"A bubble in pessimism.” That was the headline in the China section of a recent issue of The Economist. A measure of the deep global interest in the Chinese economy is that the whole of the section was devoted to this topic.
Much has been written about the Chinese economy recently; some commentators predict bleak prospects, others see a rosy picture. Terms such as “financial avalanche”, “economic hard landing” and “increasing demographic imbalance” are frequently used. Others insist that the current slowdown is exactly what it takes to ensure stability and sustainable growth.
So what is the real state of the Chinese economy? On a recent visit to China I consulted widely and the consensus was clear: “The Chinese economy has a bright future.”
The current relatively low, yet stable, growth of the Chinese economy is the result of ongoing economic restructuring and industrial upgrading. The Chinese economy is going through a “shift of gears”.
During the three decades since “reform and opening up”, the Chinese economy roared ahead with annual growth of 9.9pc; it surged to become the world’s second largest economy.
That speed of growth created challenges that are now being dealt with: improving the quality of economic growth; reducing pressures from energy consumption; the demand on resources and the environmental impact; ensuring food safety and security.
The new Chinese government has given clear indications about its plans for economic transformation. Instead of single-minded pursuit of speed and quantity, the new “China style” will focus more on the quality of growth and making it more cost-effective.
This is clear evidence that the new leadership is capable of staying on top of a complicated situation. A researcher from Chatham House has drawn an analogy: “If you are on a galloping horse, it would be difficult to jump on to another horse without risk.” The slowdown is to be expected following the adjustment measures.
The Chinese economy is operating as intended by the new policies; the growth rate in the first six months of this year was 7.6pc. Concerns are understandable as this is below the average of almost 10pc of the past three decades.
However, to judge whether an economy is sound, we need to consider whether it is operating between reasonable zone bands. The ceiling of this band is to avoid inflation. The floor is stable growth and jobs.
Three indicators show that the Chinese economy is well in the safe zone. First, speed: in the first half of this year China remained one of the fastest growing of the world’s major economies. Moreover, the growth was mainly driven by domestic consumption; domestic spending contributed 45.2pc to the growth of the Chinese economy.
Secondly, prices are an immediate concern for the public. China’s CPI rose by 2.4pc in the first half of the year, well below the intended target of 3.5pc. Stable prices have made macro-economic control much easier.
Thirdly, employment touches on every household. In the first half of this year, the unemployment rate in big cities in China stood at around 5pc, while in the same period, 7.25m new urban jobs were created.
I also want to stress that China’s reform is a constant. Deepening “reform and opening up” will be a priority for the Chinese government in the years ahead. Equal emphasis will be put on industrialisation, information technology, urbanisation and modernising the agricultural sector. The market and private capital will be allowed to play a bigger role.
In the international arena China will take an active part in global economic governance and will advance global trade and investment liberalisation. It will share growth opportunities and benefits with other regions and other countries. Recently, China signed free trade agreements (FTAs) with Iceland and Switzerland; that marked a big step forward in China’s opening up process.
Experts estimate that, in the coming five years, China’s commodity imports will total $10 trillion (£6.5 trillion); outbound investments $500bn; and 400m Chinese tourists will travel overseas.
From January to August this year alone, there were nine new M&A projects by Chinese investors in the UK, totalling $3.7bn, including the purchase of the Lloyd’s building by Ping An Insurance Group, Wanda’s investment of £700m in a London hotel complex and the ABP project worth £1bn to develop the Royal Albert Docks south of London City Airport into a modern business park. All these show that China will be more closely integrated into the world.
As the government’s reform road-map becomes clearer, the international community has cast votes of confidence in China’s future, showing greater interest in the opportunities brought by its development. From January to June this year, American and European investments in China increased by 12.29pc and 14.68pc respectively.
These trends suggest that investors are ahead of the curve compared with media analysts who continue to predict gloom and doom for the Chinese economy. There are enormous opportunities for business with China; if they are taken it could jump-start the recovery of the whole world’s economy.
Liu Xiaoming is China’s Ambassador in Britain