CHINAMacroReporter

What are the policy implications for China's economy from the 19th Party Congress?'

Pieter Bottelier—top China economist, former World Bank head in China, and stalwart CHINADebate expert—set the theme today: the crucial albeit unsung importance of elite technocrats in guiding China's Economic Miracle.
by

|

CHINADebate

December 18, 2017
What are the policy implications for China's economy from the 19th Party Congress?'

1. Shift from pragmatism to ideology could make China's managed economy harder to manage

'Black cat, white cat. If it catches mice, it's a good cat.' 

The big idea. The shift from Deng Xiaoping pragmatism to Xi Jinping ideology and Party control could weaken the effectiveness of China's economic policy and decision making. This would undermine the foundations of China's Economic Miracle, and, in turn, the stability and growth of China's economy.

Pieter Bottelier - top China economist, former head of the World Bank in China, and stalwart CHINADebate expert - surprised me when he gave this issue as his sole concern when I asked him, 'What are the policy implications for China's economy from the 19th Party Congress?'

China is still, to a great extent, a managed economy, and the managers are the elite technocrats; they pull levers that in the West we leave to the market.

Elite technocrats are the unsung heroes who guided China's Economic Miracle and navigated the crises that could have derailed it at any point.

  • 'One of the pillars of China's Economic Miracle has been the quality of the technocratic elite in the civil service since the start of the economic reforms under Deng Xiaoping in the late 70's.'

Beginning in the Deng era of economic reforms, technocratsoperated in an environment of, '... free debate and free research, as well as unrestricted exchanges between Chinese technocrats and overseas technocrats and intellectuals.' Black cat, white cat.—Pragmatism trumped Party power and ideology.

Now, Party power and ideology trump pragmatism.

  • 'The policy environment and intellectual climate within which economic policy is made have definitely changed.'
  • 'The recent 19th Party decisions confirmed the political changes that had been underway for some time.'
  • 'Politics has moved to center stage.'
  • 'Party priorities have changed from economic growth, economic development to party power, party prestige, party control over everything - the economy and, of course, the political system.'
  • 'That has potentially very significant implications for the economic policy making environment.'

Beyond the technocrats.  The enshrinement of 'Xi Jinping Thought' in China's constitution further solidifies 'the shift in priorities from pragmatism to party power that translates into an ideologically underpinned party power.'

  • For example, 'Chinese universities have all hurried to create institutes for the study of 'Xi Jinping Thought.' 
  • Because of this, 'I worry that the very positive and open intellectual climate in China's universities and think tanks in China will become a thing of the past.'
  • Chinese academics and think tank experts, unlike those in the West, wield greater influence and have an outsized role in policy making.

What this means. 'Because ideology and party power have drifted back to center stage, the environment within which intellectuals and policy makers have to debate policy options and consider alternatives has changed fundamentally.'

  • 'This may lead to the very strict narrowing of the intellectual climate within which the technocrats can operate in the years ahead.'
  • 'And that could undermine a significant part of the foundations of China's economic miracle of that last few decades -the freedom of debate, the freedom of research, and the open exchange between Chinese technocrats and foreign intellectuals.'
  • 'If that climate, which has been so positive and so open in the last several decades, is jeopardized, we have to worry about the quality of the economic decision making in the years ahead.'
  • And, the stability and growth of the economy.

New problems in analysis. 

China's technocrats have proven capable of managing most every problem the economy has thrown at them. They have done such a good job that we don't even notice them or factor their abilities into our analyses. They are just so much background; we take them for granted. 

  • That's changed. From now on, figuring out what's happening and what might happen in the economy just got more complicated.
  • We have to understand better how the bureaucracies that manage and regulate the economy work, and then dig down a layer or two in.
  • We have to assess the technocrats and pay attention to who is appointed - competent economist or ideologue?
  • Be ready for some bungling, weak policies, and inept regulation that could put the stability and growth of China's economy at risk.And, catch these before they ripple through the economy. 

2. No hard landing for China's economy...for now

'Two years ago we were all speaking about, all worried about the possibility of a hard landing,' Pieter Bottelier also told me in our interview.

  • 'Very few people are talking about that today.'
  • 'Even though the risk has not disappeared completely from the horizon, it's no longer on the top of the agenda of most pundits.'

What's changed? 

'The major factor that has worked out differently from what had been expected is the property sector.'

  • 'Real estate markets have recovered instead of deteriorated.'
  • 'They have pulled demand for raw materials much more strongly than expected, and exports have been stronger than expected.'
  • 'All together manufacturing, gross exports, and the real estate sector, particular the urban property sector, are the main factors explaining why the objective economic situation has improved rather than deteriorated as many people had expected.'

How about the real estate bubble? 'That risk is certainly there. There is in a way a bubble, but the bubble is not about to burst.'

  • 'We have seen is a more positive regular evolution of development in the real estate markets. Partly as a result of strong demand and partly as a result of very capable administrative regulation.
  • 'Very astute management of the administrative environment at the local level is the main explanatory factors, plus the underlying demand remains very, very, very strong.'
  • 'The stock of unsold properties as a percentage of the total supply side has declined a lot in recent, in the last eighteen months. So we have a much more healthy supply-demand balance situation than we had two to three years ago.'
  • 'And the prospects, of course, remain uncertain but the likelihood is that markets will weaken in the next several quarters in 2018.'
  • 'Total turnover and prices will probably slacken.'
  • 'But, I don't expect a collapse as we did a few years ago.'

3. Technocrats manage China's property sector pretty well

Pieter Bottelier credits 'very astute management of the administrative environment at the local level' for managing China's real estate bubble.

Have a look at one of my favorite charts, above, courtesy of Robert Ciemniak of Real Estate Foresight.

  • We can see that the real estate market is not a 'market' as we understand it.
  • Rather than the invisible hand at work, local technocrats pull their many levers, tightening and loosening at will.
  • Loosen , markets go up. Tighten, markets go down.
  • Never out of their control.

Riffing on Pieter's worry that the shift from pragmatism to ideology could weaken economic decision making...

  • Imagine that competent technocrats might substitute their best judgement to toe the Party line and keep their jobs.
  • Or that they are replaced with cadres who are more ideological than competent.
  • Then, the real estate and China's economy really might... 

More

CHINAMacroReporter

February 11, 2021
'The Biden Team Wants to Transform the Economy. Really.'
‘Biden and his more activist advisers hope to modernize key industries and counter an economic threat from China, swiftly emerging as the world’s other superpower. “The package that they put together is the closest thing we’ve had to a broad industrial policy for generations, really,” says Scott Paul, the president of the Alliance for American Manufacturing.’
keep reading
February 10, 2021
‘What the ‘Hong Kong Narrative’ gets wrong'
‘For a significant cohort of the [“pro-democracy”] protesters, the more accurate label would be “anti-China activists.” The one thing that seems to unite them is not a love of democracy, but a hatred of China.'
keep reading
April 15, 2021
'TSMC faces pressure to choose a side in US-China tech war'
‘Taiwan Semiconductor Manufacturing Company (TSMC) has maintained its historic position of neutrality, reflected in the company’s strategy of “being everyone’s foundry”.’
keep reading
April 14, 2021
The Belt & Road in the Post-Pandemic World
In this issue of China Macro Commentary, I have focused just on the ‘Digital Silk Road’ and how it supports the business expansion of Chinese tech companies, and on BRI ‘connectivity’ projects: ports (China is involved in 93 around the world) and on the growing China-Europe freight trains traffic (This wasn't covered sufficiently in the Report, so I included a recent article from the Wall Street Journal), plus on the U.S.'s failure to meet the BRI challenge.
keep reading
April 13, 2021
'2021 Annual Threat Assessment of the U.S. Intelligence Community'
‘China increasingly is a near-peer competitor, challenging the United States in multiple arenas—especially economically, militarily, and technologically—and is pushing to change global norms.’
keep reading
April 13, 2021
In Battle With U.S. for Global Sway, China Showers Money on Europe’s Neglected Areas
‘The number of freight trains running between China and Europe topped 12,400 last year, 50% higher than in 2019 and seven times that of 2016, according to Chinese authorities.’
keep reading
April 11, 2021
'Why manufacturing matters to economic superpowers'
‘Whether such reshoring matters for national economies depends very much on the industry.’
keep reading
April 11, 2021
China in Jamie Dimon's Letter to Shareholders
‘China does not have a straight road to becoming the dominant economic power’.
keep reading
April 11, 2021
'Alibaba’s rivals on alert after China’s regulators hand out record fine'
“Everyone with a clear mind won't self-regulate, you just pretend that you do. Who will pay for the loss if you lost your competitive advantage because you self-regulated and others didn't?”
keep reading
April 10, 2021
Alibaba: 'Promote the healthy and sustainable development of the platform economy'
‘From the perspective of the long-term and healthy development of the platform economy, regulation by law and support for development are not contradictory, but are complementary and mutually reinforcing.'
keep reading
April 9, 2021
'The Best Explanation of Biden’s Economic Thinking I’ve Heard'
‘When President Biden’s thinking about the infrastructure investments necessary, a lot of it is in contraposition to what he is seeing China doing in terms of strategic investments.’
keep reading
April 8, 2021
Liu Ge: Competing with China a farfetched guise for US’ infrastructure plan
‘Historically speaking, it seems the only way for the US government to make costly public investments was to create an adversary that is presumed to threaten its security.’
keep reading
April 8, 2021
'Antony Blinken interview: The secretary of state offers a window into Biden's foreign policy decisions'
‘ “Our goal is not to contain China, hold China back, keep it down,” Blinken underlined.’
keep reading
April 8, 2021
'US adds Chinese supercomputing companies to export blacklist'
‘The Biden administration took its first trade action against China on Thursday, adding seven Chinese supercomputing developers to an export blacklist for assisting Chinese military efforts in a move that will likely further escalate frosty tensions between the world's two largest economies.’
keep reading
April 7, 2021
'Remarks by President Biden on the American Jobs Plan'
‘Look, do we think the rest of world is waiting around? Take a look. Do you think China is waiting around to invest in this digital infrastructure or in research and development?’
keep reading
April 7, 2021
China: 'Power Trader'
‘The theory of power trade better explains China’s economic and trade policies than does the theory of free trade or protectionism,’
keep reading
April 6, 2021
'Train Wreck: Ultimately companies have to choose.’
MUST READ: Bill Reinsch succinctly but brilliantly summarizes the situations in China and the U.S. and between the two.
keep reading
April 6, 2021
'Buy American!': Pushing U.S. Companies to Onshore Supply Chains
The debate about how to deal with China commercially ‘has moved in two directions: running faster—improving our innovation capabilities in critical technologies to better compete with China—and slowing China down by restricting its access to U.S. technology.’
keep reading
April 4, 2021
'Why Defending Taiwan is in the U.S. National Interest'
‘As long as Washington assesses that American security is best served by defending forward—an approach that has served the United States well over the past 70 years—Taiwan’s de facto independence will remain a key US interest and driver of American policy in Asia.’
keep reading
April 4, 2021
'Why China Is Going All "Wolf Warrior," All the Time'
‘All this is to say that, living in Beijing as I do, I think the current approach is predictable and consistent with everything else we are seeing in China in the New Era.’
keep reading
April 3, 2021
'With Swarms of Ships, Beijing Tightens Its Grip on South China Sea'
‘Not long ago, China asserted its claims on the South China Sea by building and fortifying artificial islands in waters also claimed by Vietnam, the Philippines and Malaysia.’
keep reading
April 2, 2021
'Genesis Celebrates Launch In China With Dazzling, World Record-breaking Drone Show Over Shanghai's Iconic Skyline'
'The spectacular visuals were coordinated to present the world of Genesis, delivering an audacious storytelling concept while also breaking the Guinness World Records for "The Most Unmanned Aerial Vehicles (UAVs) airborne simultaneously".’
keep reading
April 2, 2021
Mo' Infrastructure, Mo' Problems Copy
‘China’s reliance on building roads, railways and airports to support growth has caused a spike in debt, with some of that money funneled into unnecessary infrastructure and uneconomic boondoggle developments.’
keep reading
April 2, 2021
How Does the U.S. Compare to China?
Two reports from Bloomberg – ‘Biden Starts Infrastructure Bet With U.S. Far Behind China’ and ‘Biden’s Biggest-Ever Investment Plan for U.S. Still Trails China’ – highlight a few of the differences.
keep reading
April 2, 2021
USTR | '2021 National Trade Estimate Report on FOREIGN TRADE BARRIERS'
‘Made in China 2025 seeks to build up Chinese companies in the ten targeted, strategic sectors at the expense of, and to the detriment of, foreign industries and their technologies through a multi-step process over ten years.’
keep reading
April 2, 2021
‘2021 Report Card for America’s Infrastructure’
‘The 2021 Report Card for America’s Infrastructure reveals we’ve made some incremental progress toward restoring our nation’s infrastructure.’ ‘For the first time in 20 years, our infrastructure is out of the D range. America's Infrastructure Scores a C-.’
keep reading
April 2, 2021
'US to make it easier for diplomats to meet Taiwanese officials'
'Plan to loosen restrictions on contacts with Taipei threatens to provoke China.'
keep reading
April 2, 2021
Biden Starts Infrastructure Bet With U.S. Far Behind China
Even though he didn’t rely solely on the China challenge to justify his new American Jobs Plan; devoted to infrastructure and more, President Biden certainly he had China in his sights. Because as Jonathan Hillman, a senior fellow at the Center for Strategic and International Studies, wrote“The United States is entering what could be a decades-long competition in which economic and technological power will matter just as much, if not more, than military might.” “Starting this race with decaying infrastructure is like lining up for a marathon with a broken ankle.”
keep reading
April 2, 2021
President Biden Lays Out His ‘American Jobs’ Plan
‘It has become a cliché in U.S. policy circles that the best China policy is to invest in core U.S. capabilities: education, infrastructure, and research and development,’ writes Evan Medeiros of Georgetown University in ‘How to Craft a Durable China Strategy,’ in Foreign Affairs.
keep reading
April 2, 2021
'China’s Dangerous Double Game in North Korea'
‘Beijing’s North Korea policy is primarily motivated by a desire to counter U.S. power in the Asia-Pacific region and increase Chinese influence on the Korean Peninsula.
keep reading
April 2, 2021
'Japan’s Suga to Be the First Foreign Leader to Meet With Biden'
‘Japan walks a narrow line as it seeks to maintain close ties with its only military ally, the U.S., while avoiding damage to economic ties with its biggest trade partner, China.
keep reading
April 1, 2021
'Convicted in Hong Kong'
‘Everyone in the former British colony understands the message being sent from Hong Kong’s new masters in Beijing:’
keep reading
April 1, 2021
'U.S. dollar at risk as China races ahead on digital yuan'
‘So why should America care about any of this?’
keep reading
April 1, 2021
PRC Foreign Ministry Response to the USTR's 'National Trade Estimate Report'
‘The accusations and slanders made by the US against China's industrial policies are groundless.’
keep reading
March 31, 2021
'Consumer boycotts warn of trouble ahead for Western firms in China'
‘Western executives in China cannot shake an unsettling fear that this time is different.’‘Their lucrative Chinese operations are at rising risk of tumbling into the political chasm that has opened between the West and China.’
keep reading
March 31, 2021
'How the Pandemic is Changing the Belt & Road Initiative'
‘The building of roads, railways, ports, and power plants is giving way to a BRI centered on technology—primarily telecommunications, connectivity, health care, and financial services.’
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.