No more bets, please. This week, China’s economic version of roulette will be played out in Beijing. Favorite numbers will range from four to six and from five to 65, and even 18.
Figures will be carefully scrutinized as President Xi Jinping and the top echelons of the Communist Party discuss the challenges facing the world’s second-largest economy at the Central Economic Work Conference during the next few days.
Bubbling beneath the surface will be the trade war between Washington and Beijing. Even if a short-term, “phase one” fix is finally hammered out, the fallout will linger from the 18-month conflict.
Check off that number.
“China and the United States are in an age of competition,” Zhang Baijia, the former deputy director of the Party History Research Center at the CCP Central Committee, said.
“While it’s dangerous to underestimate the risks that may arise from such competition, there may be an even bigger price to pay for overestimating the risks. China’s experience indicates that overestimation often leads to greater costs and deprives people of many opportunities,” he wrote on the China-US Focus website.
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Overall, this has been a depressing year for China’s economy. So far, signs of stress have appeared in consumer spending, factory production, investment and tumbling exports. The shock waves have even stifled global growth, a report by the United Nations highlighted.
Last month, domestic consumer inflation jumped to a seven-year, high as pork prices soared amid an outbreak of African Swine Fever, which has decimated the country’s hog herd.
To complete a depressing picture, GDP growth in the third quarter dipped to 6%, the slowest rate in nearly three decades.
In the years ahead, it could be close to 4%, another of those key numbers.
“Looking at China’s economic transformation in the past decade in the context of comparable economies from East Asia, China’s growth was normal or even better,” Gao Shanwen, the chief economist from Essence Securities, whose biggest shareholders include sprawling state-owned Chinese enterprises, said.
“However, aging, leverage, and investment rates are in an uncomfortable position, and these are difficult to resolve,” the controversial but influential Gao added in making his pitch for 4%.
For 2020, GDP growth is expected to slip to 5.7%, according to Hu Yifan, the chief China economist of the wealth management division of UBS, the multinational Swiss-owned banking group.
A significant part of the reason behind the slowdown is the decision by Xi’s government to realign the state-backed economic model to high-tech manufacturing and services. Consumption, not cheap low-value exports, is pivotal to Beijing’s blueprint.
Time is also a prerequisite before the benefits start to trickle down.
In the meantime, there are rough seas ahead. Premier Li Keqiang flagged up the risks during a meeting with economists and policymakers in November.
“The current external environment [has become] more complex and severe, with increasing downward pressure on the domestic economy, rapidly rising prices of pork and other products, and increasing difficulties in the business operations of companies,” he said as reported by the Chinese media.
One aspect of concern is rising youth unemployment, classified as those between the ages of 18 to 24. While the National Bureau of Statistics reported recently that the overall rate was slightly under 4%, this particular category could be between five, another of those numbers, and 6%.
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Read: China and US in trillion-dollar tech war
Again, Li focused on the problem at a weekly State Council meeting last week when he was quoted in China’s state media as saying “we must take multi-pronged measures to ensure that employment remains stable.”
“Beijing can tolerate lower growth. What they cannot tolerate is high, or even quickly increasing, unemployment,” Trivium China, an economic consultancy, wrote in a note.
Finally, there is a rather large debt cloud hanging over the corporate sector, the Mercator Institute for China Studies revealed in a survey earlier this year.
The German think tank pointed out:
“China’s corporate debt to GDP ratio, a measure of corporate leverage, is now among the very highest globally. It has risen nearly 65 percentage points within a decade, the fastest increase among the major economies.”
Just to recap, that was another of those pesky numbers as the wheel keeps on spinning for China’s economy.
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Watts gloats on China’s difficulties. In the longer run, though, it will be China getting back up and the US falling further behind: the reason is simple. Chiba has invested in good education of its people for decades. The result is a large talent pool of very intelligent, inventive people. Meanwhile, the US relied on importing educated talent from China and Russia as a way to save on education costs. Education in the US is 80% mediocre with around 20% Ivy League colleges and High schools. That results on a small indigenous talent pool. As both Chiba and Russia invested increasingly large amounts into their colleges and research facilities, and as the increasing hostility of the US government against both, the Chinese and the Russians, keeps their students away from US universities, even worse very recently with Trump quite literally purging Chinese scientists and researchers from cancer research and STEM programs, all incentive for Chinese talent to move to the US has been taken away. It will leave the US with vastly less talent. That has manifested in two arenas: Chiba being first in 5G and ahead of the US in AI; and in Russian developed hypersonic weapons against which the US has no defense.
Now Trump is in addition prohibiting all sales of tech to Huawei in a frantic effort to destroy Huawei. So far it has led to Huawei developing its own tech rather than its downfall. The longer term effect these prohibitions will have is that they deprive the US tech companies if the necessary profit to finance research and development of innovative new tech. Which means the US will likely fall behind further. Trump now wants to subsidize the tech industry with $1b in federal money – all the while howling that China has to stop subsidizing its companies, even where part state owned!
Most of these US problems were readily foreseeable. But the US under Trump thinks in 19th century anachronisms!
So much for all these magic numbers cited by Watts.