The economic analysis of China should now be modified

March 22nd, 2018 by Hubert Fromlet, Kalmar

Not very surprisingly, the very recent 13th National People’s Congress was not dominated by economic issues but by the even further strengthened political power of Xi Jinping, General Secretary of the Communist Party, President of the People’s Republic of China and also Chairman of the Central Military Commission. Xi received now even more personal power by some important constitutional changes than he already had created before, giving him the opportunity to continue his presidency also beyond 2022. Xi’s core status was also underlined by the new guiding ideology in the Constitution, expressed by the now included formulation that “the leadership of the Communist Party is the defining future of socialism with Chinese characteristics” – more exactly the “thoughts” of Xi Jinping.

In my view, “Chinese characteristics” also should be applied when it comes to economic analysis which so far has been made very superficially in our part of the world. Prime Minister Li Keqiang’s latest forecast for 2018 – predicting 6 ½ percent for GDP growth – does not imply any deceleration of economic growth as interpreted in a number of Western newspapers. Furthermore, a little bit higher GDP growth than predicted remains certainly in the cards – particularly for giving Xi recognition for successful economic leadership. However, Li’s comments on major risks seem to be more interesting, i.e. mainly his concerns about financial risks, poverty and the environment which are indeed embedded in a number of major goal conflicts – goal conflicts that I have pointed at frequently in this blog and published papers of mine.

Xi Jinping’s strengthened core leadership urges now for a number of analytical changes and attempts to find answers to difficult questions. Below, there are some examples:

¤  How will Xi handle relations to the U.S. and Trump’s protectionism?

¤  To what extent does Xi want to  stick completely to the reform plans by the Third Plenum from 2013 – and will there be new priorities and solutions to the related conflicts of goals?

¤  Now – with so much power in the hands of one single person but also rising direct personal responsibility – how determined will Xi handle potential failures or setbacks?

¤  How good are the chances of, finally, improving or even maintaining transparency in the potential  case of increasing problems – and what about the necessary qualitative development of statistics?

¤  Where could the domestic warning signals come from if things go in the wrong direction?

These are only a few examples and questions related to Xi’s strong leadership. It should be clear that also economic analysis – especially when applying a longer perspective – much more should be based on politics than in the past. Noting a certain number for GDP growth – even when exceeding (official) expectations – is about to become a (further) weakening guideline for future GDP growth and other macroeconomic forecasts. Careful political and – may be – psychological analysis has to be added to macroeconomic forecasts and conclusions.

Conditions are changing within China – and also China’s international relations. For this reason, economic analysis tools for China should be developed further as pointed at above. Official GDP growth is certainly not enough at all for analyzing trends in the Chinese economy.

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