Because no one really trusts the official figures on China’s economy analysts look for information elsewhere. The BBC News reports that a meeting of the Communist party, the China plenum, may furnish some clues.
China’s top Communist party officials are in Beijing for a four-day, behind-closed-doors meeting this week.
The plenum kicks off a big year for China, building up to next year’s party congress, a twice-a-decade event.
While this week’s gathering is largely pre-scripted, a communiqué is usually released at the end of event – and that should help the outside world figure out which way China is headed.
Political considerations – especially party leadership, succession issues and a “code of conduct” for party cadres – are likely to dominate proceedings. But here are three things I’m watching for on the economic front.
The three things about which analysts are seeking information are the anticorruption drive, any move away from reliance on state owned businesses and any adjustment of China’s debt and export growth model. The Chinese leader believes that only a corruption free Communist Party will be able to retain confidence and support of the population and China seeks to adjust its approach to so-called managed Capitalism. Along the way will the Zombie companies that are killing the Chinese economy also go away?
The Chinese approach to growth, which works for underdeveloped economies, to a point, has been tight control of the means of production. Unfortunately the borrow more to produce more and pay back later model is getting China in trouble. As exports dwindle, factories get shut down and immigrants from the interior go back home. These folks became accustomed to more money and a faster pace of life. Many are not happy with seeing their dreams snuffed out. The Chinese leadership has therefore be hesitant about closing too many factories and sending too many people into unemployment and back home to complain. Unfortunately, a nation that seeks to improve its economic status needs to constantly strive for efficiency and Zombie companies are not the answer.
Borrow, Export and Grow
Much of the Third World has China to thank for higher sales of commodities and a generally higher standard of living. They also have China to blame for their recessions as commodity exports to China fall off. The Chinese borrow, export and grow model worked so long as there was room to grow. The Great Recession reduced demand for China’s products but eventually China needed to start to develop its own consumer economy as the world does not have an infinitely large consumer base for ever increasing numbers of Chinese products. This switch requires many more private firms and not bloated Zombie companies run by party hacks. China is now betting on more borrowing which, in the short term may still help. The Financial Times discusses how China’s economic planners aim for a high GDP as the cure all.
While the rest of the world fretted about runaway debt levels in the world’s second-largest economy earlier this year, Chinese economic planners kept their eyes firmly on their target range for gross domestic product growth, set at 6.5 to 7 per cent.
With the National Bureau of Statistics reporting three straight quarterly growth figures of 6.7 per cent, the Chinese government does not have to worry about full-year growth falling below 6.5 per cent. Instead, it can turn its attention to reining in some of the excesses that made this year’s better than expected growth figures possible.
It remains to be seen if too much debt and Zombie companies are going to kill the Chinese economy or if central planners will somehow pull a rabbit out of the hat and save the day.