What will be said at China’s National Congress – and what else should be said?

October 11, 2017, by Hubert Fromlet, Kalmar

Presentation by Hubert Fromlet at the annual conference “Baltic Sea Region and China Day”, arranged by  Linnaeus University (Linnéuniversitetet) in Kalmar on October 11, 2017

One week from now, China’s important National Congress will be opened – taking place every fifth year. This is a very important event since new members of the “Standing Committee of the Politburo of the Communist Party” will be introduced to the general public. As I have written in previous blogs, the Standing Committee is the by far most powerful political decision-making group/institution in China. Now – most probably – five new members will join the Standing Committee. Only the Chairman of the Communist Party (CP) and President of the People’s Republic of China, Xi Jinping, and the current Prime Minister, Li Keqiang, will keep their (strong) positions in the Standing Committee.

Currently, they are ranked as number one and two in the Standing Committee. China experts feel sure that they will remain in these very influential positions also after the 19th National Congress. Thus, the main question is how close the five new members will be to Chairman Xi Jinping – probably very close (but this is not quite sure yet). The answer to this question will also be crucial as regards the course of future economic policy reforms. Furthermore, the composition of the Standing Committee should also give hints on other future policy directions.

What will be said at the National Congress?      

Official GDP statistics – which may be (somewhat) misleading, some provinces were recently even accused or suspected of statistical fraud – show that Chinese economic growth so far this year has been somewhat above expectations. In the beginning of 2017, China’s political leadership predicted a GDP-growth rate for 2017 of “6.5 percent or somewhat more” (result Q1 and Q2 in 2017: 6.9 percent). So far, GDP-growth in 2017 turned out to be somewhat more than forecasts indicated some months ago – exactly as one could expect when China’s leaders are about to face the National Congress. Of course, the economy has to look like being on a promising track.

It also seems probable that Xi Jinping and Li Keqiang will point at different economic and social challenges that will have to be tackled in the forthcoming years. In this specific respect, openness has improved clearly in the past ten years or so. However, the different options to the solutions of these structural challenges remain many times quite opaque.

Altogether, China’s main political leaders will give quite an optimistic picture of the economic future of the country without forgetting to mention that the way to get there could be quite bumpy. They will most certainly stress the very desirable development toward a considerably stronger role of the service sector – both because of still insufficient supply of services and environmental harm coming from old-fashioned industries. Such a development could dampen GDP growth somewhat further. But it would be beneficial for the Chinese people in the longer run and put China on a healthier growth track. Emphasis will be put on the fact that the environment is a key issue. Furthermore, it would be striking if China’s political leaders forgot to mention the burdening national debt problem (currently around 260 percent of GDP compared to 150 percent ten years ago).

What else should be said? 

Economic conditions in China have become more transparent in recent years but the current situation is still far from being satisfactory in this specific respect. It will be interesting to see to what extent Chinese political leaders will give (good) answers to the following 15 important questions during the National Congress:

– In general terms: How much have reforms proceeded since they were introduced by the so-called Third Plenum in 2013 – and where are the reforms now in relation to the evaluation year of 2020?

– ln more specific terms: What about the efforts on more detailed levels as announced at the Third Plenum in 2013 in 16 reform areas and 60 subchapters?

– What about the political plans to erode extreme poverty by 2020?

– What about the tackling of the future demographic challenges and the officially stressed “juvenalization” of the country?

– What about more concrete details about the enormous infrastructure project “Belt and Road Initiative” from China to Europe?

– How does urbanization proceed and how much progress can be reported – and what can be added more precisely about future steps to support a better environment, particularly since the Chinese so many times declared their willingness to stick to the global Paris Climate Agreement – unlike the American President.

– Is everything possible done or initiated to avoid major macroeconomic imbalances in the foreseeable future?

– But: What about (current) high credit growth in this stability context – and how can economic growth be made less dependent on credit expansion?

– What about the reforms/modernization of the domestic banking system?

– What about the necessary (institutional) improvements of the capital market, both concerning bond and stock markets?

– What about the planned transition to more consumption-led growth (at the expense of the still very high investment ratio, in percent of GDP)?

– What about social reforms – their realization, speed and volume (important to the willingness of people to increase their consumption demand further)?

– Added to the question right above – what is the trend of the private households’ high savings ratio (another factor with direct impact on private consumption)?

– What about the more recently officially announced government priority for entrepreneurship, innovation and start-ups; are there concrete strategies or only words?

– What about lower corporate taxes (which indeed still are high)?

– And finally – despite all statistical shortcomings – what are the official objectives/forecasts for GDP growth in the longer run?

What can the new Standing Committee achieve?

As indicated before in this blog, the new Standing Committee will be responsible for all major policy decisions in China – economic policy included. Probability is high that Xi’s and Li’s economic reforms will continue – but without ruling out (temporary) distortions in the economy because of remaining disequilibria. More should be reformed and improved for a long time since China’s GDP per capita still is only USD 9000 which is about one fourth of the OECD average.

Thus, many more efforts have to be made – a strong need which, however, also could develop as a major incentive for continuous reasonable economic reforms and pretty good GDP growth, even during quite a long time in the future. Hopefully, China can and will avoid acting for artificial short-term growth like during the global financial and economic crisis some years ago.

Still, a lot of changes and surprises will happen in the economic powerhouse of China. Again, I recommend politicians, professional analysts, students and corporate decision-makers in our part of the world to follow developments in China on a regular basis.

China is and will remain a difficult country to understand. Much more complicated than most people assume!


Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
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China’s economy will be presented in a good shape in six weeks

September 12, 2017, by Hubert Fromlet, Kalmar

After the German general election, China’s National Congress will be another major globalt political event. The various sessions start on October 18, revealing also the names of the new Standing Committee of the Politburo. This will be an extremely important event and will give us further indications on China’s future economic reform policy.

It also seems to be a safe prediction that the two remaining two members of the Standing Committee, President Xi Jinping and Prime Minister Li Keqiang want to present China’s economy in a positive shape in the middle of October.

Looking at China’s latest economic statistics, these ambitions can be met – at least on the paper. Some examples can be mentioned:

– GDP +6.9%, q1-2 2017, stabilized growth downturn (2010: +10.6%);

– industrial production +6.8%, 2017/1-7, probably reflecting structural progress in industry (2010: +15.7%);

– retail sales +10.7%, 2017/1-7, shrinking growth but still not bad (2010: +23.3%);

– fixed investment +8.3%, 2017/1-7, necessary slowdown (2010: +23.8);

– gross exports on dampening trend but in 2017 slightly stronger than in 2016 – and still surplus in the current account in July 2017 (+0.7% compared to 3.9% of GDP in 2010);

– stabilization of the still very high currency reserves after a period of shrinking numbers (billion 3081 USD in July 2017).

When it comes to government budget deficits, it is often unclear whether local governments are included in statistics or not (usually not because of more favorable debt numbers for the central government). Officially, the Chinese consider public fiscal debt being under control.

To summarize, official statistics confirm that a remarkable and officially desirable downsizing from the overheating year of 2010 has been taking place.

But how much in reality? This we really cannot know because of all the statistical shortcomings. Anyway, China’s political leaders will present an economy at the National Congress six weeks from now in line with objectives and positive expectations.

There will be no alternative to this description – despite still existing needs od structural changes and reforms. However, most of these structural challenges and reform needs will be mentioned by the political leaders. This kind of economic openness has indeed improved in the past few years.

Hopefully, I won’t be wrong on this latter point.


Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
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Summer news from China – how strong are SoEs in reality?

August 30, 2017, by Hubert Fromlet, Kalmar

Back from a long summer vacation, I have indeed a feeling that I missed a lot of interesting news about China. In an attempt to catch up with my information deficit, I found some striking news. Let me mention a few.

1. GDP remains at its ( easily) predictable growth path

GDP growth for the second quarter came in at 6.9 percent (yoy). Some Western analysts claimed that this was higher than expected. However, what are these small deviations from expectations really worth when we simultaneously know that Chinese GDP statistics hardly fluctuate and regularly land in line with forecasts and objectives of the politicians and government authorities?

There is no doubt that the official growth objective for 2017 will be met (“6.5 percent or somewhat more”) – particularly in the light of this fall’s Party Congress. No major (economic) accidents are “allowed” to happen any time soon.

Probably five new members of the the so-called Standing Committee will be appointed during the Party Congress to join the only continuing top leaders of the current Standing Committee, i. e. President Xi Jinping and Prime Minister Li Keqiang. It is important to keep in mind that the Standing Committee clearly must be regarded as the most important decision-making institution in China.

Thus, the importance of this forthcoming event in – presumably – October should not be underestimated. The future of the economic reform process will to a high extent depend on the new names in the Standing Committee and their relations to Xi and Li .

2. Strong rise of profits in state firms

According to the Ministry of Finance China’s state-owned enterprises (SoEs) increased their profits in the first half of 2017 by strong 23 percent due to “structural supply side reforms”. (Supply side policy means in China capacity adaptations – mostly reductions – and improved/new access to goods and services. In our part of the world, however, we see supply policy more aiming at more fundamental, growth-supporting structural conditions for private households, companies and governments).

However, China’s has already decided on an ambitious strategy for SoEs but as late as during the so-called Third Plenum in fall 2013. Thus, the above-mentioned remarkable increase of profits should have come after only 2 1/2-3 years of structural changes – if we trust the calculations. Is there reason to do so? Some doubts are probably motivated – despite the obvious downsizing of particularly not really competitive exporting SoEs.

3. New China-Europe transport links

Really amazing news was the message about the introduction of the freight train service between Zhengzhou (Henan province) and Munich. This can be regarded as another little step toward the verification of the so-called Belt and Road initiative, an extremly ambitious China-led project aiming at the support of transports and economic growth between China and as far as to Western Europe.

While reading the article about this issue, I unfortunately got my doubts again about the quality of economic information.

Nothing very serious – but one has to wonder how the reporting Chinese agency can put together a description like this in the same article: “Munich is renowned for its auto industry and is home to brands such as BMW, Porsche, Mercedes Benz, and Bosch.”

However, all the three latter companies have their main offices in Stuttgart. This is not really a secret.

4. Surprising expansion of Huawei

In the first half of 2017, the major Chinese cell-phone producer Huawei achieved more or less the same market share as the pioneers of Apple. This is a surprising development – at least in my eyes.

We have to learn and to accept that China increasingly will surprise with globally successful companies – even if it still is hard to predict the velocity of such a development. But ears and eyes should be kept open.


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


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