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Abu Dhabi, UAEWednesday 26 September 2018

China appears to be on an unstoppable trajectory 

Although China's overall GDP has reached only 62 per cent that of the United States, centralised control of the economy should enable it to expand

Chinese President Xi Jinping. Nicolas Asfouri-Pool/Getty Images
Chinese President Xi Jinping. Nicolas Asfouri-Pool/Getty Images

China's rise appears unstoppable, with some predicting that the country - already the world's second-largest economy after the US - could go on to overtake the US before long under its "superman" president Xi Jinping.

But others urge caution and a sense of perspective in assessing China's short to medium-term prospects.

"Although China's economy is second-largest in the world, per capita GDP [the country's total economic output divided by the size of the population] is still only US$10,000," notes the veteran Japanese banker and bureaucrat Toyoo Gyohten. "But in order to claim to be a developed and leading country your per capita GDP needs to be at least $20,000," he tells The National.

"This means that China has to double its per capita GDP [in order to reach that status] but if the country continues to grow at 7 per cent per annum [although it has already fallen below that rate] it will take another 10 years," adds Mr Gyohten, an acknowledged China expert." This is a tough and difficult path for China."

Others see things differently. Although China's overall GDP has reached only 62 per cent that of the United States, centralised control of the economy should enable it to expand and align with that of other countries far more rapidly than has been the case in the US, argues the political scientist and head of the Eurasia Group Ian Bremmer.

The emergence of China as an alternative to American leadership in the global market is the biggest mega trend for 2018, Mr Bremmer suggested at the Arab Strategy Forum in Dubai in mid-December. He contrasted state control of the Chinese economy with the polarisation and populism that is currently affecting political systems in America and Europe.

Mr Bremmer highlighted Mr Xi's speech at the 19th Communist Party Congress in October as being as one of the two biggest political speeches in his lifetime, comparable to Mikhail Gorbachev’s declaration of the end of the Soviet Union in 1991.

“Xi Jinping’s speech was the first time in the modern era that a Chinese leader had stood up and said: 'We are ready to lead. We are not too small or poor, we are prepared to be a superpower.'

"In a world where we don't have a leader in the fields of trade or politics, this is a big deal," Mr Bremmer said. "The [US] Trump presidency provides more space for China to play the role it is already playing. China’s ability to say: ‘We have a strong model - that’s the biggest trend out there.”

No one, Mr Bremner added, should underestimate the significance if the fact that "the government of China [is] leading the world in robotics and artificial intelligence on the one hand and inefficient labour" on the other. "This will create long-term stability. The Chinese model is not to be emulated, but more countries will align because China is prepared to write the cheques, it is prepared to build the architecture, and back these up with its economy and technology.”

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But Yuqing Xing, an economics lecturer at Tokyo's Graduate Rsearch Centre of Policy Studies suggests that, "it is unclear which direction China’s economic reform will continue to proceed".

In recent times, Mr Xing tells The National, "instead of further reforming state-owned enterprises and deregulating those sectors monopolised by SOEs [state-owned enterprises], such as telecommunications and the oil industry, the government has repeatedly called for strengthening the role of SOEs and regarded them as the fundamentals base of the Chinese economy.

"In addition, the government has requested all private and foreign companies not only to set up a Committee of the Communist Party, but also to party members in the decision-making processes. Compounded with rising land prices and labour costs, the investment environment has deteriorated substantially."

In 2016, Mr Xing notes, "China’s overseas FDI [foreign direct investment] amounted to US$170 billion. But, it then fell off a cliff and dropped by more than 50 per cent in 2017 owing to tightened capital controls.

"To curb capital outflows, the Chinese government has banned overseas investment in real estate and entertainment sectors and tightened screening processes," Mr Xing says. "China’s foreign exchange reserves have stopped falling and the Yuan has appreciated about 5 per cent against the US dollar so far.

"However, capital outflows remain a serious concern of the government. A large [volume] of capital outflows would undermine the financial stability of the Chinese economy. Given the possible large tax cut in the US, China could feel even more pressure of capital outflows.

"Without a relaxing of capital controls - even temporary measures - it is unlikely that China' overseas FDI will pick up significantly in 2018."

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