Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Gerald Celente: Why You Still Need Guns, Gold, and a Getaway Plan... - 23rd Jun 18
Cheap Gold Stocks Bottom Basing - 23rd Jun 18
A Trade War Won’t Be Good for the US Dollar - 23rd Jun 18
SPX/Gold, Long-term Yields & Yield Curve 3 Amigos Update - 22nd Jun 18
Gold - How Long Can This Last? - 22nd Jun 18
Dow Has Fallen 8 days in a Row. Medium-long Term Bullish for Stocks - 22nd Jun 18
Trouble Spotting Market Trends? This Can Help - 22nd Jun 18
Financial Markets Analysis and Trend Forecasts 2018 - A Message from Nadeem Walayat - 21st Jun 18
SPX Bouncing Above Support - 21st Jun 18
Things You Need To Know If You Want To Invest In Bitcoin Now - 21st Jun 18
The NASDAQ’s Outperformance vs. the Dow is Very Bullish - 21st Jun 18
Warning All Investors: Global Stock Market Are Shifting Away From US Price Correlation - 20th Jun 18
Gold GLD ETF Update… Breakdown ? - 20th Jun 18
Short-term Turnaround in Bitcoin Might Not Be What You Think - 19th Jun 18
Stock Market’s Short Term Downside Will be Limited - 19th Jun 18
Natural Gas Setup for 32% Move in UGAZ Fund - 19th Jun 18
Magnus Collective To Empower Automation And Artificial Intelligence - 19th Jun 18
Trump A Bull in a China Shop - 19th Jun 18
Minor Car Accident! What Happens After You Report Your Accident to Your Insurer - 19th Jun 18
US Majors Flush Out A Major Pivot Low and What’s Next - 18th Jun 18
Cocoa Commodities Trading Analysis - 18th Jun 18
Stock Market Consolidating in an Uptrend - 18th Jun 18
Russell Has Gone Up 7 Weeks in a Row. EXTREMELY Bullish for Stocks - 18th Jun 18
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18
The Euro Crashed Yesterday. Bearish for Euro and Bullish for USD - 15th Jun 18
Inflation Trade, in Progress Since Gold Kicked it Off - 15th Jun 18
Can Saudi Arabia Prevent The Next Oil Shock? - 15th Jun 18
The Biggest Online Gambling Companies - 15th Jun 18
Powell's Excess Reserve Change and Gold - 15th Jun 18
Is This a Big Sign of a Big Stock Market Turn? - 15th Jun 18
Will Italy Sink the EU and Boost Gold? - 15th Jun 18
Bumper Crash! Land Rover Discovery Sport vs Audi - 15th Jun 18
Stock Market Topping Pattern or Just Pause Before Going Higher? - 14th Jun 18
Is the ECB Ending QE a Good Thing? Markets Think So - 14th Jun 18
Yield Curve Continues to Flatten. A Bullish Sign for the Stock Market - 14th Jun 18
How Online Gambling has Impacted the Economy - 14th Jun 18
Crude Oil Price Targeting $58 ppb Before Finding Support - 14th Jun 18
Stock Market Near Another Top? - 14th Jun 18
Thorpe Park REAL Walking Dead Living Nightmare Zombie Car Park Ride Experience! - 14th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

How Chinese Economic Growth Is Changing

Economics / China Economy Mar 07, 2018 - 06:04 PM GMT

By: Dan_Steinbock

Economics What many international observers continue to miss is that the deceleration of growth in China goes hand in hand with rapidly-rising living standards.

In his annual work report, Chinese Premier Li Keqiang said on Monday that China aims to expand its economy by around 6.5 percent this year.

While some of the leading international media reported the new growth target factually, others portrayed it as a “slowdown” that could even undermine global growth prospects.


Much of the international media is missing the real story of Chinese growth.

Mistaking long-term trends with short-term fluctuations

Speaking at People’s Congress (NPC) on Monday, Premier Li Keqiang did say that China’s new growth target is 6.5 percent. At surface, that’s the same as the official target in 2017. Last year, the goal was kept unchanged, even though the economy grew 6.9 percent and exceeded the government’s official target. 

In a deeper view, the growth target is not the same as in 2017 because the landscape of Chinese growth is changing.

In the past, credit growth was almost twice as high as the growth rate. But now China is pressing ahead with a campaign to reduce risks in the financial system.

Premier Keqiang’s report left no doubt about the fact that the government’s attention is now firmly fixed on credit risks and higher-quality growth. That’s why China has also cut its budget deficit target for the first time since 2012.

Authorities will be more watchful of fiscal spending, even as they avoid excessive tightening – which many Western observers advocate in China, even though that would risk a sharper slowdown.

Like too many times before, much of international media mistakes secular, longer-term trends with cyclical, short-term fluctuations. Consequently, they misunderstand the deceleration of Chinese growth as a slowdown, stagnation, or even a hard landing. In reality, deceleration simply reflects the eclipse of the intensive phase of industrialization, which heralds a transition to post-industrial society.

The deceleration of growth in China is not some mystical omen of bad things to follow. Rather, it is mainly a sign that Chinese rebalancing is on track.

Decelerating growth, rising incomes

When Industrial Revolution peaked in Britain in the early 19th century, the country experienced a "growth miracle." In the late 19th century, US growth, too, accelerated. As these countries completed their industrialization and began to move toward post-industrial services, growth acceleration gave way to deceleration.

Barely a decade ago, China still enjoyed double-digit growth. However, today China’s growth is slowing relative to its past performance. Historically, that is the norm with all industrializing economies, not the exception.

What makes China different is its massive scale and the purposeful effort to shift from economic growth to rising living standards. Consequently, as China’s growth rate decelerates, living standards continue to rise – very rapidly, even historically.

Along with innovation, thriving consumption is the goal of Chinese rebalancing. Such consumption requires growing living standards, not unsustainable growth. This narrative can be illustrated with the first term of President Xi Jinping and Premier Li Keqiang and their projected next half a decade, assuming the current trend line and peaceful conditions will continue to prevail in the world economy.

Between 2012 and 2022, Chinese growth rate could decelerate from 7.9 percent to 5.8 percent. Despite this deceleration, living standards will almost double. In 2012, Chinese GDP per capita was about $11,000. By 2022, it is likely to increase to $20,000 (Figure). During this decade, the compound annual growth rate of per capita incomes could thus be around 6.7 percent in China.

Figure          China’s Growth Deceleration and Rising Per Capita Incomes,

Growth rate: GDP, constant prices, percent change

Per capita income:  GDP per capita, constant prices (purchasing power parity; 2011 international dollars)

Source: IMF/WEO Database

Now, let’s compare these results with those of the United States. Between 2012 and 2022, US growth rate could decelerate from 2.2 percent to 1.7 percent, while GDP per capita will increase from $50,500 to $57,700 – assuming the country can continue its current leverage-ridden growth.

During the time period, the compound annual growth rate of U.S. per capita incomes could thus be around 1.5 percent. Relative to other major advanced economies, that’s pretty good but not relative to China, the largest emerging economy. After all, it is only a fourth of what is projected in China.

Oddly enough, when the growth rate of the US economy is slower than anticipated, that’s usually attributed to a “bad quarter.” It is seldom seen as a predictor of U.S. slowdown, collapse or hard landing. In other words, international media seems to have different norms and expectations regarding to China, even though economic realities are pretty clear.

Such discrepancies can have distressing implications. While international media systematically highlights mainly downside risks in China and other large emerging economies, it is consistently downplaying the magnitude of leverage-ridden growth and thus downside risks in the U.S. and other major advanced economies.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

© 2018 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules