Sieren's China
January 22, 2016
The Western headlines about China this week raised fears. "China's economy at its lowest point in 25 years." That sounds like a big crisis and a hard landing. But only at first glance. Decreasing economic growth and the probable restructuring of the economy are about as difficult and probable as puberty in children. Yes, these are times of petulance, but it's a matter of getting through them and remembering that it is usually better afterwards.
And China's puberty, its maturing into a full-grown industrial society, is going comparatively well: The world's second-biggest economy only grew by 6.9 percent last year. This is normal growth at China's stage of development. In relation to the US, China is about 30 years behind in terms of per capita income. The US last grew by over 7 percent in 1984. In Germany, the economic miracle years, which sometimes experienced growth of over 12 percent (1955), ended with a small recession: In 1966, Germany's economy only grew by 0.2 percent without the country sinking into chaos. The country has survived five recessions since the end of the war.
No recession in China
China is far from this. The nervous reactions in the West about the supposedly bad news from China are exaggerated. Almost exactly a year ago, Chinese Prime Minister Li Keqiang went to Davos to explain China's "new normality" to the West. The situation largely played out as he had predicted: China contributed 30 percent to the global economy's growth. Where would the US and Europe be without China's growth engine?
The restructuring of the Chinese economy is making progress. Last year, China's services sector contributed over 50 percent to the country's GDP. Thus, the tertiary sector is making gains, as should be the case in a modern economy. This is important because it makes export champion China less dependent on exports. The more varied sources China has for economic growth, the better - for the global economy's stability and, therefore, that of Germany, too. The fact that consumer prices have only risen by 1.4 percent and not by 3 percent as the government had feared will also have a stabilizing effect on the social climate.
Beijing did have to intervene in some areas so as to attain the wanted numbers. For example, it introduced tax breaks in the car industry where sales had been surprisingly low in the previous year. While growth was at 2.5 percent in September, the situation had improved considerably to 18 percent by December.
Not everything is going to plan
Of course, Prime Minister Li Keqiang has not achieved everything he wanted. For example, he had hoped for a 13 percent increase in retail sales but only got a good 10 percent. However, it's the trade volume that was most underestimated: It was supposed to grow by 6 percent but instead it fell by 7 percent. What's incredible is that China's economy is in a position to deal with such a decline.
Despite the drastic headlines in the West, the Asian stock markets have understood that China is not in crisis and honored Beijing's success in difficult circumstances. When the economic figures were announced on Tuesday (19.1), China's stock markets rose. The Shanghai Composite rose by over 3 percent and Hong Kong's Hang Seng Index climbed by 2 percent. The same was true for the Japanese markets.
Meanwhile in Germany, the daily "Bild" newspaper asked: Is China about to go bankrupt? Such horror scenarios are an obstacle to a reasonable debate which would address questions such as: What can the Chinese government do better to make sure the restructuring of the economy goes smoothly and to minimize economic risks for the whole world? There are many points worth discussing and which are being debated in China at the highest party levels as well. These questions are much more interesting than the basically moot point about whether the figures from Beijing are correct. The most important question for this year is: In what areas of the economy does China need more direction and in which ones does it need more space?
DW's Frank Sieren has lived in Beijing for over 20 years.