20 October 2018
President Xi Jinping said China must adapt to the new normal, meaning slower growth and painful restructuring. Photo: Reuters
President Xi Jinping said China must adapt to the new normal, meaning slower growth and painful restructuring. Photo: Reuters

‘Xiconomics’ for challenging times

Three years ago, sinologists in the West – led by Barclays Capital – introduced the term “Likonomics” to describe the central economic tenets of Premier Li Keqiang: no stimulus, deleveraging and structural reforms.

Those policies were expected to push China to a “temporary hard-landing” with quarterly growth plunging to 3 percent.

While the description illustrated some of Premier Li’s efforts, growth predictions proved wildly off.

A few weeks ago, the People’s Daily introduced a series of articles about President Xi Jinping’s economic thought.

“Xiconomics” is shorthand to describe the “new normal” and “supply-side reform” as the two distinctive characteristics of President Xi’s first term.

It is not a growth prediction but a policy mix to support sustained growth in a challenging international environment.

It reflects the kind of adjustment policies that are needed to rebalance the economy toward consumption and innovation.

Since the spring of 2014, President Xi has stressed that China must adapt to a new economic normal.

In the short term, that means slower growth, painful restructuring and conflicting responses following fiscal accommodation.

At the 2015 Central Economic Work Conference, policy authorities pledged to focus increasingly on supply-side reforms, which prioritize the reduction of excess capacity while maintaining stability.

That is likely to mean expanded fiscal spending and further monetary easing.

As an effort to stimulate economic growth, supply-side reforms represent the other side of the new normal.

In the foreseeable future, China will emulate neither the laissez-faire doctrines of the United States, which led to the global crisis, nor Europe’s social accommodation, which is no longer supported by the region’s growth.

In contrast, supply-side reforms seek to facilitate China’s transition to a post-industrial society.

Structural transformation, not hard landing

Since the global financial crisis, many observers have argued that China is in the midst of a hard landing. I have argued that they are wrong.

A hard landing indicates a sharp slowdown in economic growth, if not outright recession.

Yet, China’s growth remains between 6.5 and 7 percent, more than four times as high as the eurozone’s and almost three times higher than that of the United States.

A hard landing is predicated on a business cycle. However, China’s growth deceleration is fueled by the government’s rebalancing efforts.

The shift from unsustainable growth based on investment and net exports to consumption and innovation is about structural transformation, not just business cycles.

Today, the US, Europe and Japan continue to take debt, have zero-bound interests or persist in new rounds of quantitative easing.

In contrast, China’s government is engaged in a structural transformation, even as it is deleveraging.

After two to three years, that could result in a reform dividend.

That’s a purposeful long-term policy, which reflects responsible economic leadership that should inspire the advanced West.

For more of Dr. Dan Steinbock’ articles, see

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Dr Dan Steinbock is the research director of international business at the India, China and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and at EU Center (Singapore).

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