China Research

China’s new economic policy will have – or should have – an impact on many corporate decisions, both within and outside China. To what extent, of course, depends on the future success of the ongoing economic reform policy and its specific advances. Both the financial and the non-financial sector will be affected. Success or failure will be characterized for the time being by what economists since almost 100 years ago call “Knightian uncertainty”, i.e. that the outcome of an event or a development cannot be given any probability.

Anyway, China’s political leaders want to raise the quality of economic growth by achieving more value-added products in industry and a considerable relative increase of the service sector in total production – created by education, research, innovation, new (green) technology, IT and mass entrepreneurship. All this is based on the forward-looking decisions of the Third Plenum in November 2013, a kind of manifesto for China’s new economic policy which is relatively well based on Western economic research.

It is important to be aware of the fact that many of these reforms will have an impact on countries and corporations all over the globe. For this reason, many foreign and domestic Chinese companies will have to revise their business models for the Chinese market, adapting to urbanization, demography, more competitive products, new preferences of consumers, new environmental rules and many other challenges.

New commercial opportunities and challenges will become increasingly logical and transparent in line with the realization of the new economic policy and the “Made in China 2025”upgrading strategy. But gradually – for structural reasons – weakening markets in China should also be recognized on time. More academic field research may be a promising supplement in these respects.

China’s new economic policy will lead to many major and minor changes. Temporary and unsteady analysis of the economy becomes more and more inadequate. China has to be analyzed continuously and not only on special occasions when a new global forecast or sales plan has to be prepared for the company itself or for its customers. Quantitative (statistical) macroeconomic analysis has, however, many shortcomings and should thus not be relied on too heavily. Instead, more emphasis should be placed on the qualitative improvements of economic growth (which is not easy) and also on the possible risks that may show up in the forthcoming years.

Traditional brief macroeconomic analysis – the “automatic” assumption of unchanged political conditions included – cannot be applied anymore to a country that will likely change to a great extent in the next decade in order to be able to maintain or achieve what Chinese top politicians call a “moderately prosperous society in all respects“– and to escape from or avoid the middle-income trap. More interdisciplinary research that includes politics, institutions, sociology, psychology, the environment, health, etc., is certainly needed. China has to be analyzed from different angles, much more rigorously than many analysts have done in the past.

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

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