Betting against China is a risky proposition despite uncertainties
- Concerns over economic growth are understandable at a challenging time, but there also many positives that could surprise the naysayers
It is not hard to find an argument about the strength of China’s economic growth right now. The International Monetary Fund’s recent upbeat prediction of 5.2 per cent, against the official target of about 5 per cent, ignited one that continues. This reflects understandable concern, both about China’s economic strength and its long-term prospects, given it remains a global growth engine. Some of it is based on fact. But this has often been made to fit a negative narrative generated by weaker-than-expected growth as a result of the pandemic and geopolitical tension.
The prevailing doomsaying is that China’s economic weakening is structural rather than temporary, and that not only will it miss this year’s growth target of around 5 per cent, but its growth in the next 10 years could be limited to 2 to 3 per cent.
There is no question China’s economic problems are real. The question is where to start listing them, given a property slump, local government debt, youth unemployment, global supply chain restructuring, and US tech restrictions to mention some. Most of its issues may be solvable individually, but together they present a complex challenge that cannot be solved overnight.
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Add long-term concerns such as an ageing population, continuing US tech restrictions, a worsening geopolitical environment and, increasingly, the sense that Xi Jinping and his government are prioritising security over economic growth.
However, for all the problems, there is an equally long list of positives and the question again is where to start. As shown during the national holiday, domestic travel and consumption remain strong. The purchasing managers’ index, a measure of industrial activity, has flipped from contraction to expansion, China’s advanced manufacturing – exemplified by a strong electric vehicle sector – is testament to resilience. The country installed more industrial robots in the first eight months this year than the rest of the world combined. Its new energy sectors – solar, wind and nuclear – are steaming ahead, and it is focused on developing the industrial use of artificial intelligence. Twenty years ago an ageing, stagnating Japan could not fall back on all these positives.
All this is a reminder that evidence to support any theory can be assembled from selected facts. Given the complexities at home and abroad, not even the IMF, with its unrivalled overview, can say for sure how quickly Beijing can turn its economy around. History shows it is risky to write China off. Huawei’s latest smartphone chip, despite tech restrictions, is a reminder of that. And it is wrong to assume Xi is sacrificing economic growth for security. China needs a secure environment to sustain long-term growth. The stress remains on growth to live up to the country’s own development goals.
