C3S weekly column W004/2015
China’s economic slowdown:Chinese perspective
To claim that China has been an enigma to the rest of the world is an understatement, similarly the world’s reaction to anything Chinese must be very puzzling to the Chinese state and its people. If China achieves astronomical levels of economic growth it leads to resentment in the developed world while envy in the developing world. If China’s economic pace slackens it leads to anxiety in the developed world while panic in the developing world. During the last two year China’s unprecedented and spectacular pace of economic growth has displayed some signs of fatigue, the entire world seems to be imploring China to lift its game and carry on with the task of energizingthe global economy. In an intensely globalised world economy it is imperative upon China, the second largest global economy to provide the necessary impetus so as to prevent the global economic downturn. However, China cannot deliver on the global expectations and obligations unless its own domestic economic architecture is built on strong foundations and is governed by proper rules and conventions. The overhyped economic slowdown of China needs to be located in the contradictory perspectives of China and the rest of the world. China is trying to make structural adjustments to broad base its economy while sacrificing some of its GDP growth while the rest of the world mandates China to continue with its export based GDP growth model.
The Chinese perspective is defined by its own angst, agenda, and ambitions. China wishes to integratethe economic growth with its domestic consumption and to elevate its industrial base from low-end to high-end,high-quality manufacturing. China’s angst emerges from the fact the prevailing high economic growth has entrenched systemic corruption in the party, the administration and even the defense forces. China’s agenda is to place its economics below its politics;the rapid economic growth may have brought in financial benefits for the population but this prosperity has not delivered any meaningful political benefits. China would like to contain any inconvenient political repercussions emerging from an abrupt economic slowdown. China believes that terming the current century as ‘Asian Century’ is largely driven by the reemergence of China’s own economic-strategic clout in the global arena. Therefore, China’s ambitionis to regain its lost glory and to be the leader of the Sino centric world order. The reorganization of Chinese economic model is not only to rein in its own speeding economic vehicle but also to rein in its restive domestic population and reduce it’s over reliance on the external markets.
China’s economic model based on investmentand exports has served it well for the last three decades. However, China’s export fueled economic growth has plateaued as the overall global growth has declined in the last 5-6 years; the adverse impact of this global downturn is now visible on the Chinese economy. Another factor supporting Chinese economy has been high levels of investment; China’s investment rate is considered to be at a disproportionately high level to protect its economy from the global economic tremors. This massive investment has resulted in excess in the sectors such as housing, heavy industry, and local government infrastructure. The local government’s massive investments in infrastructure buildup have resulted in the unsustainably high levels of the local government debts. The rapid but haphazard economic growth in China entailed several other political-administrative-social-environmentalconcerns that could not be ignored any longer. President Xi Jinping’s anointment as Chinese Presidentnot only ushered in a new leadership group but also a fresh set of ideas to handle some of the perennial problems within the Chinese polity, economy and society.
It cannot be claimed that China has been caught unawares by this economic slowdown rather China has been preparing for an economic reordering for sometime. In November 2013, the Communist Party had made up their mind to reduce theexcessive investment to bring down the volume of exorbitant and unproductive manufacturing and construction activities. China abandoned the growth rate in gross domestic product (GDP) as a key performance indicator to evaluate the efficiency of the local administration. In 2014, China allowed some 70 smaller cities and counties in areas with high poverty to abandon their GDP targets. In January 2015, Shanghai, one of the four megacities, has discarded its GDP growth targets in order to pursue “growth with structural optimization and for better quality and efficiency”.
It appears that the top Chinese leadership has overcome their obsession with hard statistical GDP growth in order to avert a hard landing. At the Davos World Economic Forum summit in January 2015, the Chinese Prime Minister Li Keqiang called the slower growth as “new normal”. At the same event China’s central bank governor announced the rejection of old growth pattern and China’s willingness to sacrifice a little growth to make its economic expansion more sustainable. The latest icon of China’s entrepreneurship Jack Ma of e-commerce company Alibaba, quite candidly advocated the new economic arrangement and claimed, “If China still keeps 9% growth of the economy, there must be something wrong. You’ll never see the blue sky. You’ll never see quality.” China promised an innovative approach in dealing with its economic makeover as the Prime Minister Li Keqiang emphasized going beyond the narrow fiscal and monetary policy tools routinely applied by the Western governments. The major difference between the Chinese and Western approach lies in the supremacy attached to the ‘Visible hand’ of the government instead of the ‘Invisible hand’ of the market in China. The proverbial hands shake between these two hands happen in the Chinese State owned enterprises (SOEs), these SOEs continue pose a serious challenge to real economic transformation, better productivity and greater quality.
The new economic priorities followed by China will not only test the resolve of the Chinese leadership but will also test the tolerance of the Chinese population. In an era of increased job insecurity, diminishing returns on their real-estate investment while being asked to increase their consumption, the Chinese people are being put through severe endurance testing. China’s top leaders seem certain that the short term economic pain is worth the long term gain. The rest of the world seems to disagree with the Chinese strategy but then China has never been in the business of winning global popularity contests.
( Ravi Dutt Bajpai is currently pursuing a Masters in International Relations at Deakin University, Melbourne. He is associated with the Institute for Post Colonial Studies in Melbourne and is a regular social and political commentator with the Hindi daily, Prabhat Khabar, published from Bihar and Jharkhand. With expertise on China, India and Australia in world/Asian politics, he is a regular commentator on Special Broadcasting Service (SBS) in Hindi in Australia. Email id: firstname.lastname@example.org.)