Every year at this time, the Chinese government organizes a major conference — sponsored by the Development Research Center, the official think tank of the Chinese State Council — which brings together senior Chinese officials, chief executives from major Chinese and Western firms, and a small group of international officials and academics.
The China Development Forum (CDF) occurs just after the annual National People’s Congress. Speakers, including the finance minister and the head of the central bank, summarize the Chinese leadership’s current thinking. Officials then listen to comments and suggestions from Western business and academic participants, including a question-and-answer session with Chinese Premier Li Keqiang (李克強).
Although I have been attending the forum for more than a decade, I found this year’s conference substantially different from any in the past. The key difference was the official Chinese recognition that annual real GDP growth has declined permanently from the past three decades’ average rate of nearly 10 percent. The official estimate is that real GDP grew 7.4 percent last year and that the rate will probably slow further, to 7 percent, this year. The Development Research Center presented detailed estimates showing that the growth rate would continue to decline, reaching about 6 percent by the end of the decade.
SUBSTANTIAL POVERTY
Virtually every Chinese official referred to this slowdown as their nation’s “new normal.” They all seemed reconciled to slower growth, which was initially surprising, because officials previously argued that China needed rapid growth to maintain employment and avoid political unrest. They now appear to understand that the declining growth rate will not lead to unemployment, because the slowdown reflects China’s structural shift from export-oriented heavy industrial production to increased production of consumer services, which require more employment to create the same amount of value.
Stronger growth nevertheless remains necessary, because China is still a relatively low-income nation with substantial poverty. Although China’s total real GDP is second only to that of the US (and it could be larger when measured in terms of purchasing power), its per capita income is only about US$7,000, or about 15 percent of the US level.
Consumption remains low — only about 50 percent of GDP when government spending is included, and just 35 percent when limited to household consumer spending. So China has a long way to go to reach its leaders’ goal of achieving a “modern prosperous society.”
The Chinese see that the “new normal” requires a shift in their growth strategy from factor-driven growth to innovation-driven growth, but it is not clear how that increase in innovation will be achieved. While officials stress reliance on the market, China does not have the venture capital and “angel financing” that facilitates innovation in the US. The authorities may hope that their plan to insure bank deposits will shift deposits from the three largest banks to many smaller banks around the nation, facilitating local startups’ access to financing.
Many other economic problems loom.
Officials acknowledged at the CDF that the biggest risks lie in the financial sector, particularly owing to local governments’ very large liabilities. In the past, the government dealt with the problems that these liabilities caused for the banking system by injecting funds into the banks.
USEFUL WINDOW
Environmental problems are another powerful drag on China’s standard of living, but they also represent a potential way to increase GDP should overall demand decline significantly. China acknowledges that high levels of air and water pollution create discomfort and harm the public’s health. Government spending on remedying environmental damage could absorb substantial funds if demand-side weakness exacerbates the expected supply-side slowdown.
Moreover, the very weak performance of state-owned enterprises, which continue to play a large role in heavy industry and in some service sectors, represents a powerful brake on growth. Although official policy aims to reduce these firms’ role so that “the market can play the decisive role in resource allocation,” shrinking these firms has proved to be difficult, owing to their strong political backing within the Chinese Communist Party.
At the same time, China maintains restrictions on direct investment by foreigners, limiting both the kinds of firms and the share of joint ventures that they can own. The official policy is to reduce the barriers to foreign corporate investment, especially in high tech and the service sector.
There were, of course, a number of subjects that remained just below the surface and were not discussed at this year’s CDF.
There was no indication of a slowdown in Chinese President Xi Jinping’s (習近平) anti-corruption campaign, though some private conversations suggested that the campaign has resulted in decisionmaking delays that are hurting productivity and growth.
There was also no discussion of Chinese cybertheft of Western technology. When that subject was raised last year, Li denied that the Chinese do such a thing, but noted that Chinese firms are hacked by domestic sources.
With the CDF’s emphasis on cooperation, there was no discussion of possible military action by China over its disputed territorial claims in the East and South China seas.
Meetings like the CDF provide a useful window into a nation whose importance for the global economy will continue to grow. The current slowdown to a new normal makes such windows even more important.
Martin Feldstein is a professor of economics at Harvard University and president emeritus of the US’ National Bureau of Economic Research.
Copyright: Project Syndicate
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
As Maldivian President Mohamed Muizzu’s party won by a landslide in Sunday’s parliamentary election, it is a good time to take another look at recent developments in the Maldivian foreign policy. While Muizzu has been promoting his “Maldives First” policy, the agenda seems to have lost sight of a number of factors. Contemporary Maldivian policy serves as a stark illustration of how a blend of missteps in public posturing, populist agendas and inattentive leadership can lead to diplomatic setbacks and damage a country’s long-term foreign policy priorities. Over the past few months, Maldivian foreign policy has entangled itself in playing