More haste, less speed

It is one thing to become the second largest economy of the world; it is quite another to maintain that position. The chastising truth has come to bear on China in a way that is quite unexpected .For years this sleeping giant has chosen to go its own way brushing aside nudges to do things differently. Part of it was a somewhat audacious confidence in an overheated economy spurred by unprecedented exports. The bubble has burst and the inevitable crash appears underway sending world stock markets into a tailspin.
Factory output has fallen in the wake of a slowdown in global consumption and the knee jerk reaction was to devalue the Yuan to make exports cheaper, thereby hopefully maintaining volumes.
This was the devaluation that top world leaders had been urging, short of begging the Chinese to undertake for quite a few years. The Chinese refused because they would not
be dictated to and because of their design to position the Yuan as an alternative trading currency in the Asia-Pacific region, if not internationally. Their latest decision is dictated by need, not external pressure. But is it too little too late? A selling spree has sent stocks tumbling and what is normally looked upon as last ditch measures, pension fund investments have now been allowed to prop stocks up and create demand.
In the past few days stocks have seen devaluation of $ 1.0 trillion. Apple, with its huge exports to China, has on its own lost $ 150 billion in value. According to BBC, investors have pulled out $ 2.5 billion from Emerging Market Bonds. The impact has been felt as much in Asia as elsewhere with the Indian rupee down to its lowest in two years.
The stoical International Monetary Fund (IMF) is not seeing this as a major concern yet. 'Inevitable correction' is what they view it as, perfectly happy if growth comes down to 6.5% as opposed to the 7.8% touted by China.
While the brave face is put on, even necessary correction should be phased rather than forced.
The phenomena in already unsettled conditions is a cause for worry. Russia trying to bandage a wounded economy is seeking to sell foreign currency in what could result in further slide for the value of the dollar. This could trigger a further devaluation for China. Oil prices hovering in the low 40-dollar-per-barrel number is squeezing Middle East oil revenue to the extent of forcing Saudi Arabia to start using foreign direct investments.
As in most diversities there lies opportunity. If Chinese imports become cheaper this could well be the time for a surge in capital machinery purchases and quick buys of commodities that are heading for the prickly side of expensive. On the flip side if Chinese garments exports become any cheaper it will be a blow to the solar plexus for an industry that has seen an 11% drop in exports recently. That by itself may require the government to mull over specific counter-measures to protect the bread basket.
The world cannot afford a further slide in the Chinese economy. China is the second largest owner of US sovereign bonds, not to mention the massive European debts that it has bought over.
International investors have to be reassured pretty much like the Indian Reserve Bank Governor has that the time is to dig in everyone's heel rather than retreat. Economies are like live affairs at times blowing hot and cold. Running at the first sign of a slip is in no one's interest considering the larger prize that awaits the other end of the tunnel.
(The writer may be reached at mahmudrahman@gmail.com)