The annual Central Economic Work Conference (CEWC) in China that lays down economic policy priorities for the coming year took place from 19-21 December 2018. The effects of the trade war with the US was apparent with Xi Jinping noting that the ‘The achievements we have made have not come easily’ and that ‘the external environment is complicated and severe, and the economy faces downward pressure’. This pessimistic note was in marked contrast to the previous year’s CEWC and when at the beginning of the trade war, Chinese official media claimed that the Chinese economy was ‘resilient enough to cope’.
In his speech, Xi also called for assessing the ‘current circumstances from a long-term perspective’, suggesting that the economy had to ready itself for more pain and less handholding than in the past. November saw weakening retail sales (indicating lower consumer demand/incomes) and falling industrial production (indicating also lower exports) but Chinese authorities appeared to be holding off another large stimulus package. This approach is likely to continue even though the current CEWC promised that more credit would be made available to local governments.
Perhaps of still greater consequence is debate about what China’s GDP numbers actually are. This rate is presently 6.7% but analysts of the Chinese economy have noted how this number does not seem to reflect the widespread acknowledgement also of a slowdown in the Chinese economy. One report argues that that China’s GDP numbers actually only reflect investments without acknowledging depreciation of assets. And since there is huge investment in assets that are unproductive – overcapacity, in other words, the GDP numbers are plain wrong. This trend has been particularly severe since 2009 following the global financial crisis, which China responded to with massive stimulus packages, which then encouraged the creation of still more unproductive assets.
It makes sense then for Chinese authorities to refrain from another stimulus package despite pressure from the trade war with the Americans because continuing with the trend would only increase the country’s unproductive assets. The debt-to-income ratio is officially acknowledged as standing at about 240% of GDP but there independent analysts estimate it as already touching 400%.
Meanwhile, a top Beijing university professor’s in a mid-December public discussion about China’s GDP rate referred to an internal report circulated in official circles that provided two different calculations of China’s 2018 GDP growth rate, using statistics from the county’s National Statistics Bureau. One figure stood at 1.67% while the other was in negative territory.
Xi’s blunt talk at the CEWC this year clearly reflects some of the above realities.
Implications for India
What then are the implications for India of the developing economic climate in China?
One, there is perhaps not a facile comparison that one might make of a similar fudging of figures, or at the very least doubt about the growth numbers provided by the Indian government. And apart from questions about what else then is hidden from public view, there is also the issue of whether governments in India are not copying knowingly or otherwise, some of the less savoury aspects of China’s economic growth experience.
Two, Xi’s calls at the 2018 CEWC for the ‘clean-up’ of state-owned enterprises (SOEs) sector and for China to both export and import more are also important for India.
The process of strengthening China’s public sector has been underway for several years now and is aimed at creating global leaders of these SOEs in their particular sectors. While not easy, such projects as China’s Belt and Road Initiative provide avenues to its SOEs for global expansion. By contrast, it must be asked how many of India’s PSUs actually conceive of themselves as being global leaders and how much of a vision and support system in this regard New Delhi itself lays out.
Meanwhile, Xi’s call for China to increase its exports and imports is also not an easy task given that a market the size of the US is not easily replaced and if the 90-day truce fails to hold, there will be even greater pain on the way for Chinese enterprises. There is, therefore, an opportunity for the Indian government to have the best of both worlds from China – place the necessary legal and technological conditions or strictures, on Chinese companies while inviting them in as well as force China to open up still further to Indian products and services.
For all of this to actually happen however, both the Indian government and industry must be equipped with sharper research and knowledge of not just the Chinese economy but also of its foreign and domestic policies.
A version of this article was originally published as Jabin T. Jacob, ‘India has an opportunity as China tries to boost its economy’, Moneycontrol.com, 15 January 2019.