About the understanding of the United States and China

26 January, 2021

Somewhat unexpectedly for many analysts, we notice currently some sharpening of the more or less permanently underlying psychological tensions between the United States and China. However, the pitch has become louder in recent days.

This is not really a surprise. Market expectations were too high in a sense that the new president of the United States would behave less challenging in the eyes of the People’s Republic – an interpretation I have been warning for in this blog right on the American election day (“Today, we do not know about the outcome of the American presidential election. We do not even know whether a possible President Biden would work for really improving relations to China – if yes probably not very quickly”; chinaresearch.se from November 3, 2020). Besides, it should not be overlooked that Democratic administrations historically have proved more protectionist than Republican.

The prominent role of psychology in both countries

The American psychology: The recent violation by Chinese fighter planes of what the U.S. calls “Taiwanese airspace” is, of course, a strong verbal provocation for the Chinese political leaders. Taiwan as a part of the People’s Republic is one of the most important issues for president Xi and his other leaders. Consequently, foreign governments are not welcome at all to regard Taiwan as some kind of independent. Furthermore, it should not be forgotten that the U.S. now considers China increasingly as a serious technological competitor. This is why the United States also under President Biden will keep quite some distance to China. He will not work ambitiously for fundamental improvements between the two strongest superpowers. Psychology plays a major role also in this context.

The Chinese psychology: The understanding of the Chinese position vis-à-vis the United States needs a lot of psychological application as well. Criticizing Beijing’s Taiwan policy or favoring Taiwan from abroad is regarded as a no go. A second important obstacle for normal Sino-American relations can be found in the fact that China in 2021 is celebrating the 100th anniversary of the foundation of the Communist Party. American verbal interference cannot be accepted. Chinese leaders want to meet their people and the whole world from a position of strength.

Here, the Chinese have a very important and prestigious event that does not allow for what the Chinese may call provocation or humiliation from the United States without reaction.

Conclusion: There is no room for (visible) improvements of Sino-American political relations for the time being, contrary to market expectations only a few days ago. Psychology plays a prominent role also in this context.

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

 

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Chinese recovery in 2020 “needs” to gain visible momentum in 2021

18 January, 2021

2020 turned out to become less of an “annus horribilis” than one could expect after the early eruption of covid-19 and the publication of the GDP development for the first quarter of last year (-6.8 % yoy). After this period of economic loss, a GDP rebound could be noted in Q2 and Q3 (+3.2 % and 4.9 %).

For years, I had my doubts about the quality of Chinese GDP statistics. Major qualitative progress still remains invisible – even if some improvement may or should have taken place more lately. One of the problems in such a context is certainly that even justified improved statistical quality can lack credibility when substantial shortcomings obviously have been existing for many years.

Positive GDP growth in 2020 good tool for political marketing

Now, we also know the GDP result for Q4 (+ 6.5 %, yoy and + 2.6  % compared to Q3). This is in line with the expectations of markets and most probably also what the leadership of the Communist Party wanted to see.

President Xi Jinping and his colleagues from the Standing Committee of the Communist Party – the most powerful political institution in China – should therefore be pleased with the annual GDP growth. Despite corona, the Chinese economy still managed officially a 2. 3 % GDP growth compared to 2019 as a whole – better than in all major economies. Chinese politicians and media will certainly do their marketing of this performance (described as a major success of the Chinese system).

Also for the past year, not many concrete structural changes or initiatives can be found in this annual GDP report. Structural policy orientation may have, however, been more complicated and less urgent during the acute pandemic. In 2021, there should be time for new efforts to speed up structural reforms and their transparency – despite the following special event a lot of attention will be put on:

In 2021, the 100th anniversary year of the Communist Party (CP) will be celebrated. Historical achievements will be summed up frequently by important political leaders. But how much will be talked more concretely – and not only generally – about the future?

China “must” achieve further acceleration of growth

The jubilee celebration year will move leaders of the CP in a triumphant mood. Major historical achievements will dominate the headlines like “The end of extreme poverty” or “The comprehensively well-off society”. However, the future has to be regarded as well – both in the shorter and the longer perspective.

Of course, the longer perspectives can only express vague visions but a re-emphasis will be put on supply-side policy and quality improvements. On the other hand, the short-term developments and perspectives can be shown more concretely. This includes the development of GDP in the course of 2021.

Here we have certainly a strong reason for efforts to do everything for considerable acceleration of GDP growth in 2021. This is a kind of “must”, perhaps rebounding the economy up to 7-8 % (without renewed major covid-19 complications).

Gradual positive consumption effects may also be derived from the planned demand-side policy reform, based on social reforms favoring the less wealthy part of the population. Furthermore, the announced more favorable treatment of corona-damaged small businesses should also be beneficial to GDP already in 2021 like the continuously relatively soft monetary policy by the PBoC.

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

 

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Russia – a modest recovery after a more limited slowdown?

13 January, 2021

Also Russia was – and still is – sharply hit by covid-19. For this reason, nobody should be surprised that Russian GDP has shrunk in 2020, probably by 3 ½ % – 4 % (will be published on February 3). This annual fall of GDP looks, however less dramatic than in most other European countries.

But how strong will a Russian rebound of GDP growth turn out to be – hopefully already in 2021? More than the generally expected growth rate of 2.5 – 3% which may be even less than predicted or possible EU growth? The development of covid-19 cases/vaccinations and GDP growth of the EU and China will play an important role in the Russian growth context for the year to come – but also the future political relations between the Biden administration and Russia.

In 2020, April and May were shocking months when GDP growth declined by 9.5 and by 8.9 % (yoy). During the following months, GDP drops stayed at around 4 %; the latest available number showed a decline by 3.7 % in November 2020 (yes, the Russian Ministry of Economic Development publishes monthly GDP numbers).

Slight signs of recovery and a recommendation

At the end of 2020, there were signs of a slight recovery in Russian industry when comparing with previous months but not yet when relating to the development one year earlier. Retail sales recovered visibly from late spring to the end of summer but have been stagnating again in the past few months (mom). A new and indicating number for consumer confidence during Q4 will be published on January 18.

As a major reason for concern remains the development of fixed investments, last year clearly under the level of 2010 (like, for example, Brazil). This negative investment trend must be reversed if Russia ever should become able to enter a promising structural trend of its growth potential. A better investment performance could also lead to more diversification of products, also of those for exports in order to decrease the dependence on exports of energy (commodity) products.

Finally, I recommend my readers to regularly follow the illuminating weekly reports of the Finnish BOFIT Institute (The Bank of Finland Institute for Emerging Economies) which is linked to the central bank of Finland (Bank of Finland). BOFIT also prepares interesting forecasts on the Russian (and Chinese) economy https://www.bofit.fi/en/publications/

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

 

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