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).
