China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

China: Economic Discussions Move Forward – but what about Reality?

February 6, 2013

Developments in China get increasingly interesting for economists, other analysts, and – certainly – for many corporate decision-makers. This can particularly be said about:

– the more immediate economic development,

– economic reports and discussions, and

– the future economic policy of the new political leaders.

What concerns the first point, it seems to become increasingly probable that China is on its way to enter a period of somewhat accelerating rate of GDP growth. This was also indicated by Linnaeus University’s China Survey Panel in December. However, skepticism about Chinese GDP numbers and other statistics remains in place. Regular readers of this blog are familiar with the issue.

The second point to be mentioned is the trend of economic reports and discussions. Here, I can see continuous progress. Openness is improving, particularly in the past few years. After having followed economic reporting on China during at least two decades, current economic discussions seem to be on a very different – and more frank – level compared to 5-10 years ago (as long as it remains a pure issue of economics). The following headlines – which I just picked in the past two weeks – would probably have been distant from publication ten years ago (sources for the headlines: different Chinese newspapers – but the mentioned improvements have to be seen in Chinese relative terms, not measured according to our Western standards):

¤“UK breakup from EU may hurt  China trade”: China’s concern about this risk is obvious.
¤“China must strive to improve WTO relations”: China’s disputes with WTO should decrease.
¤“China’s fiscal deficit may hit new high”: a cautious warning signal about public debt.
¤“The bane of private consumption”: about the difficulties of changing the growth model.
¤“Full RMB convertibility ruled out”: indicating that full RMB convertibility is far away.
¤“Domestic lenders need global outlook”: pointing at an important management issue.
¤“China’s Q4 property loans accelerate”: could be a hidden warning signal.
¤“Tougher measures on corruption”: one of China’s most frequently discussed topics.
¤“Food struggle may threaten urbanization”: the food issue in another critical perspective.
¤“Product quality improved in 2012”: product quality – a major future challenge.
¤“Manufacturing turns youth off”: a topic that starts to reach China.
¤“Chinese firms willing to do more public good”: aiming at state-owned enterprises (SMEs).

The third point is about the future economic policy of China’s new political leaders. The National People’s Congress (NPC) in March will certainly give hints on economic policy priorities. Such policy declarations are, however, usually without concrete timeframes – or held very generally. Consequently, one should not take these official ambitions for the future too verbally in all respects, even if they may indicate the road on which China’s new main political decision-makers wish to move forward.

Moving forward on a certain road does not say too much about real ambitions, speed and sustainability of the plans. This kind of more precise and applicable planning won’t be given already next month. It may be added as an example and little reminder that China’s already some years ago envisaged the transition to a more consumption-oriented economy. This strategy still remains invisible in reality. Rather the opposite is true when we look at the latest statistics – and probably in 2013 as well. Chinese reality remains many times very harsh – despite all progress we’ve seen in the past decade in quite some important economic areas.

 

Hubert Fromlet
Professor of International Economics
Editorial board

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The International Business Compass of the HWWI / Hamburg

January 9, 2013

The objective of this blog is to focus on both short-term and long-term perspectives for emerging markets. An interesting publication in this context is the BDO International Business Compass (IBC), edited by the HWWI-institute in Hamburg (Hamburgisches WeltWirtschaftsInstitut).

The IBC is a composition of publicly available indicators – one a scale from 0 to 100, 100=best value – for 174 countries that reflect economic, political and social dimensions. These 174 countries are divided into two groups, OECD countries and non-OECD countries. Summarized indicator results are given for the total index and its three subgroups with the economic, political and social dimensions – for all 174 countries. For the non-OECD countries (emerging economies), there is also an average benchmark for each continent.

The IBC ranking instrument serves – in line with its name – as an International Business Compass. Of course, I recommend comparing the results of the IBC with similar publications like the World Bank’s “Doing Business”. The more sophisticated ranking tables – with both microeconomic, macroeconomic, political and social dimensions – decision-makers in both SMEs and bigger companies have access to, the better the conditions for making well-analyzed corporate decisions, particularly concerning those with strategic dimensions.

Let’s exemplify the latest results from 2012 by looking at some Asian countries. This does not, of course, rule out that individual companies so far may have a different experience and preference for ranking.

BDI, South East and East Asia, in a sales perspective * (Japan excl.)

1 China (7)
2 Taiwan (3)
3 Hongkong (2)
4 India (4)
5 Singapore (1)
6 Malaysia (6)
7 Indonesia (8)
8 Thailand (5)

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* In brackets from a production perspective. Source: BDO International Business Compass, by HWWI, Hamburg (editor Michael Bräuninger).

Let me add that the HWWI internationally also is known for its monthly commodity index. During 2012, the composed commodity index of the HWWI fell by around 1 percent. However, different subindices partly had quite volatile developments during the past year. Certain food prices rose strongly in 2012, other food commodities like coffee and sugar had declined markedly. Oil prices did not move very much in 2012 in a price average perspective – but substantially during the course of the last year. Industrial metals had quite a weak development until late summer. But expectations of Chinese fiscal injections – supporting particularly infrastructure – led to a recovery of several metal prices (aluminum, copper) since August/September.

Again, we can recognize what China increasingly means to many commodity prices.

 

Hubert Fromlet
Professor of International Economics
Editorial board

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LNU’s China Panel Survey No 15 – December 2012:

“Our “overheating indicator” for China rises to 6.5 – slightly improved outlook for 2013 and 2014“

¤ Our so-called overheating indicator for China – derived from a survey with China specialists all over the globe – gained some temperature in December compared to May 2012 (6.5; May:2012: 4.9; 1-10; 10=extremely overheated). The current GDP-growth temperature does not indicate any overheating in the general economy.

¤ GDP forecasts for China (average, percent) 2012: 7.3 2013: 7.8 2014: 8.0
For both 2013 and 2014, GDP predictions are characterized by downward biases – though on a somewhat more encouraging trend. I tend to be slightly more optimistic.

¤ One of the panel’s assumptions for Chinese growth forecasts is that around two thirds of our panel members count on a gradual but relatively modest recovery in 2013/2014 in the OECD area as a whole. Approximately, one third believes in a continued weak and disappointing performance – on average – of the entire OECD block. China’s growth sensitivity that is related to the European crisis is considered to be at 5.6 (scale 1-10; 1=no sensitivity at all) which is not negligible.

¤ Three fourths of the panelists predict that the Chinese currency renminbi (RMB) will appreciate slightly during 2013 (by 1-5 percent). All the other remaining panelists assume the RMB to remain more or less stable.

¤ 100 percent of the panelists think that there is still a dangerous price bubble on the real estate market. When it comes to the Chinese stock market, however, our China experts seem to be markedly less concerned about potential bubble risks.

Read the full article

 

Hubert Fromlet
Professor of International Economics
Editorial board

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