The GDP of Shanxi province was the fastest growing in China in the first half of 2022, up 5.2% year over year. Pictured here on January 14, 2022, is a robotic arm welding the frame of a new energy vehicle in Shanxi.
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BEIJING — Many economists expect China to avoid a Japan-style stagnation if the right policies take effect.
China’s GDP barely grew in the second quarter Whereas the Kovid lockdown halted the development. Those restrictions have been eased. But Covid containment remains an uncertain overhang while the country awaits a quarterly gathering of policymakers expected at the end of the month.
But even if Covid restrictions are eased, China has yet to tap into the growth potential for the next few years, economists said.
For one, a country’s level of income – and theoretically spending – has a lot of room to grow.
According to World Bank data, China’s per capita GDP in 2021 was less than one-fifth that of the United States, and per capita adjusted net national income was about one-seventh that of the United States.
“Given that still holds, China is still going to maintain growth of 4% to 5% over the next five to 10 years,” said Larry Hu, Macquarie’s chief China economist. He said there are uncertainties that could affect his projections, including whether China can shift consumption from relying on investments for growth.
Another area of potential is China’s plan. Integrate business standards and access Within the country, said Dan Wang, chief economist at Hang Seng Bank China, based in Shanghai. “Once those barriers can be lifted … that could increase income significantly.”
She noted how the current practice could favor a company from one local city over a company from another province. A clear example of these regional biases came to light this year when different COVID rules between provinces created inefficiencies, he said.
Wang said overseas demand and increased investment in manufacturing in China could support growth in the coming years.
Much of the country’s official economic narrative has emphasized the “unforeseen” impact of COVID and the “Russia-Ukraine conflict”, while pointing out that inflationary pressures are far greater in countries such as the United States.
When asked whether China would face a Japan-style economic stagnation, Bank of China chief researcher Zong Liang dismissed the possibility. He said China has, among other things, controlled its currency, while Japan’s yen has fluctuated very rapidly.
Zhong also pointed to China’s investment and self-reliance in technological innovation. As far as economic growth is concerned in the near future, he expects Incentive amount announced in May to be effective in the third or fourth quarter, and some benefit from increased business under New regional free trade agreements.
However, Zong said China faces similar challenges to Japan when it comes to the housing market.
Beijing has tried to rein in market speculation over the past few years. But an underlying, more difficult problem for real estate is the aging population, a problem “that deserves our attention,” Jong said in Mandarin, according to a CNBC translation.
consumption problem
However, others are less optimistic.
“China has an even more extreme version of the Japanese imbalance,” Michael Pettis, a finance professor at Peking University, said in an email, “making it harder to rely on consumption for growth.”
Japan’s economy has stagnated since the 1990s, growing at a generally slower pace than the US and China, following the bursting of bubbles in stocks and real estate.
Japan grew rapidly in the 1970s and 1980s, thanks to high growth in exports and infrastructure investment, but by the early 1990s the country was increasingly investing in wasteful projects, Pettis said.
He added that Japan has not been able to turn to its consumers to spur growth – mainly because the manufacturing sector has not been able to accept the necessary transition to higher wages.
China will not necessarily follow the path of Japan – if China can make substantial changes to its political institutions, Pettis wrote in April.
But he said a more likely scenario is that China does not enter a financial crisis or acute economic crisis, and is instead “more likely to face a very long, Japan-style low growth period.”
If unproductive investment – mainly in infrastructure and property – is curtailed and not replaced with an equivalent source of growth, Pettis estimates China’s GDP to grow by 2% or 3% in the coming years. Will not increase more than annually.
covid drag
For this year, several investment banks have lowered their China GDP forecast to less than 4% in light of the country’s zero-Covid policy.
“Economists can’t solve this issue,” said Xu Hongkai, deputy director of the Economics Policy Commission at the China Association of Policy Science. This is according to a CNBC translation of his commentary in Mandarin.
Xu said in a pessimistic tone, noting that monetary policy and fiscal policy could contribute little, and that increasing their scale would only exacerbate long-term problems.
The problems of China’s large-scale real estate sector have also re-emerged this month. Many home buyers refuse to pay their mortgage Until the developers get the resources to complete the construction of the apartments.
More state support?
However, eventually, China’s economy may have to turn to its government for help.
After warning of risks from excessive government support in his 2016 book “China Guaranteed Bubble,” author Zhu Ning said last month that the best solution to the problems of unemployment and the housing bubble is to increase state support.
“Japan’s position may actually be a reason to warrant a somewhat more planning economy approach,” said Zhu, professor and deputy dean of finance at the Shanghai Advanced Institute of Finance. ,[I] Can’t think of a market based approach.”
He said that just as Japan built its social safety net during the bubble period, China should invest more resources to ensure three basic needs: housing, health care and education.
Zhu said giving Chinese consumers relief from those costs may encourage them to spend.