Overlooked Chinese developments in summertime

09:08 by Hubert Fromlet, Kalmar

Sure, China has been in the headlines in the past two months, i.e. during a period that we call the Swedish summer. These headlines were politically to a high extent referring to the accelerating tensions between China and the U.S. When it came to economic news from China, I certainly recognized the downsizing numbers for GDP, PMI and retail trade – causing growth concerns in China itself but also globally.

However, I may have missed other interesting news from China since I myself work more relaxed during the short Swedish summertime – or these latter news did not cause broad attention. For these reasons, I usually try to find impatiently “lost” or overlooked news and statistics from the weeks before when coming back to work at the end of August – news still worthwhile to point at. Some examples are given below:

Revised official objective for GDP
Here we have something new of real importance. In July, the Chinese politburo made a change of its growth objective. But as late as in the beginning of March, Chinese political leaders had announced that this year’s goal for GDP would be around 5.5 percent – a number that I interpreted on March 29 as “quite optimistic” – i.e. before the new big Shanghai lockdown and the eruption of the drought were reported. Now, China wants GDP growth to become “best possible”.

This is a reasonable change. Hopefully, it will increase the credibility of GDP statistics. Furthermore, “best possible” should mean a better protection against ineffective growth stimuli that in the past were made just to meet an envisaged growth target. And finally, “best possible” may make it easier to explain growth distortions originated outside China.

More signs of a real estate crisis
It seems to be clear that the world outside China – and, of course, inside China, too – should have found out that a real estate crisis may be closer than most experts think (https://www.nytimes.com/2022/08/17/business/china-economy-real-estate-crisis.html). The decision on lower interest rates some days ago should mean another concrete warning.

More focus on President Xi Jinping
Looking at consequences of the new objective for GDP growth, it may occasionally favor President Xi Jinping, giving him in certain situations a logical excuse for not really having managed a satisfactory GDP development. On the other hand, the strongly increased personal power of President Xi Jinping in recent years turns also more direct responsibility to him as the number one political leader when things go wrong.

A first signal in such a direction could be observed during the whole zero- covid fight and also after the concluded Shanghai lockdown in the beginning of June. Xi Jinping’s widened power may also include more direct responsibility within the Standing Committee of the Politburo (which is the most important political decision-making institution in China), particularly when he has entered his third term at the end of this year.

The breakdown in the climate negotiations between China and the U.S.
This recent accident is certainly negative. But how negative? I believe that many commercial people would like to read more about the possible consequences of this breakdown.

Western companies and their supply chains from Taiwan
Since the start of the corona pandemic, Western governments and corporations have intensively discussed how and where supply chains from China can be reduced for sensitive products. China’s threats against Taiwan this summer lead to the same question concerning new risks for supply chain distortions.

Increasing drought problems
China has recently issued another serious drought alert for considerable parts of the country. In the past weeks, new heat records happened in certain regions. A lot of rivers and reservoirs have dried up. Water shortages continue to cause serious problems for agriculture and energy production. Interestingly, certain Chinese officials have partly blamed global climate change for the current drought. This would mean – which I think as well – that this year’s heavy drought is more than a short-term challenge (contrary to what other Chinese commentators argue).

Conclusion:  This overview confirms my previous conclusion that persistent updating of Chinese political and economic developments is necessary for the understanding of Chinese politics and economic trends.

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