China Research

In recent weeks, more or less only two Chinese events were topping the headlines in major Western media. The first one is linked to China’s position vis-à-vis Russia in the Ukrainian war. The other one deals with the increase of corona in some important Chinese (economic) melting pots. Much more, however, should be really worth to know about for improving the understanding of China. Some examples are given below.

Statistics of secondary importance for understanding China

Financial markets focus a lot on incoming statistical numbers from China, usually too much. However, when it comes to China, such a focus may mostly be the wrong approach. Economic statistics that play a role in our part of the world – such as GDP and its components, inflation, unemployment, government debt etc.- are not really applicable to China since it cannot be estimated to what extent single numbers are close to reality or not. Transparency does not belong to China’s strong sides.

Lagging transparency may have two reasons. One is aiming at the official ambition to make things brighter than they really are. The other one can be referred to the enormous size of China and the following logical consequence that there certainly exist difficulties with the finding of representative statistical selection processes, both geographically and for the analyzed topic.

The bad thing is that Western skepticism against Chinese statistics will remain in place for quite some time even if the quality of Chinese statistics may already have improved for a while. It always takes time to establish trust in long-lived institutional shortcomings – also when improvements are there.

Probably, most readers of this article know that China is a problematic country to interpret. For this reason, it makes much more sense for Western analysts to improve the qualitative understanding of China than ambitiously trying to interpret incoming statistical numbers.

News from China that should have caused more attention

Some examples from China are given below that should or could have caused  more attention in our part of the world, particularly the initial ones, taken from the National People’s Congress (NPC) that was held in March 2022.

New Prime Minister this fall – Li Keqiang stepping down
Current Prime Minister – and number two in the Communist Party – Li Keqiang has recently announced that he will step down later this year after ten years of managing the Chinese economy. In my view, Li gave through all these years a feeling of knowledge and understanding the economy (unless political priorities were set in the first place; a Chinese position that has been strengthened further by President Xi Jinping). Speculating on Li’s successor does not make sense right now but I assume that Xi will remain in power after the Party Congress in fall – contrary to the will of former leader Deng Xiaoping who wanted for the future a presidential change after ten years. One may guess that China’s next ministers of finance and foreign affairs will have even closer ties to Xi Jinping than their predecessors – and also the whole Standing Committee where China’s most important leaders make all important decisions. These assumptions if verified matter for global political power.

Quite optimistic target for GDP growth in 2022
Usually, the official objective for China’s GDP growth during a recently started year is announced in the beginning March. This time, the official GDP-growth target is set at “about 5.5%” – more than expected and less than last year for 2021. Looking more precisely at the growth target since 2000, a clear downward trend can be watched in the past two decades. Previous GDP-growth targets: 2000, 2002-2004: around 7%; 2001:7%; 2005-2011: around 8%; 2012: 7.5%; 2013-2014: around 7.5%; 2015: around 7%; 2016: 6.5%-7%; 2017-2018: around 6.5%; 2019: 6%-6.5%; 2020: no target (covid-19); 2021: above 6%. One of the explanations for this descending development is the declining marginal rate of productivity gains. By the way, despite the lagging quality of Chinese GDP statistics, we have to work with the official numbers since no alternative can be found.

The main pillars of China’s economic policy in 2022
In Q4 of 2021, GDP growth achieved only 4%. The number for Q1 will be published on April 18 and probably not look very encouraging when really applying growth conditions in the first three months of 2022. Since the Russian war in the Ukraine will have negative impact on European (global) growth, Chinese exports (GDP) will be most probably be affected negatively. Interpreting official comments at this year’s NPC, China intends obviously to conduct both an expansionary fiscal and an expansionary monetary policy (which obviously also quite a number of Western countries did as well in the past years).

Economic growth at the expense of the environment
Here we come to an issue of global importance. Xi also told local officials at the Party Congress that they should be cautious about reducing emissions. Obviously, economic growth comes before emission at least in 2022. One may wonder what such a change of priority may mean psychologically to global and domestic confidence in China’s fight for a better environment.

What do we really know about covid-19 in China?
We do know that lockdowns have occurred in a number major cities, for example in the important city of Shenzen and currently in two phases in Shanghai, certainly a measure at the expense of GDP growth. China still applies its “zero-covid strategy which explains the radical lockdowns. But what do we really know about covid in China? The answer to this question is a major conundrum – but probably also an important input into forecasts on the Chinese economy in 2022, particularly when it comes to exports, private consumption and – maybe – investments in machinery and equipment. Furthermore, new problems with supply chains and transport problems may arise because of further lockdowns.

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

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