Experts in the US have seen serious failures in the Chinese
The US is watching the dynamics of the Chinese economy with hope and at the same time with alarm. On the one hand, for some reason they hope that it is about to collapse (strange, why would that be?). On the other hand, they watch with concern the effective maneuvers of their geopolitical rival. What do American politicians hope for and what is actually happening with the Chinese economy, said Doctor of Law, Honored Lawyer of Russia, Professor Yuri Zhdanov.
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– Rather, it is the desire to wishful thinking. It is clear that the United States is very closely monitoring changes in the Chinese economy. Washington is well aware that China's military power and its activity in foreign policy, among other things, depend on its condition. Testament of the «great helmsman» Mao – a rifle gives birth to power – is still relevant not only in China, but throughout the world. Remember Napoleon's phrase that God is on the side of the big battalions…
– And me too. But Americans want to hope.
– There are no fakes, as you put it, in their statements at all. Moreover, there is no fraud, which often happens in their own political and military comments. In general, it would be foolish to accuse American experts of incompetence, especially – in the field of economics.
– There are, let's say, different peculiar interpretations of certain phenomena. Based on well-known undoubted facts, American experts interpret them in their own way. That is, not in the way that, say, Chinese experts see these same facts.
– There is such a highly respected Eswar Prasad, professor of economics at Cornell University, former head of the Chinese division of the International Monetary Fund. He believes that the Chinese authorities are taking decisive political action to return the «sprayed» economy from the brink. He stated this on August 1 on the Street Signs Asia program on CNBC.
– I understand your skepticism, but a scientist like Professor Prasad is entitled to his own opinion. “It seems that the Chinese economy, after roaring back to life, is starting to falter,” — Prasad said.
He cites official data released on July 31 this year that showed China's manufacturing activity contracted for the fourth consecutive month, while non-manufacturing activity slowed to its lowest level in 2023 as the world's second-largest economy struggles due to a weak global demand.
In July 2023, China's Q2 GDP rose 6.3% from 2022, falling well short of the 7.3% growth projected by analysts polled by Reuters. The unemployment rate among youth aged 16 to 24 in June was 21.3% — new record.
«The prospect of deflation», both in producer prices and perhaps even in consumer prices, raises real concerns — not only about where the economy is heading, but whether policy tools can reverse this loss of momentum, — Prasad said.
And other economists are also warning that signs of deflation are becoming more common in China. Producer prices in China fell 5.4% year-on-year in June 2023 and 0.8% month-on-month, according to official data. The annual decline in June 2023 was China's ninth consecutive decline and the sharpest since December 2015.
– As China's economy continues to slow down, Prasad said, this means that employment growth will «be hurt even more», which raises «some concerns about social stability.»
«It also means that you there will be less investment, which will affect productivity growth in the future, — says the professor. “This means future growth prospects will also be significantly weakened.”
– Of course, they are taking serious steps to support their economy. «After life has become more difficult for many private companies in recent years, China's leadership is changing course and committed to improving the business environment,» — Julian Evans-Pritchard, head of Chinese economics, wrote at Capital Economics the other day.
Thus, on July 24, China's Economic Planning Agency announced a series of measures to stimulate private investment. A joint commitment was made between the Chinese government and the Communist Party, which promised enterprises to treat private companies the same as state-owned companies. Beijing also pledged to ensure fair treatment in areas ranging from intellectual property and land rights to financing and labor supply.
– Apparently yes. But, as it turns out, this is not at all a surplus appropriation or, say, dispossession. Quite the contrary.
In a 17-point statement on July 24, the National Development and Reform Commission committed to attract more private capital to participate in the construction of major national projects and key supply chain projects.
The government will support private investment in sectors such as transportation, water management, clean energy, new infrastructure, advanced manufacturing and modern agricultural enterprises.
The agency also encourages private investment projects to issue real estate investment funds in the infrastructure sector to promote asset diversification and further expand investment and financial channels for private investment.
The People's Bank of China and the State Monetary Administration have adjusted their cross-financing guidelines to allow companies to borrow more from foreign sources.
– They are also taken into account. The Chinese leadership promised to «restore and expand» consumption as part of a broad plan to support growth, which includes increasing household incomes, improving the business environment for private firms, and stabilizing youth employment. So social upheavals are unlikely to threaten China.
– With the thoroughness and pedantry inherent in the Chinese. There is a characteristic feature in Chinese political culture – passion for long-term planning. They create multi-point plans to solve any problem.
– But, unlike us, the Chinese stubbornly and conscientiously carry out their plans. That is why we saved both the country and the party.
So, about the plans. China's Ministry of Commerce issued a joint statement with a dozen other government departments announcing an 11-point plan to increase domestic consumption of consumer goods and services for households. Among other «pointers», a directive was given to local governments to intensify the renovation of old houses, a promise to encourage the improvement of online commercial platforms.
There is also a 10-point plan to increase the number of car owners, especially «new energy» cars. This is an increase in the throughput capacity of rural power networks, a reduction in the costs associated with the purchase and charging of electric vehicles. By the way, in June 2023, tax incentives for the purchase of electric vehicles were extended in China.
Moreover, Xinhua News Agency reports: “The National Development and Reform Commission (NDRC) of the People’s Republic of China on August 1, 2023 unveiled a number of specific measures, including tax cuts and red tape reduction, to stimulate the development of the private sector of the economy after July 2023 year, a general guideline in this area was published in the country.
– There's a lot here. For example, private enterprises will be invited to participate in large public projects that are profitable and mature to a certain extent, launch real estate investment fund products for infrastructure projects, and lead technology programs in key areas such as industrial software and artificial intelligence.
The publication of «green light» investment cases that contribute to the successful development of the platform economy will continue. Such companies will benefit from an easier process of tax cuts relative to R&D spending, shorter timeframes for obtaining export rebates, and enhanced inclusive financial support.
– Those legal rules and regulations that violate the principle of equal protection of enterprises of various forms of ownership must be abolished in order to protect and support the development of the private economy. In addition, the government intends to improve services to help private enterprises overcome difficulties, reduce bureaucratic red tape in obtaining administrative permits, pay off debts to small and medium-sized enterprises, and carefully listen to the views and suggestions of entrepreneurs in the process of developing and revising relevant policies.
To confirm their seriousness, the CPC Central Committee and the State Council of the People's Republic of China issued a guidance document on promoting the development of the private economy in July this year, promising to improve the business environment, strengthen political support measures, and strengthen legal guarantees for the development of this sector.
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– These forecasts should be treated as an interesting, but private opinion. There are also other opinions. For example, on July 31 in Newsweek, David Goldman, Associate Editor of ASIA TIMES, wrote an article with the headline: «China was the world's biggest economic miracle, and this miracle will happen again.»
The author writes: “According to the World Bank, real per capita GDP in China has risen from $404 in 1979, when Deng Xiaoping opened the economy to private enterprise, to $11,560 in 2022 at constant 2015 prices. It has jumped five times since 2001. By contrast, real GDP per capita in India has risen from $373 in 1979 to just $2,085 in 2022.
– Of course, he draws his conclusions by comparing the successes of the Celestial Empire and the collective West. And comparison – not for the West. China, Goldman points out, is building a new digital economy powered by artificial intelligence and high-speed broadband, with 2.3 million of the world's 3 million 5G base stations and download speeds twice that of the United States. It has automated ports that can unload a container ship in 45 minutes, not 48 hours like the US port of Long Beach. There are also automated mines where no worker goes underground, factories controlled by AI, and warehouses where robots sort and pack.
What's more, almost two-thirds of Chinese citizens have a post-secondary education, compared with 3 percent of those who had it in 1979. China is graduating more engineers than the rest of the world combined, and Chinese universities are teaching world-class.
China has also expanded its economic influence into developing countries. The PRC currently exports more to the Global South than to developed markets, doubling its exports to ASEAN and tripling its exports to Central Asia after 2020.
Also China is building broadband, railways and ports from Africa to South America, creating a permanent market for its exports.
In 2023, China overtook Japan as the world's largest car exporter, thanks in part to Tesla's mega-factory in Shanghai. China is currently producing the equivalent of the 21st century Model T in electric vehicles, priced at $10,000.
– We would like such a reduction. Goldman believes that demographic forecasters are simply wrong. A shrinking workforce does not necessarily mean a downturn in the economy. South Korea quintupled industrial production between 1990 and 2010, while the factory workforce fell by one-fifth. South Korea has moved up the value chain to produce high-tech electronics, automobiles, and computer chips. Higher education has transformed South Korea from a place with cheap labor to a high-tech competitor.
Now China is determined to lead the Fourth Industrial Revolution. Chinese telecommunications giant Huawei claims it has 6,000 contracts to build enterprise 5G networks to support factory AI applications. Huawei offers a cloud-based artificial intelligence system that allows firms to create their own applications.
At present, China is the world's largest market for industrial robots. US technical control does not have much influence here. Industrial AI applications work quite well on old chips that China makes at home. Without access to the latest chips, Huawei can't sell competitive 5G smartphones, but its AI apps can manage factories, ports, and mines.
– Of course he does. Such a mistake, according to Goldman, was last year's COVID lockdowns in Chinese cities, which continues to drive down consumer spending. Beijing's crackdown on leading tech companies has caused its stock market to lag behind the rest of the world and raise the cost of capital for its own emerging tech companies.
However, says Goldman, are just as wrong today as they were 20 years ago. He recalls that China's debt-to-GDP ratio is 3:1, slightly higher than America's 2.5:1 but much lower than Japan's 4:1. The Chinese Bank borrows money for 10 years at 2.6% compared to 4.1% in the US. China's local governments have about $5 trillion in debt in yuan, but behind them are nearly $30 trillion in assets.
– In his opinion, the US needs an emergency program to boost industry and restore American technological superiority on a Moonshot scale. John F. Kennedy or the Reagan Strategic Defense Initiative. Goldman warns that «we cannot afford to be wrong about China again.»
However, Churchill also said that the Americans always find the right solution. After everyone else has tried it.