China's economy in a global context

[TaiShang]

China's economy in a global context
By Zhang Lijuan

The National Bureau of Statistics of China has released key figures for measuring the Chinese economy in 2014. As expected, China's growth rate as measured by GDP was 7.4 percent, the lowest since 2002. Over the past 15 years, China's average annual GDP growth was 8.9 percent. The size of the Chinese economy has increased from RMB 8.94 trillion (US$1.43 trillion) in 2000 to RMB 63.64 trillion (US$10.18 trillion) in 2014. This means China's economy is seven times larger than it was in 2000. China has created a true economic miracle.

Chinese Premier Li Keqiang delivers a keynote speech at the World Economic Forum (WEF) annual meeting in Davos, Switzerland, on Jan. 21, 2015. [Photo/Xinhua]

But the slowing of the Chinese economy is not a new story. Rather, a gradual slowdown is part of the plan, as Premier Li Keqiang said at the World Economic Forum in Davos today. China's GDP growth rate began single digit expansion in 2011. For years, scholars and researchers all over the world have had serious discussions about how sustainable China's economy is and how far it may go before a hard landing. Premier Li reassured us that China will not experience a hard landing although the dangers in the Chinese economy have been well recognized, risks in the real estate and financial sectors chief among them. Expanding local government debt and the emerging shadow banking industry have also garnered strong warnings from critics. Such risks still exist, and, if anything, have worsened. To deal with these dangers, the Chinese government has prepared to accept the next stage of China's economic development - the "new normal," which basically means accepting slower growth within a better growth structure and faster, consumption-driven economy.

Today, it is very difficult to judge the Chinese economy based solely on domestic factors. This is because the Chinese economy exists and operates in a wider global context or a "new global context." This is a new experience for China. The world economic scenario has changed dramatically since the 1990s, and the current economic climate is not even similar to that of the 2000s. New challenges and conflicts are borderless but remain connected in a global value chain. A misstep in one nation's economy can quickly spread to that of another to potentially end an era of economic integration and global growth.

The world's leading economies have to face the following common challenges and conflicts in a new global context: the conflict between national interests and global governance, the conflict between domestic political interests and economic logic, the conflict between regional and multilateral free trade approaches, and the conflict between domestic economic growth and global climate change.

These challenges are new and complicated. The years of emerging economies flourishing seem to be over, and there is no single country that can solve such issues independently. Unilateralism is not going to solve global conflicts. The world needs a new development strategy with vision. Every trading nation has to face the constantly changing circumstances that are increasingly more complicated, inherently difficult and interrelated in a global context. Reshaping 21st century trade policies is particularly challenging for top trading nations like China and the United States. As we can all see from Asian regional economic cooperation, a sound de facto U.S.-China bilateral diplomatic relationship is not only critical to a new Asian regional trade regime, but also to dynamic world economic prosperity.

China has to face new trends in the world economy too: The U.S. is attracting more foreign direct investment than China; manufacturing labor costs in India and the Philippine are now lower than they are in China; climate change and sustainable development have become the most pressing challenges facing humanity; regionalism is playing a more aggressive role in global trade and geopolitics; and collapsing oil prices are making the world economy vulnerable. According to Christine Lagarde, managing director of the International Monetary Fund, the global economy is entering an era of "new mediocre" growth.

Inside China, economic challenges are ongoing and ever-changing. As stated by Ma Jiantang, the head of the National Bureau of Statistics, the country is undertaking a problem-solving urbanization project involving 300 million people: 100 million people who have already moved to cities and who expect new policies to support their urbanization; 100 million who are waiting to immigrate from the countryside of northwest China to larger cities; and another 100 million who live in villages under the jurisdiction of cities waiting for further policies that allow them to be better off. The issue of dealing with the urbanization of 300 million people remains a huge challenge for the Chinese leadership. Furthermore, China has also transformed its economy from an agricultural to an industrial to a consumer economy in just one generation. Needless to say, a "new normal" Chinese economy has to deal with both domestic and global complexity and uncertainty.

The combination of China's "new normal" economy with Lagarde's "new mediocre" global economic growth has significant implications for both China and the world. The rebalancing and restructuring of China's economy toward a "new normal" will prove very helpful to sustaining the global economy.

The author is a columnist with China.org.cn. For more information please visit:http://www.china.org.cn/opinion/zhanglijuan.htm

 

[Lure]

But the slowing of the Chinese economy is not a new story. Rather, a gradual slowdown is part of the plan, as Premier Li Keqiang said at the World Economic Forum in Davos today. China's GDP growth rate began single digit expansion in 2011. For years, scholars and researchers all over the world have had serious discussions about how sustainable China's economy is and how far it may go before a hard landing. Premier Li reassured us that China will not experience a hard landing although the dangers in the Chinese economy have been well recognized, risks in the real estate and financial sectors chief among them. Expanding local government debt and the emerging shadow banking industry have also garnered strong warnings from critics. Such risks still exist, and, if anything, have worsened. To deal with these dangers, the Chinese government has prepared to accept the next stage of China's economic development - the "new normal," which basically means accepting slower growth within a better growth structure and faster, consumption-driven economy.

Well of course the Chinese economy needs a "new normal" growth structure. Back in 90's and 2000's the economic activity of China was investment driven (resulted with overcapacity in the end) and basically seeking for exports. It was a very good model for capital accumulation. It's definitely not sustainable. Why? Because resource is something finite. If you have a 1 trillion dollar economy and you want to make it a 2 trillion dollars; with investments, big infrastructure projects spread to 3-4 years you can supercharge your economy and achieve your desire (if you have enough manpower, natural resource etc.). Financing would be relatively easy. Since you're making tangible investment projects for the biggest market of the world, return on investment won't be much of a problem and the banks will actually compete among themselves to finance you.

Let's consider a 10 trillion $ economy now and you want to double it in 3 years. What kind of investment or infrastructure project can create 10 trillion $ on an economy? I can see way more many. You need to construct 3 UK's in 3 years to get such an achievement. It's way harder. What I'm trying to say is as China gets closer to an equillibrium point it's economy will slow down.

GDP per capita should be considered for the performance of the economic growth. Today China has 7000$ gdp per capita in terms of nominal calculations. We say from 2000 to 2014 Chinese economy grew 7 times. Now if we consider the same growth speed, Chinese economy should have a roughly 50000$ GDP per capita around 2030. I can honestly tell you it's not gonna happen. China is not a city state or a small country that can create 50000$ GDP per capita in blink of an eye. It's moving fast, but it's moving fast in probable domain. The thing above is not probable.

My prediction is, Chinese economy would be 2.5 times larger in 10 years. Around 2025, I expect a 25 trillion $ economy and By that time China should have surpressed US in terms of nominal economic activity size.

Today, it is very difficult to judge the Chinese economy based solely on domestic factors. This is because the Chinese economy exists and operates in a wider global context or a "new global context." This is a new experience for China. The world economic scenario has changed dramatically since the 1990s, and the current economic climate is not even similar to that of the 2000s. New challenges and conflicts are borderless but remain connected in a global value chain. A misstep in one nation's economy can quickly spread to that of another to potentially end an era of economic integration and global growth.

Yeah that's the most exciting part. I wanna see how this will effect the Chinese foreign policy. Eventually the guys who are interested in foreign policy will be as valuable as the guys who are interested in economy in China.

China has to face new trends in the world economy too: The U.S. is attracting more foreign direct investment than China; manufacturing labor costs in India and the Philippine are now lower than they are in China; climate change and sustainable development have become the most pressing challenges facing humanity; regionalism is playing a more aggressive role in global trade and geopolitics; and collapsing oil prices are making the world economy vulnerable. According to Christine Lagarde, managing director of the International Monetary Fund, the global economy is entering an era of "new mediocre" growth.

US has very high costs. Don't be afraid about US attracting more investment. Those investments are not that long term. Manufacturing costs being lower in India might be a problem. But you have a window of opportunity there. India won't be able to attract investment in it's full potential because of it's infrastructure problems. Low quality transportation of goods (bad roads, insufficient and low quality railways), problems with energy infrastructure (blackouts), problems with government services (education -> educated workforce) etc. These are the problems that India will be fighting for next 15 years at least.

In that window China should be able to climb higher places into the global value addition chain. If China manages to climb, than the labor costs in other countries will be no problem in China. Actually low labor costs in it's neighbours will be something that China enjoys.

Inside China, economic challenges are ongoing and ever-changing. As stated by Ma Jiantang, the head of the National Bureau of Statistics, the country is undertaking a problem-solving urbanization project involving 300 million people: 100 million people who have already moved to cities and who expect new policies to support their urbanization; 100 million who are waiting to immigrate from the countryside of northwest China to larger cities; and another 100 million who live in villages under the jurisdiction of cities waiting for further policies that allow them to be better off. The issue of dealing with the urbanization of 300 million people remains a huge challenge for the Chinese leadership. Furthermore, China has also transformed its economy from an agricultural to an industrial to a consumer economy in just one generation. Needless to say, a "new normal" Chinese economy has to deal with both domestic and global complexity and uncertainty.

Housing is a huge problem. But China does not bubble on the housing market for high growth speed which is something good. You know easy financing for housing can turbo charge the economy. Easy financing increases the demand, but the supply will not be able to meet the demand's speed (never) and since people pick quality over quantity when buying a house, especially in some (high quality or middle quality) neighbourhoods the house prices skyrocket. However this collapse very bad as we all know.

China picked the safe road on this one in exchange for a slower economic growth.

The combination of China's "new normal" economy with Lagarde's "new mediocre" global economic growth has significant implications for both China and the world. The rebalancing and restructuring of China's economy toward a "new normal" will prove very helpful to sustaining the global economy.

Since we're seeing environmental pressure more and more every year (pollution, climate change etc.), low hanging fruits that makes our economies fast are fading year after year. We need to think more sophisticated when designing our products which increase their costs. Low cost R&D would be the keyword of the next 50 years. Maybe Chinese role in the global arena would be that in the upcoming years. Who knows...

@LeveragedBuyout you can join us on that one. This is a nice topic. Especially I wonder your thoughts about my low cost R&D hypothesis.

 

[dray]

Correction: If I am not too mistaken then China's GDP growth at 7.4% for 2014 is actually lowest in last 24 years, in 1989 and 1990 it hit rock bottom due to the western sanctions following the Tiananmen Square massacre, but this time the slowdown is a reflection of diminishing return on capital along with some other basic economic factors, and indication of a longer period of economic slowdown, as economists suggest.

 

[TaiShang]

No hard landing: Premier Li
By Chen Yang -- 2015-1-23

Economists expect steady growth of ‘around 7 percent’

Chinese Premier Li Keqiang talks with President Simonetta Sommaruga of the Swiss Confederation on the sidelines of the 2015 annual meeting of the World Economic Forum in Davos on Wednesday. Photo: Xinhua

Graphics:GT

Economists said Thursday that China will maintain an annual growth rate of around 7 percent in the coming years, after Chinese Premier Li Keqiang said the country's economy is not headed for a hard landing.

China's GDP growth slowed to 7.4 percent in 2014, the slowest in 24 years. But the premier said early Thursday Beijing Time that the country's economy will not suffer a hard landing even though it faces downward pressures this year.

A 7 percent growth in China's economy produces an annual increase of $800 billion at current prices, an increase of 10 percent over five years ago, Li said in a keynote speech at a special session of the annual meeting of the World Economic Forum in Davos.

"We will move toward the path of reforms. This way we can shift gear without losing momentum and achieve medium-to-high-speed growth, and medium-to-high-level development," he said.

According to Li, structural reforms will include liberalization of the services sector, promoting entrepreneurship and innovation, protecting intellectual property rights and deepening capital markets.

Li's speech sent a positive signal on China's economic outlook, and emphasized both China's determination to deepen reforms and the country's willingness to strengthen cooperation with other economies in the future, experts said Thursday.

With a low debt ratio, high savings ratio and a nearly $4 trillion in foreign exchange reserves, China still has the potential to achieve a 7 percent growth rate in the coming years and continues to be a major growth engine for the global economy, Justin Lin Yifu, a professor at Peking University and former chief economist of the World Bank, was quoted by news portal ifeng.com as saying at a panel discussion of the World Economic Forum in Davos on Thursday.

"During the past year, Chinese policymakers implemented mini-stimulus measures, such as targeted reserve requirement ratio cuts, and deepened reforms to adjust to the 'new normal,'" Xu Hongcai, head of the Department of Information with the China Center for International Economic Exchanges, told the Global Times Thursday.

"China's growth has slowed a bit, but the quality and efficiency of the economy has improved, relying more on the services sector and domestic consumption," Xu said.

Ruan Zongze, vice president of the China Institute of International Studies, said Thursday that even a growth rate of "around 7 percent" is still within a reasonable range and higher than that of most economies.

"If China's economy continues to grow at 7 percent, it will drive the global economy's growth rate up a full percentage point," he said during a Thursday interview posted on the central government's website.

Addressing concerns over China's government debt risks, Premier Li said China will not have regional and systemic financial risks.

"China has taken effective measures to prevent potential debt and financial risks," he said. "The country's savings ratio, as high as 50 percent, will provide sufficient capital to support economic growth, while 70 percent of local government debt has gone toward financing infrastructure construction that could turn into assets," he said.

Li also noted that China would not implement monetary stimulus but instead focus on fine-tuning to keep the economy running within a reasonable growth range.

At an earlier panel in Davos held Wednesday, Zhou Xiaochuan, China's central bank governor, also said the central bank does not intend to inject too much liquidity into the economy.

Chinese policymakers' comments lowered market expectations for broad-based monetary easing.

"Excessive credit will not help much in stimulating the real economy, but will lead to asset bubbles and pressure on the yuan's exchange rate," analysts with Minsheng Securities said in a research note on Thursday.

The note explained that economic uncertainty has made banks reluctant to lend despite broad-based monetary easing, while entrepreneurs have been cautious in borrowing to expand production given thin profit margins.

A proactive fiscal policy, with investments in infrastructure, will be more helpful in stabilizing China's economy, the note from Minsheng Securities has said.

 

[Aepsilons]

Well of course the Chinese economy needs a "new normal" growth structure. Back in 90's and 2000's the economic activity of China was investment driven (resulted with overcapacity in the end) and basically seeking for exports. It was a very good model for capital accumulation. It's definitely not sustainable. Why? Because resource is something finite. If you have a 1 trillion dollar economy and you want to make it a 2 trillion dollars; with investments, big infrastructure projects spread to 3-4 years you can supercharge your economy and achieve your desire (if you have enough manpower, natural resource etc.). Financing would be relatively easy. Since you're making tangible investment projects for the biggest market of the world, return on investment won't be much of a problem and the banks will actually compete among themselves to finance you.

Let's consider a 10 trillion $ economy now and you want to double it in 3 years. What kind of investment or infrastructure project can create 10 trillion $ on an economy? I can see way more many. You need to construct 3 UK's in 3 years to get such an achievement. It's way harder. What I'm trying to say is as China gets closer to an equillibrium point it's economy will slow down.

GDP per capita should be considered for the performance of the economic growth. Today China has 7000$ gdp per capita in terms of nominal calculations. We say from 2000 to 2014 Chinese economy grew 7 times. Now if we consider the same growth speed, Chinese economy should have a roughly 50000$ GDP per capita around 2030. I can honestly tell you it's not gonna happen. China is not a city state or a small country that can create 50000$ GDP per capita in blink of an eye. It's moving fast, but it's moving fast in probable domain. The thing above is not probable.

My prediction is, Chinese economy would be 2.5 times larger in 10 years. Around 2025, I expect a 25 trillion $ economy and By that time China should have surpressed US in terms of nominal economic activity size.



Yeah that's the most exciting part. I wanna see how this will effect the Chinese foreign policy. Eventually the guys who are interested in foreign policy will be as valuable as the guys who are interested in economy in China.




US has very high costs. Don't be afraid about US attracting more investment. Those investments are not that long term. Manufacturing costs being lower in India might be a problem. But you have a window of opportunity there. India won't be able to attract investment in it's full potential because of it's infrastructure problems. Low quality transportation of goods (bad roads, insufficient and low quality railways), problems with energy infrastructure (blackouts), problems with government services (education -> educated workforce) etc. These are the problems that India will be fighting for next 15 years at least.

In that window China should be able to climb higher places into the global value addition chain. If China manages to climb, than the labor costs in other countries will be no problem in China. Actually low labor costs in it's neighbours will be something that China enjoys.



Housing is a huge problem. But China does not bubble on the housing market for high growth speed which is something good. You know easy financing for housing can turbo charge the economy. Easy financing increases the demand, but the supply will not be able to meet the demand's speed (never) and since people pick quality over quantity when buying a house, especially in some (high quality or middle quality) neighbourhoods the house prices skyrocket. However this collapse very bad as we all know.

China picked the safe road on this one in exchange for a slower economic growth.



Since we're seeing environmental pressure more and more every year (pollution, climate change etc.), low hanging fruits that makes our economies fast are fading year after year. We need to think more sophisticated when designing our products which increase their costs. Low cost R&D would be the keyword of the next 50 years. Maybe Chinese role in the global arena would be that in the upcoming years. Who knows...

@LeveragedBuyout you can join us on that one. This is a nice topic. Especially I wonder your thoughts about my low cost R&D hypothesis.

An astute analysis , @Lure ! Hands down, very well done !

 

[Shotgunner51]

Well of course the Chinese economy needs a "new normal" growth structure. Back in 90's and 2000's the economic activity of China was investment driven (resulted with overcapacity in the end) and basically seeking for exports. It was a very good model for capital accumulation. It's definitely not sustainable. Why? Because resource is something finite. If you have a 1 trillion dollar economy and you want to make it a 2 trillion dollars; with investments, big infrastructure projects spread to 3-4 years you can supercharge your economy and achieve your desire (if you have enough manpower, natural resource etc.). Financing would be relatively easy. Since you're making tangible investment projects for the biggest market of the world, return on investment won't be much of a problem and the banks will actually compete among themselves to finance you.

Let's consider a 10 trillion $ economy now and you want to double it in 3 years. What kind of investment or infrastructure project can create 10 trillion $ on an economy? I can see way more many. You need to construct 3 UK's in 3 years to get such an achievement. It's way harder. What I'm trying to say is as China gets closer to an equillibrium point it's economy will slow down.

GDP per capita should be considered for the performance of the economic growth. Today China has 7000$ gdp per capita in terms of nominal calculations. We say from 2000 to 2014 Chinese economy grew 7 times. Now if we consider the same growth speed, Chinese economy should have a roughly 50000$ GDP per capita around 2030. I can honestly tell you it's not gonna happen. China is not a city state or a small country that can create 50000$ GDP per capita in blink of an eye. It's moving fast, but it's moving fast in probable domain. The thing above is not probable.

My prediction is, Chinese economy would be 2.5 times larger in 10 years. Around 2025, I expect a 25 trillion $ economy and By that time China should have surpressed US in terms of nominal economic activity size.



Yeah that's the most exciting part. I wanna see how this will effect the Chinese foreign policy. Eventually the guys who are interested in foreign policy will be as valuable as the guys who are interested in economy in China.




US has very high costs. Don't be afraid about US attracting more investment. Those investments are not that long term. Manufacturing costs being lower in India might be a problem. But you have a window of opportunity there. India won't be able to attract investment in it's full potential because of it's infrastructure problems. Low quality transportation of goods (bad roads, insufficient and low quality railways), problems with energy infrastructure (blackouts), problems with government services (education -> educated workforce) etc. These are the problems that India will be fighting for next 15 years at least.

In that window China should be able to climb higher places into the global value addition chain. If China manages to climb, than the labor costs in other countries will be no problem in China. Actually low labor costs in it's neighbours will be something that China enjoys.



Housing is a huge problem. But China does not bubble on the housing market for high growth speed which is something good. You know easy financing for housing can turbo charge the economy. Easy financing increases the demand, but the supply will not be able to meet the demand's speed (never) and since people pick quality over quantity when buying a house, especially in some (high quality or middle quality) neighbourhoods the house prices skyrocket. However this collapse very bad as we all know.

China picked the safe road on this one in exchange for a slower economic growth.



Since we're seeing environmental pressure more and more every year (pollution, climate change etc.), low hanging fruits that makes our economies fast are fading year after year. We need to think more sophisticated when designing our products which increase their costs. Low cost R&D would be the keyword of the next 50 years. Maybe Chinese role in the global arena would be that in the upcoming years. Who knows...

@LeveragedBuyout you can join us on that one. This is a nice topic. Especially I wonder your thoughts about my low cost R&D hypothesis.

A five-star rating post ...

 

[Yizhi]

37 Chinese universities make <EM>Times</EM> Asian top 100 list - China - Chinadaily.com.cn

education patterns shift in China: Blog | The Conference Board

Since we're seeing environmental pressure more and more every year (pollution, climate change etc.), low hanging fruits that makes our economies fast are fading year after year. We need to think more sophisticated when designing our products which increase their costs. Low cost R&D would be the keyword of the next 50 years. Maybe Chinese role in the global arena would be that in the upcoming years. Who knows...

Low cost R&D looks promising. we are improving very fast in both quantity and quality of higher education now. yet still a long way to go when compared with the West.

 

[Norwegian]

Furthermore, China has also transformed its economy from an agricultural to an industrial to a consumer economy in just one generation.

All Western economics go bust in the end. Consumerism is one-sided downward spiral of unlimited growth. Problem only is, there are not infinite resources available on a finite planet for this unlimited growth needed to maintain this so-called never ending economic growth

 

[Chinese-Dragon]

All Western economics go bust in the end. Consumerism is one-sided downward spiral of unlimited growth. Problem only is, there are not infinite resources available on a finite planet for this unlimited growth needed to maintain this so-called never ending economic growth

The fuel that provides the majority of our energy (coal), we have enough to last hundreds of years.

The fuel that will one day provide the majority of our energy needs (renewable energy) is essentially unlimited.

We also have the largest Shale Gas reserves in the world, enough to last thousands of years.

Hell, in only a few decades time, humanity will be mining the Moon for resources like Helium-3 and Uranium, long before nuclear fuel on Earth begins to run out (which will take over a hundred years).

The only thing that might run out in less than a hundred years is oil (maybe 70 years), but we have enormous amounts of Shale Oil that can easily replace it. Not to mention that electric cars and public transport won't need oil at all, only electricity which can come from renewable sources. And in 70 years the technology for electric vehicles will probably be so efficient that no one will even think about the old oil-powered ones.

 

[Chinese-Dragon]

See, one would think that since oil may run out in 70 years, the price of oil should be going up right?

But instead the price of oil is collapsing.

People are finding other means instead. Now if I want to go somewhere in Hong Kong, I can take the MTR trains which run on electricity, or drive an electric car. Electricity is created with coal, gas, and renewable sources, all of which China has in abundance.

Not to mention Shale Oil which is an easy alternative to regular oil.

And as time goes on, energy use will become more efficient, meaning people will need oil less and less. Electric cars of the future will probably be even more efficient than oil-powered vehicles today.