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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