China Research

2020 turned out to become less of an “annus horribilis” than one could expect after the early eruption of covid-19 and the publication of the GDP development for the first quarter of last year (-6.8 % yoy). After this period of economic loss, a GDP rebound could be noted in Q2 and Q3 (+3.2 % and 4.9 %).

For years, I had my doubts about the quality of Chinese GDP statistics. Major qualitative progress still remains invisible – even if some improvement may or should have taken place more lately. One of the problems in such a context is certainly that even justified improved statistical quality can lack credibility when substantial shortcomings obviously have been existing for many years.

Positive GDP growth in 2020 good tool for political marketing

Now, we also know the GDP result for Q4 (+ 6.5 %, yoy and + 2.6  % compared to Q3). This is in line with the expectations of markets and most probably also what the leadership of the Communist Party wanted to see.

President Xi Jinping and his colleagues from the Standing Committee of the Communist Party – the most powerful political institution in China – should therefore be pleased with the annual GDP growth. Despite corona, the Chinese economy still managed officially a 2. 3 % GDP growth compared to 2019 as a whole – better than in all major economies. Chinese politicians and media will certainly do their marketing of this performance (described as a major success of the Chinese system).

Also for the past year, not many concrete structural changes or initiatives can be found in this annual GDP report. Structural policy orientation may have, however, been more complicated and less urgent during the acute pandemic. In 2021, there should be time for new efforts to speed up structural reforms and their transparency – despite the following special event a lot of attention will be put on:

In 2021, the 100^th anniversary year of the Communist Party (CP) will be celebrated. Historical achievements will be summed up frequently by important political leaders. But how much will be talked more concretely – and not only generally – about the future?

China “must” achieve further acceleration of growth

The jubilee celebration year will move leaders of the CP in a triumphant mood. Major historical achievements will dominate the headlines like “The end of extreme poverty” or “The comprehensively well-off society”. However, the future has to be regarded as well – both in the shorter and the longer perspective.

Of course, the longer perspectives can only express vague visions but a re-emphasis will be put on supply-side policy and quality improvements. On the other hand, the short-term developments and perspectives can be shown more concretely. This includes the development of GDP in the course of 2021.

Here we have certainly a strong reason for efforts to do everything for considerable acceleration of GDP growth in 2021. This is a kind of “must”, perhaps rebounding the economy up to 7-8 % (without renewed major covid-19 complications).

Gradual positive consumption effects may also be derived from the planned demand-side policy reform, based on social reforms favoring the less wealthy part of the population. Furthermore, the announced more favorable treatment of corona-damaged small businesses should also be beneficial to GDP already in 2021 like the continuously relatively soft monetary policy by the PBoC.

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

 

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Following the Chinese press, there is currently an increasing accumulation of positive news – at least according to my own interpretation or feeling.

Thinkable reasons for the frequent positive reporting

There may be different reasons for all the positive reports, such as – pointing with the eyes of the political leadership (without ranking) – at

1)  a successful management of the corona crisis – also for the economy

2)  the successful RCEP agreement on (gradual) free trade, driven by China

3)  the obvious possibilities of improved ties to other Asian countries

4)  the strong high-tech development, particularly of IT but also the moon landing

5)  the official end of poverty, and particularly

6)  meeting the marketing needs of the Communist Party (CP) for the celebration of the 100 year anniversary of its foundation in 1921.

More examples could be mentioned. In each of these six examples, one can find strategic objectives, both in the short and the longer run. Contrary to most other nations in the world, China manages to apply both short-term and long-term thinking simultaneously.

I have wondered for a long time why this is the case and found two probable reasons for this. The first one may be linked to China’s Confucian roots. The second one can be explained by China’s authoritarian political system, meaning that a democratically elected government by nature is more short-sighted – very much in line with the research of Nobel Prize winner James Buchanan who focused on politicians’ major driving force: to do everything to be re-elected.

Recent positive contributions to the anniversary particularly important

Getting back to the initially mentioned examples of currently even more positive reporting than usual by Chinese media, more detailed exemplifying may be added.

Ad 1)  Looking into the official corona numbers, China had been very successful in fighting covid-19, also in absolute terms much better than, for example, Sweden. We know, of course, that China locked down the country very drastically – and particularly the city of Wuhan. However, since China’s history of transparency and statistical trustworthiness hardly had been encouraging during the years, there is no chance of judging the accuracy of the previously reported numbers. The total official numbers could be roughly correct, slightly wrong or very wrong. However, at least in the past two or three quarters, Chinese corona numbers should have developed more correctly. If not, digital sources would have informed the rest of the world.

Ad 2)  The free trade agreement RCEP between 13 Asian countries plus Australia and New Zeeland a few weeks ago made the Chinese very proud. This was a strategic masterpiece by China’s political leaders who recognized the great chance of a major cross-border trade deal after the withdrawal of the United States and President Trump from the Trans-Pacific Partnership (TPP) in January 2017, based on Trump’s misleading dogma of “America first”. This unwise decision made China to act and to outsmart the United States. RCEP will certainly be presented as an outstanding example of great international recognition for the People’s Republic.

Ad 3)  China is, of course, the leading country in the RCEP area with its totally 2.2 billion people population. This position will increase China’s influence both regionally and globally – ceteris paribus at the expense of United States and Europe. Recently, China, Japan and South Korea were described as the main driving forces for the RCEP agreement – a position that all three countries regard as favorable, de facto meaning a further strengthening of China in especially East Asia. A good example for the Chinese leadership to explain successful international cooperation and influential progress – particularly via media – can be found, for example, in https://www.chinadaily.com.cn/a/202012/01/WS5fc5d8fba31024ad0ba991ad.html.

Ad 4)  In recent years, CP leader and President of China, Xi Jinping, could be noted many times when addressing the decisive importance of technological progress,  positive changes in the value-added chain and quality improvements, see below https://www.chinadaily.com.cn/a/202012/02/WS5fc6c3eaa31024ad0ba992b0.html. Without major improvements in these areas, China has no change to replace its non-competitive products and exports – and, consequently, create better conditions for the economic, social and environmental future. Positive news that currently are spread among many others are excellent international IT rankings and what officials call the “leapfrog development” of IT, the recent moon landing not to forget.

Ad 5)  China has recently officially declared the end of poverty which certainly is a good topic for headlines in media https://news.cgtn.com/news/2020-11-23/China-eliminates-absolute-poverty-one-month-before-schedule-VEp8VAJJS0/index.html

It should be not underestimated that this development probably can be regarded as the most positive historical achievement of the CP during the past 100 years. However, the increasing uneven distribution of income remains a burdening problem.

Ad 6)  Here we have the everything else outstanding explanation for China’s current  increase of its success marketing: the forthcoming CP-jubilee year of 2021.

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

 

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