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China remains key engine of world economic growth

Lena

2023-11-13 02:46

Bai Le
Chinese Social Sciences Today

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Over the past few months, the Chinese government has issued a series of guidelines on reviving and expanding consumption, encouraging the private economy, and optimizing the environment for foreign investment. This has aroused heated discussions among overseas media and academia.

To interpret these newly issued policies and analyze the new situation facing the Chinese economy, CSST recently interviewed Alexander Lomanov, deputy director of the Primakov Institute of World Economy and International Relations at the Russian Academy of Sciences, and Kevin P. Gallagher, director of the Global Development Policy Center at Boston University.

Both Lomanov and Gallagher agreed that against the backdrop of sluggish recovery and declining global economic expansion, the resilient and dynamic Chinese economy remains a key engine for growth. Regarding the predictions made by certain Western countries about the imminent collapse of the Chinese economy, the two scholars affirmed that such fallacies would not undermine its strength.

A different set of tools

In Gallagher’s view, Chinese authorities have managed to successfully navigate the economy in the past and will need to rise to the occasion again—this time employing a different set of tools. In the past three years, the Chinese economy navigated multiple shocks, from COVID-19, to advanced economy inflation, to geopolitical conflicts. The recent combined policies intend to adjust and optimize the old measures to ensure the steady performance of the Chinese economy.

“The announced measures will help overcome the difficulties caused by the downturn in the real estate market, falling exports, and declining consumer spending. Domestically, it is necessary to expand demand and increase consumers’ willingness to spend money. In the outside world, Chinese entrepreneurs need to find new buyers. Strengthening the domestic market and maintaining foreign trade will create internal momentum for China’s economic development and help to create an open model with higher standards in China,” Lomanov said.

As Gallagher pointed out, the new phase of China’s reforms reflects objective changes in internal and external factors. The old growth factors inside China are undergoing transformation. Cheap, low-skilled labor can no longer solve China’s development problems in reality. Instead, China is now able to leverage its strengths, such as its vast market, comprehensive production base, and highly skilled workforce, to attract global resources and production factors. The Chinese economy has proven to be more resilient and sustainable than ever.

The Chinese government integrates the private economy into a single national economic system, supported alongside the state-owned economy—this is of strategic vision, Lomanov noted. He further commented that in the past years, there has been speculation in China that the private sector has already fulfilled its historical mission and should step down. But statistics show that the private economy can contribute greatly to tax revenue, GDP growth, technological innovation, and employment. With the growing number of domestic investors, the private economy will become increasingly important to China’s economic development.

Unique path of development

“In the 1980s, two dogmatic approaches, Western neoliberalism and the Soviet planned economy, dominated the economic model of the majority of countries around the world. The CPC showed great determination and a high degree of theoretical independence by being able to move beyond this dilemma and find its own path of economic development,” Lomanov said.

Taking the “dual circulation” policy as an example, Lomanov said that it emerged against the backdrop of the COVID-19 pandemic and the apparent long-term deterioration of China-US economic relations. This policy demonstrated the CPC leadership’s clear understanding that reliance on foreign markets would not guarantee the successful development of the Chinese economy in the future.

“International circulation” as a driving force has noticeably weakened, while the potential for large-scale “internal circulation” has increased. Maintaining openness to the outside world is necessary, but openness cannot be an end in itself. The ultimate goal is to achieve economic development and improve the living standards of the Chinese people, Lomanov said.

“The Chinese government knows how to take advantage of a super-large domestic market. Chinese reformers entrusted the market with the function of the main instrument of resource allocation, but at the same time they had no illusions about its ‘omnipotence’ as a tool for solving all problems. In China, the authorities retain macroeconomic control, carry out strategic development planning, and provide targeted support to priority sectors of the economy,” Lomanov said.

He continued to say that the COVID-19 pandemic accelerated the digitalization of Chinese society, leading to rapid advancements in online shopping and smart manufacturing. The market economy quickly adapted to the conditions and new digital services became popular, remaining in place after the pandemic ended. In addition, the pandemic served as a serious reminder of the need to protect the economy from a sudden breakdown in international economic ties, and of the high value of a large domestic market and domestic demand.

Gallagher echoed similar sentiments, emphasizing that due to the impact of COVID-19 and geopolitical tensions in the world economy, many Western nations are now mimicking China’s state-led economic policies to build their own industrial capacity in order to reduce their reliance on global supply chains in general.

Resilient despite containment

Currently, the West holds a pessimistic view regarding China’s role in global economic recovery. Lomanov said that the US and its allies are not ready to accept China as an equal economic power. The West now pursues an active policy of technological containment against China, but this will not weaken the Chinese economy. Many things look different than they did a decade ago. Closed technological alliances are emerging, and there is a growing demand for alternative financial payment systems free from Western arbitrariness. This is no longer healthy competition, but political and ideological containment of the development of a rival country.

As external risks continue to increase, the importance of the factor of development security becomes more significant. The West desires to use mutual economic dependence in the economy as a tool of pressure to achieve its own political goals. “But the Chinese government realizes that if one’s economy can be destroyed by a negative impact from the outside, there is no reason to talk about a high quality of development,” Lomanov added.

“It is inevitable that there will be difficulties and problems, but the Chinese government never avoided the problems, and has taken positive measures to solve it. The Chinese economy has proven to be resilient in the past and is showing signs of responding to this latest bout of change in good order,” Gallagher concluded.

 


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