When China sneezes …

China becomes a more important component of the global economy with every day that passes. Although America remains the world’s largest economy, at least for a little while, the Chinese economy is by far the largest contributor to global growth.

The slowdown in the growth of emerging economies in recent years only confirms this trend. China’s growth, with its enormous appetite for commodities and manufactured goods, played a key role in driving their expansion. The fact that China is itself slowing down, although officially still expanding at a reasonable clip, is of concern to everyone.

It has long passed the stage where the country is only of interest to China specialists. Anyone who seeks to understand the global economy needs to take careful note of what is happening within its borders.

With this in mind I was particularly keen to see A Touch of Sin, a 2013 film directed by Zhangke Jia. Although it is clearly illegitimate to generalise from one picture, this production provides a convincing backdrop to some of the challenges facing contemporary China. Contrary to what many of the critics claim the movie’s subject is not consumerism. Its focus is instead on difficult topics such as corruption, inequality, mass migration, sex work and the mistreatment of workers.

No doubt these are real phenomena but the film puts the worst possible spin on them. The four stories told in the movie, apparently based on tales related on Weibo (China’s version of Twitter), are resolved with considerable blood and gore. Even if they are all entirely true they should not be considered representative of typical experience.

Given the bleak character of the film it is not surprising it has provoked contrasting reactions. Evidently the Chinese censors have blocked it from domestic release. Meanwhile, the western media, often keen to dwell on China’s weaknesses, has generally taken a favourable line towards the movie. It is also worth noting that the film has a Japanese producer. With tensions between China and Japan running high the two countries are becoming increasingly prone to portraying each other in negative terms.

However, it is not only film-markers who are taking a relatively glum view of China. Diana Choyleva, the head of macroeconomic research at Lombard Street Research and a seasoned China-watcher, has argued recently that China has already suffered a sharper slowdown than the official figures suggest. On the basis of reworking the official data she says that real GDP contracted by 0.6% in the first quarter of this year. She also estimates that in the past three years it has had average GDP growth of 6% a year – half that achieved before the global financial crisis.

In her view an overvalued renminbi has made matters worse by decimating corporate profits. A currency depreciation is needed for the real economy to rebalance and grow.

All of these different takes on China’s culture and economy are open to debate. What is certain is that the fate of the world in the years ahead is closely tied to developments in China.

This blog post was first published today on Fundweb.