China Research

… but it is (more or less) neglected by the international press and (financial ) analysts. I’m talking about the recent speech of China’s president Xi Jinping in Seattle during his ongoing visit to the U.S. (without having checked myself many American sources). Anyway, financial markets focused at the same time very much on the Caixin PMI (which was considerably below 50 – certainly not an encouraging signal on Chinese industry and GDP growth in reality). For my own analysis, however, I found the president’s exposé more interesting.

Xi told the invited guests that China feels very committed to reform policy and people’s well-being – and also to a policy that “forestalls risks” and keeps the economy at a medium-, high-growth level.

This is exactly the message I like to hear. In theory. Structural reforms and maintaining reasonable GDP growth would be a dream scenario – and particularly the following conclusion that reforms and reformers are still in place.

But there is a catch. We do not know how far the deceleration of the economy already has gone. Probably further than statistical numbers express. Furthermore, it is hard to summarize the reforms that already are taking place and what is to come soon. What has really been done in reform policy since 2014 after the Communist Party’s Third Plenum in November 2013? Transparency is still by far too low. So is the quality of statistics. Consequently, it is still hard to find out what’s really happening in the economy.

It is certainly a pity that China has not been working sufficiently for opening up (economic) information flows. If this had been the case, I certainly would have appreciated president Xi’s speech. Now, I don’t know.

But why shouldn’t Chinese leaders from now on work more ambitiously with economic transparency? It would be a win-win situation for both China and the rest of the world. And it would be much easier to conduct a financial deregulation policy which Chinese leaders put so much (verbal) emphasis on, particularly when it comes to the deregulation of cross-border capital flows.

The decisive question remains: How could China ever successfully open its capital account vis-à-vis other countries and envisage a working full convertibility of its currency yuan without at least having a roughly transparent economy?

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
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