Another panic attack about the rise of China’s economy has passed. And this fact, of course, does not correspond to the common Western view that China has long been waiting for a hard landing. Once again, the West lost sight of the Chinese context — a stable system, which is highly valued stability.
Prime Minister Li Keqiang spoke about this in his closing remarks at the recent China development forum. I participate in this forum for 17 years and learned to read between the lines the Prime Minister’s speech. Usually a high-ranking Chinese leaders are doing pretty boring statements about the achievements, goals and reforms, in full compliance with the official line, as defined in the annual “Work report” on the state of the economy. Two weeks before the forum the report is submitted annually to the regular session of vsekitajsky meeting of national representatives.
But this year was different. At first it seemed tired of his boring answers to questions from the audience, complete world luminaries, who was interested in the complex issues of globalization, digitalization, and automation, as well as difficulties in foreign trade. But he came alive during the final remarks, off the cuff by making a Declaration about the fundamental strength of the Chinese economy “Hard landing will not” — he exclaimed.
The Prime Minister’s statement about the normalization of the situation in the economy was reflected in the official statistics for the first two months of 2017: the figures represent retail sales, industrial production, electricity consumption, steel production, investment in fixed capital and the activity of the services sector (this activity in the form of a new, monthly indicator to track beginning recently, the National Bureau of statistics of China). In addition, in February for the first time in eight months — increased volume of foreign exchange reserves, suggesting a weakening of capital outflows.
Meanwhile, the people’s Bank of China, acting in response to the March rate hike by the U.S. Federal reserve, raised interest rates by 10 basis points. The NSC would not go to such a move, if he seriously disturbed the fundamental state of the Chinese economy.
The icing on the cake was the foreign trade statistics, namely the rise in exports by 4% in January and February (in annual terms), following declines of 5.2% in the fourth quarter of 2016. These data highlight striking differences between the current and the previous panic about the economic growth in China.
You can call it a trump effect. The rise of the “animal spirit” of the global economy in recent months has become an important tool for China, which remains heavily dependent on exports. If previous bouts of fears about the state of the Chinese economy was aggravated by the chronic negative impact of the global demand, which fell after the crisis, this time the external headwind shifted to the passing.
But while short-term forecasts for the Chinese economy was much more encouraging than the majority of the Chinese strategic thinking of the group now beginning to embrace a kind of frightening sense of neglect, bordering on overconfidence. As USA are inclined to self-isolation, the Chinese authorities seem to have thought about the possibilities that are open thanks to this seismic shift in global leadership.
I have been repeatedly asked the question about the possibility cityscience of globalization, driven by the Chinese leadership in multilateral trade (16 countries included in the “regional Comprehensive economic partnership”, abbreviated as RCEP), panregional investment (Chinese project “One belt, one road”) and on the new institutional architecture (the Asian infrastructure investment Bank, which is dominated by China and New development Bank). China seems to be cooked to fill the vacuum, which can leave US Donald trump with his slogan, “America first”.
The Chinese are diligent students of history. They know that the shift in global leadership and economic power is a slow movement of glaciers, and not drastic changes. However, I was under the impression that they perceive the circumstances in a completely different light: the tramp, the great destroyer, is changing the rules of globalization, which has long been us-centered. Now many in China wonder, and doesn’t open if there’s an opportunity to seize the reins of global power.
All things are possible. Especially in a world where uncertainty is the only certainty. But there is another lesson of history, which the Chinese should remember. A historian from Yale University Paul Kennedy has long said that the rise and fall of great powers inevitably occurs in a “geo-strategic surge”, when the demonstration of the global forces is undermined by the weakness of its domestic economic Foundation. Global leadership begins with the inner strength of the country, and China still has a long way to go in rebalancing and restructuring the economy before it will reach its promised Land — the fact that the country’s leadership calls “a new normal”.
However, there is one important discrepancy between the view, dominant in China, and perception of the country in the West. According to the view from the outside, the pace of Chinese reforms, which are tools for rebalancing in the last five years — when the President XI Jinping has stalled. Such views, incidentally, dominated in the previous 10 years, when the country’s leader was Hu Jintao. But correct if this assessment of what is happening in China?
The results are much more important than loud statements. In comparison with 2007, when the former Prime Minister of China Wen Jiabao announced the rebalancing of the Chinese economy, which has become “unstable, unbalanced, and unstable recoordinating”, the economic structure of China has indeed radically transformed. The share of secondary sector (industry and construction) in GDP has fallen from 47% in 2007 to 40% in 2016, while the share of tertiary sector (services) increased from 43% to almost 52%. Structural shifts of this scale is a very big event. Those who deny that the reforms overlook the most important: China shows the actual quick progress towards the rebalancing of the economy.
All of this brings us back to the issues raised in the Chinese development forum this year. The combination of short-term economic stability with the U.S.’s transition to a policy of self-isolation seems like a tantalizing chance for China. But China should resist the temptation to demonstrate their global power, he can’t be distracted from the strategy of internal development. The challenge now is to take advantage of the “tremendous opportunity” talked about Li Keqiang, when he ruled out the option of a hard landing.