The Capital Note: What to Expect from China’s 19th Party Congress By Daniel Tenreiro
Welcome to the Capital Note, a newsletter about business, finance and economics. On the menu today: China’s 19th Party Congress, vaccine diplomacy, insider trading from home, and a look at the Microsoft antitrust case.
What to Expect from China’s 19th Party Congress Entering the fifth plenum of the 19th Party Congress next week, the Chinese Communist Party (CCP) has much to celebrate: Beijing appears to have emerged from the COVID-19 pandemic with less scarring than its international competitors. The International Monetary Fund reports that China will be the only major economy to grow this year, thanks in large part to a surge in exports of personal-protective equipment and other manufactured goods.
Yet Beijing’s short-run successes have deepened structural economic imbalances that will likely handicap its long-run economic goals. For years, the Chinese leadership has attempted to transition from an export-driven manufacturing economy to a domestic-demand-driven service economy. After its last Party Congress, the CCP released a five-year plan emphasizing domestic consumption and entrepreneurship as the pillars of sustainable economic growth.
Those reform efforts have seen limited success: Household consumption remains below 40 percent, far lower than the 60 percent average in the developed world. Meanwhile, the Chinese economy remains overleveraged, with an overall debt-to-GDP ratio as high as those in advanced economies. The recent surge in exports, while a boon to GDP growth, also reveals an economy that has failed to gain sustainable footing.
Chinese president Xi Jinping is now advocating “dual circulation,” described as “a new development pattern that takes domestic circulation as the main body with domestic and international circulation reinforcing each other.” In a July speech, Xi said that trade tensions and slow global growth meant that China would need to modernize “the domestic industrial and supply chains, vigorously promote technological innovation, accelerate research on key core technologies, and create new advantages for future development.”
It sounds a lot like what Chinese policymakers have been saying for the past decade. In 2007, Premier Wen Jiabao acknowledged structural weaknesses in the then-booming Chinese economy, describing it as “unbalanced, unstable, uncoordinated, and unsustainable.” After the 2008 financial crisis, CCP rhetoric focused on harnessing its burgeoning middle class to ween itself off exports.
12 years later, the Chinese economy is yet more unbalanced, unstable, uncoordinated, and unsustainable. The forthcoming five-year plan will call for reforms to boost consumption and entrepreneurship, but if recent history is any indication, it won’t usher in meaningful structural changes.
Comments are closed.
