[OPINION] Assessing the trajectory of China's Economy: Growth or decline

[This article was contributed by Dr. Imran Khalid, a freelance writer based in Karachi, Pakistan. He was qualified as a physician from Dow Medical University in Karachi in 1991, and has a master's degree in international relations from Karachi University.]

KARACHI -- In recent years, China's development has slowed down as with other economies in the world, 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 China will never catch up with the United States. As a response, Chinese authorities have released this month a succession of data on the Chinese economy for 2023. Among them, the most concerned is the annual GDP growth of 5.2%, not only higher than the global growth rate that is expected to hover around 3%, but ranking high among the world's major economies, outperforming the United States and the European Union by a wide margin. 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. Is China's economy a risk for the globe? Why do some slow-growing or even stagnant economies in the west, instead of minding the perils caused by themselves, show their teeth in a faster-growing country across the ocean? The “Peak of China’s Rise” Theory first appeared in 2021, when two professors in the United States co-authored an article which 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 peak due to slowing economy, vanishing demographic dividend, technology crackdown by the US, 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, peaked and already-shrinking gross population and workforce, retreating foreign companies and investors, and 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 in the same vein with the "China Collapse" Theory that has been running rampant for 20 years-- A stale steak on a fresh plate. 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 ABC (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.

In 2023, China's actual use of foreign investment recorded an 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 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. Sectorwise, the proportion of investment in high-tech industries hit a record high of 37%.

Although many emerging and developing countries also offer preferential policies to attract investment, European and American companies set greater store by a stable and predictable business environment than cost-reducing policies. This is precisely where China's biggest advantage lies in over 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. During operation in the United States 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%, much higher than the 3% or so of Europe and the United States, and higher than that of major emerging economies. Multiple international trade organizations, including the American Chamber of Commerce in 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 cost, 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 behaviour that shouldn’t be over-interpreted.

Western scholars believe that China's rapid development in the past three decades is underpinned by its demographic dividend. Now China's birth rate is falling, which will inevitably bring down its economic growth rate. If we look at other parts of the world, we will find an inexplicable phenomenon - many African countries also have huge population resources, why can't they achieve rapid economic development? 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 labor force with 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 is 13.8, against 10.8 years for the entire working population. In starker contrast, the duration of schooling for the 60-year-old retirees averages 6. This tells us that the amount of effective labor in China is increasing by year in the process of population aging. In this sense, China's "demographic dividend" has not disappeared, and "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's next for China's economic development? A report on Jan. 17 by German weekly economic magazine Wirtschaftswoche predicted that China's economy will continue to grow at a relatively high rate in 2024. Structural changes in China's economy, the world's second largest, are accelerating, it noted. Beijing is investing heavily in high technology and innovation in a bid to play a leading role globally in areas such as artificial intelligence, 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 has overtaken that of Japan, marking China's transformation to high-end manufacturing. One out of every three cars exported from China is an electric one. 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 of new energy vehicles in 2022.

The seeds sowed in the spring are bearing fruits. Chinese automobile companies have began to export in batches electrification and intelligent technology to multinationals. Examples include investment 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 2024 Annual Meeting was convened not long ago under the theme "Rebuilding Trust". This reflects an indisputable fact: intensifying confrontation and 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 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 corners of the world. 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”. To the question “which country will be the next China”, the answer is clear. The "next China" will still be China, only in its better version.

Park Sae-jin swatchsjp@ajunews.com

[OPINION] Assessing the trajectory of China's Economy: Growth or decline

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