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Jim O'Neill - key issues at Chinese National Congress

More pertinent questions come to mind – two in particular. First, will the modest rise of the Chinese consumer continue to fuel 6-7% annual growth? And, second, will the somewhat undefined Belt and Road Initiative (BRI) – continue to be a major priority for China’s leadership?

  • As for the first question, despite the slower growth trend this year, China will still add around $1 trillion or more to its nominal GDP, giving it a $12 trillion economy by the end of this year – nearly double the economy’s size in 2010. To be sure, $12 trillion is just two-thirds the size of the US economy; but the $1 trillion added this year is more than all but the top 15 economies in the world. It is larger than the entire GDP of Indonesia or Turkey, and almost as large as the Mexican economy. According to official data, private consumption in China accounts for just 39.2% of GDP. This is very low by the standards of most high-income economies, but it has increased from 35.5% of GDP in 2010. When that increase is translated into hard numbers, it amounts to an additional $2.58 trillion since 2010 – an increment that is larger than the entire Indian economy. The growth of Chinese consumption is easily the most important factor in global consumption growth today. If Chinese consumption growth were to continue on its modest upward trajectory until 2020, it would account for just over 41.5% of GDP, which is to say, almost another $2 trillion. And yet there is some anecdotal evidence to suggest that Chinese consumption growth might actually be accelerating faster.

  • As for the second question, I suspect that China will stay the course on the BRI, especially given the growing concerns about trade elsewhere in the world. While we don’t yet know the precise dynamics of this grand project, it is safe to assume that linking China, Europe, and everywhere in between through better infrastructure will have a significant positive impact on world trade. To be clear, I do not think that the BRI is as important as the Chinese consumer to the world economy. But in terms of trade, specifically, its impact could be enormous. The BRI stands to have a direct effect on as many as 65 countries, including Russia and India, which along with China constitute three of the four BRIC countries (the other one is Brazil). And nine of the 11 most populous emerging countries after China lie within the BRI’s broad geographical scope.

  • So, when you are reading your favorite newspaper’s analysis of the CCP’s 19th National Congress, don’t be too distracted by the court intrigue. The two questions that really matter are whether China’s consumer-led growth will stall; and whether the BRI will be abandoned. Neither would be good for the global economy. But, fortunately, neither seems likely.

25th October 2017. Now that the Chinese National Congress is almost over, we have an updated on teh One Belt One Road project:

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