By Tom Bradley

“The potential growth rate has fallen to 7-8 per cent, partly because of a shrinking labour force; excess capacity has become massive even by Chinese standards; financial risks have risen, driven by excessive local authority borrowing, housing bubbles and growth of shadow banking; the country is now more than 50 per cent urbanised but its cities suffer a range of ills, including pollution. Finally, the resource-intensive growth pattern is hitting limits, notably of water, which is not a directly tradeable commodity.” - Martin Wolf, Financial Times, March 25th, 2014

People are worried that China is slowing down and the impact on the rest of the world will be meaningful. I share these concerns, and have for a couple of years, but I can’t help but think we’re framing the issue incorrectly.

If this was another country, Mr. Wolf’s list of challenges would spell certain recession. But because it’s China, we talk about growth weakening to 7-8% from 10% plus. Isn’t the real concern that China goes to a more pedestrian 1-2% for a while before it regains momentum? The economists and commentators aren’t saying it, but I think what markets are worried about is that China goes ‘no growth’ for a while.

But please don’t quote me on this because as Mr. Wolf says, “Betting against the success of Chinese policy makers has been a foolish wager.”