China: Politics increasingly important for economic analysis*

09:03 by Hubert Fromlet, Kalmar

I have been writing many times before that China is an extremely interesting country for interdisciplinary research. Pure business-cycle analysis is not enough, also due to all the statistical shortcomings.

In addition, China is one of the best examples underlining the need of ample interdisciplinary research: of course, mostly for long-term analysis but many times also for shorter perspectives. Economics has clearly important links to politics, social needs and developments, psychology, health, the environment, urbanization and, of course, demography. This is especially true of China.

So far, Chinese politics has not been a closely watched indicator by economists in our part of the world, neither for short-term nor for long-term economic analysis. Politics has rather been bundled in the basket of “ceteris paribus” conditions. In my view, this analytical neglect should not be applied anymore, not even when just looking at 2017.

Next year will be a very important political year when (most probably) five of the currently seven members of the Politburo’s Standing Committee have to enter this most important decision forum as new members. Only the CP’s Chairman Xi Jinping (no1 in the Standing Committee) and Prime Minister Li Keqiang (no 2) will keep their positions if current party age limits will remain valid (which is probable but not quite sure according to latest indications). Consequently, the big question is, which factions of the Communist Party the (probably) five new top politicians will belong to. To Xi’s or to some of the still existing older ones?

Current President and Chairman Xi Jinping– who ambitiously has been centralizing and amplifying his own political position in the past few years – wants surely to gather loyal followers of his ideas and visions in the next Standing Committee. Will he succeed? I think so, particularly since Xi Jinping at the end of October was “appointed” informally as the “core” leader of China. Currently, there seems to be a concentration of power to one single leader in a way China has not watched for years. This concentration to one person may theoretically give more strength to economic reforms than the current collective leadership – but reveals also new risks if Xi wants to change the reform course of economic policy in a more conservative way or if opposition within the Communist Party should increase because of insufficient economic and social progress. Anyway, we still have not seen the outcome of the decisions of the 19th National Congress of the Communist Party in fall 2017.

The big question remains in place: What will the next top leadership – headed by the new “core” leader – mean to economic reforms in this balancing act between shaping a more modern Chinese economic system in line with the ambitious and reasonable plans from the Third Plenum in 2013 and the obvious difficulties to keep economic development on the track of (officially) reasonable growth?

In reality, this conflict is very much about long-term oriented supply-side policy versus more short-term oriented demand-side policy.

In other words: 2017 may – or will – be the year that starts to reveal more about the quality of future economic growth in China. The analysis of China’s economic future has to be widened and will remain complicated, also for the new “core” leader and the other members of the Standing Committee – much more complicated than the rapid interpretations of Chinese GDP and PMI numbers by financial markets and major parts of the Western press usually seem to indicate.

*Some views on the future political relations between China and the U.S. after Donald Trump’s victory can be found in my previous blog.

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
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