Ali Velshi fpr CNN Money Magazine: China: Handle with caution

October 25th, 2012

CNN Money Magazine
October 23, 2012
By Ali Velshi

Wall Street hyper-focuses on how fast China will grow this year or next. As it became clear to me on a recent visit there, my first in five years, that’s the wrong question.

I canceled my flight from Beijing to Shanghai to try out the high-speed train, which covers 811 miles — the distance between New York and Chicago — in less than five hours. Amtrak would take 19.

Five years ago Shanghai was too smoggy and under too much construction for me to understand what China’s urban transformation could mean.

To enter the city today is to be transported to a future of massive skyscrapers connected by superefficient subways. Those buildings are filling up. In 20 years, more than 350 million people will have moved from the countryside to cities.

This first-rate infrastructure now supports the world’s second-biggest economy. The real question to ask about China is whether its leaders will act as if that’s what they’re managing rather than relentlessly pursue export growth on the backs of a cheap labor pool.

Ann Lee, author of “What the U.S. Can Learn From China,” argues the answer is yes. “They know that they need to put money in people’s pockets,” she says. As evidence, Lee points to China’s 800 million cellphone users and the 6 million students graduating college each year.

Reforms, yes, but…

Financial reform, such as expanding the role of private capital in the banking sector, is slowly taking hold. Michael Hasenstab, of the Franklin Templeton Fixed Income Group, wrote recently that this could “elevate China from a middle-income to a high-income country” over the next decade.

Read More