Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

How Chinese Economic Growth Is Changing

Economics / China Economy Mar 07, 2018 - 06:04 PM GMT

By: Dan_Steinbock

Economics What many international observers continue to miss is that the deceleration of growth in China goes hand in hand with rapidly-rising living standards.

In his annual work report, Chinese Premier Li Keqiang said on Monday that China aims to expand its economy by around 6.5 percent this year.

While some of the leading international media reported the new growth target factually, others portrayed it as a “slowdown” that could even undermine global growth prospects.


Much of the international media is missing the real story of Chinese growth.

Mistaking long-term trends with short-term fluctuations

Speaking at People’s Congress (NPC) on Monday, Premier Li Keqiang did say that China’s new growth target is 6.5 percent. At surface, that’s the same as the official target in 2017. Last year, the goal was kept unchanged, even though the economy grew 6.9 percent and exceeded the government’s official target. 

In a deeper view, the growth target is not the same as in 2017 because the landscape of Chinese growth is changing.

In the past, credit growth was almost twice as high as the growth rate. But now China is pressing ahead with a campaign to reduce risks in the financial system.

Premier Keqiang’s report left no doubt about the fact that the government’s attention is now firmly fixed on credit risks and higher-quality growth. That’s why China has also cut its budget deficit target for the first time since 2012.

Authorities will be more watchful of fiscal spending, even as they avoid excessive tightening – which many Western observers advocate in China, even though that would risk a sharper slowdown.

Like too many times before, much of international media mistakes secular, longer-term trends with cyclical, short-term fluctuations. Consequently, they misunderstand the deceleration of Chinese growth as a slowdown, stagnation, or even a hard landing. In reality, deceleration simply reflects the eclipse of the intensive phase of industrialization, which heralds a transition to post-industrial society.

The deceleration of growth in China is not some mystical omen of bad things to follow. Rather, it is mainly a sign that Chinese rebalancing is on track.

Decelerating growth, rising incomes

When Industrial Revolution peaked in Britain in the early 19th century, the country experienced a "growth miracle." In the late 19th century, US growth, too, accelerated. As these countries completed their industrialization and began to move toward post-industrial services, growth acceleration gave way to deceleration.

Barely a decade ago, China still enjoyed double-digit growth. However, today China’s growth is slowing relative to its past performance. Historically, that is the norm with all industrializing economies, not the exception.

What makes China different is its massive scale and the purposeful effort to shift from economic growth to rising living standards. Consequently, as China’s growth rate decelerates, living standards continue to rise – very rapidly, even historically.

Along with innovation, thriving consumption is the goal of Chinese rebalancing. Such consumption requires growing living standards, not unsustainable growth. This narrative can be illustrated with the first term of President Xi Jinping and Premier Li Keqiang and their projected next half a decade, assuming the current trend line and peaceful conditions will continue to prevail in the world economy.

Between 2012 and 2022, Chinese growth rate could decelerate from 7.9 percent to 5.8 percent. Despite this deceleration, living standards will almost double. In 2012, Chinese GDP per capita was about $11,000. By 2022, it is likely to increase to $20,000 (Figure). During this decade, the compound annual growth rate of per capita incomes could thus be around 6.7 percent in China.

Figure          China’s Growth Deceleration and Rising Per Capita Incomes,

Growth rate: GDP, constant prices, percent change

Per capita income:  GDP per capita, constant prices (purchasing power parity; 2011 international dollars)

Source: IMF/WEO Database

Now, let’s compare these results with those of the United States. Between 2012 and 2022, US growth rate could decelerate from 2.2 percent to 1.7 percent, while GDP per capita will increase from $50,500 to $57,700 – assuming the country can continue its current leverage-ridden growth.

During the time period, the compound annual growth rate of U.S. per capita incomes could thus be around 1.5 percent. Relative to other major advanced economies, that’s pretty good but not relative to China, the largest emerging economy. After all, it is only a fourth of what is projected in China.

Oddly enough, when the growth rate of the US economy is slower than anticipated, that’s usually attributed to a “bad quarter.” It is seldom seen as a predictor of U.S. slowdown, collapse or hard landing. In other words, international media seems to have different norms and expectations regarding to China, even though economic realities are pretty clear.

Such discrepancies can have distressing implications. While international media systematically highlights mainly downside risks in China and other large emerging economies, it is consistently downplaying the magnitude of leverage-ridden growth and thus downside risks in the U.S. and other major advanced economies.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

© 2018 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules