18 February 2019
Premier Li Keqiang delivers the government work report during the opening of the National People's Congress in Beijing on Saturday. Photo: Reuters
Premier Li Keqiang delivers the government work report during the opening of the National People's Congress in Beijing on Saturday. Photo: Reuters

Why it’s wrong to blame China for stalling global growth

Last Thursday marked the opening of China’s annual “Two Sessions”, the annual plenary meetings of the mainland’s top legislative and consultative bodies.

These meetings offer an opportunity to observe China’s economic and political trends, including the 13th five-year plan, poverty alleviation, supply side reform, revamp of the judicial system, the “One Belt, One Road” initiative, and the anti-corruption campaign.

Public spotlight is thrown on China’s range target of 6.5 to 7 percent for this year’s GDP growth.

Typically, it has given rise to two misguided interpretations. One focuses on China’s domestic economy, another on China’s role in the world economy.

Greater flexibility domestically

The first misreading implies that the new range target is the direct result of China’s economic slowdown.

In reality, the range target is not unique. It was used in 1995 and, in the past two years, growth targets have been preceded with the word “about”.

In other words, since the global crisis of 2008-2009, the growth target has been regarded as flexible.

In 2015, China’s economy grew by 6.9 percent. Internationally, the performance was portrayed as the “slowest in 25 years”.

And yet, as I have shown before, the deceleration signals the eclipse of the mainland’s industrialization. China’s slower growth is consistent with its post-industrial era.

In the past few years, Premier Li Keqiang has pushed for structural reforms to support a medium-term rebalancing toward consumption and innovation.

He has shunned another huge stimulus, which would contribute to government debt, favoring targeted fiscal measures instead.

Finally, he has promoted gradual deleveraging to reduce local government debt, which jas accumulated after the 2009 stimulus.

The new range target does not undermine these priorities. On the contrary, it ensures greater flexibility in implementation – and that’s vital amid increasing international uncertainty.

Greater resilience globally

The second misreading implies that China’s growth deceleration is the primary cause of diminished global growth prospects.

According to this view, since China played a critical role in fueling global growth after the 2008-2009 crisis, the current global slowdown should be attributed to China as well.

Moreover, the addition of US$72 billion to the budget deficit is seen as further evidence of China’s debt escalation.

That addition means a deficit of 3 percent of GDP, compared with 2.4 percent in 2015.

In relative terms, it matches the decrease in China’s defense expenditures, which will decrease to 7.6 percent of GDP from 10.1 percent in 2015.

If anything, these budget items simply reflect China’s balancing act between its pursuit of economic growth and determination to push ahead with reforms.

What about China’s role in the diminished global growth prospects?

After the global crisis, the mainland did account for half of the global GDP growth, thanks to its huge stimulus. The contribution spared the global economy of a worldwide depression.

Today, China’s economy is almost 15 percent of the global GDP, but its growth continues to account for some 25 percent of global GDP growth.

In contrast, the major advanced economies – the United States, Europe and Japan – barely achieved 0.5 to 2 percent growth. However, they still account for more than 52 percent of the world GDP – more than twice as much as China.

Under these circumstances, the argument that China’s growth deceleration fuels global uncertainty is flawed.

While growth is decelerating in emerging economies, it has virtually halted in major advanced economies, despite more debt-taking.

Global risks in advanced economies

According to credit rating agency Standard & Poor’s, global sovereign borrowings will soar to US$6.7 trillion in 2016.

The US, Europe’s core economies and Japan account for more than 72 percent all commercial borrowings in the world. Considering their population and economy, the share of the US (34 percent) and Japan (24 percent) is grossly disproportionate.

In contrast, the share of BRIC – China, India, Brazil and Russia – is less than 13 percent of the total.

While China’s share of borrowing (5.1 percent) is significant, it is only a seventh of that of the US.

Moreover, in the coming decade, China has potential to grow two to three times faster than major advanced economies, as long as its market-oriented structural reforms prevail.

In view of the global economy, the real risk remains in major advanced economies – not just in emerging economies.

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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