China Research

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

Growth temperature rises in the Chinese economy to 6.4 in April – up from last December

May 11, 2017

Summary

From the end of April until the beginning of May, we prepared our traditional spring survey on the business climate and economic conditions in China. We try to find out more about the Chinese business cycle and some important structural issues.  We received again answers from around 15 independent China experts from Asia, the U.S. and Europe – thanks!

¤   Our so-called Temperature Indicator for the Chinese economy improved to 6.4 in April/May compared to 5.2 in December last year (on a scale 1-10; 10=very hot).

¤   The panel expects GDP growth in 2017 and 2018 to remain quite stable compared to 6.7 in 2016 (2017: 6.5 %, 2017q4: 6.3 %, 2018:6.0 % – based on official statistics).

¤   The panel’s GDP forecast on China for 2017 and 2018 includes the assumption of an ongoing gradual but relatively modest upswing in the OECD area as a whole.

¤   75 % of the panelists have rather a downward bias in their forecasts than vice versa.

¤   There are almost no appreciation expectations anymore for the Chinese currency RMB.

¤   90 % of the panelists still see a bubble on the real estate market.

¤   Ranking of some structural areas in China (scale 1-10, 10 = very good): statistics 3.9, institutions 5.3,  marketization of a) banks 4.1, b) stock markets 4.0, c) bond markets 4.4.

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

 

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Europe’s chance in China

April 7, 2017

President Trump met most recently his counterpart in China, President Xi Jinping. Regardless what the outcome of these meeting really turns out to be,Trump has not started up his relations with China in a friendly way. That’s certainly how the Chinese feel right now.
One may mention, for example, that Trump has accused China of
– of conducting unfair trade policy,
– of manipulating its currency,
– of having “invented” the global environmental crisis,

Furthermore, China has criticized Trump for his verbal support of Taiwan.

There is no doubt that the EU and a number of EU countries could benefit from these Chinese-American tensions. China indeed would like to enlarge its relations with Europe and European companies.
But China would also like to see a more reforming and harmonizing EU. My impression from visits to China and from talks with the Chinese is without doubt that they consider the EU as an underperforming institution with serious efficiency problems (which certainly is the case to a high extent).

China also dislikes some possible protectionist EU action caused by governmentally subsidized Chinese acquisitions in the EU. It is, however, remarkable that already 2500 Chinese companies can be found in Germany (source CHKD Germany) – mass entrepreneurship not only in China but also to some extent outside China, e.g. in Germany.

The conclusion of these reflections is that internal improvements of the kind described above would be good for the EU itself, Sweden included, but also for relations and business of the EU with the rest of the rest of the world – particularly with the economic giant of China, the largest economy at some point in the (foreseeable) future.
The EU should take this chance now!

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

 

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Modi’s victory – India is awarding its PM

March 16, 2017

India’s Prime Minister Narendra Modi and his governing, hindu-nationalist party BJP (Bharatiya Janata Party, BJP) is currently celebrating happy days after the strong victory in the regional elections in the 220-million people state of Uttar Pradesh. This overwhelming result was not really expected after the chaotic currency reform last fall when the government abruptly invalidated almost 90 percent of the circulating bank notes. This measure was taken in order to make people to deposit money visibly at the bank – and, consequently, to combat corruption and black money.

In other words, Modi benefited even from this monetary/institutional reform, expressed by substantial popularity gains. Hopefully, Modi uses his current strong personal ranking for accelerating economic reforms, particularly since his chances of winning the next general elections in 2019 seem to be increasing. So far, Modi’s (and his coalition partners’) reform record is not really convincing. Much more must be done to improve, for example, (youth) unemployment, education, infrastructure, the environment and productivity. At the same time, it is obvious that many Indians still have high expectations that Modi is the man to move their huge country forward.

For 2017 and 2018, a GDP-growth rate around 7 percent seems to be achievable (if major global distortions can be avoided). One should not forget that India’s international trade exposure should be less sensitive to American and global trade distortions than China’s. Indian GDP-growth seems to develop (somewhat) faster than the Chinese in the next few years. Such a comparison is, however, not quite fair since China started its accelerated modernization and restructuring process much earlier than India did.

But India has now an improving chance to catch up!

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

 

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