Profits of China's major industrial firms dipped 2.9% year on year in July, sharply down from a 0.3% decline posted in June, the National Bureau of Statistics (NBS) in Beijing said on Friday.  China also announced Friday that restrictions on foreigners investing in property would be eased. With the Federal Reserve's annual symposium for central bankers set to open today in Jackson Hole, Wyoming, concerns about the Chinese economy will be a big issue through the week end. However, despite the focus in recent times on China, there are over twenty economies generally classified as emerging markets (EM) and they are not all in the same sinking boat.

 

"One must distinguish between EM economies in general and China," Daniel Gros, director of the Centre for European Policy Studies (CEPS) in Brussels, said in an interview with Xinhua, China's official news agency. "The commodity exporting EMs are in deep trouble because of the fall in export prices."

The currencies of Russia, Indonesia, South Africa, Brazil and other commodity exporters have tumbled to multiyear lows against the US dollar and as stock indexes collapsed, advanced country investors have withdrawn capital.

Gros added, "some of them (Russia, Brazil) have failed to make reforms to foster manufacturing exports. Few EMs have the classic problem today of a large foreign debt but they start running current account deficits, which they cannot do for long."

China could be termed a known unknown and after 35 years of hyper growth, the adjustment from investment to household consumption will not be easy.

Dani Rodrik, professor of International Political Economy at Harvard University’s John F. Kennedy School of Government, has published extensive research on globalisation and he is a native of a significant EM country, Turkey.

Prof Rodrik writes that "15 years of hype, a new conventional wisdom has taken hold: emerging markets are in deep trouble. Many analysts had extrapolated rapid growth in countries such as Brazil, Russia, Turkey, and India into the indefinite future, calling them the new engines of the world economy. Now growth is down in almost all of them, and investors are pulling their money out – prompted in part by the expectation that the US Federal Reserve will raise interest rates in September. Their currencies have tumbled, while corruption scandals and other political difficulties have overwhelmed the economic narrative in places like Brazil and Turkey."

He says that there was there was no coherent growth story for most emerging markets and adds that South Korea and Taiwan transitioned from being poor countries to being advanced country democracies through industrialization.

"By contrast, most of today’s emerging markets are deindustrializing prematurely. Services are not tradable to the same extent as manufactured goods, and for the most part do not exhibit the same technological dynamism. As a result, services have proved to be a poor substitute to export-oriented industrialization so far" – Prof Dani Rodrik.

Emerging economies today have a slower path to riches as they have to depend on developing an educated population and governance institutions.

Prof Rodrik compares China and India: China from the late 1970s depended on  turning farm hands into low skill manufacturing operatives but generating an instant boost in productivity. China has improved skills and built a modern infrastructure. China's literacy rate is about 95% compared with India's 74% and the while latter developed an Information Technology sector, employs few Indians. Meanwhile India has had mixed success with manufacturing.

"New entrants into standardized manufacturing activities face much greater global competition today than companies in Korea or Taiwan faced in the 1960s and 1970s or China faced in the 1990s. Even though its production costs have been rising, China itself poses a formidable competitive challenge to any producer attempting to make inroads on global markets," Prof Rodrik said in a 2013 paper.

Alan Beattie in the Financial Times writes today writes: "There have been myriad attempts to sort EMs into different categories susceptible to different shocks, the most recent being the Morgan Stanley typology reproduced here. But the history of previous episodes of market turmoil, most particularly the taper tantrums of last year and early this year, is that all EMs can get drawn into the maelstrom."

Image above is of the Shanghai World Financial Center (centre building)