In September, the political Bureau of the Chinese Communist party had a meeting and has made known that new measures to support economic activity were going to be announced without entering into the details. The objective of a 5% growth rate seemed to be difficult to be reached and it is that which has attracted the attention of the commentators. Yet, the fact that the Chinese GDP growth was 4.9%, as it emerges from the 1st half figures, or 5% has no importance. The accurateness of the statistics does not allow to giving attention to such small spreads. It is the components of the economic activity which deserve to be analyzed and the recent evolutions show that China is not any more on the same trend than during the past.
The first change regards real estate. The shutdowns during the Covid-19 pandemic have leaded to the fall of two major operators, Evergrande and Country Garden which heavily indebted themselves in order to finance projects which have not found buyers. The State had to intervene to impeach these operators to go into bankruptcy and to generate a financial crisis puting into danger what was until now one of the main engines of the Chinese growth. Their situation was also the result of a household behavior change after the sanitary crisis and the very constraining measures taken to cope with it.
The country went from an optimistic logic regarding expenses and investment to a wait and see attitude amplified by the demographic turnaround. During the past, it was necessary to slow the too fast growth of the population. It was the “one child” policy. Today with the accelerated ageing which has resulted from it, it is in a logic of rebound of the natality but whose efficiency is not proved. To that must be added the increase of unemployment for the young generation caused by a geographic unbalance. The past generation has moved from rural areas to find qualified jobs in the new metropolis. But the employment supply in urban environment is not any more enough, for their children find there a job.
At a moment where, in Western countries, the priority is put on the fight against inflation, in China, due to a disequilibrium between the supply and the demand, there is a threat to have a period of deflation. The parallel is done with the Japan past situation: a strong and durable growth and a fall of the demography. This country then went into a stagnation phase from which it has not left. It is this quite new context which has leaded the authorities to launch a rebound policy which, with many points, looks like that the Western capitalistic countries ones and about which some elements can even surprise.
There is first the adoption of an expansionist monetary policy by the central bank. The People Bank of China has announced a diminution of its interest rates and after, a reduction of the mandatory reserve ratio imposed to the commercial banks. After that, in order to support the real estate market, the level of the personal initial payment to obtain a credit for the acquisition of a home has been brought back from 25 to 15%. The State has also asked the central bank to launch a 114 billion dollars plan in favor of the enterprises to allow them to buy back their shares and in favor of the institutional investors in order to acquire shares on the stock markets. Other measures are under preparation in favor of household and to reduce the indebtedness of the local authorities.
The first result of that policy has been a spectacular rebound of the Shanghai and Hong Kong stock markets which, in less than a week have increased by more than 20%. We are in the situation where one of the last communist countries of the planet, in order to stimulate its growth, makes enterprises shares increasing. The paradox is only apparent because the exceptional development of the country during these last three decades had started by the Deng Xiao Ping reforms, focused on the welcome of foreign companies in special economic zones and on the development of private Chinese enterprises.
We will see if this rebound is lasting after the reopening of the financial markets which were closed during the “Golden Week” but we can expect new supporting measures during the next meetings of the political authorities. It is sure that it is the China growth model which is changing and it would be useful that the Western countries take that into consideration instead of permanently denouncing, some times in the same time, the country weaknesses and the threats it makes weighting on them.
The State had also contributed to the country development with massive investments in infrastructures and housing and in supporting its production capacities. It had launched the Belt and Road Initiative program in order to favor the neighboring countries growth in a first step and after, most of the developing countries in Africa and even in South America. These new partners could constitute clients and even sometimes political Allies.
It is now the support of household consumption which is becoming the center of the public action because the Chinese enterprises are able to satisfy it and it is there that is located the most important transformation of the country economy. Its industry is not any more the plant of the world which attracted de-localizations and not more a set of sub-contractors having as their clients the big foreign groups. Through the training every year of hundreds of thousand engineers, the Chinese industry has acquired the technical know-hows to compete with their rivals.
The cases of the car and the dressing are revealing. To have recourse to a foreign brand is not any more considered, as in the past, for a household as a sign of social success. Chinese enterprises have acquired this status. The consumption rebound will profit to them in priority and it is that the government has understood and that will not impeach them, to the opposite, to export because through the advantage a very large and growing internal market, they will be more and more competitive. We see that already in the foreign trade figures. The surplus would overpass 900 billion dollars in 2024 when it was only 400 billion in 2018.
The Chinese technological advance in the industries which are mobilized all around the world to reduce CO2 emissions, electric batteries, solar panels and wind farms, will durably contribute to these surplus and so to the country growth. The protectionist measures adopted by the United States and by the European Union will not change anything and will first hurt their enterprises for illusory benefits. How the American giants of the high technology will be able to keep their position without the components conceived and produced most of the time in China? Has the German car industry the resources to withdraw itself from the Chinese market where it achieves near half of its sales and its profits? Protectionism has never constituted an answer to the difficulties of the countries which adopt it and the politization of the economic relations only makes these which have recourse to it the losers because they have not well understood the problems they are confronted with.
Where is China going? The answer is as simple as surprising. It follows the same economic trend as the today developed countries through the adoption of the measures its liberal foreign competitors would not repudiate when its political system is radically different. But are these two so different forms of thinking can cohabit forever?