Both of these narratives are wrong. With China, the story is never so simple. And we need a credible way to track its trajectory. What we found tells a nuanced and often surprising story about China and its economic model—a primary source of tension between Beijing and the rest of the world.
In key sectors, Chinese leaders are backtracking. And while this zigzag worked in the s, it could become a self-inflicted wound in the s. Mutual trust between the two powers has eroded dramatically—with the United States convinced that it has been taken advantage of through unfair Chinese economic practices, and China insisting that it is in fact reforming and just needs more time to do so like any developing nation.
If China is converging with open-market systems, it would mean that its leaders still see benefit in economic liberalization. Policymakers in the United States and other open-market economies could assume Xi will eventually be compelled—by his desire for continued growth—to make more concessions to international norms such as reducing industrial subsidies and opening up to foreign capital. The United States could slowly reduce tariffs and step away from the mutually destructive trade wars that began in US and European businesses could count on predictability and continue to invest in China with confidence.
But if China is diverging from open-market systems, it would signal that Beijing believes the country can sustain sufficient growth even as the government clamps down on its private market.
We then tracked how China has progressed on these metrics over the last decade. China is in last place in all but one category. If we went back in time and presented this study in , when China was preparing to join the World Trade Organization, its membership would likely have been blocked.
In key areas, such as foreign direct investment FDI and portfolio investment for example, the ability for Chinese investors to put their money in foreign stocks and bonds , China is moving so slowly that it is at risk of backsliding. Time and again, fear of potential economic volatility won out over the promise of liberalization and growth. These failures to reform are hurting China more than its leaders might realize.
As we assessed the results from the study, we were struck not by how much China has grown in the last decade, but rather by how marginal its growth has been compared to its size and potential. In other words, China has been leaving a lot of money on the table. That is not sustainable in a country accustomed to more than 6 percent GDP growth over the last decade.
While advanced economies like the United States and United Kingdom routinely experience growth around 2 percent, such a scenario in China could lead to mass layoffs, a rapid tightening of credit, and, perhaps most troubling for Xi, a serious blow to his authority. The study reveals a number of additional ways that the conventional wisdom often gets the Chinese economy wrong. We tend to think of China as a titan in the realm of foreign direct investment—both incoming and outgoing.
The RMB is the currency of choice in less than 3 percent of all cross-border transactions, with no signs of an uptick in the future. The reality is that without the Chinese government implementing reforms to capital controls, the RMB will remain a regional currency at best.
The highest market concentration of enterprises—meaning only one or two companies in a particular industry—is not in China but in Canada. China and Italy are roughly tied on the measure of trade openness, and South Korea ranks last. In , in fact, China had a lower average tariff rate than the United States did, thanks to Beijing dropping barriers on other countries even as it raised them on the US.
The five-year plans in the s and s focused on market-oriented reforms, while the past two five-year plans have focused on promoting more balanced growth, better wealth distribution and improved environmental protection.
Economic growth, which has in recent decades been driven by export-led manufacturing, is now becoming more reliant on domestic consumption. The resulting increase in consumption spending represents a major opportunity for Australian businesses that are able to successfully target their products and services to an increasingly affluent Chinese public.
There is also encouragement for foreign businesses to invest in key areas such as advanced manufacturing, energy saving, environmental protection and modern services.
Tightened regulation on energy conservation and environmental protection also presents an opportunity for Australian businesses. The perception of China since the s as a predominantly low-cost manufacturing hub, where it effectively served as an inexpensive producer for global brands, is changing as the economy grows. As a result, while cost rationalisation is still an attractive feature of the China market, global and local businesses are now starting to change strategies to tap China as an engine for growth.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings. Economic recovery plan For information on the economic recovery scheme put in place by the Chinese government to address the impact of the COVID pandemic on the Chinese economy, refer to the Top News from the State Council as well as Policies page of the State Council.
More detail can be found in media such as China. Support plan for exporters For the up-to-date information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID outbreak including eventual restrictions on imports and exports, if applicable , please consult the website of the Chinese Ministry of Commerce MOFCOM. Next Trade Figures. Doing Business China Australia. Burkina Faso. Costa Rica.
Czech Republic. Dominican Rep. Fiji Islands. Hong Kong. New Guinea. New Zealand. North Macedonia. Philippines the. San Marino. Saudi Arabia. Sierra Leone. South Africa. Following real GDP growth of 2. The growth momentum is slowing reflecting the lagged impact of policy and macroprudential tightening, floods and the recent Delta outbreak. Although lingering tighter restrictions and cautious sentiment due to the recent Delta outbreaks will weigh on the consumption recovery, its impact is expected to be largely offset by robust foreign demand and moderate policy support in the latter half of the year.
Near-term risks have shifted to the downside with the key risk being recurring outbreaks led by more transmissible COVID variants which could lead to a significant economic disruption.
These challenges require attention, with short-term macroeconomic policies and structural reforms aimed at reinvigorating the shift to more balanced high-quality growth. The government recently highlighted achieving common prosperity as a key economic objective, reinforcing signals of a possible shift in policy priorities towards tackling income inequality. Over the medium term, policies to tackle high inequality through more progressive taxation and a strengthened social protection system will ensure lasting poverty reduction, a larger middle class and help boost private consumption as a driver of growth.
China and the World Bank Group have worked together for over 40 years. The CPF aims to help China address some of its remaining development challenges, notably the transition to more environmentally sustainable growth, strengthen key Chinese institutions engaged in economic and social development, and reduce inequality in lagging regions.
China began its partnership with the Bank in , just as it embarked on its reforms. In the early years, the World Bank brought international experience to help design economic reform strategies, improve project management, and address key bottlenecks to growth. Joint flagship studies have been important for deepening the dialogue on policies and Bank programs and provided a model for other middle-income countries. World Bank-financed projects introduced innovations or piloted new approaches and serve as platforms for knowledge exchange.
Many of them also placed a major emphasis on the environment and climate change. Here are some of our recent projects and results in China:. The Hunan Subnational Governance and Rural Public Service Delivery Program for Results , approved in February , assists the province in delivering more equitable and efficient public services in rural areas. The financing supports measures to strengthen local debt management and provide results-oriented transfers aimed at reducing disparities in the quality of basic education in rural areas.
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