\u00a4 Government interventions \u2013 are reformers losing momentum? \u00a4 Real GDP growth in reality \u2013 how does it look like? The past does not give us any good guidance. My own guess and experience tells me that current Chinese growth reality looks worse than official statistics express – and worse than it is defined by the political leadership as the \u201cnew normal\u201d, i.e. around 7 percent instead of previous double-digit numbers. In this context, the Chinese have a problem. Even if the quality of Chinese GDP calculation should have improved more recently, how can we trust such conclusions once statistical improvements are announced or confirmed more officially? How can we trust more encouraging economic statistics once they show up?<\/p>\n The creation of confidence is deeply connected with more and better transparency \u2013 an institutional factor with still many shortcomings in China. My own concerns about China\u2019s economic situation and outlook would certainly decrease if the Chinese succeeded to establish more reliable and sizeable improvements of transparency. This takes, however, a lot of time. Therefore, we will not know for sure for quite some time what really happens in the Chinese economy. Whatever all these rapidly emerging China experts way around the globe say and write about.<\/p>\n \u00a4 The new growth model \u2013 revised, delayed or on track? \u00a4 The banks and the whole financial sector \u2013 future damage from the current problems? One should also point at the fact \u2013 as previously commented on this page \u2013 that China still should be far away from making the RMB a convertible currency and from a complete opening of the current account balance (free cross-border capital transaction). It seems to be proven that previous optimism in this area was clearly premature \u2013 and too risky for global financial markets. China\u2019s main focus in the forthcoming years should be decisive improvements of the lagging domestic financial market. It was certainly the right decision by the IMF to postpone China\u2019s entry in the artificial currency unit SDR (plans which I described as a bad idea in my blog from June 3).<\/p>\n \u00a4 Realistic and appropriate priorities in the new, 13th<\/sup>Five-Year Plan for 2016-2020? However: Having dealt daily with the Chinese economy for more than 20 years, I have a strong feeling that it would be wrong to neglect many positive economic developments in China during the past decades \u2013 and China\u2019s also (sometimes) existing flexibility in economic policy. But we also know that China\u2019s future way forward would have been easier at this stage if institutional progress \u2013 particularly regarding corruption, transparency and statistics – had received more attention and had been improved more ambitiously during the past ten to twenty years. <\/em><\/p>\n The price for shortcomings in these \u2013 and other \u2013 neglected areas gets higher and higher. For example, I would like to know more about the real volume of local debt. The last official number is from estimates by the National Audit Office (NAO) in 2013. This tells me a lot \u2013 but not really what I am really looking for. China could benefit so much from better transparency. At least in the longer run.<\/p>\n <\/p>\n Hubert Fromlet<\/em><\/strong> <\/p>\n
\n<\/em><\/strong>Chinese political leaders announced in November 2013 during the so-called Third Plenum of the Central Committee of the Communist Party that the market economy should play a decisive <\/em>role in the new, future-oriented China. Most of the 60, mainly quite detailed economic, institutional and social objectives in the Third Plenum\u2019s document stress the above-mentioned decisive role of the market economy. When regarding China\u2019s recent political interventions on its two stock markets, we should ask ourselves if these actions were only temporary steps away from the quite ambitious ideas and reform plans of the Third Plenum – or a real defeat for the reformers with more far-reaching consequences in the longer run, as my colleague and latest co-author professor Doris Fischer from the University of W\u00fcrzburg seriously considers (in Die Zeit, July 28).<\/p>\n
\n<\/em><\/strong>Officially mentioned concerns about exports, monetary easing, more infrastructure projects, etc., lead \u201cautomatically\u201d to the question about current Chinese GDP growth in reality. For the second quarter, GDP growth was officially noted at 7 percent \u2013 as usual close to the official forecast and objective. But how does reality look like? In line with official statistics, worse or even much worse?<\/p>\n
\n<\/em><\/strong>Official concerns about economic growth lead very directly to the question whether the broadly announced goals of visible progress in the value chain of industrial production and the intended transmission to more (sophisticated) service production will succeed or not. The gradual change to a new Chinese growth model should be considered as extremely important in the longer run for the future quality and rate of potential GDP growth (which would induce more focus on mid and high tech products for exports, more demand-oriented investments, more emphasis on private consumption and an increasing share of service production at the expense of industrial production). Altogether, it is still too early to fear upcoming problems with new growth model as a result of the current crisis. Business people and economists, however, should from now on look more carefully at the challenges for the new Chinese growth model and the reform-friendly politicians behind it.<\/p>\n
\n<\/em><\/strong>Here, we find a hidden problem almost no one talks about. If Chinese political leaders are on their way to pay less attention to a promising restructuring of the Chinese economy in order to roughly maintain short-term growth, the quality of the banks\u2019 credit portfolios will further deteriorate. Already by now, the real volume of bad loans should be much larger than officially reported. But things could become worse \u2013 when considering the badly analyzed shadow banks as well. Altogether, credit risks are increasing. Unfortunately, transparency is more or less non-existent in this context.<\/p>\n
\n<\/em><\/strong>The answer to this question remains open at least until the Communist Party\u2019s plenary session this October. The documents from this convergation will be important to analyze. Will China\u2019s top leaders stick to the \u2013 mostly ambitious and promising – plans from the Third Plenum in 2013? Or will there be less market-oriented deviations ?<\/p>\n<\/p>\n
\n<\/em>Senior Professor of International Economics, Linnaeus University
\nEditorial board<\/a><\/p>\n