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China Trends #4 - China’s Economic Policies: Delaying the Choices

Analysis - 17 December 2019

The Central Economic Work Conference has just ended in Beijing, and its results were awaited with unusual trepidation by observers: how to counter the economic slow-down, what to do with the rising debt, could a new stimulus plan be launched, what about monetary policy and the currency’s level? The keywords now emerging are "stability" and "caution", with China’s leadership clearly bracing for possible new trade shocks from the United States, and perhaps unwilling to respond with market reforms. This issue of China Trends shines a light on three different types of trends in China’s economy.

The first one, by Angela Stanzel, is on China’s growth model. We hear of new developments: they are largely about technology upscaling, achieving "high quality development" through innovation. Yet, beyond an official optimism on growth rates, there are a lot of worries that surface: stagnation of income in China’s middle class and slowing down of domestic consumption. Two avenues of growth are encouraged: one is more financial support for SMEs. The authors don’t mention it, but this would be in practice a renewal of the short-lived calls for supporting the private sector that were heard in late 2018. The other is an expansionary social spending policy that would enable a renewed shift from forced savings and investment to consumption. But in a fashion that is typical of today’s political trends, we hear no more about the role of the market or about liberalizing reforms.

The keywords now emerging are "stability" and "caution", with China’s leadership clearly bracing for possible new trade shocks from the United States

Yet the issues still exist. Our second study, by Viviana Zhu, is on the fate of China’s anti-monopoly law, enacted in 2008. Perhaps with some nostalgia, one source recalls the context of the reform era. It took 20 years to pass the law – against views that a developing China actually needed more monopolies, not less, and a strong defense of "administrative monopolies", which extend far beyond the notion of natural monopolies in China. That last contradiction has survived the law.

While the notably liberal Unirule Institute (now closed for good) wished for more restrictions on these administrative monopolies, different state authorities struggled among themselves – and with SOEs often better connected politically.

We can safely say that this issue’s first two studies represent two trends of thought on Chinese economic policies. The first is technocratic and compatible with self-reliance: going upscale and expanding the social sphere are the answers to external headwinds and lower growth. The second is – implicitly only – a call for reform in response to external trade pressure, or gaiatsu as the Japanese called it during their era of difficult economic relations with the United States. This is also an answer to the growing dissatisfaction abroad about China’s state-led and subsidized economy, where private actors are less and less influential, unless they themselves become state-backed national champions.

Thus, foreign pressure could be a factor, although both Xi Jinping and the party-state system seem to have resistance as a priority. Indeed, our third study gives a hardline view of China’s posture throughout the trade conflict with the United States. Decoupling cannot happen, existing reforms provide room, and the Chinese economy is resilient. Our guest author, Jiakun Jack Zhang, rightly points out that this optimism leaves aside what is still a low share for domestic consumption inside the Chinese economy, and increasing debt levels that now place limits on future spending. Perhaps that is why some other Chinese experts still call for concessions to end the trade conflict.

Here too, there are two views, although one is granted a higher public profile.


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