You Can Forget About China Overtaking the U.S. Economy

The likelihood that China will fail to grasp the nettle of reform in time to avert a structural crisis is rising from probable to almost certain.

by Ambrose Evans-Pritchard
May 8, 2016

China panic has abated. The Shanghai Composite index of equities is back above 3,000. The much-feared devaluation never happened.

The yuan has strengthened against the dollar this year, to the consternation of Western tourists. Outflows of money have slowed as dollar debt is paid off and Chinese investors wind down ‘carry trade’ positions.

The central bank (PBOC) is no longer depleting the country’s $3.2 trillion foreign reserves to defend the exchange rate, and thereby tightening monetary policy as a nasty side-effect. China has the apparatus of an authoritarian state to curb capital flight, and is not shy about using it.

The International Monetary Fund has just raised its forecast for Chinese growth this year to 6.5%, insisting that it is still far too early to talk about a hard-landing.

Yet that is where the good news ends, for there is a poisonous sting in the tail.

Maurice Obstfeld, the IMF’s chief economist, said the trade-off for this year’s grow…