In October 2017, President Xi Jinping solidified his grip on power at China’s Communist Party Congress in Beijing. It was assumed that this marked the half-way point of Xi’s rule over the world’s second largest economy. However, Professor Kerry Brown, an expert on China at King’s College London, says Xi may in fact stay on longer than this. Brown has written a book titled ‘The World According to Xi,’ which he describes as a ‘halfway report’ on the President’s progress.
China’s economic contradiction
China’s economic development has been predicated on a major ideological contradiction. The regime aims to deliver socialism with a vision of collectivism, while exploiting individualism to reap the benefits of capitalism. Since the 1990’s, China has enjoyed rapid economic growth. Before Xi came to power, Brown says there was a complete obsession with gross domestic product (GDP) growth from 2001, when China entered the World Trade Organization (WTO), until 2012. At the time, this worked well because the growth rate was extremely high. However, after 2012 China was unable to sustain this rapid expansion so Xi decided to focus less on the headline GDP figure and instead on economic ideas. These included improving the pension system, healthcare system and social welfare, where reform is more difficult to achieve.
Risk of a trade war between US and China
This month the US government issued a report proposing restrictions on aluminium and steel imports from China, raising concerns about trade tensions between the two superpowers. China is America’s largest goods trading partner with $578.2 billion total two-way trade in 2016, according to the Office of the United States Trade Representative (USTR). Brown says the US has the most to lose in the case of a trade war because it has a much lower tolerance to a fall in living standards.
China’s debt burden
A key area of concern around China’s economy is its debt levels. In December, the International Monetary Fund (IMF) warned that ‘the system’s increasing complexity has sown financial stability risks.’ Brown says there is some controversy about what the country’s actual level of indebtedness is. One estimate, he says, is that debt is around 260% of GDP, similar to that of Japan. He adds that while China has not fully got to grips with these levels, it is still not overwhelmed by its debt burden. So, he concludes, China is broadly in control of the problem.
The environmental cost of growth
China’s rapid economic development has come at the expense of the environment. Cities like Beijing and Shanghai have become infamous for their issues with smog. Beyond this, Brown says China’s water quality, airborne diseases and deforestation also demonstrates the extent of the country’s environmental issues. However, he notes that China signed up to the Paris climate agreement, unlike the US.
Risk of a hard landing
In 2015 there was speculation whether China’s economy would face a so-called ‘hard landing’ – a rapid fall in economic growth from such high levels. Since then most experts think the chances of this bearish scenario have decreased. Brown says that the government is in full control of the Chinese yuan currency and interest rates, and that the economy and the market are used as political tools. By retaining full control in this way, China has managed to avoid a recession for more than 50 years, he argues.
Kerry Brown is the author of a new book, ‘The World According to Xi’ which is due for release at the end of March.