Trade talks between Beijing and Washington are on its way, but the trade war is not China’s real problems, says economic analyst Harry Broadman. China’s economy is strangling itself, he writes in the Financial Times.
Harry Broadman:
The noose around the neck of China’s economy has been getting tighter, but hardly as a result of the tariffs imposed by the US. This is a dangerous myth celebrated by Washington and used as a scapegoat by Beijing.
Rather, the squeeze is largely self-induced. It stems from the lack of further reform — in some cases, the reversal of past reforms — in an economy still heavily dominated by the state and whose largest enterprises remain governed by the Communist party. The power to alter China’s economic fortunes lies largely in Beijing’s own hands.
The overarching symptom is a secular fall in China’s real GDP growth. Except for an upward blip in 2010, the growth rate of the Chinese economy has been on a steady decline over the past 10 years.
Such a pattern cannot be the result of China’s trade war with the US, which began in earnest only last year. And, despite the US imposition of tariffs, China’s trade surplus has expanded, not contracted.
The trend continues. Last week, Beijing announced that its official recording of real GDP growth for 2018 was 6.6 per cent, the lowest rate China has experienced since 1990, the year following the student protests in Tiananmen Square. Beijing downplayed the news, casting it as fully in line with the government’s forecast for 2018 and a sign of the maturity of the Chinese economy.
Those of us who have worked on the ground in China for decades, however, know full well that even if one takes the country’s official economic statistics at face value (which few of us do), the exercise Beijing utilises to set its growth projections lacks rigour and is tinged by political imperatives.
Worse, the process is almost a tautology: official forecasts for a given year are not released before the year’s start. Thus, only this March will Beijing unveil 2019’s projection — that is, after a quarter of the year has already passed. That’s a sure-fire way of improving the accuracy of any forecast.
As to China being a mature economy, it’s highly doubtful whether the majority of the country’s citizenry would agree with Beijing’s characterisation.
While a number of reforms put in place since 1978 — some of which have been truly ingenious — have lifted millions out of poverty, many Chinese remain poor by any standard. On a purchasingpower-parity basis, China’s per capita GDP is below the global average. It is on par with countries such as Serbia, the Dominican Republic and Botswana — countries whose economies don’t leap to mind as being mature.
If a precursor to economic maturity is sustained high growth that is widely diffused nationally — no small feat for a country that has a large population and occupies a vast geographic space — China is moving in the opposite direction. Indeed, the IMF forecasts China’s growth to continue to fall, to 6.2 per cent for 2019 and 2020.
More in the Financial Times (reproduced with the kind permission of the author)
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