“Satisfactory survey numbers from China”

January 8th, 2018

LNU’s China Panel No 24 re-visited – January 8, 2018

In the beginning of December, Linnaeus University prepared its traditional fall/winter survey on the business climate and economic conditions in China, both with shorter and longer time perspectives. The (independent) responding China experts – around 15 of them – come from Asia, the U.S. and Europe – thanks a lot!

Unfortunately, the publication of the survey took place on December 22/23 when seasonal holidays already had started for many readers. For this this reason, we re-publish the results of the survey, provided with some additional comments. We see no reason why any result from the December Panel should be obsolete already today.

Summary: LNU’s China Panel remains cautiously optimistic on China – despite the risks”

¤ LNU’s “Temperature Indicator” for GDP growth remained stable at 6.1 in December 2017 compared to 6.4 in May 2017 – still satisfactory despite the small decrease (10 means “very hot” on the scale).

¤ The panel expects Chinese GDP growth to come in at 6.2 percent in 2018 as a whole and at – somewhat slower – 6 percent in q4 2018. But also this latter number would still be acceptable inside and outside China.

¤ The forecasts of the panel have rather a downward bias than an upward bias.

¤ There are very divided views on the course of the currency RMB in 2018.

¤ GDP growth is seen at 5.6 percent on average until 2022 (five years from now).

Click to zoom the image.

Download the full article here, chinapanelno24-re jan 2018.

 

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

 

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Chinese opportunities – clear links to digitalization

November 27th, 2017

In my recent blog, I focused on a couple of major risks the new and reappointed Chinese political leadership may or will be confronted with. In this article, I concentrate instead on some obvious future opportunities for the Chinese economy, both from corporate and macroeconomic angles – with specific implications also for Western (Swedish) politicians and corporate leaders.

Moving China markedly forward on the global value chain of production is certainly a major – or even the major –  objective of economic policy in the forthcoming years. This has not only been said directly by Chinese leaders but can also be concluded from all the efforts that are about to be put on education, innovation and technology.

AI will play a decisive role
IT and its increasingly important component AI (Artificial Intelligence) are regarded as major fundamental pillars in the process of building the future China.

According to my own experience from many trips to China, the Chinese have particularly good preconditions for more advanced development and application of lT (AI). I will elaborate somewhat more on this conclusion. But all cannot be said in a brief blog.

Already today China is estimated to be the second largest country in the world when it comes to the existing number of AI-companies. Most probably, it is only a matter of time until China will proceed to number one in this ranking. Of course, one may discuss the quality of all these AI-companies; this question may be similar to the issue of the real number of – let call it this way – sophisticated patents.

Rankings are obviously popular in China, especially when China is characterized by an impressive trend in an international context. But rankings are also frequently prepared for domestic reasons, probably in most cases to stimulate competition between cities.

Visible, i.e. measurable improvements of the environment are always appreciated on a broad scale – by the local population, politicians on all levels and even foreign direct investors. The environment certainly will remain also commercially very interesting in the future.

Digitalization fits China well
Recently, interesting statistics were published by checking out the number of digital talents in so-called tier2-cities (following after the five tier1-cities of Shanghai, Beijing, Shenzhen, Guangzhou and Hangzhou). The five leading tier2-cities are according to LinkedIn large places like:

Chengdu, Suzhou, Nanjing, Wuhan and Xi’an.

However, do remember that we here only quote 10 major cities of this huge country with its 1400 million people! Many digital talents can certainly be found at many other places as well.

By its enormous size and population, China – or rather many Chinese companies – may indeed have realistic chances to take competitive advantage in the global digitalization process in the forthcoming years.

In my own micro understanding of China and the Chinese, the fast moves forward of digitalization and its rapidly growing importance serve the Chinese particularly well since they are ambitiously working, curious about new techniques like IT (PC application and cell phones), and many times having a strongly rooted feeling for entrepreneurship. Paying by cash card, for example, – also for minor amounts – seems to be more common in major Chinese cities than in (most) European countries, at least according to my own impression.

Furthermore, the Chinese normally seem to care less about violations of their personal integrity than most people in the Western hemisphere do. I have myself in a number of presentations seen Chinese examples of applications of personal data where the data collectors seem to know more about certain people than the individuals themselves.

Putting all the above-mentioned Chinese preconditions together, leads quite directly to the conclusion that China may become the main winner or at least one of the main winners of global digitalization. Strong application areas will or could be manufacturing and its production processes, transports, banking and other financial services, education, health care, elderly care  – many of them in line with the great overall global objectives of a better global environment and fairer conditions for many people to catch up economically.

China’s digitalization affects Sweden
There is no doubt that Chinese digitalization also will affect Swedish companies a lot – both via exports and imports. Swedish companies must regard China as a digital frontrunner, both from the supply and the demand side. Thus, China will become an increasingly advanced market for Swedish exporters; and the other way around: Chinese companies will in a couple of years offer much more modern products to Sweden and the whole world than it is the case right now.

However, it should also be stressed very strongly that the important tool of digitalization must be applied in the fairest way ever possible. Digitalization should be regarded as a modern tool that should not be abused whatsoever, neither from China nor from the U.S., Europe or elsewhere.

The question, however, remains currently unanswered whether digitalization can be applied with good ethical standards anytime and anywhere. Memory takes me back to the early days of criticism  against the deteriorating global environment. Then, single doubts and protests could be noticed at quite an early stage –  but (almost) nobody would pay attention to them at the time.

In my view, it is high time to bring the issue of digitalization on the international or global arena – particularly by institutions and governments who have the power to achieve agreements on the abuse of digitalization and can take these agreements back home for implemention. I guess that the definition of “abuse” could become very complicated.

Anyway, time has come to act and react in such a direction – China, India, the U.S. and the EU preferably included. Do not forget India in this context – another country that could benefit a lot from digitalization!

And why shouldn’t Sweden play a leading role in this initial process of creating ethical rules for digitalization as it did before at an early stage by promoting the discussion about the worsening environment?

 

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

 

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China – what do we really know?

November 16th, 2017

Negative comments on China and its economy are currently increasing. Certain analysts even claim that the next global economic and/or financial crisis will have its start in China but without giving any timing. This brings me to John Frankenstein – a Hong Kong professor and journalist – who often in the 1990s explained to me his own “Frankenstein’s Law”, not really more than the following question: “What do we really know about China?”

The same question still can be raised, followed by “what do we really know about future politics by the General Secretary of the CCP and President of China, Xi Jinping?” Certainly not enough to be provided with more knowledge than so far about China in the forthcoming five years – and thus, we do not know enough about future conditions for foreign (Swedish) companies in China.

More lately, increasing cases of impediments for foreign companies in China are reported. These cases, however, reflect only individual (micro) examples. But what is really known about all this in a larger (macro) context? More examples are given by the European Union Chamber of Commerce in China with its 1600 members, more lately no less than 795 recommendations (Position Papers, 2017/2018, http://www.europeanchamber.com.cn/en/publications-position-paper#download-table-293). Considering all this, improvements are certainly desirable and necessary.

We do know that China normally wants to reform things slowly. This certainly includes also many economic reforms. But will there be new or changing priorities? What about future reforms of the financial system? What does the fight against corruption mean in more practical terms? Could all this make foreign business in China more complicated?

As a concrete question along with Xi’s considerable strengthening of his own position is whether this change may impede more transparency. So far, there was much more of a collective political leadership within the Standing Committee. The new, almighty position of Xi Jinping, however, can possibly lower the speed of moves to more transparency because of this new concentration of individual power. More individual power also means more individual responsibility. We will see.

I am not only talking about lagging transparency when it comes to political decision-making but also related to a maintained or even growing political influence on economic statistics (particularly in a slowing economy). This Chinese statistical phenomenon is always a topic to complain about; or how would one comment that the recent ratio of non-performing bank loans (NPL) at the end of the third quarter 2017 exactly remained on the same spot as three months earlier (1.74 percent of all bank credit volumes). Again: too much accuracy.

Altogether, there is an increasing need of analyzing conditions for (foreign) business in China. Both micro and macro analysis are needed. However, only one side of China has been analyzed above. Not to forget: The other side of the coin of developing China into an economic superpower is still in place. Consequently, China remains exciting – with both opportunities and risks, also on the corporate level.

 

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

 

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