China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

China’s political leaders will soon give important messages

February 24, 2021

At the end of next week, China’s most important political decision makers and delegates from all over the country will come together in Beijing to join the National People’s Congress (NPC), the formal legislative organ of the People’s Republic and often in the West described as a kind of parliament. The NPC is always – both formally and informatively – an important event. This year, the NPC should be regarded as even more important than usual (more about this below). There are at least five outstanding ingredients the Chinese leaders probably will promote at the NPC as success stories of yesterday, today, and probably tomorrow:

¤  the elimination of absolute poverty in 2020 – indeed a major success;

¤  not the situation but the consequence of the political tensions with the U.S. and the EU, making it possible for China to demonstrate its capacity of increasing political and military power; exciting to watch what tone with the U.S will be applied;

¤  the superiority of China in the systemic fight against covid-19, and the achievement having been the only major economy with positive GDP growth in 2020; furthermore, I really would be surprised if the official GDP forecast for 2021 looked modest; 8 is the luckiest number in China, so I predict a GDP goal in 2021 at 8% (or somewhat lower, 7-8%);

¤  the new 5-year plan, possibly being presented again in a positive Communist Party (CPC) centenary spirit with more details – maybe including applicable plans how possibly to convert China into a high-income country;

¤  the strong vision of making it possible for China to double its GDP per capita by 2035 – hopefully explained by revealing details.

2021: A very special year – the centenary of the Communist Party of China

All these – in CPC sense – good news for the Chinese people will be embedded in a particularly positive way because of the 100th anniversary of the foundation of the Communist Party of China. This should be kept in mind when interpreting different NPC speeches starting on March 5.

It will be very interesting to observe how concrete or vague different objectives will be presented at the NPC – particularly when it comes to China’s high-tech future and the way to manage the objectives of the “Made in China 2025 plans” and beyond. What will the President of China and CPC Chairman Xi Jinping tell the NPC audience more concretely about the long-term objectives and projects until 2035? Hopefully more about envisaged social and environmental improvements. Certain official hints in this direction have already been made in a previous official outline for long-term goals until 2035.

Finally, I am very keen to know whether a reasonable evaluation of the reform plans from the Third Plenum of 2013 until 2020 will be presented (which originally was planned for 2020). Last year, I could not find any detailed evaluation.

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

 

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About the understanding of the United States and China

January 26, 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

January 18, 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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