It is probably wrong to speak unsophisticatedly about \u201cone China\u201d. In my view, there exist three different Chinas \u2013 divided as follows:<\/p>\n
- \n
- The \u201ctraditional\u201d and conservative China<\/strong>.
\nHere we talk about sticking to traditional values about \u201cChinese socialism\u201d and remaining strong political influence on individuals and major parts of the corporate sector (state-owned enterprises, of course, included), recently again underlined by China\u2019s strong leader Xi Jinping.<\/li>\n<\/ol>\n- \n
- The slowly reforming China.
\n<\/strong>This part of China is probably quite large even if there is no chance to quantify the share of the slowly reforming China in percentage terms \u2013 but it seems to be probable that the size of this second type of China could be essential. More cautious but not really pessimistic foreign China forecasters should be mainly found in this segment \u2013 experts who probably also focus on the economic imbalances.<\/li>\n<\/ol>\n- \n
- The rapidly changing China.
\n<\/strong>Optimists about the economic future of China prefer to give China\u2019s strong technology efforts their main momentum and see it as a driver of future GDP growth. Artificial intelligence (AI) is expected to play a crucial role in this development. Consequently, future progress in this third \u2013 the rapidly changing \u2013 China is predicted to clearly outperform the two above-mentioned Chinas and less promising definitions of the three Chinas.<\/li>\n<\/ol>\nIn my own view, I also consider the time horizon very carefully. In the forthcoming few years, options 1 and 2 may dominate. In an even longer perspective, option 3 could gain clear momentum. But how much progress can be achieved in the lagging parts of China until this \u2013 maybe \u2013 new era of production and GDP growth may show up openly and recognizably? This is one of the future key questions, potentially of more importance than future tensions derived from international politics.<\/p>\n
More cautious forecasts<\/strong><\/p>\n
Unfortunately, the quite recently finalized 13th <\/sup>National People\u2019s Congress did not really give much detailed information on the current status of all the announced and necessary economic reforms. In other words: Transparency shortcomings are still remarkable.<\/p>\n
This is also concluded by the well-known and competent Finnish research institute BOFIT (The Bank of Finland Institute for Economies in Transition) in their recent forecast on the Chinese economy. BOFIT writes in its recent China forecast from March 27 that \u201cmajor economic reforms have not been carried out as previously expected and some reforms even reversed. Concrete reform execution plans were notably missing from the addresses made at the National Congress \u2026 In coming years, dealing with financial risks and China\u2019s massive pollution, problems are inevitable \u2026 We expect growth to slow to around 5.5 % in 2019 and to around 5 % in 2020 \u2026 (after 6.5% in 2018, own additional remark)\u201d.<\/em><\/p>\n
BOFIT also singles out that official Chinese (forecast) numbers should be analyzed with \u201cconsiderable scepticism\u201d. This should be indeed the case. In my view, GDP growth will continue to meet the projections of China\u2019s political leadership because of performance pressure \u2013 whatever the real development might have been. Therefore GDP growth will be 6.5 percent in 2018 as China\u2019s political leaders have emphasized during the National People\u2019s Congress \u2013 or even 6.6 or 6.7 percent, despite the first preference of reducing the problems of China\u2019s private and local government debt.<\/p>\n
The goal conflict between the reduction of financial risks and GDP growth will go on \u2013 with financial risk reduction most probably in the first place, at least in practice. Reasonable economic growth and poverty reduction should also have continuous high priority – at the expense of the environment?<\/p>\n
Maximizing the reduction of the debt problem, the achievement of future high GDP growth with reduction of poverty and also a clearly better environment seem to be an impossible trinity<\/strong>. Thus, increasing doubts about the Chinese economy are motivated. Hopefully a wrong view at some point in the future \u2026<\/p>\n
<\/p>\n
Hubert Fromlet<\/em><\/strong>
\n<\/em>Affiliate Professor at the School of Business and Economics, Linnaeus University
\nEditorial board<\/a><\/p>\n<\/p>\n
- The rapidly changing China.
- The slowly reforming China.