China

China’s corona conundrum

Thursday, December 15th, 2022

What we do know is that fact that corona also reached China from the very beginning. Certain people claim that that corona originates in Wuhan at a laboratory. This, however, nobody knows for sure. Anyway, the first infection cases happened in China. We also know that Chinese political leaders recently changed their policy stance in the fight against corona – from very restrictive to clearly less restrictive. But which were the real driving forces behind these changes?

Management by fear

China was the first country to be confronted with the covid virus roughly three years ago. China also acted as the first country to impose drastic restrictions to stop the disease. This was understandable as big concerns about major contagion already existed directly after the eruption of the crisis.

The objective of control and maximum battle against covid-19 (zero-covid strategy) was close to recently to reduce virus contagion down to almost zero and finally eliminate the virus. But fear remained around all the time and continues to do so – not very strange when considering the population of 1400 million people and the enormous potential of contagion. Consequently, management by (feeling) fear continued – provided with the frequent official political remark that the zero-covid strategy has kept Chinese corona contagions and deaths low when comparing with Western countries. Rumors say that President Xi Jinping himself persistently commanded the application of the zero-covid strategy.

But also transparency so far remained low during the corona crisis. Since I for a long time have been analyzing that the quality of economic statistics was quite limited in China, I applied this questioning experience also to the statistical interpretation of covid infections – right or wrong. I suspect that published corona statistics showed much lower numbers than reality would have shown. Statistical transparency remains by far too low.

Strict restrictions with more and more lockdowns went on for quite some time but citizens finally became impatient and started this fall their protests and even demonstrations. Political leadership continued management by (feeling) fear for a while. Only recently, however, a far-reaching easening of the corona restrictions was introduced allowing more mobility and less control – again driven by management of (feeling) fear. This time probably by fear of social unrest, since the corona situation only a few days before the corona deregulations was worsening. An enormous swing!

What now?

The comprehensive abolition of many covid restrictions in the beginning of December this year seems to be risky. Everything happened so suddenly and quickly. Chinese institutions had no time to prepare. The omicron virus was suddenly explained as quite harmless – opposite to official comments only the week before.

Now, an obvious risk for the future is a fast acceleration of new corona infections and exhausted hospital resources. Such developments could also counteract a visible economic recovery which the whole world is waiting for.

On the other hand, the big future opportunity in the short run may be a beneficiary widening of the Chinese labor force and, thus, more potential for production – particularly if China politically starts to lean a little bit more to the West again.

Summary: China’s corona conundrum remains puzzling. Corona is not dead!

 

I send all readers my best seasonal greetings and a Happy New Year with at least some economic recovery.

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

 

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Tough discussions in Germany on Chinese FDI

Monday, October 31st, 2022

Germany is the largest economy in Europe and the EU. For this reason, the recently intensified German debate about the planned Chinese FDI in the harbor of Hamburg looks both interesting and dramatic. Fundamentally, the real reason for this domestic political conflict is mainly about Germany’s future political and economic dependence on China.

The original plan was to allow the Chinese shipping company COSCO to purchase 35 percent of one of the terminals named Tollerort. However, even within the German government a lot of opposition was raised against the planned Chinese harbor deal, particularly by the Greens – thus also criticizing German Chancellor Olaf Scholz who initially supported the 35-percent deal. Finally, the government agreed with a compromise to allow a Chinese participation of 24.9 percent – i.e. an enforced change from a strategic investment in line with the BRI-plans to a financial investment. (BRI means Belt and Road Initiative, see my article in Swedish in Ekonomisk Debatt https://www.nationalekonomi.se/sites/default/files/2022/08/50-5-hf.pdf).

After dependence on Russia a heavier dependence on China?

In the past few months, former German governments and top politicians have been sharply criticized for their contributions to the burdening gas dependence on Russia. This political failure explains very well German fears of a future, even more challenging dependence on China. Maybe, the German concerns have been enlarged further by the latest political powerful political manifestations at the Chinese Communist Party (CCP) Congress.

It should be added that Germany’s dependence on China already now appears purely economically much larger than it ever has been on Russia – i.e. the Russian war consequences excluded. Two important questions show up in this context:

¤ Will other European countries join German skepticism against Chinese outbound FDI?

¤ Will European companies voluntarily re-consider their (planned) FDI strategy in China?

We will see. Obviously, German Chancellor Scholz does not want to close the door to China completely at this point. This week he will visit China together with a delegation of German business leaders.

 

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

 

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China and India – today and tomorrow

Monday, October 17th, 2022

Presentation by Hubert Fromlet at the LNU conference “Baltic Sea Region and Emerging Market / China Day” in Kalmar, October 17, 2022

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Summary

China and India are the two largest countries in the world when it comes to population. Both countries currently have the same size in population, around 1.4 billion people. China still has a larger total GDP but India may be currently catching up somewhat. Both countries have common problems but also diverging challenges. Altogether, none of these two giant countries is able these days to function as a main driver of the global economy in the way China did after the eruption of the global financial and economic crisis (“subprime crisis”) almost 15 years ago when China for a number of years was standing for more than one third of global GDP growth.

Nationalism is still increasing

Both China and India have moved to more nationalism in the past years. For China, this fact is really visible during the currently ongoing 20th National Congress of the Communist Party of China (CPC; see Fromlet from September 2, https://blogg.lnu.se/china-research/).This convention will confirm the clearly strengthened power of CPC Chairman and President of China, Xi Jinping, with a lot of nationalist hymns and celebrations (https://www.chinadaily.com.cn/a/202210/16/WS634bb02aa310fd2b29e7cca1_3.html) – certainly more than India ever will be inclined to show domestically even if India’s Prime Minister Modi must be regarded as a convinced nationalist as well. But India is indeed interested in workable broad international relations all the same – also despite the presumable neutrality vis-à-vis Russia in the war against the Ukraine.

China on the other hand, seems to be more recognizable on Russia’s side during the ongoing war but will possibly look again at some point – as the main benefiter of globalization so far – for a better future image over the whole globe. In the forthcoming years, however, this cannot happen without a strategy change of the almighty CPC chairman and President of the People’s Republic of China.

At the same time, certain signs are showing that good or at least acceptable relations to the U.S. remain an important part of China’s foreign strategy. Sure, India’s democratic principles unite the U.S. and India more than it is the case between the U.S. and China. However, I found it quite interesting that an important Chinese voice very recently stressed the importance of Chinese-American relations (https://www.chinadaily.com.cn/a/202210/15/WS634a95eda310fd2b29e7ca98.html) – whatever this may mean.

Which country will be the winner in the longer run?

Some economic signals indicate that India may have escaped somewhat less damaged from the covid19-turmoil than China did with its rigid lockdown strategy which still is in place. Officially, the trend since the eruption of covid-19 pandemic  does not diverge substantially (GDP from Q4 in 2019 to Q2 in 2022: China: +8,8 %, India: +3.6 %, https://www.oecd.org/sdd/na/g20-gdp-growth-Q2-2022.pdf). But in Q2 this year, the Chinese drop of GDP was sharper than the Indian (-2.6 % compared to the previous quarter, for India this number was -1,4 %).

Altogether, one may conclude that no major difference between China and India can be found in their growth pattern from winter 2019 to summer 2022. But there is a catch: The quality of Chinese (GDP) statistics tends to be lower than in India.

Thus, the answer to the question about the economic winner in the long run remains uncertain. Considering all the structural problems in China (e.g. for institutions and their failures concerning transparency, corruption, supervision, bureaucracy, local government debt, corporate debt, non-competitive state-owned enterprises, etc.), one cannot predict that China still will have the lead 10-20 years from now. India suffers from similar challenges plus slow federal decision processes but is enjoying more Western sympathy points because of its democratic system.

 

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

 

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