China Research

On March 5, the 14^th National Party Congress (NPC) will officially open its second convention. This time, the NPC deserves particular attention.

Main focus for analysts – the officially strived GDP growth              

This year’s NPC procedures will be the same as every year.  Almost 3000 representatives from all over the country participate in this annual “parliamentary” convention of the Communist Party in Beijing – a convention  with a normal acceptance rate for all suggestions and laws of 100 percent (see also my remarks from last year, edited on March 6, 2023, https://blogg.lnu.se/china-research/?paged=6; many of the comments then should be still valid, particularly those that pointed at the economic imbalances).

One year ago, I wrote that “the officially proclaimed official GDP-growth objective of around 5 percent in 2023 surpasses the outcome of 2022 by as much as 2 percentage points. 5 percent may not be quite easy to achieve but is definitely not out of reach because of all the (possible) statistical GDP effects from the low base in 2022 and a more expansionary economic policy this year”.

This interpretation has come true. Officially, last year’s GDP came in with a growth rate of 5.2 percent. It could have been lower in reality. Economic policy has become more expansionary, also in the past few weeks. Chinese political leadership still seems to be concerned about the economic performance.

There should be every reason for political growth concerns even if we do not know enough about China’s current economic situation. But we seem to understand that China these days is at the edge of deflation. The property crisis is still there – affecting also local public debt.

Real estate is no longer driving the economy. This explains partly the ongoing reluctance of consumers – but also the disappointing performance of Chinese stocks. Purchasing Manager Index for manufacturing stayed in February again below 50 (but may have been slightly affected by the new year vacation).

The important role of confidence

Lack of confidence in the economy can currently be observed both inside and outside China. For this reason, Prime Minister Li Qiang will put a lot of emphasis on restoring confidence and go for another 5-percent growth target in 2024 (which in reality should be more difficult to meet than one year ago).

Consequently, short-term stimuli will receive more political attention than structural economic policy. However, such a short-term focus will not work without further expansionary policy steps in fiscal expenditure and credit policy. This could mean further uncertainty about official and implicit public debt – a conundrum that has been existing for many years (see Fromlet https://publications.bof.fi/bitstream/handle/10024/44981/172270.pdf;jsessionid=C0C89C49F078C34335DF6EBFA637B523?sequence=19).

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

Labor markets in less developed countries are frequently analyzed from  different angles. Researchers put their emphasis often on institutional and physical working conditions, gender issues, child labor, (minimum) wages and wage disparities, social protection of workers, income distribution, health of the labor force, ethics, legal labor market rules and their enforcement or application, labor productivity, etc. 

There exists also quite some literature about immigrant workers coming from the emerging world to Western countries. One special aspect, however, seems to be neglected by most analysts with nexus to the headline of this article: the increasing efforts by foreign (Western) politicians to attract skilled workers to their home countries.

The complicated issue of skilled worker immigration 

We all know that the world has become tougher in recent years with extensive movements on global labor markets for various reasons – due to poverty, covid, persecution and wars in less developed countries. These developments are certainly disliked in advanced democratic countries – but many times politicians and voters want to see a visible downsizing of the unskilled labor force inflow from poor countries. Instead, they prefer a growing inflow of skilled workers from particularly Asia and Africa.

Whatever one may think about this less humanitarian positioning, there is at least some logic in it. First, Western institutions cannot cope with necessary    administration anymore. Second, politicians are often no longer capable to handle the protests from the extreme right. Third, the strong demographic changes with shrinking population in mostly mature countries – but also, for example, in China and Russia – has already led to serious shortages of skilled experts within the EU, particularly in Germany (“Fachkräftemangel”).

Regarding Europe, we can at least base a lot of knowledge on relatively reliable statistics. This is, however, mostly not the case when it comes to statistical developments on labor markets in emerging or really poor countries. 

Not even China and India provide global analysts with acceptable labor market information. Sure, both countries have an enormous size which by definition makes the production of statistics very difficult. China, for example, therefore measures only urban unemployment and has recently even stopped to announce the embarrassingly high youth unemployment. It may be added that not very much can be read in journals about the currently high unemployment of young Indian academics.

Ethical shortcomings

Looking at labor market conditions in many lagging countries, I cannot find it very ethical that heads of governments and ministers from EU-countries  and other advanced countries increasingly travel around in Africa, Asia and Latin America to attract specialized labor force to their own advanced countries. 

This active way of marketing should be considered as inacceptable. Unnecessary “brain drain” from emerging countries would be the consequence, hindering there progress in the society and a better economic future. 

As regards countries and companies in our part of the world, sales to emerging countries could or would develop less favorably than in a world without the mentioned kind of human capital loss.

For this reason, Western governments should rather give skills to emerging countries than take too much of their precious human capital.

Hubert Fromlet

Those who followed my analysis of Chinese statistics in the past decade or even earlier have probably recognized that I regularly discussed insufficient transparency and quality of Chinese economic statistics (see, for example, https://publications.bof.fi/bitstream/handle/10024/44981/172270.pdf;jsessionid=F1A3B66E65EB4447FC419C2922BE6B7A?sequence=1).

I also wondered frequently after how long time Western analysts really would be able to realize positive statistical changes once the quality of Chinese statistics finally indeed has started to improve – and for how many more years historical doubts could persist in the case of such a positively changing statistical environment.

GDP growth in 2023 by 5.2 percent – as “wanted”?

According to the National Bureau of Statistics (NBS), Chinese GDP grew 5.2 percent compared to 2022. This new number should not be too surprising theoretically after the disastrous covid(-policy) year of 2022 and the very limited GDP growth of 3 percent during the same year. However, when considering the still ongoing problems in the real estate sector, still relatively reluctant consumers and modest global demand, 5.2 percent may appear somewhat high. Can we speak about a politically determined growth number?

Sure, I cannot give a safe answer on this conundrum. No one  outside the most powerful political circles in China can or is allowed to do so. But it should not be overlooked that 5.2 percent is suspiciously close to the official growth target of 5 percent. This result reminds of the exact pre-corona predictability when quarterly GDP changes for quite some time more or less exactly were in line with the needs of meeting the annual GDP objective. Has China now come back to this previous “policy of fine-tuning“?

This question leads automatically to the theory that Chinese GDP growth in reality could have been less than 5.2 percent. May be even at around 3 percent? Such a number would have been, of course, very inconvenient for President Xi Jinping (who also wants to appear as a successful leader of China in BRICS strategies and in the global South). At home, in China, Xi is already overwhelmingly praised, for example right now by the National Bureau of Statistics – as an introduction to the GDP statistics for 2023with the following words:

“In 2023, faced with complex and grave international environment as well as arduous tasks to advance reform, promote development and maintain stability at home, under the strong leadership of the Central Committee of the Communist Party of China (CPC) with Comrade Xi Jinping at its core, all regions and departments strictly implemented the decisions and arrangements made by the CPC Central Committee and the State Council, adhered to the general principle of seeking progress while maintaining stability, fully and faithfully applied the new development philosophy on all fronts, accelerated efforts to foster a new pattern of development, comprehensively deepened reform and opening up, strengthened macro regulation, and redoubled efforts to expand domestic demand, optimize structure, boost confidence and prevent and defuse risks…”.

Now, if the official GDP growth rate of 5.2 percent was exaggerated, the outlook for the global economy may be even more risky this year. An important hint may be given at the annual National People’s Congress by the announcement of the GDP-growth target for 2024 in early March.

Conclusion: There is every reason to keep informed as well as possible about Chinese developments.

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

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