For the past three decades, the general political consensus in the mature Western economies has been that trade liberalization is a good thing: most economists credit rising levels of global trade and cross-border investment with lifting nearly a billion people out of poverty in the developing world and reducing prices for consumers almost everywhere. Yet despite those successes, a growing segment of the public in the mature economies sees the impact of liberal trade policies quite differently— the revisionist view sees free trade as a major cause of the declining prosperity in the mature economies. Why has an anti-globalization consensus developed?
China’s corporate debt is rising fast, and is estimated to be between 145% and 170% of GDP, which is “very high by any measure,” according to the IMF. In most countries this would herald a wave of bankruptcies and be considered a lead indicator for an imminent correction. But in China, analysts are not so sure because the government has a high level of control and a low tolerance for slow growth. People also believe there will not be an imminent financial crisis because the government is the ultimate underwriter.
China’s industrial economy remains at the bottom of an L-shaped economic trend, according to the latest CKGSB survey of over 2,000 industrial firms nationwide. The survey, led by CKGSB Professor Gan Jie, shows that overcapacity and weak demand remain the biggest challenges for China’s industrial economy. The Business Sentiment Index, a major indicator of the survey, stood at 46 in Q2 2016, the same with last quarter, but still indicative of contraction. The BSI is the simple average of three diffusion indices including current operating conditions, expected change in operating conditions and investment timing.
In the early 20th century, the world managed to halve the number of people living in extreme poverty, yet the income inequality problem continued to grow and even became the source of tension between regions. In this interview, Tony Atkinson, a professor at the London School of Economics, talks about facing up to one of the defining problems of our time in his book Inequality: What Can Be Done? Atkinson studied poverty and inequality over four decades. He believes that inequality can only be solved through a concerted global effort and offers his views on how China, as a relatively opaque country, can work with global forces to alleviate poverty.
China’s economy is facing many problems that are cyclical and also structural. Some economists believe China reached the Lewis Turning Point six years ago, where the growth benefits of rural-to-urban migration dried up and wage costs started to escalate. The growth of the Chinese economy relied very much on its cheap labor—a competitive advantage that has been exhausted. Simply put, “China has come to the end of the period of easy gains in GDP.” It faces two possible paths ahead: the hard road of structural reform and painful consolidation, and the easy road of fiscal and monetary stimulus leading inevitably to further problems along the way.
The Chinese currency’s sharp fall last August has put the spotlight on the country’s foreign exchange reserves that have been dropping, increasing the risk of capital outflows. The falling reserves are not only a result of China’s transition from investment and export-led growth to rising domestic consumption, but also a reflection of the-slower-than-expected economic growth. Meanwhile, more and more wealthy Chinese are moving their assets abroad amid a lackluster domestic environment and the anti-graft crackdown. This is significant for the Chinese economy because the falling forex reserves have led to monetary policy restrictions. What can be possibly done to stabilize capital flows?
Having delayed serious structural reforms, China faces eye-watering overcapacity in heavy industries. Steel production volume is more than double that of the next four leading producers combined: Japan, India, the United States and Russia. Aluminum production capacity reached 40 million tons last year, exceeding global consumption by 9 million tons. Most remarkably, between 2011 and 2013 China produced more cement than the US did during the entire 20th century—6.6 gigatons, compared to the US’s 4.5. What can China possibly do about this excess capacity that is weighing on the balance sheets of debt-ridden firms reeling from China’s economic slowdown?
China’s boom times are over. With global investor sentiment slipping, concerns are rising about spillover effects of a faltering Chinese economy on global markets and institutions. Although the facts of the problem are well known, fixing it is another issue—the reach and pace of fundamental economic policy choices have been subject to debate. In September 2015, Willem Buiter, Chief Economist at Citigroup, and his team published a research note stating that it was likely that the global economy would soon slip into recession, caused by sluggish growth in emerging markets, especially China. In this interview, Buiter assesses Chinese economic growth and the potential for global recession.
The days of double-digit growth in China are long gone now. And as China shifts to a new economic model, the term ‘the New Normal’ is often used to describe this supposedly more sustainable economic growth. The consensus is that the New Normal will usher in a steadier, stronger, more sustainable economy led by consumption and services. But when you break it down to a granular level, what does the term really mean? More importantly, what does the New Normal mean for the level of economic growth being pursued in China? What implications does it have for rebalancing the economy and different industries?
Dating back to 1953, China’s system of Five-Year Plans has long been dismissed as anachronistic, but it remains crucial to guidance of the economy. Five-Year Plans occupy a central place in China’s complex system of governance. For just as China’s economy has reformed and adapted in the last 37 years, so too has the planning framework. There are clear signs that planning will remain an indispensable component of Chinese economic and political development for years to come.