China Research

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

Hot topics for analysts inside and outside China

September 30, 2016

In the past few weeks, I met quite a number of Chinese economists at different places and conferences.

Totally, some topics were really dominating. Below, I give some brief summery of three points that have been most frequently mentioned and discussed – and of two topics that should be in the headlines:

1. The “One belt, one road”-investment plan

Clearly, the Chinese are very enthusiastic about their mega-infrastructure project “One belt, one  road” from China to Europe (Silk Road Economic Belt & Maritime Silk Road). This major investment  program is assumed to boost the domestic Chinese economy substantially. But the Chinese also emphasize that benefits will reach Western Europe. How much this really will be the case remains to be seen However, it should be said that the (Swedish) press and potentially involved companies in Sweden and other countries should have a regular eye on developments of the Chinese “One belt, one road”-plan – despite the uncertain dimensions of this project.

2.  The deterioration of U.S.-China relations

There is no doubt that the political relations between the United States and China have been deteriorating more recently. The absence of a red carpet at president Obama’s arrival to the G20 summit in Hangzhou was mostly symbolic. The underlying problems, however, are currently much deeper and more fundamental.

3. China is really concerned about Europe/the EU

China’s uncertainty about Europe/the EU and investments and sales there has obviously been increasing in the past few quarters – and even more after the British exit voting. Europe/the EU have lost recognition in China, at least currently.

4. Insufficient knowledge about the current status of Chinese economic reforms

It seems to be striking that many Chinese economists are so little informed about all the ambitious reform plans from the Third Plenum –
and how much has been achieved so far. Transparency seems to be lagging  substantially. This can be considered as a serious shortcoming. How are current short-term growth stimuli related to the planned structural reforms? No answer has been given.

5.  No comments at all on the future composition of the Standing Committee

It’s no real surprise but I have not heard any comment on next year’s new appointments for the Politburo Standing Committee of the Communist Party, the most important political body in the People’s Republic and, consequently, for economic policy. My own feeling is that president Xi Jinping will strengthen his position in this crucial decision-making forum after the fall of 2017.
 

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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China´s New Economic Policy – Theoretical Background and New Analytical Conditions for the Corporate Sector

September 9, 2016

Paper presented at the Chinese Economic Association’s Annual Conference,
hosted by the University of Duisburg/Essen, September 1 – 3, 2016

 

Abstract

In the fall of 2013, the so-called Third Plenum of the Communist Party’s Central Committee decided to start up a process of major economic and social reforms. Thus, the conditions for the analysis of China’s economy are now undergoing changes, conceptually often backed up by well-known Western research. These changes are important. In this paper, I try to find modified or new analytical factors which corporations – but also specialized financial analysts – inside and outside China should increasingly focus on, despite or even because of statistical shortcomings. To my knowledge, few comprehensive efforts have been made so far in this specific direction.

Read the full article here

 

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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Re-visited – will China or India be the long-term winner?

August 22, 2016

About ten years ago, I wrote an article in a British journal (Economic & Financial Review, 2005) about the topic whether China or India would be the economic winner in the longer term. I come to the conclusion that India would catch up, but not really take the lead – at least not before positive demographic trends should favor India more structurally and, thus, add visibly to potential GDP growth. This will take time.

As India’s main competitive disadvantages compared to China I identified then infrastructure, lower average education levels, slower public decision-making, weaker entrepreneurial incentives and ambitions to reform the economy as a whole. India showed instead more advantages in the higher quality segments of research and education, banking/financial markets, transparency, certain other institutional conditions and – which the Indians still strongly emphasize – democracy and the rule of law.

I also pointed a decade ago at forthcoming structural changes in production patterns that obviously were to come: an increasing share of services at the expense of manufacturing in China and the contrary development in India.

In the meanwhile, China has clearly increased the role of services in its economy, whereas India’s efforts to achieve substantially more production in competitive manufacturing – also in value-added terms – turned out to be more modest.

Consequently, experts on the Indian economy start to raise the question whether it may be too late for India to become a manufacturing superpower. This may be true to a certain extent. However, it also could be beneficial for India that it now – when applying experience from China – has a chance to avoid the establishment of a gigantic industrial overcapacity as China did in a number of sectors.

This latter phenomenon may also be one of the reasons why China currently seems to note slower economic growth than India. On the other hand, China has at least on the paper more economic reforms in the pipeline than India does. However, we still have no idea of the future results of Chinese reform policy. We have to wait for improvements of transparency also in this specific respect.

Consequently, it is still too early to make a prediction on the long-run winner in the global competition between China and India.

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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