China is set for a lower economic growth rate. Looking at the new official target growth range of 6 to 6.5 percent from last year’s actual growth rate of 6.6 percent, it does not look too bad, except for two reasons:
First, it will be the lowest growth target since 1990, which will impact on the employment situation in the country, with likely adverse effects on social stability.
Second, notwithstanding the target growth rate figure, which does not seem too bad, Chinese Premier Li Keqiang’s (李克強) annual work report to the recent Chinese National People’s Congress highlighted the problems that China will be facing.
It is worth quoting from Li’s report.
“Growth in the global economy is slowing, protectionism and unilateralism are mounting, and there are drastic fluctuations in the prices of commodities... Instability and uncertainty are visibly increasing, and externally generated risks are on the rise,” he said, apparently referring to the trade dispute with the US.
Domestically, he highlighted that consumption growth was slowing and China’s business environment fell short of market expectations. At the same time, the public was “dissatisfied in many areas,” including education, healthcare, housing and food safety.
The economy, therefore, faced “severe challenges” as it tried to balance new risks with the “growing pains” of transformation, with, among other things, added pressures on job creation, he said.
The unemployment rate is expected to rise to 5.5 percent from 5 percent last year. The official unemployment rate seems to underestimate the real situation.
Whatever might be the case, slowing growth in the manufacturing industries is affecting jobs, with exports suffering from the trade dispute with the US.
Jobs are also being hit by reforms to shut down “overcapacity” in state industries, such as steel and coal.
To deal with the situation, the government is to cut taxes to encourage manufacturing and small business, combined with new loans to small businesses by state banks, although it is “refraining from using a deluge of stimulus policies” and continuing with structural reform.
The stimulus policies are not free of cost, as they have created overcapacity and a mountain of internal debt estimated at more than 200 percent of China’s GDP. It is causing distortions in the economy, such as unoccupied apartments waiting for buyers.
However, the government will go ahead with large spending on railway, road and waterway infrastructure.
Trade confrontations with the US are acknowledged as a factor in lower growth expectations.
China attaches considerable importance to settling the trade issues with the US. The continuing dialogue between the two countries tends to raise expectations of a mutually agreed solution. Beijing is willing to buy a lot more from the US to ease the situation.
However, so far, there is no breakthrough.
The problem is multidimensional and includes intellectual property theft; the character of the Chinese economy, which is subject to state direction and control, thus undermining competition; and its headlong ambition to be the world’s technology giant, raising fears of backdoor spying through telecommunication corporations such as Huawei Technologies Co.
The Huawei case has added to the complexity of the relationship not only between the US and China, but also with other Western countries.
Australia has taken the lead to ban Huawei in the rolling out of 5G technologies, as this would make its telecommunications susceptible to Chinese spying.
The US has also imposed a ban, which reportedly prevents US agencies, private companies that deal with the US government and recipients of US loans or grants from using Huawei gear.
It would effectively ban national and international businesses and agencies from using Huawei and allied technology products at a time when China’s dominance in 5G technologies is widely acknowledged.
Huawei has said that it was 12 to 18 months ahead of its competitors on 5G development.
China strongly denies that the government forces its technology companies to spy on other countries.
On March 15, Li told his annual news conference that “This [spying by Chinese technology companies] is not consistent with Chinese law. This is not how China behaves, we did not do that and will not do that in the future.”
In the meantime, Huawei is suing the US government to overturn its ban on the use of its gear.
Even though the US is taking a tough stand on trade and technology issues, US President Donald Trump reportedly said that he might consider intervening in the US Department of Justice’s action against Huawei chief financial officer Meng Wanzhou (孟晚舟), who is going through the Canadian judicial process on an extradition request from the US.
It would seem that China is trying to avoid any rash reaction to all that is plaguing the trade dispute.
Li reportedly struck a moderate tone on US-China relations at his news conference, saying that their shared interests outweigh their differences, and noting that the Chinese and US economies are closely entwined.
It is therefore not realistic to decouple the two economies, he said.
It would thus appear that China and the US are keen to avoid a headlong clash.
Will this lead to a mutually satisfying solution? Only time will tell, as there are too many variables, including geopolitical and strategic issues.
Sushil Seth is a commentator based in Australia.
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