Economic expectations from the Asian giant
Over the last year, there have been pessimistic comments about how the Chinese economy is gradually eroding and how the trade war with the United States is affecting its growth. There have also been reports that dire aspects associated with the Chinese economy have been over-stressed.
The latest Asian Development Outlook (ADO) 2019 has clarified matters. It has been stated that China’s economy will continue to grow above 6% this year and next in line with the Chinese government’s growth target of 6% to 6.5%. It may, however, reduce a bit from the current 6.3% to 6.1% in 2020. This indicates that China’s economy remains strong despite the growth slowdown in recent years.
ADB Chief Economist Yasuyuki Sawada has observed in this regard that on the demand side, consumption has confirmed its role as the main driver of growth by contributing 5.0 percentage points, up from 3.9 points in 2017. This appears to have taken place because of the Chinese government reinforcing its support for private consumption when it introduced personal income tax reform comprising new tax brackets and a higher standard allowance effective from October 1, 2018. Additional deductions have also become part of the regulatory regime since January 1, 2019.
It would be worthwhile at this juncture to refer to certain significant comments made recently in March this year by the Premier of the State Council of China Li Keqiang in his speech delivered during the second session of the 13th National People’s Congress of China.
He referred to the mounting downward pressure on the Chinese economy, and correctly suggested that the policies and measures that China adopts should ensure stable expectations, stable growth, and structural adjustments. This, he said, would help to forestall and control risks and help in the adjustment process of the economy.
He went on to inform that the Chinese authorities would continue to moderately expand the issuance of local government bonds to replace outstanding debts in order to reduce the interest payment burdens of local governments.
He also assured that the central government would encourage the adoption of market approaches to solve the issue of maturing debts on financing platforms and make sure that projects financed by such debts are not stopped half way. Functionally, this has of course been a wise step.
The Chinese government has also agreed on making regulations easier to follow. They are now emphasizing that transparency in the regulatory structure makes implementation of such rules that much more implementable. Steps are also being taken to make rules and legal provisions more unified at all administrative levels. It has been correctly assessed that this would reduce chances of corruption, introduce impartiality, and avert discrimination.
Another interesting measure has received the support of the Chinese authorities. They have appropriately also understood that major developments in the current digital scenario require promotion of a credit rating-based regulation structure and reform within the paradigm of internet usage. China understands that this would help to better enforce laws and also environmental protection, fire prevention, tax collection, and market oversight. This would also ensure that those who act in contravention of law can be easily identified and punished.
As a consequence of the trade war and tariff dispute, China has also taken the important step of not only coordinating law enforcement by different government departments and in the overhauling of government punitive measures, but also in addressing duplication in punitive enforcement. This is already paying dividends for China’s export industry. Average broadband service rates for small and medium enterprises are being lowered by another 15%, and average rates for mobile internet services will see further reduction by 20%.
China faces the world
Within the international horizon, China is now getting ready to convene a major summit in late April to remove hesitation among several countries with regard to certain aspects pertaining to their participation in the OBOR initiative -- debt, transparency, and growing international Chinese influence.
China, to the disappointment of German Chancellor Angela Merkel, has gained a major victory by convincing Italy to become the first G-7 nation to formally sign on to the OBOR plan in March. Italian leader Conte is due to attend the summit that China is convening.
He has explained Italy’s decision to be part of the OBOR initiative, because according to him, this would bring much-needed investment and boost trade between Italy and China. It may be noted here that some other European countries -- Hungary, Poland, Greece, and Portugal -- have also signed memoranda of understanding with China in this regard.
China has been under pressure to show to the world that the Belt and the Road effort remains popular, despite cooling enthusiasm from some governments. China, on the other hand, has touted the success of their $57 billion efforts for implementing the China-Pakistan Economic Corridor, a major Belt and Road scheme that is viewed by India with suspicion.
Chinese leadership has underlined their success with regard to this venture by pointing out that 20% of the funding for this corridor has come from Chinese loans. The rest has been made up of direct Chinese investment and free grants.
However, success in the economic engagement parameter on the part of China with the rest of the world, to a great extent, still depends on resolving the existing differences between China and the US on the following aspects -- intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases, and enforcement.
They will also have to come to an agreement format with the EU leadership regarding the proposed Joint Summit Statement that China is trying to issue after the coming meeting in China. Chinese Premier Li Keqiang will, in this context, need to come to an understanding with EU Council President Donald Tusk. That will not be easy.
Muhammad Zamir is a former ambassador, and an analyst specialized in foreign affairs, right to information, and good governance. He can be reached at [email protected]