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The Rupp Report

The Rupp Report: China Still Going Strong

Jürg Rupp, Executive Editor

For some months, China’s economic achievements have been on the front page of virtually every important economics newspaper and magazine around the world. Comments about the pros and cons reflect the rising importance of China. Augurs from various corners did publish their views of the situation. Some papers even reported that China is “derating its engine.” The Rupp Report also has commented at times on these figures, and is of the opinion that the Chinese engine is rolling at a very high pace — compared to other important economies.
 
More Open
And now the official numbers have been released, provided by Chinese government departments such as the National Bureau of Statistics, Ministry of Finance, Ministry of Commerce, and Ministry of Human Resources and Social Security. And it seems they are indeed still pretty good.
 
No one should forget that just the publication of these numbers is quite an achievement if one has in mind the communication policy of the Chinese government some years ago. It shows that, step by step, the Chinese — as they are embedded in the global community more than ever — want to come closer to international standards. On the other hand, and this seems to be even more important, the numbers indicate a determination to have more stable and sustainable growth. On top of that, they reflect the transformation of the economy and the distortion of the country’s policy during the last decade.
 

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GDP Still Growing
As reported by China’s Xinhua News Agency, “Gross domestic product (GDP) expanded by 7.7 percent year on year up to 56.88 trillion yuan (9.32 trillion US dollars).” This is even 0.2 points better than the government’s 7.5-percent target. A main indicator of inflation is the consumer price index (CPI). And many people, including those in the textile machinery industry, were afraid that inflation in China would rise dramatically and jeopardize the development of the country’s economy — and consequently foreign trade. However, the CPI rose 2.6 percent over the previous year’s CPI, and this is rather lower than the government’s target, which was 3.5 percent.
 
The Chinese trade surplus is always at the center of any debate with other big economies such as those of the European Union and the United States. Well, as reported by Xinhua: “Foreign trade rose 7.6 percent year on year to 4.16 trillion US dollars. The trade surplus climbed 12.8 percent to 259.75 billion US dollars. Fiscal revenue grew 10.1 percent to 12.91 trillion yuan, slower than the 12.8 percent in 2012.” The Chinese government hasn’t explained these figures yet.
 
Foreign direct investment (FDI) is always an indicator of whether investors believe in a country. Last year, FDI in China climbed another 5.25 percent up to US$117.59 billion. According to official figures, industrial value-added output in real terms went up 9.7 percent; fixed-asset investment, up 19.2 percent to 43.65 trillion yuan; and retail sales of consumer goods, up 11.5 percent to 23.44 trillion yuan.
If these figures are in accordance with the government’s aim to strengthen the domestic market the target the remains questionable and there is still a long way to go.
 
A Lot Of Cash Around …
Quite surprising is the disclosure related to the narrow money supply (M1), which includes cash in circulation and in current corporate deposits. This amount grew by 9.3 percent to 33.73 trillion yuan. On the other hand, the broad money supply (M2), which includes cash in circulation and all deposits, grew by 13.6 percent to 110.65 trillion yuan.
 
Always a much debated issue is the parity rate between the U.S. dollar and the yuan: Xinhua reported that “The central parity rate of the yuan against the U.S. dollar appreciated by 3.09 percent over the year to 6.0969 at the end of 2013.” Last November, the Central Committee of the Communist Party decided on reforms that should kick-off some necessary liberalization. One of the leaders in this endeavor is the politically controlled central bank. It has taken for months a harder line concerning liquidity issues against commercial banks and has also concluded certain liberalizations regarding interest rates and regulations of gray areas of banking. It also allows for the appreciation of the yuan. This move has been highly urged for years by China’s trading partners.
 
… In A Very Big Country…
An always staggering number is the Chinese population: The mainland population by the end of 2013 was at 1.36 billion, an increase of 6.68 million people over 2012. This small growth could be one reason to ease the one-child policy in the country. On the other hand, having more young people will support a global trend toward having more elderly people, and, of course, will sustain a future domestic market. As a result of all the migration into the big cities, the urban population grew to 731.11 million, or 53.73 percent of the total population. Yet, another Chinese phenomenon is the big number of rural migrant workers. This number rose by a small 2.4 percent to 268.94 million — 19.76 percent of China’s total population. That means that some 270 million people are on the road!
 
… Ends Up In New Jobs
Out of the 1.36 billion people, 769.77 million were employed in the whole of China in 2013, including 382.4 million in cities. Some 13.1 million new jobs were created in cities. The unemployment rate in Europe ranges from 4.8 percent in Austria up to 27.4 percent in Greece. The U.S. unemployment rate was 7.5 percent as of the end of October 2013. Compared to these figures, China’s urban unemployment rate was 4.05 percent at the end of 2013. Another indicator of the growing wealth of a people is the per capita disposable income. This income of Chinese urban residents grew 7 percent to 26,955 yuan, and rural residents’ per capita net income grew 9.3 percent to 8,896 RMB.
 
A Look Into The Crystal Ball
Government officials are not afraid of the very moderate slowdown. It is rather the contrary: Comments from the top levels of the administration indicate that they are more willing than their predecessors to accept some slowdown in order to be ready for long-term challenges and a more sustainable future. And this is not only a rhetorical sham fight. One can see that the government is ready to be open to addressing problems such as lavish investments, high debt burden in communities, overcapacities in many industrial sectors and negative developments in the financial sector — which has made too many bad loans. According to experts, infrastructure investments are still a driving force in the Chinese economy. However, the recovery of the global economy is another important factor and reflects the growing importance of the global commodity flows for the Middle Kingdom. And, don’t forget the rising amount of foreign currency in the pockets of the Chinese.
 
January 28, 2014