China’s economic engines: A critical analysis
CHINA has become icon of economic growth which is also sustainable for the last two decades.
China has become ideal destination for foreign direct investment (FDIs) because of its rigorous structural reforms, widespread special free economic zones, meaningful incentives and last but not least, business and investment friendly policies.
Investment and consumption have been the major economic engines of China which has further brightened its future prospects during 2022.
It seems that rapidly changing socio-economic, geopolitical and geostrategic scenarios like constant price hike of oil in the international markets, food & energy insecurity, Ukraine and some domestic issues could not derail journey of economic stability and sustainability.
All the regional prominent economists have expressed confidence for the China’s prospects of achieving the yearly GDP growth target of 5.5 percent because of the recent rollout of supporting policies and befitting propositions in terms of micro and macro monetary and fiscal policies/initiatives are now gradually starting to take effect in multiple economic areas.
As usual some of the western experts and economists have expressed some fears about economic stability of China but the confidence showed by domestic economists is also a steadfast rebuttal of many overseas analysts.
Thanks, China’s economic outlook remained bearish. In this connection, China’s hard-won steady economic recovery started in the first quarter fully demonstrated unchanged continued upward push and recovery in which constant and continued implementation of structural economic reforms proved resilience.
It has actually further enhanced the real economic potential of China and its associated sectors.
It indeed vividly reflects long-term sustainability of its economy and Foreign Ministry Spokesperson Wang Wenbin termed it miracle of constant implementation of economic structural reforms.
He stressed that statistical data and facts & figures clearly reveal that China has the national capacity building mechanism, economic diversity, economic strength and stability enough to cope with all the international compulsions and external shocks.
He shared that it has been salient feature of its economic growth that has effectively dealt with risks and challenges to realize healthy and sustainable economic development and to inject more energy to world economic recovery.
In this context, most of the regional as well as international economists showed utmost confidence that China can achieve its GDP growth target for 2022.
However, some have showed fears because of uncertainties in the development course of COVID.
It seems that despite lingering shocks to the real economy in the second quarter, the annual economic growth goal could be achieved in which a holistic policy mix including diverse monetary tools and fiscal support to boost stable growth and give relief would play an important role.
Moreover, the domestic industrial chains and logistics system would be essential to put the macro-economy on right track.
Chinese effective COVID-fighting methods would be value addition to achieve the desired goals of socio-economic prosperity, monetary and fiscal stability, export growth, easy and smooth supply of credit facilities, and last but not the least streamlining and supply of necessary food items throughout the country during 2022.
The majority of the economists stressed that China’s economy is resilient because the country has always launched reforms in an orderly way, for example in scientific and systematic areas, despite external and domestic fluctuations which is commendable.
For further economic diversification the Chinese government and its policy makers have already institutionalized reforms to establish digital government and push fiscal system reforms under the provincial levels.
It stipulated that China should straighten out fiscal relations in local governments under provincial levels to make income division more standardized.
It would be a giant step towards further strengthening of financial independence and economic self-reliance.
The critical analysis upholds that investment plays a fundamental role in bolstering the national economy and consumption has further brightened great chances of recovery after the COVID outbreak eases, as well as several bright spots like new infrastructure.
In this connection, infrastructure investment will be the major fuel for economic stimulation as it stimulates numerous business and economic activities in the country and pumps economic output following the large-scale and ahead-of-schedule issuance of special bonds.
It hopes that the investment sector will be more useful, positive, productive and participatory in the second and third quarter, after China enters peak season for construction.
It is true that there were signs of bright prospects in China’s manufacturing investment in the economic data of the first quarter.
In the first three months, China’s secondary industry developed up to 5.8 percent, faster than overall economic growth rate of 4.8 percent, which is seen as a sign of growing momentum.
Furthermore, the upgrading and transformation of the country’s manufacturing sector shows an outstanding performance in the first three months which is commendable and important positive signal of an upward macro-economy.
However, the timely introduction of macro-economic policies, especially fiscal proved effective and stimulating in this regard.
Apart from investment, consumption, another major pillar of domestic economy is expected to play a positive role despite the short-term pressure it is facing, mostly because of the COVID situation in Shanghai.
But wise Chinese leadership has already controlled the worsening situation through applying befitting human values and people’s friendly policies alike.
In this regard, despite COVID-19 saga some uncertainties would not be any issue and a retaliatory rebound in the consumption sector is very likely in future quarters as domestic demand has not been severely battered.
However, adequate policy support should be further streamlined and systemized.
To conclude, COVID has nurtured some new consumption business models like pre-made food, live action role playing games and so on which have now become new simulator to its macro-economy.
The landing of large theme parks and transformation of commercial circles are also fuelling growth in this sector.
Moreover, China’s digital transformation, which accelerated the emergence of business models like new infrastructure, is also a focus and bright spot for 2022’s economic development.
The government has prepared comprehensive policies ranging from general structural adjustment policies like setting up a unified market to more specific measures like reserve requirement ratio cuts and methods to facilitate loans after the Shanghai Omicron outbreak.
In this connection, the National Development and Reform Commission (NDRC) also note that it would implement the previously launched policies to boost industrial growth and services industry recovery, as well as carry out employment priority policies and stabilize the supply of products vital to people’s livelihood.
Easing of monetary policies and bail-out measures for local dining, retail and other consumption related sectors would prevent people or businesses’ economic status from collapsing in the near future.
Last but not least, timely issuance of special bonds has boosted investments. There is an urgent policy stimulus in other areas like employment to guarantee economic growth.
—The writer is Director, the Centre for South Asia & International Studies Islamabad & regional expert, China, CPEC & BRI.
