China's economy is growing more slowly than it has over the past almost 30 years. But if we focus only on this fact, we are underestimating the real challenge, says DW's Frank Sieren.
It's a figure that makes one prick up one's ears: China' economy is growing at a slower rate than at any point in the past almost 30 years. In the second quarter of this year, the economy grew only by 6.2% in comparison to the previous year. The country's foreign trade has fallen by 2% since the beginning of the year and by 4% in June. Imports from the US have fallen by some 13% because of the Sino-US trade dispute.
US President Donald Trump has not been able to hide his glee, tweeting that not only had many US companies left China, but that that the US was "receiving Billions of Dollars in Tariffs from China." He also tweeted last Monday that China "wished it had not broken the original deal in the first place," once again proving that he is not good at looking ahead more than two weeks.
In the short term, the decline of China's economy really is a triumph for Trump, but it is only a stage win. China's growth is still within the government's target for 2019 of 6-6.5%. In the US by comparison, growth is at 3.1%, which is high for Trump, but nothing compared to China's and also funded by money borrowed from China.
Along with Japan, China is the US' biggest creditor. But since its income per capita is equivalent to that of Bulgaria, one of the poorest countries in the EU, it also has plenty of upside potential. It is not certain how much growth China actually needs to keep its head above water, especially considering that new jobs are being created increasingly in the service sector rather than in the production sector.
Furthermore, the Chinese government has a long-term plan, as well as an extra lever for keeping economic growth stable. At the beginning of the year, it launched a series of measures, including tax cuts worth some $400 billion (€356 billion). Regulations were relaxed to make it easier for small and medium-sized companies to take out loans. Local governments were encouraged with special loans to invest more money in infrastructure. This is partly the reason why retail and industrial production did better than expected.
Retail sales grew by 9.8% in June, in comparison to 7.2% in April. In June, industrial production rose by 6.3% compared to the same period the previous year. Experts had forecast an increase of 5.2% only. Investment in real estate, machines and infrastructure also grew in the first six months of the year. Even the car market, which had been ailing recently, seems to have recovered, although this is due especially to the fact that car traders sold off older models at a reduced price ahead of new emissions standards that entered into effect in July.
Good news for Beijing
On the whole, Beijing's long-term plan to develop a strong domestic market and to make the economy less dependent on foreign states seems to be paying off. The growing purchasing power of the Chinese middle class does not seem to be too affected by the trade dispute between the US and China. This is good news for Beijing.
Markets in Asia reacted positively to the new figures from China. The Hang Seng picked up at the start of the week, as did the Shanghai Composite and the Shenzhen CSI 300. Not by more than 1%, but still, there was no collapse. The new figures have met with a prevailing mood of equanimity. But the Western perspective seems to be fear that there could be a full-blown economic crisis.
China's debt does remain a risk for the country. According to estimates by US financial analysts Bloomberg, it has risen to 271% of GDP. But debts abroad remain completely within acceptable limits. The Chinese government has become much more sensitive to the risks of increased debt compared to 10 years ago. There will be no flood-like" stimulus" as there was after the 2008/9 crisis, Chinese Prime Minister Li Keqiang has assured.
One thing is certain: It is natural for an economy that is always getting bigger to always grow more slowly. This is a development that almost all industrialized nations, including the US, have gone through. China's economic growth would still be faltering even if there were a deal with Washington.
If we judge China on the basis of a slight decrease in growth, then we are underestimating the real challenge, which is that China is becoming more and more influential on the international stage. A new study by the McKinsey Global Institute revealed that the world's dependence on China was increasing, while China's dependence on foreign markets was decreasing.
In 2017, only 9% of China's industrial products were for export in comparison to 17% 10 years before. China's exports are well below Germany's (34%), South Korea's (28%) and Japan's (14%). This is not surprising given the huge domestic market. This is something that Japan does not have, which is why its rise at the end of the 1980s could not continue.
China is more competitive than ever with regard to many technologies of the future. The New Silk Road project continues to develop, with the long-term strategy being not to export to those countries which participate, but to actually produce on the ground for the local markets. This is already taking place in certain parts of Africa, where the West is not very visible.
Of course, it might take some time before the foreign investment has an impact on China's economic growth, but it is already clear that it is China that will profit most from Africa's growing middle classes. It would make more sense to observe this development soberly than to gloat about the lowest growth in the past almost three decades and to hope that China's rise is coming to an end and the West will continue to pull the shots.
Frank Sieren has lived in Beijing for over 20 years.