Over the past year, the housing price in many Chinese cities has doubled. The property industry, which contributed to the economy’s growth, is now ‘hijacking’ China’s economic growth model. Instead of investing in real businesses, individuals and companies are betting on increasing property prices. In this interview, Professor Xu Chenggang talks about the government’s role in real estate regulation, the major challenges of pushing reforms in China and how state-owned enterprises and local governments should roll out these reforms.
On the morning of June 24, 2016, China woke up to witness an unexpected drama unfolding half a world away. The previous day, millions of UK citizens had voted on whether the UK should remain in the European Union, and all opinion polls, betting and market expectations pointed firmly towards ‘Remain.’ But as the early results came in, the startling prospect of Brexit became a reality. Some people think “Brexit has indeed diminished Beijing’s hopes of treating the UK as a strong advocate for China in the EU”, and there are another voices like “The Chinese… have other ways to penetrate the EU market, for example [through] Greece,” and in a sense they are both right. How will China and the UK’s “Golden Relationship” play out in the Post-Brexit era?
China’s desire to become an elite football nation is having an impact on and off the pitch. While the national football team still has no way to comfort their weary fans, the government has unveiled grand visions for the game’s development, exhibiting a desire for international prestige and a more consumption-based economy. Although observers say China Soccer League standards have improved, currently the men’s national team languishes 81st in FIFA’s rankings, below Zambia. In contrast to China’s success in many Olympic sports, where a top-down training model has yielded amazing results, football, as a team sport, is less suited to such a model. There is no quick fix.
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.
Doing business in China has never been easy for foreign-owned companies, but Uber has largely managed to avoid conflict by operating as a separate Chinese subsidiary, Uber China, on the mainland. However, Uber China still faces many challenges: competing with Didi, not being profitable, and even worse, its business has always been riding on a government regulation fence. In a market that is as challenging, and competitive as China’s, the answer to winning over China’s smartphone users lies deeper than just competitive pricing or partnerships.
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?
After 37 long years, China finally abandoned the one-child policy and caught many observers off-guard. The two-child policy, passed by the Chinese legislature in December last year, is according to Chinese authorities, “intended to balance population development and address the challenge of an ageing population”. Their projection that the abolition of the policy would yield a 0.5 percentage point boost in economic growth over the long term, without specifying a time frame, suggests that there were economic motivations behind the end of the one-child policy. But whether it will really deliver a boost in growth for the economy is an open question.
Alibaba, China’s largest e-commerce firm, recently smashed global records for its ‘Single’s Day’ promotion on 11th November 2015, selling $14.3 billion worth of merchandise in just 24 hours. This is the equivalent to 120,000 orders placed every minute, covering both online spaces such as Taobao and Tmall as well as 180,000 brick and mortar sites across 330 cities in China. The numbers are staggering, but they also show a problem with the sheer scale of selling—how to ensure the quality and authenticity, of goods. Alibaba is now tightening the screws on fake goods being sold on its platforms, but can it stay one step ahead of counterfeiters?
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.