China Research

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
Editorial board

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The state of the Chinese economy has been worsening in recent quarters. There is no doubt about this – despite all statistical shortcomings. Which statistical indicators should I use? Despite many years of China research, I cannot discover any economic indicator that really could help me practically to come to applicable conclusions. May be with one or two exceptions in bad times coming from the central bank PBoC: cuts of the deposit reserve ratio for the commercial banks (which actually happened lately in April: https://www.ceicdata.com/en/indicator/china/reserve-requirement-ratio ) or

cuts of the (over-five-year) loan prime rate (LPR, http://en.people.cn/n3/2022/0521/c90000-10099686.html).

Sure, the current economic problems are not only “Made in China”. However, the corona lockdown in Shanghai and some other metropolitan megacities caused a lot of economic losses. The lockdowns were/are certainly based on decisions by China’s political leadership, headed by President Xi Jinping.

Instead of statistics, in my view, the best information about the economy can (currently) be obtained by China’s two main politicians, President Xi Jinping and particularly Prime Minister Li Keqiang, by their comments on the Chinese economy in general terms. Two fresh examples underline this analysis approach.

The Politburo, chaired by President Xi, on April 29: “We will strengthen macroeconomic policy adjustments to stabilize the economy, and strive to achieve the expected economic and social development goals for the full year”.

Prime Minister Li on April 14: “Since the announcement of the policy package, government departments have all taken proactive steps. We must redouble our efforts, in particular to accelerate policy implementation.”

The two examples above demonstrate that the two strongest political leaders sent clear signals of concern already six à eight weeks ago. On May 31 came the answer with 33 measures summarizing the needed stimulation of the economy by applying fiscal, financial, investment and industrial policies (https://www.reuters.com/markets/commodities/china-unveils-detailed-stimulus-policies-support-virus-hit-economy-2022-05-31/).

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

PS: After having dealt with a major project and having benefited from the enjoyable and relaxing Swedish summer, I will be back at the end of August. All the best to you all, Hubert

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China has been a conundrum for many years – and it still is. This means that China can be (too) difficult to understand – certainly not always but too frequently. However, three conclusions can be made for trying to understand what is or will be going on in China:

• China is a giant country that needs a lot of deep and careful observation. Occasional articles and subsequent analytical absence from China is certainly not an appropriate way to become an expert on the largest economy in the world.
• Understanding the Chinese economy means that good knowledge is needed also about the history, the traditions and the culture of this gigantic country.
• Furthermore, it should be recognized that China is not a transparent country. Insufficient transparency is an institutional shortcoming which can be frequently found in China. For this reason, (foreign) analysts dealing with China should continuously try to improve their institutional understanding as much as possible.

Winds of change

Certainly, China is in many respects a very conservative country. This can particularly be stated when it comes to the supremacy of the Communist Party though this supremacy has been individualized significantly in recent years by President and CP Chairman Xi Jinping’s dominance.

Thus, since Xi Jinping came into power in 2012, also China as a country has been changing. In 1978/1979, China’s then political leader Deng Xiaoping introduced his visionary “Reform and Opening-up Policy” which was the decisive move to internationalization of the Chinese economy. Opening China was a major step forward.

During many years with visits to China, I really had a feeling that China cared about its international economic relations – though many times purely in order to support Chinese cross-border trade or to attract foreign direct investments to China. But China gave many Western political and commercial leaders (mostly) a feeling of beneficial welcome.

In the past few years, however, considerable winds of change could be noticed which were started by President Trump but ambitiously continued by President Biden and joined by President Xi. Contrary to the opinion of most foreign China analysts, it may not be a safe prediction that China for a long time in the future will give international trade relations more weight than the non-peaceful reunification with Taiwan. Sure, China still does so – but for how long? It may be worth-while to add that President Xi in October 2021 has been stating that reunification “must be fulfilled” – obviously without completely ruling out the future use of violence but preferring a peaceful solution.

Consequently, China’s hardening attitudes vis-à-vis Western countries can clearly be recognized, also when it comes to recent negative Chinese comments on the possible enlargement of NATO with Finland and Sweden joining. China seems in this context applying a position that is more or less completely in line with the Russian one (https://www.manilatimes.net/2022/05/07/news/world/nato-inciting-bloc-strife-chinese-envoy/1842671. Without doubt, China feels nowadays as a strong global political leader – more than a couple of years ago.

Yes, there are winds of change in China…

Universities should broaden knowledge about China

Today, China is already the number one country in many different economic respects and, consequently, becoming an increasingly stronger global political and economic player. Already by now, China is the country with the highest total GDP in the world (in PPP terms, not per capita). Despite China’s declining GDP-growth trend since a decade ago, it can be expected that China will increase its global market shares further. However, temporary growth distortions are unavoidable and will turn up occasionally.

Considering this probable or possible future, it will be increasingly important to improve the understanding of China in both (Swedish) universities, the banks, the press, politics and the general public. Recent developments in Russia were completely underestimated ex ante – certainly also in Sweden in the past 20-25 years. Such an insufficient understanding should not happen in the future analysis of China. It takes time when trying to understand China; this should be better understood in Sweden.

Therefore, when now turning to Sweden, professional China researchers – with their main occupation in academia and other research institutions – should be financially supported by the Swedish government and Swedish foundations. Of course, we have a number of good China researchers and journalists at home in Sweden. But there should be more of them.

Hopefully, Swedish university leaders and lecturers will in turn become more active in providing students with broader knowledge about China – both what regards history, politics, culture, economics and management. All these topics should be preferably offered in the same course!

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

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