China: just lowered the growth target to 4.5% from the 5% go.

China’s Prospects…

Pessimistic

goals

• pre-2008 reforms completely stalled
• SOE too useful for party control and thus they will try to maintain control
• SOEs thus too useful for party control

Because the party starting from 2012 will try to maintain control, party more likely to cling levels of control than try to invocate.

leadership

misconceived priorities: they see SOEs as central 1) global leadership, 2) belt and road — diplomatic and strategic goals and 3) desire to make SOEs national champions

politics

Fears of political instability: aggressive SOE reform can cut jobs and slow growth; private firms cannot expand fast enough to pick up employment. and thus protests

conclusions

• massive improvements into tech is a bad idea: “high-tech utopianism”
• will increase debt, wasteful and excessive investment, and is a huge gamble
• increased exports no longer feasible due to end of globalization

Optimistic

china’s different from other EAMEs: far less urbanized, many opportunities to develop, massive internal market w/ very large urban middle class. Can drive more to consumer-driven growth with more investments with less-developed areas; cutting edge technology may not solve everything but may bring increased productivity.

political capacity

• political system can sharply change
• CCP has shown flexibility and willingness to make tough choices
• system has strong capacity to implement policy: no gridlock, increased tensions may force a new direction
• currently pace of reform / deleverage will take 20 years or so, eventually getting back to 2008 levels

debt levels

• can control much of finances
• can shut down trades / stocks / etc.
• very very low foreign debt

lardy

• China’s economy is highly resilient, downside risks are limited, and don’t exaggerate recent trends
• China’s economy facing headwinds, but has overcome larger barriers
• China likely to grow at twice the US rates for some years; ,nd consumer spending will increase since the pandemic
• China has already been dominant in some categories
  • EVs
  • clean energy
  • drones
  • industrial automation
  • advancded electronics
  • rare earths

A mixed view

even if China doesn’t get every thing china would still go at a 2% rate, which makes a 25% incraesovr the laset 10pear.

conclusions

• China’s GDP can potentially match the USA in the next two decades, but no certainty
• limited reforms and a debt crisis will prevent China from catching up until at least 2040
• limited reform + declining work force + aging population, China will never catch up

China could be entering a period of a much slower growth similar to Japan; this will constrain China’s ambititions.

The demographic and fiscal challeges than the growth challenges, because…

1. slower growth is inevitable
2. aging population
3. fiscal strain to cover welfare (generational up-transfer and state transfer)

Conditions of China’s rise is shifting, pressures for change will be coming.