It's hard to get excited about China's efforts to slow its white-hot economy. Sure, the world is watching - it has to. An overheated China that spirals into crisis could make the region's 1997 meltdown look negligible. China, after all, is the world's No.4 economy and one that even Japan - the second-biggest - is relying on for growth.
The United States also has a big stake in a Chinese soft landing. Corporate America has found China's cheap labor and land to be ideal for boosting profits in a competitive world. And then there is the $326 billion of Treasuries held by China's central bank. That keeps U.S. interest rates low and consumers in the stores.
Even so, it's difficult to buy into the view that China really wants to slow its economy, at least not significantly. To date, its efforts smack more of public relations than genuine steps to reduce growth. Then again, how would China do it?
It's often pointed out that China is a command economy controlled by officials in Beijing. Yet they have far less sway over their $2.2 trillion economy than many analysts assume, and China's model is to blame. Increasingly, local governments are dominating development. Since they benefit from all the investment rushing to China - and creating risks of overheating - they're loath to tap on the brakes.
Not only does China lack the kind of vibrant debt markets that could make its monetary policies more potent, it also has little power over some of the forces driving the economy, which grew 11.3 percent in the second quarter.
Where can China look for direction? Asia's 1997 crisis may offer some clues about what China is experiencing at the moment, and where it's headed.
On the face of it, the events that slammed Thailand, Indonesia and South Korea before denting markets around the globe seem of little relevance to China. A major trigger for the crisis was Thailand's devaluation on July 2, 1997. China is almost universally thought to have an undervalued currency. It also avoided the first crisis, keeping the yuan pegged in 1997 rather than devaluing it.
Yet there are some intriguing similarities between the challenges facing China today and the ones Asia confronted nine years ago. Just as with many economies in the region in 1997, investors are concerned about the quality of Chinese growth.
Lost in the hype about China's rise is the reality that much of the economic expansion is powered by public spending and by investment from abroad. In other words, there's little about China's boom that's self-sustaining. Asia was in that situation in 1997.
Together with exports, investment has catapulted China's economy past the United Kingdom in the 28 years since Deng Xiaoping's free-market changes. In the most recent quarter, gross domestic product grew at the fastest pace since 1994, when the economy was a quarter of its current size. And yet, China has one of the world's lowest ratios of household spending to GDP.
The kinds of overcapacity in industries and unproductive investments that were at the root of the Asian crisis abound in China. What's fascinating about China's rise is how it's all good. It's the place to be, it's thought to be run by geniuses and anyone who isn't rushing there is a fool. Yet China must create millions of jobs each year to maintain stability, while also slowing growth. That's quite a challenge.
Just as in Asia before 1997, investors and corporate executives are so dazzled by China's growth that they're willing to overlook the risks of it all coming to an end. To them, it's China's vast potential and its 1.3 billion people that matter, not a rickety financial system, rampant pollution or the risk of social instability.
Unfolding around China today is one of the greatest building booms in history. A dozen cities vying to be the next Shanghai are constructing five-star hotels, shopping centers, six-lane highways, universities, airports, you name it. It's all being financed with debt that could go bad if the economy slows. China also is producing too much cement, aluminum, clothing and other goods. In that way, the country has its fair share of deflationary pressures to offset concern it may overheat.
In the years since 1997, Asian economies have tried to move away from so-called fixed-asset investments such as schools, roads, factories, dams and bridges, in favor of stimulating consumer spending. At the moment, spending on such projects only adds to China's overcapacity. Over time, that may crimp corporate profits and exacerbate the bad-debt threat for banks.
China's currency is also the target of more and more speculators. No foreign-exchange trader would test China's resolve to keep the yuan from strengthening. It's intriguing, though, that just as in Asia's case in 1997, China's economic pressures are showing up in its exchange rate.
None of this means a Chinese crisis is imminent. Officials in Beijing have proven remarkably astute at keeping things from running out of control. Yet if China is searching for a glimpse of what lies ahead, Asia's experience may provide some insight.
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