·         The next big surge of “collapsing China” reports began in the summer of 2003. Perhaps by no coincidence this was in the immediate aftermath of the U.S. invasion of Iraq, when an increasingly beleagured American public began to sense that President George W. Bush had made one of the biggest blunders in U.S. history. Under the heading, “A bad loan bubble: Banking crisis imperils China,” one editorial page contributor to the Times’s international edition talked of a “huge” banking crisis and added: “Despite two partial recapitalizations in the last five years, at least 40 percent, and perhaps as much as 50 percent, of total loans made by China’s banks are questionable…..The condition of the banks is eroding largely because Beijing forces them to finance the nation’s extraordinary growth….the central government directs banks to extend credit to stimulate real estate development. China’s planners are creating an asset bubble along China’s east coast, the country’s urban manufacturing heartland.”
·         This was followed in  September 2003 by a Times report of “growing alarm that reckless bank lending, reminiscent of the pattern that preceded the American savings and loan collapse in the late 1980’s, may be causing an unsustainable boom that could end badly.” New bank lending was preposterously reported to be increasing at an annualized rate of 230 percent. Real estate developers were continuing to invest at breakneck speed even as 17 percent of modern offices in Beijing and Shanghai were supposedly empty.

Countless other similar  predictions could be cited. They continued into the latter half of the last  decade and have been reprised   with a vengeance in recent months, with Beijing’s dupes and surrogates  speaking in almost exactly the same terms as in the 1990s. Yet we now know that the earlier predictions proved not only wrong but the diametric opposite of the truth. Instead of conveniently collapsing, China continued to grow faster than any other major nation in history. The fact is that China is now more than three times bigger in real terms than it was in 2003 and nearly six times bigger than it was in 1998 (when its GDP at market exchange rates was still less than $1 trillion, versus more than $8 trillion in 2012). For policy-makers and trade negotiators in the United States, a more interesting consideration is the rise of China’s exports — from $184 billion in 1998 to $436 billion in 2003 and $1,971 billion in 2012. Given the record of previous “expert” predictions, Peston might usefully have sought out the contrary evidence before grabbing a microphone. As it is, his account was riddled with misconceptions about how the Chinese economy works. I will address these in a later commentary

In the meantime I should add that I am not, of course, suggesting that everything in China’s financial garden is rosy. With  four times America’s population, China is a big place, so big things can happen. The issue is  whether such things would sink the ship. One thing can be said for certain: the conditions in the 1980s that induced the financial bubble in Japan  are not nearly so prevalent in China today. Click here for an article on how the Japanese financial system already looked two years before the crash.

Eamonn Fingleton is the author of In the Jaws of the  Dragon: America’s Fate in the Coming Era of Chinese Hegemony (New York: St. Martin’s Press, 2008).

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