Slowing down, but far from fragile

An employee counts yuan banknotes at a bank in Huaibei, Anhui province June 22, 2010.[Photo/Agencies]

On recent trips to the West, I've discovered that the further from China people are, the worse the economy looks.

After his recent trip to the United States, Chinese president Xi Jinping is visiting the United Kingdom this week and having him in town might help lessen the gloom with which some in the West view the Chinese economy.

The recent stock-market correction, currency devaluation, and data disappointments have exacerbated concerns about China's slowdown. We are all impacted by this, and investors in the West seem shaken; they will look to Xi for explanations and, more importantly, reassurance.

Western commentators often question Beijing's willingness and ability to respond effectively to China's challenges. They struggle to see a country transitioning to a more sustainable economic path, ready to embrace reform and engage more with the world.

Maybe closer scrutiny would help.

There is no denying there are pressures; real economic activity is slowing in China, and there are risks from the ongoing property-market correction, excess capacity in the manufacturing sector, and high debt levels. But the pessimism is overdone.

Recent turbulence should not be mistaken for a drastic worsening of fundamentals. If anything, such setbacks have prompted policymakers to give greater priority to reform, and to ease policies more decisively.

We have seen down-payment requirements being reduced for first-time homebuyers. The sales tax on small cars has been halved. Targeted fiscal spending is up 15 percent in the first eight months of 2015. This is in addition to a more accommodative monetary policy, including five interest rate cuts and three reserve requirement ratio reductions since November last year.

The impact of such easing is yet to be seen. These policies feed through to the real economy with a lag of five to nine months, according to People's Bank of China researchers.

The recent renminbi depreciation illustrates another key challenge China faces: the scope for its multiple policy objectives to be misread by the market.