ETW 01: "Nobody Expected China to Sustain Double-Digit Growth"
Covering Chinese chatters (discourses, narratives, policies and rhetoric) on external events and actors, military and security issues, and India.
Chatter in Review: Zhang Jun on the Flailing Chinese Economy
By Amit Kumar
This section analyses some of the opinions and editorials that either appeared in Chinese media or proffer Chinese viewpoints/narratives on issues of economy and technology.
Today, I discuss an opinion piece penned by Zhang Jun, Dean of the School of Economics at Fudan University, and director of the Chinese Centre for Economic Studies, for Project Syndicate. The piece is a counter to the Western narrative on the flailing Chinese economy.
The piece begins by saying that the doomsday narrative around the Chinese economy is decade’s old and if China didn’t “sputter” before, what makes the narrative believable now.
He acknowledges that “the global context has changed” and that the West is “far more hostile” towards China than “it was 10 or even five years ago.”
He also recognises that while Chinese exports to the US have fallen as the US imports from China has lagged behind the growth from other countries, the narrative around “decoupling” is “overstated.” He says while it is true that in some areas, engagement has reduced, the “US and Chinese supply chain remain deeply intertwined, especially for ‘strategic products’.” Furthermore, the countries that have witnessed a hike in their exports growth to the US, are “deeply - and increasingly - embedded in Chinese supply chains.” He also points out that “countreis seeking to display China in US supply chains have been increasing their own imports from China.”
Talking of the China+1 strategy, he acknowledges that “global firms appear to be pursuing a ‘China+1’ strategy,” but this approach is in addition to investments in China and not instead of China.
He then alludes to the increasing foreign investment that Chinese companies have been making outside its national borders, “especially to countries that can avoid punitive US tariffs.”
On the state of domestic challenges facing the economy, Zhang argues that there were concerns of overheating and the leadership was aware of the underlying problems within the Chinese economy, and thus, some form deceleration was obvious once the corrective and remedial measures were undertaken in the benefit of the long term strategic objectives. He writes:
China’s programme of “supply-side structural reform”, for instance, took shape in 2015 and included tighter financial regulations and increased government supervision of – and intervention in – highly leveraged sectors with excess production capacity. While the programme helped prevent a debt or financial crisis, it also constrained growth in many highly leveraged industries, such as real estate.
But the view that a sluggish property sector will trigger China’s economic collapse is overly dramatic. Chinese policymakers understand that a transition is inevitable in the real-estate sector, and are committed to ensuring that it occurs smoothly.
He underlines that “nobody expected China to sustain double-digit growth forever. Capital accumulation was always going to slow, and the early dividend generated from structural drivers of growth were always going to weaken.” He suggests:
Now economic growth will require higher shares of spending on household consumption, rather than on investment. That is why China’s government is expected urgently to reduce the share of investment in GDP and support household consumption, such as through income transfers and stronger welfare programmes. This will create a prosperous domestic market, encourage the expansion of the service industry and support the shift to sustainable growth.
Finally he argues that China’s economy has not exhausted it development potential, nor has it matured to loose its vitality” but rather is undergoing a rebalancing from older drivers of economic growth towards the new ones. He also doesn’t quite consider the US’ policy as a necessary problem and rather a blessing in disguise as it has pushed the Chinese leadership to accelerate the reforms.
Comment: I think there’s a lot of sense in what Zhang is trying to convey. Decoupling will not be broad-based as the US itself has reiterated. The US has confirmed that its de-risking approach would be governed by “small yard, high fences” principle - suggesting that only sector regarded as critical and strategic will witness de-risking/decoupling leaving everything beyond those ‘small yard’ open for interdependence and integration. Secondly, on the issue of domestic challenges to the Chinese economy, a lot of consequences we are seeing are self-inflicted. Xi Jinping had identified many of these challenges quite early in the second term and looked determined to remedy them and rebalance the drivers of economic growth even at the expense of high growth rates. What actually put Chinese economy under pressure was its poorly timed foreign policy that became increasingly aggressive around the same time (2017) when China was looking it rebalance its economy, thereby vitiating the external environment.
Econ Weekly #1: Chinese Premier stresses on Academia-Business collaboration during his Hubei visit
By Amit Kumar
Premier Li Qiang was on a two-day visit to Hubei province where he toured and “inspected” HGLaser Engineering (that produced China’s first fully domestically produced chip-cutting machine last year), YMTC (US-sanctioned Chinese semiconductor company), and Wuhan University’s laboratory on high resolution Earth observation and the BeiDou navigation system.
Xinhua reports: Besides stressing the urgency to “expidite the development of productivity driven by emerging technology,” he stressed the importance the need to “improve collaboration between academia and business,” through precise and supportive measures, thereby “turning scientific research into market production.”
An SMCP report lists “poor communication and insufficient resource sharing” as “obstacles affecting the transformation of inventions in China.” It quotes data by China National Intellectual Property Administration to further highlight that in contrast to the US, where ~50% of inventions at Universities were industrialised in 2022, only 3.9% of inventions at Chinese universities were industrialised.
Econ Weekly #2: China’s average hiring wages registers a record drop
By Amit Kumar
According to a data from online recruitment platform Zhaopin Ltd, and compiled by Bloomberg, averages wages offered to Chinese workers in major cities declined by a record margin. It reports:
Average salaries offered by companies to new hires in 38 key Chinese cities fell 1.3% to 10,420 yuan ($1,458) in the fourth quarter of 2023 from a year ago. That was the worst drop since at least 2016.
It’s also the third straight quarter of decline, the longest run since data on yearly changes were first available in 2016.
In Beijing, the wages decreased 2.7% from a year ago in the fourth consecutive quarter of contraction. Salaries in the southern metropolis of Guangzhou fell 4.5%.
It further adds:
China has seen widespread salary cuts in various sectors this year including technology, finance and among local government workers, a result of regulatory crackdowns and strained public finances. Beyond that, companies are also under pressure from weak domestic and overseas demand for their products.
Entry-level salaries have been falling in the so-called new-economy sectors, including electric vehicles, batteries, and solar and wind power. The average salary fell 2.3% to 13,758 yuan in December from a year earlier, according to data from a private survey by Caixin Insight Group and Business Big Data Co.
A breakdown of the official jobless rate showed more than one in five young people could not find a job as of June, before the statistics authorities stopped publishing the numbers. That was in part due to companies’ increasing preference for experienced workers, who appear to have accepted lower wages and longer working hours due to concern over their job prospects.
The development comes in the backdrop of declining consumer confidence in China. The Consumer Confidence Index complied by the National Bureau of Statistics (NBS) shows. The Bloomberg report adds:
A consumer confidence index compiled by the National Bureau of Statistics shows sentiment hovered around a historical low as of November, the most recent month for which data is available.
The index takes into account peoples’ assessment of their income, employment and willingness to spend. It shows confidence is yet to improve from the levels seen in 2022, when lockdowns due to Covid-19 were still in place.
Econ Weekly #3: China unveils 3-year Data Action Plan to boost growth through Tech
By Amit Kumar
China’s newly established data administration agency, National Data Administration (NDA) on Jan 4, published a three-year action plan to “promote the use of data as a factor of production and let data play a more significant role in driving economic and social development,” reports Xinhua. The NDA was inaugurated in October 2023 as part of the country's efforts to advance the planning and building a “Digital China,” including a digital economy and society. It continues:
Over the three years starting in 2024, China will increase efforts to promote the high-level application of data, ensure the quality of data supply, improve the environment of data circulation, and strengthen data security, according to the action plan.
SCMP has more detailed coverage of the issue. It writes:
According to the plan published by the National Data Administration (NDA), China aims to build more than 300 “representative” application scenarios by 2026, grow its data industry by 20 per cent every year, and multiply data trading volume.
The initiative is aimed at “cultivating” a new driving force for China’s economic development, leveraging the country’s advantages including a sizeable market, and abundant data resources and use cases.
The plan is expected to aid the development of China’s domestically grown LLMs. The report adds:
The agency’s plan involves mobilising data resources to support development of China’s own artificial intelligence (AI) large language models - the technology used to train AI applications like ChatGPT. It will also increase efforts to have research institutions and leading enterprises build industry databases to create high quality datasets for training AI models.
Through this initiative, the NDA aims to overcome existing challenges facing the Chinese digital economy such as “low quality of data supply, a poor circulation mechanism and untapped potential for applications.” Further, “the three-year plan will “guide and encourage” different types of private capital to invest in the data industry, and support data brokers in raising capital by going public.”
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