Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Stock Market Crash Edition - 26th Mar 19
Handy Ways to Boost Your Home Income - 26th Mar 19
US Treasury Bond Yield Inversion and Political Fed Cycles - 26th Mar 19
Golan Heights Oil all about the Shekels - 26th Mar 19
Falling Yields a Catalyst for The Gold Catalyst - 26th Mar 19
Can We Lock Up Rachel Maddow Now? - 25th Mar 19
Real US National Debt Might Be $230 Trillion - 25th Mar 19
Friday's Stock Market Sell-Off - New Downtrend or Just Correction? - 25th Mar 19
20 Days Left to Find Buying Opportunities In Gold - 25th Mar 19
Will the Historic Imbalance in Gold Stocks to Gold Price Resolve ? - 25th Mar 19
EasySMX Wireless Games Controllers Review - 25th Mar 19
Stock Market Short-term Top - 25th Mar 19
UK Population Growth - Latest ONS Immigration Statistics and Consequences - 24th Mar 19
The Fed Follows Trump's Tweets, And Does The Right Thing - 24th Mar 19
Yield Curves, 2yr Yield, SPX Stocks and a Crack Up Boom? - 24th Mar 19
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

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.


© 2005-2019 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