How has the recent cautious stance taken by China’s President Xi Jinping on the economy reflected the true fundamentals?

Bloomberg Online News reported on December 03, 2013 that through news sources obtained from China’s state-run media agency, Xinhua News, President Xi Jinping made some remarks during a November 22, 2013 symposium indicating that the environment for China’s economic and social development for 2014 isn’t optimistic, and was largely in line with several recent remarks made by other Chinese leaders on the country’s economic future, indicating a much subdue growth starting from 2014.

The recent economic figures relating to production and services growth figures have so far shown no signs of impending deteriorating slowdown in the economy, particularly those coming from the production and services side. The latest official manufacturing Purchasing Managers Index (PMI) data for the month of November 2013 showed growth of 51.40, and the services PMI showing growth of 56.00. The expectations were for 51.10 for the former, and 56.30 (actual October 2013 services PMI figure) for the latter. The HSBC manufacturing PMI figures during the same month came in at 50.80, while the HSBC services PMI came in 52.50 (Data as of December 04, 2013). These latest set of data did not apparently point to any potential downturn in the Chinese economy going forward, but there are other statistics, including Gross Domestic Product (GDP) growth, which reflected a much tempered growth outlook for China. The official government estimate for growth in 2013 is 7.5 percent, and is much lower than the average 9.0 to 10.0 percent seen in previous years. The government’s economic growth estimate for 2014 is 7.0 percent. Economists have forecasted growth for 2014 to be 7.5 percent, versus 2013 growth estimate of 7.6 percent.

The latest remarks made by President Xi reflected how the Chinese Politburo leaders viewed the current state of the economy, and the expectations that come along with it. The previous Chinese administrations have largely advocated a so-called ‘growth at no cost’ policy stance, including massive infrastructure spending, and generous welfare programmes in order to boost spending, production output, and to stabilise the unemployment rate. However, with global economic picture looking mixed, and increasingly bleak, particularly with the slow growth picture seen in the European Union (EU) region, and the United States, coupled with the slowdowns seen in some parts of the Asian region, including India, and Indonesia, it might be prudent to adjust the expectations for any significant uplift in the Chinese economy in 2014, as potential economic headwinds continue to add more challenges to overall global growth outlooks.

The relatively new Chinese administration under President Xi has now turned its sights on resolving the various domestic issues that hampered China’s economic progress, including the recent relaxation of the ‘one-child’ only policies; the ‘hukou’ policies which unfairly discriminate migrant workers; allowing more foreign participation in the local financial markets; opening up the state-run enterprise sector to more private participation; moves to internationalise the Chinese Yuan currency trade through the establishment of offshore trading hubs; among many others that were outlined in the recent 60-point Third Plenum Plan introduced during last month. These latest set of changes are being introduced in a bid to reflect the gradual moves to make the government more open and transparent. The new Chinese leaders are also trying to reach out to the larger group of citizens, many of whom have upgraded themselves to middle-class status, have larger aspirations to succeed in lives, and will like to provide better quality living standards to their offspring, including education, marriage, and future wealth prospects.

Going forward, there are questions as to whether the economic paths taken by the current Chinese leadership will help to maintain continuity and sustainability for the overall economy. These questions are highly hypothetical at this point because there are still many social issues, and domestic conditions which might sway public opinions about the current Chinese administration, including those who are being marginalised from the society, and China’s overall economic progress. The level and type of speech freedoms expressed by many youths in China continued to be highly restrictive, and sometimes highly controversial. The new Chinese leaders hope to reach out to as many people as possible so as to get a sense of what the ground is like before embarking on policy formations, and planning. The recent remarks provide a more realistic outlook on the overall economic picture ahead, and is somewhat seen as a sign of progress in that the current Chinese leaders have learnt to come to terms with the true realities impacting the country’s growth outlook, and will act appropriately so as to limit any unrealistic, overly-optimistic growth expectations coming from the Chinese people, businesses, market observers, and economists.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc