China

Rapid GDP growth likely in Q1 in times of rising Chinese self-confidence

Wednesday, April 7th, 2021

China’s GDP result for the first quarter of 2021 will be spectacular. It could come in even closer to +20 % than to +10 % when comparing to the same quarter last year. However, such an enormous growth number should be analyzed very carefully – despite the fact that China in the beginning of 2021 will prove being the most rapidly growing major economy in the world.

It should be especially considered that the Chinese economy to a very high extent was locked down during the first quarter of last year. This low statistical base explains the current high growth rate. However, during the following quarters the Chinese economy recovered visibly, leading finally to a reasonable average GDP growth in 2020 by 2.3 %. The improving foreign demand contributed to the still ongoing Chinese recovery as well (without considering possible statistical quality problems in this article).

However, the improving GDP performance in the course of 2020 will lead to gradually decreasing quarterly growth rates during 2021 – but still good enough to (easily) meet the official objective for 2021 of more than 6 %.

Where does the growing Chinese self-confidence come from?

Analysts may have observed that the official China showed quite some increasing self-confidence during the past year(s). Certainly, I have wondered what this obvious development is based on. The following three different possibilities seem to be plausible (without specific order):

¤  Successful fight against covid-19.
The Chinese still feel very proud of their strategy of combating the covid-19 epidemic/pandemic. Even if transparency in this specific respect never has been quite clear, important efforts against the corona virus are also recognized by many observers outside China.

¤  Economic progress – the recovery after the covid-19 lockdown included.
China achieved very high GDP-growth rates during the past decades. This is well known. Looking back only a few quarters, it can be noted that China also had the fastest GDP turnaround in an international perspective after the big loss in last year’s Q1. This latter development can be regarded as a further injection for the rising self-confidence.

¤  The recognition of being a (global) political powerhouse.
For a long time, China made big efforts to receive broadly anchored international appreciation – particularly by referring to its economic progress.  More recently, however, China is also increasingly referring to its growing political strength and self-confidence at home and globally – not always for gaining (international) sympathy points.

Conclusion – the world now meets a superpower

Altogether, one may conclude that China’s economic progress has been contributing to the increased self-confidence of the political leadership. However, one may also argue the other way around. This would mean that the harsher political environment on the other hand may have provoked more positive messages about China’s good domestic and international economic future. Good economic prospects use to withdraw focus from politics, an experience from the past.

The obviously increasing Chinese self-confidence over time can therefore be derived from the finally achieved position as a political, economic and – not to forget – military global superpower. Thus, there are three sources for the described development of China’s considerable self-confidence which also induces quite some resilience against international sanctions. This is reality – whether the EU, the U.S. or other countries like it or not.

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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China’s NPC radiates growth confidence – as expected in the centenary year

Monday, March 8th, 2021

China’s still ongoing annual National Party Congress (NPC) gives a substantial number of short-term objectives and long-term strategies to the 3000 delegates. Celebrating in 2021 the 100-year anniversary of the Communist Party of China (CPC) makes this year’s convention quite special (as I pointed at in my latest blog from February 24 on http://chinaresearch.se/ ).

Interesting details from the NPC – with obvious growth optimism    

¤  Encouraging GDP objective for 2021. Going back to my own blog source above, I felt quite sure before this year’s NPC that Prime Minister Li Keqiang would please the delegates (in Chinese:”lawmakers”) with an encouraging GDP forecast for 2021, maybe between 7 and 8%. Indeed, this range was not very far away from Prime Minister Li’s finally announced goal for 2021 – “more than 6%” in economic growth. I may regard “more than 6%” as somewhat conservative but I see this number as positive as well. Even 7-8% this year remain achievable.
Conclusion: In my view, an official GDP growth by “more than 6%” is indeed an encouraging goal despite the relative weak statistical basis from last year – and not a cautious one as initially described by many international commentators. The inflation goal of 3 % for 2021 seems to be alright as well.                                                         

¤  Comeback for long-term issues. In the past quarters, Chinese and global analysts dealt strongly with short-term issues due to the damage that had been caused by the corona crisis. During this year’s NPC, also long-term objectives for high tech, clean energy, electric cars and other ways to improve the environment were taken up. However, I miss a more promising strategy for de-carbonization. President Xi Jinping also reminded of necessary improvements of education and healthcare. Remarkably, no numeric goal for GDP has been set for the recently commenced 5-year plan. My best guess is that it will turn out being something close to 5%.    
Conclusion:
Updated yearly GDP objectives should be good enough in the future for short-term and for 5-year planning – and also for improved flexibility.

¤  Continuous priority of innovation and technology. Prime Minister Li repeated at the NPC what is widely known: “Innovation remains at the heart of China’s modernization drive. We will strengthen our science and technology to provide strategic support for China’s development”. Despite the fact that all this is expressed only verbally, China’s technological ambitions have been underlined one more time.
Conclusion: Westerners should not underestimate the Chinese ability of spreading technology both internationally and of using it at home, for power-conserving reasons as well. The Chinese want to reduce their dependence from the U.S. – also by increasing their annual R&D budget by 7% yearly between 2021 and 2025. Green development is given a lot of priority. President Xi Jinping seems to favor the creation of a green-GDP concept, too.

¤  More priority for private consumption. Also this specific strategy is not really new but it is part of the new 5-year plan. Of course, there is an intention to achieve this by more domestic production of consumption goods – supported by the political promises of reasonable increases of disposible incomes.
Conclusion: This policy strategy is obviously linked to the plan of modifying the Chinese economic model by somewhat reducing the role of exports and investments as growth factors and instead increase the share of private consumption related to GDP – probably as much as possible supported by “Made in China” (but I could not find further updated detail on this latter issue).

¤  Focus on stability. Particularly Prime Minister Li Keqiang emphasized the need of stability in many areas – for ensuring future progress in the Chinese society and economy. Among the mentioned areas were employment, the financial sector, foreign trade, investments, supply chains – and obviously Hong Kong.
Conclusion: Different risks are and remain an issue for China’s political leaders.

¤  Important changes for Hong Kong. Beijing seems to plan far-reaching changes of the election system making it impossible for opponents to the People’s Republic to be promoted to any influential political position in Hong Kong.
Conclusion: Developments in Hong Kong remain an important topic for analysis. Probably, Hong Kong will increasingly be regarded as a part of Mainland China internationally. Hong Kong appears moving to “one country / one system” considerably faster than one could expect some years ago when having read the still valid Hong Kong Basic Law. https://www.basiclaw.gov.hk/en/basiclawtext/images/basiclaw_full_text_en.pdf

Summary – no surprise but tightened tone against Hong Kong

Altogether, the NPC did not offer special surprises this year. Not even the relative GDP-growth optimism can be interpreted as surprising. Really notable, however, appears the widened political threats from Beijing against opponents in Hong Kong.

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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China’s political leaders will soon give important messages

Wednesday, February 24th, 2021

At the end of next week, China’s most important political decision makers and delegates from all over the country will come together in Beijing to join the National People’s Congress (NPC), the formal legislative organ of the People’s Republic and often in the West described as a kind of parliament. The NPC is always – both formally and informatively – an important event. This year, the NPC should be regarded as even more important than usual (more about this below). There are at least five outstanding ingredients the Chinese leaders probably will promote at the NPC as success stories of yesterday, today, and probably tomorrow:

¤  the elimination of absolute poverty in 2020 – indeed a major success;

¤  not the situation but the consequence of the political tensions with the U.S. and the EU, making it possible for China to demonstrate its capacity of increasing political and military power; exciting to watch what tone with the U.S will be applied;

¤  the superiority of China in the systemic fight against covid-19, and the achievement having been the only major economy with positive GDP growth in 2020; furthermore, I really would be surprised if the official GDP forecast for 2021 looked modest; 8 is the luckiest number in China, so I predict a GDP goal in 2021 at 8% (or somewhat lower, 7-8%);

¤  the new 5-year plan, possibly being presented again in a positive Communist Party (CPC) centenary spirit with more details – maybe including applicable plans how possibly to convert China into a high-income country;

¤  the strong vision of making it possible for China to double its GDP per capita by 2035 – hopefully explained by revealing details.

2021: A very special year – the centenary of the Communist Party of China

All these – in CPC sense – good news for the Chinese people will be embedded in a particularly positive way because of the 100th anniversary of the foundation of the Communist Party of China. This should be kept in mind when interpreting different NPC speeches starting on March 5.

It will be very interesting to observe how concrete or vague different objectives will be presented at the NPC – particularly when it comes to China’s high-tech future and the way to manage the objectives of the “Made in China 2025 plans” and beyond. What will the President of China and CPC Chairman Xi Jinping tell the NPC audience more concretely about the long-term objectives and projects until 2035? Hopefully more about envisaged social and environmental improvements. Certain official hints in this direction have already been made in a previous official outline for long-term goals until 2035.

Finally, I am very keen to know whether a reasonable evaluation of the reform plans from the Third Plenum of 2013 until 2020 will be presented (which originally was planned for 2020). Last year, I could not find any detailed evaluation.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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