Friday, 6 November 2015

Andrew Charlton: China Propping Up Bad Investments

Andrew Charlton is an Oxford-educated economist and a co-founder and director at AlphaBeta, a strategy advisory business with offices in Sydney and Singapore.

He is frequently tapped by media outlets to share his expertise on economic matters. During the summer of 2015, after the economy of China showed continued signs of slowing, he was one of several economists and strategists approached by the Australian Broadcasting Corporation. 

China is Australia’s largest two-way trading partner, and the ABC’s report began by observing that some economists fear China’s struggling economy will lead to serious problems with for Australia, and that central banks around the world will be unable to help.

Andrew Charlton traveled to China to find out how the changes to its economy will affect Australia. He says the potential is there for even more challenges to China’s financial markets. “The great fear with China’s situation at the moment is that we’ve seen this movie before,” he told ABC. 

“We’ve seen State-led investment growth delivered in the Soviet Union in the 30s, in Brazil in the 60s, in Japan and Taiwan in the 70s and 80s, in some of the east Asian countries, in the 80s and 90s, and in almost every case, really strong growth led by State investment reached a point where that investment became unproductive and there was a long period of slow growth that followed it.”

China is throwing money at the stock market to support it, he said. “They have provided more than three hundred billion dollars in support for – to refinance local government debt. They’ve provided more than one hundred billion dollars in order to continue the infrastructure growth right around their cities.” These moves will solve problems in the short term, he said, but do not bode well for the long term.

Its current spending binge, in other words, may simply be propping up bad investments. “The big question is, is that investment productive?” Andrew Charlton said on ABC. “Or is it the type of investment that will be unproductive, and ends up in bad loans and slow growth?”

The head of the International Education Association of Australia said they are always concerned whenever there is a major shift in any market. “The China market accounts for thirty-five percent of an eighteen billion dollar a year industry to Australia. We have to make sure we do everything we can to encourage that market.”

Still, the economic future of Australia depends heavily on what happens in China. “Australia and China’s economies are remarkably complementary,” Andrew Charlton said. “And it’s for that reason that Australia was tied to China on the way up, during China’s enormous growth phase, and will be tied to China on the way down as their economy slows.”

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