Recently, the official economic data released by the Communist Party of China (CPC) is quite “bright”, but it does not stand up to outside scrutiny. General Secretary Xi Jinping presided over a meeting of the Political Bureau of the CPC Central Committee on Friday, specifically to discuss economic issues. Some of the comments made at the meeting are worth noting.
China’s First-Quarter Economic Data Doesn’t Stand Up to Scrutiny
According to Xinhua News Agency, the official media of the Communist Party of China (CPC), on Friday (April 30), Xi Jinping, general secretary of the CPC, chaired a meeting of the Political Bureau of the CPC Central Committee to analyze and study the current economic situation and economic work. The meeting said, “We should look at the first quarter economic data dialectically, the current economic recovery is uneven and the foundation is not solid”.
The CPC uses the word “dialectical” here, which is worthy of attention.
On April 16, data released by the National Bureau of Statistics of the Communist Party of China showed that GDP grew by 18.3% year-on-year in the first quarter of 2021, the highest since quarterly GDP statistics became available in 1992.
Analysts point out that the background of the ultra-high growth rate of 18.3% is the ultra-low base of negative 6.8% year-on-year growth in the first quarter of last year (2020), when most of China’s domestic economy ground to a halt in the first quarter of that year due to the Communist Party’s viral pandemic.
Excluding the distorting effect of last year’s low base on statistics, underlying GDP growth in the first quarter of this year was about 5.4% year-on-year, still below the trend level of about 6% before the Communist Party virus epidemic, according to estimates by HSBC economists in Hong Kong. The bank expects the economy to remain unable to run at full speed in the coming months.
Citing economists, Reuters reported that the Chinese economy’s two-year average growth rate of only 5 percent is still below the long-term target set by the Communist Party, and that, coupled with the fact that export growth may not be sustainable, China’s economic outlook cannot be overly optimistic.
Notably, according to data released by the Communist Party’s National Bureau of Statistics on April 16, China’s economy grew by a mere 0.6 percent in the first quarter of this year, down from 2.6 percent in the fourth quarter of last year.
For economists, the ringgit figure is more telling than the year-over-year one.
In an April 16 analysis, Julian Evans-Pritchard, a China economic analyst at British economic research firm Capital Economics, said the year-over-year growth figures for the first quarter are less comparable than last year’s economic downturn caused by the Communist Party’s viral outbreak, and instead focused on on seasonally adjusted quarter-to-quarter changes makes more sense.
Wang Jian, a leading China political and economic observer, noted that the chain shows the trend of economic performance, and that a quarterly chain of only 0.6 percent indicates that China’s economic growth is slowing down and repairing.
The Communist Party’s statistics bureau also admitted that the foundation of China’s economic recovery is not yet solid.
Xi Jinping’s “deepening supply-side reform” has become a “blockage point” for China’s economy
The CCP Political Bureau meeting also proposed to “deepen the structural reform on the supply side, and open up the blockages in the domestic circulation and the domestic and international double circulation”.
The “supply-side structural reform” is an economic policy proposed by Xi Jinping at the 11th meeting of the CPC Central Leading Group of Finance and Economics in November 2015, which includes removing production capacity, inventory, leverage, reducing costs, mending shortcomings and lowering taxes, closing plants with overcapacity such as coal, steel and cement, and strictly controlling credit and subsidies in overcapacity industries.
According to a March 6, 2016, analysis article in the New York Times, some economists note that Xi’s supply-side program, while promising to liberalize the market, still increases state control and that the program falls far short of what is needed.
“In order to get the government more on track with the market, it needs to shun intervention,” said Zhu Ning, a professor at the Shanghai Advanced Institute of Finance, “but that’s exactly what they have not been doing.”
Many liberal economists do not believe that the Communist government will be willing to diminish its power, and Xi’s intermittent and highly uneven progress in transforming the state-owned sector and fostering market forces reflects his reluctance to relinquish control of the state.
Currently, Xi is developing a political campaign against the private sector as a whole through his fixing of Ma’s business empire.
The Voice of America reported on April 15 under the headline “Politicizing the Business Environment China May Be Smashing Its Own Pot” that the Chinese Communist government is trying to tighten its grip on private enterprises.
Fraser Howie, co-author of the book “Red Capitalism,” notes that private companies face real political risks in doing business in China.
Howie points out that the CCP’s arbitrariness in setting the rules of the game is the biggest problem with doing business in China, and that the CCP’s policies have been changing with the political climate, so that what was a widely accepted development model five years ago may now be banned.
According to veteran venture capitalist and president of Landor Asia, Huang Qiyuan, the CCP’s main concern is that private companies should be obedient.
Gary Hufbauer, a trade expert at the Peterson Institute for International Economics, Hufbauer said, “The message from Beijing is that no company can challenge the government’s rules, especially big companies.”
Lu Zhenning, a sociologist at Zhejiang University, argues that the Communist Party’s regulation of private technology giants is a preparation for the nationalization of large private companies.
Eswar Prasad, a professor at Connell University and senior fellow at the Brookings Institution, wrote in the New York Times on April 29 that the CCP government’s heavy-handed attack on Jack Ma and his financial empire has spooked investors, instantly turning Xi’s promises to encourage private enterprise and innovation into empty words.
Prasad noted that Ma’s fall and the Ant Group incident, in a broader sense, could mark the demise of China’s experiment in financial market liberalization, signaling the return of government intervention and the trend of China’s business environment becoming increasingly hostile to investors.
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