Is the Chinese economy entering a declining phase?

ghost city in china
(Photo: Twitter/X)
In recent years, China's development has slowed down, as with other economies in the world, as a result of the COVID-19 pandemic, geopolitical conflicts, and other factors. Some Western scholars and research institutions claim that after four decades of growth, China’s rise has peaked and it will never catch up with the US. As a response, Chinese authorities have released this month a succession of data on the Chinese economy for 2023. Among them, the most concerning is the annual GDP growth of 5.2 percent, not only higher than the global growth rate that is expected to hover around 3 percent but also ranking high among the world's major economies, outperforming the US and the EU by a wide margin.اضافة اعلان

Is China's economy a risk for the globe?
According to the World Bank's forecast of the GDP and growth of major economies in 2023, China's contribution to world economic growth surpasses that of the Americas, Europe, and Japan combined, securing its position as the world's leading economic powerhouse. Why do some slow-growing, or even stagnant, economies in the west show their teeth at a faster-growing country across the ocean instead of minding the perils they cause?

The “Peak of China’s Rise” theory first appeared in 2021, when two professors in the US co-authored an article that declared that China's economic rise has peaked under the dual pressure of internal economic slowdown in the past decade and external containment in recent years. Since then, Western forums have been peppered by various statements about the assumed peak, including, but not limited to, a peak due to a slowing economy, vanishing demographic dividends, a technology crackdown by the US, a worsened investment environment, etc.

In the eyes of Western economists, China is grappling with a series of daunting problems: weakening productive force, skyrocketing productive costs, dropping returns from investment on infrastructure, an exorbitant debt-to-GDP ratio that is even higher than the US, a peaked and already-shrinking gross population and workforce, retreating foreign companies and investors, and a lack of innovation resulted from overstretching state-owned enterprises and their under-supported private counterparts. For the Chinese people, on the other hand, everything looks familiar.

The “Peak of China’s Rise” theory is essentially a stale steak on a fresh plate. It is in the same vein as the "China Collapse" theory, which has been running rampant for 20 years. As two high-frequency phrases in China-related discourse construed by the west, the two theories recur alternately on the underlying perception that China poses "threat" to western countries’ global hegemony. The longer the “threat” persists, the stronger the desire to see it "collapse." This is also part of the US’s anything-but-China strategy. So, rather than a miscalculation of facts, the “China Collapse” theory is more of a subjective assumption. As former US President Dwight Eisenhower opined, one dollar spent on propaganda is five dollars spent on defense.

China’s foreign investment
In 2023, China's actual use of foreign investment recorded a year-on-year decrease, giving pessimists an opportunity to hype up such narratives as “massive withdrawal of foreign investment from China” and “quitting investment in the Chinese market." Western media sensationalized that China's focus on safeguarding national security may “deter” foreign investment and “create barriers to capital flows into China," in ignorance of the enormous base of foreign investment in China and the context of an economic contraction worldwide. In fact, China's irreplaceability in the global economy lies not only in its tremendous market but also in its complete industrial system, which is the most valued feature for foreign investors. The direction of capital flows provides the best proof. In 2023, foreign investors newly set up 53,766 foreign-funded enterprises in China, an increase of nearly 40 percent year-on-year. Sector-wise, the proportion of investment in high-tech industries hit a record high of 37 percent.

Although many emerging and developing countries also offer preferential policies to attract investment, European and American companies place greater value on a stable and predictable business environment than cost-reducing policies. This is precisely where China's biggest advantage lies in the past 40 plus years since the reform and opening up, and it is where developing countries can draw experience from.

The most shining instance is Tesla. While operating in the US for more than a decade, Tesla’s highest annual production of electric vehicles was around 30,000. After completing the Shanghai factory in 2019, it delivered 480,000 EVs in the following year. Over the past five years, the return on China's foreign direct investment has reached 9.1 percent, much higher than the 3 percent or so of Europe and the US and higher than that of major emerging economies. Multiple international trade organizations, including the American Chamber of Commerce in the People's Republic of China (AmCham China), expressed that for many foreign companies, the Chinese market is not an "option" but a "must." As the costs of labor and land are going up and pollution is put under stricter regulation in China, some foreign enterprises adopt the “N+1” strategy to relieve the pressure of rising costs, i.e., while maintaining the main production base in China, they set up branches in other countries as well to diffuse risks. This is market behavior that should not be overinterpreted.

According to western academics, China's demographic dividend has supported its rapid development over the past three decades. Now China's birth rate is falling, which will inevitably bring down its economic growth rate.

Labor input is important for economic development, but a more significant factor is the efficiency of labor input, which can be calculated by multiplying the quantity of the labor force by their education level. In China, for example, most people enter the labor market at the age of 16 to 25. Their average years of schooling are 13.8, against 10.8 years for the entire working population. In starker contrast, the duration of schooling for 60-year-old retirees averages 6. This tells us that the amount of effective labor in China is increasing year over year in the process of population aging. In this sense, China's "demographic dividend" has not disappeared, and a "talent dividend" is in the making.

For the global economy, the uncertainties mainly come from changes in the external world, such as geopolitical conflicts, the policies of the Federal Reserve, and the decline in external demand. Coupled with a shrinking international production investment system as global supply chains are restructured, these are challenges that all countries, including China, are facing. But China has developed its own unique advantages and new engines for economic growth.

What is next for China's economic development?
A report on January 17 by German weekly economic magazine Wirtschaftswoche predicted that China's economy will continue to grow at a relatively high rate in 2024. It noted that structural changes in China's economy, the world's second-largest, are accelerating. Beijing is investing heavily in high technology and innovation in a bid to play a leading role globally in areas such as artificial intelligence (AI), green energy, and electric vehicles.

China’s export of high-tech industries and new energy vehicles has exceeded traditional labor-intensive products and become a new engine for its foreign trade growth. For example, its automobile exports in 2023 have overtaken those of Japan, marking China's transformation to high-end manufacturing. One out of every three cars exported from China is electric. The transformation of new energy vehicles from an unfavored industry to China's most competitive emerging industry takes place within only a few years. Many people are aware that China's new energy vehicle production and sales have become the world's first, but some may not know that China accounts for about one-third of the over $100 billion global investment in key technologies for new energy vehicles in 2022.

The seeds sown in the spring are bearing fruit. Chinese automobile companies have begun to export in batches electrification and intelligent technology to multinationals. Examples include investments in Chinese EV startups XPeng and Leapmotor from Volkswagen and Stellantis, respectively. S&P believes that such "reverse" joint ventures in China will increase in 2024. China's enhanced independent innovation capability is promoting international cooperation at a higher level.

The World Economic Forum (WEF) 2024 Annual Meeting was convened not long ago under the theme "Rebuilding Trust." This reflects an indisputable fact: intensifying confrontation and a lack of trust have become major obstacles to development in today's world. The international community needs more trust and cooperation to better respond to crises and challenges. If Globalization 1.0 is an era of colonialism and Globalization 2.0 is an era of capital, then Globalization 3.0, promoted by China, is an era of common development. China accounts for one-third of global economic growth. The benefits of its sustained growth can be felt in every corner of the world. The New York Times admits, “If China continues to chug along, it could portend a sustained recovery for the United States and other nations now bouncing back from their pandemic lows. If its economy further slows, it could drag down the rest of the global economy."

So, to answer the question, “Which country will be the next China?” The answer is clear: the "next China" will still be China, only better.

Views expressed by writers in this section are their own and do not necessarily reflect Jordan News' point of view.

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