China's economic expectations

Muhammad Zamir   | Published: April 15, 2019 21:37:00 | Updated: April 20, 2019 21:22:34


Chinese President Xi Jinping (left) and Italian Prime Minister Giuseppe Conte shake hands after signing trade agreements at Villa Madama in Rome on March 23, 2019.        —Photo: Reuters

Over the last year there have been pessimist comments about how the Chinese economy is gradually eroding and how the trade war with the United States is affecting its growth. There have also been reports that dire aspects associated with the Chinese economy have been over stressed.

The latest Asian Development Outlook (ADO) 2019, flagship economic publication of the Asian Development Bank (ADB), in its report issued in the first week of April has clarified matters. It has been stated that China's economy will continue to grow above 6.0 per cent this year and next in line with the Chinese government's growth target of 6.0 to 6.5 per cent. It may however reduce a bit from the current 6.3 per cent to 6.1 per cent in 2020. This indicates that China's economy remains strong despite the growth slowdown in recent years.

ADB Chief Economist Yasuyuki Sawada has observed that on the demand side consumption has confirmed its role as the main driver of growth by contributing 5.0 percentage points, up from 3.9 points in 2017. This appears to have taken place because of the Chinese government reinforcing its support for private consumption when it introduced personal income tax reform comprising new tax brackets and a higher standard allowance effective from October 01, 2018. Additional deductions have also become part of the regulatory regime since January 01, 2019.

On the supply side the ADO has noted that services have remained the main driver of growth despite slowing from 7.9 per cent of growth in 2017 to 7.6 per cent in 2018.

CHINESE GOVERNMENT WORK REPORT: In the government work report to the lawmakers at the Second Session of the 13th National People's Congress on March 05, 2019, Premier Li Keqiang referred to the mounting downward pressure on the Chinese economy and correctly suggested that the policies and measures that China adopts should ensure stable expectations, stable growth and structural adjustments. He announced that the issuance of local government bonds would continue to expand moderately  to replace outstanding debts in order to reduce the interest payment burdens of local governments. The central government would encourage the adoption of market approaches to solve the issue of maturing debts on financing platforms and make sure that projects financed by such debts are not stopped half way. This has of course been a wise step.

Li Keqiang reiterated the need of another important measure - the achieving of stable and diversified employment. China has decided to ensure employment for key groups such as college graduates, demobilised military personnel and rural migrant workers. The need to give greater employment support for urban jobseekers facing difficulties in securing employment has been underlines. Li Keqiang announced that enterprises hiring staff from among rural poor people or unemployed urban residents would be entitled to a fixed amount of tax and fee deductions for subsequent three years. Such measures may be applicable for all developing countries with high populations, including Bangladesh

The Chinese government has decided to make regulations easier to follow. They emphasise that transparency in the regulatory structure makes implementation of such rules that much more implementable. Steps are also being taken to make rules and legal provisions more unified at all administrative levels. It has been correctly assessed that this would reduce chances of corruption, introduce impartiality and avert discrimination.

The Chinese authorities have appropriately realised that major developments in the current digital scenario require promotion of a credit rating-based regulation structure and reform within the paradigm of internet usage. China understands that this would help to better enforce laws and also environmental protection, fire prevention, tax collection and market oversight. This would also ensure that those who act in contravention of law can be easily identified and punished.

Another significant aspect is being introduced within the Chinese economic infrastructure from this year. Average broadband service rates for small and medium enterprises are being lowered by another 15 per cent, and average rates for mobile internet services will see further reduction by 20 per cent. Mobile phone subscribers, as in the case of Bangladesh, will now be able to keep their numbers while switching carriers.

In the wake of the evolving dispute with the United States the Chinese government has urged all concerned to take steps for promoting coordinated research pertaining to technology innovation and science and technology programmes. They are being urged to speed up development through platforms for sharing data and necessary services. This is considered as one way to use intellectual property rights legally and also to advance their application for industrial application.

In addition, China to achieve the required momentum for the One Belt One Road Initiative (BRI) is increasing support for basic research and application-oriented basic research that may promote innovation. A careful scrutiny will be undertaken in all important national laboratories to identify areas where improvements and rectification might be required. This will include identifying steps that would assist in improving management of major science and technology programmes. This is something that relevant authorities in Bangladesh need to undertake - the sooner the better.

BRI SUMMIT: Meanwhile, China is now getting ready to convene the second forum on the Belt and Road cooperation in Beijing in late April. The  summit is intended to remove hesitation among several countries with regard to certain aspects pertaining to their participation in the BRI - debt, transparency and growing international Chinese influence.

China, to the disappointment of German Chancellor Angela Merkel, has gained a major victory by convincing Italy to become the first G-7 nation to formally sign on to the BRI plan on March 23. Italian Prime Minister Giuseppe Conte is due to attend the forthcoming BRI Summit that China is convening.

It may be noted here that some other European countries like Hungary, Poland, Greece and Portugal have also signed memoranda of understanding  (MoUs) with China in this regard. 

However, other countries in the West have been less keen to jump on board. Nevertheless, they are carefully monitoring the emerging matrix and also how the challenges are being overcome. The Chinese have responded to the existing doubts by pledging that BRI exercise will not be a debt trap but will be open, inclusive and transparent for all the like-minded countries.

The European Union (EU), China's largest trading partner, has also been in a bind as to how they will respond. They are presently caught up with the Brexit imbroglio and also differences of opinion ahead of the EU election towards the end of May. This is creating its own areas of convergence and divergence.

President Xi visited   Italy , Monaco and France from March 21 to 26. Europe's top leaders, according to media reports, told him that they wanted a fairer trading relationship with China. At the same time they signalled an openness to engage with BRI if it meant more access to the Chinese market.

China has been under pressure to show to the world that BRI remains popular despite cooling enthusiasm from some governments - Sri Lanka, Malaysia and the Maldives - where new administrations are wary of deals struck with China by their predecessors. China, on the other hand, has touted the success of their US$57 billion efforts for implementing the China-Pakistan Economic Corridor, a major BRI scheme that is viewed by India with suspicion. Chinese leadership has underlined their success with regard to this venture by pointing out that 20 per cent of the funding for this Corridor has come from Chinese loans. The rest has been made up of direct Chinese investment and free grants.

However, success of China in the economic engagement parameter with the rest of the world still depends to a great extent on resolving the existing differences between itself and the USA on aspects like intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases and enforcement. Bilateral discussion between both parties is on but concurrence has still not emerged in the crucial areas. Once there is agreement, China would be able to meet their economic expectations. They will also have to come to an agreement format with the EU leadership regarding the proposed Joint Summit Statement that China expects to issue on the conclusion of the ensuing Beijing Summit on BRI. Chinese Premier Li Keqiang will, in this context, need to come to an understanding with EU Council President Donald Tusk. That will not be easy.

Muhammad Zamir, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance.

muhammadzamir0@gmail.com

 

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