In the midst of a potential trade war with the US, there's little sign that China's booming economy is flagging as first-quarter gross domestic product (GDP) figures, released today, show annual growth holding steady at 6.8%.
China's total GDP was ¥ 19,878bn in the January-March period. The data was slightly down from last year's 6.9% but still ahead of government and analysts’ expectations of 6.5%.
Continued strength in e-commerce and factory output feeds one of the world’s strongest economies. The service industry and private investment grew respectively by 8.1% and 7.5% year on year.
The International Monetary Fund growth outlook for China between 2017 and 2021 was revised upwards to an average 6.4%.
However, China’s compelling growth story is couched between twin concerns of a need to boost consumption and reduce rising consumer and business debt. The government has taken some steps through the use of wide-ranging reforms towards rebalancing the economy.
Government support to innovation-driven new economic sectors is integral to its expansion. According to the National Bureau of Statistics of China (NBS), continued robust results are due to the country’s focus on a modern economic system underpinned by “vigorous implementation of policies”.
Wall of debt
On its priority list must be its ability come to grips with rising debt. A major weakness for China that could prove to be a deterrent to future growth.
Household debt climbed from 44.8% to 53.2% of GDP according to data from Southwestern University of Finance (Bloomberg). A figure that has tripled in a decade offsetting the high level of savings by consumers.
The Wall Street Journal estimates total debt is around 265% of GDP as investment in infrastructure and development increased.
Easier credit was a tool the government used to encourage borrowing and spending as a means to raise consumption.
As part of dealing with the consequences of easy credit, the government is reining in state-owned firms, strengthening regulations and, finally, forcing so-called “zombie companies" — insolvent companies kept alive by banks — to close. Even with such core problems, China’s economy so far is resilient as the government sticks to its economic plan.
The miracle of commerce
Consumer demand is also spurring growth. Total retail sales of consumer goods rose by 10.1% with physical goods of online retail sales accounting for 16.1% of the total. E-commerce saw explosive growth of 35.4%.
China needs its citizens to buy as it aims to maintain its economic miracle. A trend that will surely help the country to shift from becoming the world’s largest exporter to becoming the world’s largest consumer according to Jack Ma CEO of Alibaba.
Writing in an recent op-Ed for the Wall Street Journal, Ma anticipates that an emerging middle class numbering 300 million who want to buy higher quality and luxury items including food, cosmetics and fashion and are ‘already driving massive demand for imports from all over the world.”
Crossing a river by feeling for stones
Earlier in April, at a business and political conference in Hainan, China, President Xi Jinping laid out proposals for opening up China’s markets to foreign business. Though there were some overtures towards addressing some of the demands from the Trump administration, the lack of a definitive timetable suggested restraint and that China will continue to move at its own pace.
Among the initiatives proposed, Xi promised to accelerate access to the financial and insurance sectors, increase protection for intellectual property and to reduce the barriers to ownership for foreign automotive makers.
Xi told conference attendees: “While we’re crossing the river by feeling the stones, we’re also strengthening top-level planning.”
Critics complain that these modest steps are much of the same when it comes to China’s past policies and will not do much to halt an escalation of trade frictions.
Little sting in trade tail?
The trade gap between China and its three major trading partners was still wide. Europe climbed 8.2% while the US and ASEAN rose 6.3% and 13.7% respectively.
Although there is ebb and flow with the ongoing trade dispute. The threat of $150bn in increased tariffs of Chinese goods is unlikely to derail China’s economy according to a government spokesman.
According to the Associated Press, Xing Zhihong, spokesman for the NBS said at a news conference, “China is fully capable of responding to Sino-US trade frictions, responding to challenges and maintaining sustained and healthy economic development.”
Ma in calling for cooler heads from both sides to prevail urged that “instigating a trade war is the wrong solution because it will only provoke retaliation”.
Trade deficit no impediment
President Donald Trump is trying to fulfil a campaign promise to cut trade deficits and bring back jobs with the imposition of trade tariffs.
A protectionist stance, Ma seems to suggest is a zero sum game and struggles to see how a trade war would be good for the US economy.
He described a symbiotic relationship that has benefitted both economies in spite of a trade deficit.
A future scenario as China shifts from being the world’s largest exporter to becoming its largest consumer is one of opportunity or loss for the US.
Aside from trade disputes and President Xi Jinping, fully ensconced as a life-time leader, China is sticking to its 2018 economic plan to maintain growth through tackling financial risks and poverty and reining in pollution.
China has got a transformative programme in play to address many of the problem issues that could cause a slowdown but those policies could slow down the economic juggernaut.