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Finance & Economy

China’s economic slowdown is precisely what Xi Jinping wants


A customer selects a product at a supermarket in Beijing

A customer selects a product at a supermarket in Beijing

“Those who live in worries and hardship survive while those who live in ease and pleasure perish,” says Chinese sage Mencius.

In Reuters’ report titled Ditch the stats: China retailers don’t buy signs of recovery, it says that recent improved government data are perhaps inaccurate and do not mean that there is any success in the government’s efforts for transformation into a consumption-driven economy.

It points out decrease in big retailers’ sales and a recent survey by Consultancy China Market Research Group of 1,000 middle-class consumers that found most of them were worried about the future.

In Chapter 19 of the second edition of my book “Tiananmen’s Tremendous Achievements”, there is the following section:

ECONOMIC SLOWDOWN IS PRECISELY WHAT XI JINPING WANTS

In order to deal with the financial tsunami in 2008, Hu Jintao and Wen Jiabao injected 4 trillion yuan to provide credit-powered stimulus to China’s economy. They successfully stopped the economic downturn by the injection, but left many serious problems: excessive production capacity, surplus of products without sufficient market, rocketing property prices and others.

It has proved that their old tricks of seeking export-driven and credit-fuelled growth do not work. If China kept on adopting such old tricks, it would have to face dire consequences but for quite a long time since it refused to adopt the old tricks, China’s economic growth rate has kept on dropping.

Quite a lot of people at home and abroad worry that the falling growth rate may give rise to serious problems. However, it is precisely what Xi Jinping wants because it will greatly reduce the resistance to further economic reform.

While the reformists are thus provided with evidence of facts that the further economic liberalisation is indispensable; the conservatives ambitious for China to become a military superpower have also been gradually convinced of the necessity of further reform because without economic growth there will be no financial resources for China to become a military superpower.

It was precisely because he had seen that trend that Xi Jinping had the confidence to tell his subordinates to promise further reforms to the United States.

On the surface, further economic liberalisation seems to be beneficial for foreign businesses, but detrimental to Chinese enterprises. However, the development of the Chinese economy has passed the stage of relying on import of inadequately advanced technology and employment of cheap labour to achieve international competitive edge.

China has to rely on its own creation for its superiority in competition. It must have its own intellectual property especially its own well-known brands and its own designs and technology. Only by creation and innovation can China really rank among the best in the world. It will remain a second-class country if it relies on importing or stealing other countries’ intellectual property.

China’s achievements after its entry into the WTO have proved Chinese people’s talents and ability to compete with strong foreign competitors. Only economic liberalisation can give full play to Chinese people’s potential and enable China to have a wonderful future and realise its China dream.

Certainly, there are risks in economic liberalisation. China’s state-owned enterprises (SOEs) may fail when they have lost their various privilege and preferential treatment, which may affect many people’s jobs and China’s important economic sources for its public welfare.

Chinese private enterprises may lose in their competition with foreign multi-national giants. Chinese leaders must have the wisdom, vision, ability and courage to lead, encourage and stimulate people to exploit the economic freedom in playing to the full their talents and achieving marvellous successes.

The following is full text of Reuters report:

If things are really starting to look up for China’s economy, as a recent spate of better-than-expected government data seems to suggest, nobody appears to have told its biggest retailers.

A Reuters review of first-half earnings showed that more than 20 Chinese companies selling everything from footwear to food were not convinced the economic slowdown had bottomed out, and neither were their traditionally thrifty customers.

“The reality behind the numbers is gloomier,” said leading footwear retailer Belle International Holdings Ltd as a raft of data, supported by government statements, indicated the world’s second largest economy may be stabilising after two years of slumping growth.

“There are uncertainties in future prospects as the economy is struggling with a difficult transition involving structural rebalancing and revamping the growth model,” said Belle, which has a market value of $11.6 billion and manages more than 18,000 retail outlets across 360 Chinese cities.

“As a defensive reaction, consumers are becoming more inclined to save and less willing to spend,” it added.

Economists have long doubted the accuracy of official economic data and this scepticism has increased as China plots a course towards consumption-led growth. The official retail sales measure, for example, counts a sale from when an item is shipped, rather than when it is actually sold.

The latest data, however, supports retailers’ complaints.

Retail sales grew 13.2 percent in July year-on-year, a slowdown from 14.3 percent annual growth in 2012, and 17.1 percent growth in 2011.

“Consumer sentiment showed no sign of significant recovery, affecting many businesses,” said menswear retailer China Lilang Ltd, which has nearly 3,500 stores across China.

This uncertainty about the future underscores the difficulty both the government and retailers have to persuade consumers to throw open their wallets in a nation with one of the highest household savings rates in the world.

“The traditional retail industry has reached an inflection point due to the combination of a variety of factors, including slower economic growth, changing consumer habits and rapid growth of e-commerce,” said Lianhua Supermarket Holdings Co Ltd, which operates more than 4,500 outlets across China.

“The increase in the overall savings rate indicates that China still has a long way to go to transform into a consumption-driven economy,” it said in its earnings statement.

The personal savings of mainland households was about 38 percent of disposable income in 2012, according to economists. The International Monetary Fund said China’s urban household savings rate was less than 20 percent of disposable income in the mid-1990s.

BUYING THE WAY TO RECOVERY

China’s recently appointed leaders are trying to wean the economy away from the credit and investment-driven growth that powered its break-neck expansion for three decades to a more sustainable model that favours domestic consumption.

Annual economic growth has slowed in nine of the past 10 quarters, hitting domestic as well as overseas firms such as Apple Inc, but indications that the economy is now stabilising should help drive Beijing‘s reform efforts and lift consumer sentiment.

Some firms are reporting upbeat sales. Tiffany & Co said it was benefiting from a growing preference among Chinese for diamonds over gold and luxury fashion house Prada said China helped to lift its sales by 12 months in the six-months to July.

Chinese government-backed retailers like China Resources Enterprise Ltd are also more positive about the future than some of their private-sector counterparts.

“We are better equipped than ever to face the uncertainties ahead and to capitalise on promising opportunities when they arise,” said the conglomerate, which operates China’s second-largest hypermarket chain and the mainland’s biggest brewery.

Caution, however, still abounds.

Consultancy China Market Research Group recently polled 1,000 middle-class consumers who earn $6,000-$15,000 a year and found that most people were worried about the future.

“Their sentiment and confidence is very negative from what we found and so that is going to hurt some of the mid-tier consumer retail brands,” senior analyst James Roy said. “Their confidence is sort of negative from the standpoint of low overall investment in the economy, feeling negative about slowing growth and uncertainties about the future.”

Source: Chan Kai Yee “Tiananmen’s Tremendous Achievements” second edition
Source: Reuters – Ditch the stats: China retailers don’t buy signs of recovery
 

 

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About chankaiyee2

Author of the book "Tiananmen's Tremendous Achievements" about how with the help of Tiananmen Protests, talented scholars with moral integrity seized power in the Party and state and brought prosperity to China. The second edition of the book will be published within a few days to mark the 25th anniversary of Tiananmen Protests All the parts in the first edition remain in the second edition with a few changes due to information available later and better understanding. There are also some changes for improvements of style. The new parts are Chapters 12-19 on events in China after the first edition was published: The fierce power struggle for succession between reformists and conservatives; Xi Jinping winning all elders’ support during his mysterious disappearance for 2 weeks in early September, 2012; and Xi Jinping Cyclone. Chan Kai Yee's new book: SPACE ERA STRATEGY: The Way China Beats The US An eye-opening book that tells the truth how the US is losing to China. The US is losing as it adopts the outdated strategy of Air-Sea Battle while China adopts the space era strategy to pursue integrated space and air capabilities: It is losing due to its diplomacy that has given rise to Russian-Chinese alliance. US outdated strategy has enabled China to catch up and surpass the US in key weapons: Hypersonic weapons (HGV) that Pentagon regards as the weapon that will dominate the world in the future. Aerospaceplane in China’s development of space-air bomber that can engage enemy anywhere in the world within an hour and destroy an entire aircraft carrier battle group within minutes. Anti-satellite (ASAT) weapons, anti-ASAT weapons, stealth aircrafts, drones, AEW&C, etc. The book gives detailed descriptions of China’s weapon development based on information mainly from Chinese sources that the author monitors closely. U.S. Must Not Be Beaten by China! China is not a democracy. Its political system cannot prevent the emergence of a despotic leader or stop such a leader when he begins to bring disasters to people. A few decades ago, Mao Zedong, the worst tyrant in world history did emerge and bring disasters to Chinese people. He wanted to fight a nuclear war to replace capitalism with communism but could not bring nuclear holocaust to world people as China was too weak and poor at that time. If a despot like Mao Zedong emerges when China has surpassed the US in military strength, world people will suffer the misery experienced by Chinese people in Mao era. China surpassing the US in GDP is not something to worry about as China has the heavy burden to satisfy its huge population, but China surpassing the US in military strength will be world people’s greatest concern if China remains an autocracy. US people are of much better quality than Chinese people. What they lack is a wise leader to adopt the correct strategy and diplomacy and the creative ways to use its resources in developing its military capabilities. I hope that with the emergence of a great leader, the US can put an end to its decline and remain number one in the world. China, US, space era strategy, air-sea battle, space-air bomber, arms race, weapon development, chan kai yee

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