Emerging markets, generally

Was the current China crisis predictable?

Friday, October 13th, 2023

Presentation by Hubert Fromlet, Linnaeus University (Linnéuniversitetet), at the Baltic Sea Region/Emerging Markets and China Seminar 2023 in Kalmar

The Chinese economy develops currently very disappointingly. Market expectations from earlier this year were obviously not met – and certainly not positive expectations from earlier years either.

The following question remains interesting: Was the current economic crisis predictable? The answer should be – “yes indeed”.

Too little profound analysis in time

China became the number 1 exporting nation in 2009 and the number 1 total GDP nation in 2016 (in PPP terms). Thus, there were many years to increase knowledge about China. However, foreign (Western) analytical curiosity about the Chinese economic system remained by far too limited ever since the beginning of China’s era as an economic superpower. In many cases, final enlightenment happened as late as in 2022 during the Chinese covid-19 disaster or only this year caused by the serious real estate crisis.

Since the millennium change, I have singled out four kinds of foreign China analysts. They are

¤ specialized researchers at universities and institutes with focus on China,

¤ full-time and part-time China journalists at home or with location in China,

¤ politicians and ambassadors with long-time experience from China,

¤ analysts on global financial markets and forecasters without special analytical skills and focus on China.

Considering these four groups, it seems to be clear that there has been a number of experts indeed well understanding the forthcoming problems in the Chinese economy – but not so many people could be counted. This implies that financial markets – generally expressed – during many years have been standing for the lion share of the foreign interpretation of the Chinese economy; unfortunately, naively based on (wrong) Chinese statistics and the neglect of poor transparency. However, a positive change may be started in the foreseeable future – hopefully giving us conditions for better China analysis also on a global scale.

The visible and neglected warnings signals

One of the main difficulties for economists or other risk managers is the question about the timing of possibly bursting (financial) bubbles or the misery of other serious accidents. This is mostly impossible since aggravating developments usually happen “step by step”. However, “step by step” or gradually should not make managers to forget about a quite early stressed problem or risk. Let’s now turn to some recognizable early warning signals (which may have been given as much as 15-20 years ago):

Warning signals for China’s economy in the past decade   

About bad transparency:

Bernanke/Olson, 2016, https://www.brookings.edu/articles/chinas-transparency-challenges/

Fromlet, 2013, https://www.centralbanking.com/central-banks/debt-management/2254223/bank-of-finland-highlights-astonishing-lack-of-information-on-chinese-government-debt

Comment: Persistent bad transparency impacts negatively on potential growth.

About poor statistical standards

Ravallion/Jalan, 1999, https://www.aeaweb.org/articles?id=10.1257/aer.89.2.301

Fromlet, 2013, see above

Comment: Statistical shortcomings could/can be found when it comes, for example, to GDP, (youth) unemployment, inflation, government debt and particularly local debt, housing market, bad loans of the banks, subsidies, government support of state-owned companies etc. These shortcomings make economic policy too difficult.

About previous and the current real estate crises

Lu Gao (ADB), 2010, https://www.adb.org/sites/default/files/publication/28408/economics-wp198.pdf

Fromlet, 2014, https://publications.bof.fi/bitstream/handle/10024/44826/bpb1514[1].pdf?sequence=1

Comment: Developments on Chinese housing and commercial real estate markets should permanently be watched very closely since these two sectors mean so much to the whole economy.

About banks and financial markets

Poon/Wu/Ahmad, 2023, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/chinese-banks-enter-2023-in-worse-shape-than-global-peers-more-risks-ahead-73464612#:~:text=Collateral%20risk&text=Credit%20losses%20for%20Chinese%20banks,report%20from%20S%26P%20Global%20Ratings.

Fromlet, 2001, https://gmdconsulting.eu/nykerk/wp-content/uploads/2020/02/Behavioral-Finance-_-theory-and-application.pdf

Comment: Financial risks will remain a top issue for China analysis in the foreseeable future – also in a psychological respect.

About political developments

McBride/Chatzky, 2019, https://www.cfr.org/backgrounder/made-china-2025-threat-global-trade

Fromlet, 2017 (October 26), https://blogg.lnu.se/china-research/?cat=13398&paged=34

Comment: Politics and the economy belong together, particularly in a country like China.


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


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BRICS II – another BRICK in China’s global strategy

Thursday, August 31st, 2023

We recently noticed the BRICS summit in South Africa. Expectations in our part of the world were not hopeful before the summit in a sense that decisions from Johannesburg would mean an encouraging injection for the global economy. However, it was recognizable that China managed to launch another brick in its global political economic strategy by establishing its de facto leadership for the new and enlarged BRICS II organization.

Democracy clearly underrepresented …

I have been watching BRIC(S) from its start in the early days of this century – i.e. before South Africa was invited to join – as quite an unnecessary organization. BRIC(S) was initially launched as a smart financial marketing idea of an American investment bank without any other logical unifying argument than putting together Brazil, Russia, India and China as the four largest emerging markets with – then – potentially good economic prospects.

Then, two of these four founding countries were not democratic (China -and at least partly – Russia), and two others could be described as democratic (India and Brazil, plus joining South Africa some years later).

Now, when BRICS II will come into force in a few months time, this previously quite balanced democratic participation in BRICS will not be maintained when the six invited new members will become part of BRICS II as well.

These six new BRICS countries are:

Iran, Saudi Arabia, United Arab Emirates (UAE), Egypt, Ethiopia and Argentina.

It is indeed very obvious that none of these invited six countries can offer democratic standards and/or economic strength. There is all reason to believe that democracy in the new BRICS II will become clearly underrepresented.

… and weak economies totally overrepresented

Another angle may be a pure economic one. Also in this context there is nothing encouraging to find – apart from currently more or less healthy macroeconomic stability in India, Brazil and the oil producers of Saudi Arabia and UAE.

So what can the 11-nation BRICS II finally offer themselves and the rest of the world? In my view not very much. There are too many internal imbalances.  May be some increase of intra-trade (mainly for oil and other commodities) could show up. An obvious disadvantage is the missing positive homogeneity between the countries.

However, one more aspect still remains to be considered in the BRICS II context: China’s global political and trade economic strategy with BRICS II as perfect tool.

Application of the old and new Chinese diversification efforts

As I have written before in this blog, China has been starting to work more ambitiously on its intensified and revised geopolitical strategy. I have followed China’s internationalization and globalization for many years and have to admit that China since the start of the opening-up reform policy by the prominent reformer Deng Xiaoping had a logical strategy in their search for enlarged international partnership through all the years.

The international reform steps in the opening-up context were during the years about FDI and more foreign investment in China, the move of Western labor force (experts) to China, increasing exchange of students with abroad both from and to China, mutual cooperation in research –> altogether different steps to improve skills, technology, products and productivity with ideas from outside China. So far about the traditional diversification objectives.

Gradually after China’s important WTO entry, Chinese political leaders also announced objectives for developing China into a technological superpower and for increasing its global political power, more lately very much by focusing on (emerging) countries that appreciate incoming Chinese investments and (expensive) financial support (https://blogg.lnu.se/china-research/?paged=3, from February 17, 2023). Thus, we also have some examples of China’s modern diversification strategy, happening to a high extent geographically.

When summing up some international/global organizations below with obvious strategic interest, you can find some obvious examples where China already is or will become the dominant player, such as:

BRICS II – certainly an organization ready for increasing Chinese influence

Belt & Road Initiative (BRI) – infrastructure projects, fully led by China

RCEP (The Regional Comprehensive Economic Partnership RCEP) includes 14/15 East Asian and Pacific nations working for free trade among each others in a longer perspective (without having the U.S. in the organization). It is quite easy to imagine that China at some point will become more active within RCEP as well.

Looking at these examples clarifies well that China wants to expand its global influence. This will happen via bilateral action or via international organizations. Strengthened global platforms will become even more important to President Xi Jinping and the CP, since China nowadays domestically performs insufficiently after many years of boom.

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


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International Women’s Day – relevant to both advanced and emerging countries

Tuesday, March 7th, 2023


On March 8, it is time again to celebrate the international Women’s Day. Sure, better female equality has been achieved in the past few decades. But not enough!

During a lot of meetings during the years with students, researchers, male and female entrepreneurs or corporate officers, politicians and other professionals, I have got the clear impression that the female role in supervisory boards and boards of directors until now has been regarded as – by far – the most relevant gender equality issue. However, this view is definitely too narrow though very necessary.

Instead, there is another group of corporate and non-commercial organizations with insufficient female equality: competent women in middle management and below. These women still seem to be without strong and influential lobby – indeed a shame!

Lagging statistics

One major problem in this context is the statistical uncertainty about the total relative share of women being organized under the leading positions. Better statistical estimates are desirable. Some kind of idea, however, can be found in a publication by the World Bank by the name of https://data.worldbank.org/indicator/SL.EMP.SMGT.FE.ZS (also for emerging countries). Here, the participation share of women in middle management is in most advanced countries around 30-40 percent, in the case of Sweden somewhat higher. The average seems to be located at around one third on country levels – not really satisfactory.

Altogether, the potential for improvement is still high. Analysts should be provided with much more statistics on gender equality on both broadening and deepening levels – and researchers should deal more with female encouragement and promotion on lower organization levels.

Theory and practical application from female gender research

No advanced exercises are necessary to give the “malign neglect” – as described above – an academic touch. Research on human capital formation tells us a lot about the benefits of applying education and improved competence – strongly underlined, for example, by Nobel Prize winners such as Robert Lucas and Paul Romer.

Massively improving female human capital formation also in middle female management and below could appeal to many women’s motivation and productivity – and in the longer run even to macroeconomic GDP growth if successfully spread. Furthermore, countries in particularly Europe could receive some demography-supporting input from the above-mentioned and strived gender-equality improvements.

However, theoretically possible broad proliferation of widened gender equality urges for strong practical support: from students, researchers, employers’ and employees’ organizations, male and female entrepreneurs or corporate strategists, politicians, media and last but not least from voters.

This shouldn’t be impossible in advanced countries, right?

However, also many emerging countries could work more on improved gender equality (also here with human capital mostly in the first place). If we look, for example, at the current convention of the National People’s Congress in Beijing (China’s “parliament”), the female participation rate is only about one fourth. Not really a model for the rest of the world!


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


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