A lesson in the new Chinese economy

This Wednesday (7), the national date of Brazil, when we celebrate 200 years of our independence, I got to know the Chinese economic system better. My fellow Latino journalists and I attended an instructive and inspiring lecture on the new double circulation scheme for Chinese development.

Learning more about the national development project of this Asian giant really touched me. Especially on this very significant date for me, a Brazilian patriot and democrat who believes that the sovereignty of my country is undergoing a new institutional arrangement that puts the Brazilian people first.

It is good to clarify that, in my opinion, as a simple citizen without an expert in this subject, Brazil’s path of development involves political construction, not the depoliticizing and violent egolatry we have seen during this electoral period. The development route is a collective construct, not a self-help book. Every nation has to make its own recipe. But it’s worth noting what went well and what went wrong elsewhere.

A good starting point is to look at China, which, despite all the differences, has similarities with the Brazilian reality: both are continental countries, developing and full of challenges, such as income distribution.

On April 10, 2020, in the midst of the Covid-19 pandemic, China held the VII meeting of the Central Committee for Economic and Financial Affairs. A little over a year later, on March 12, 2021, the National People’s Congress, China’s National Congress, approved the XIV Five-Year Plan (2021-2025) for national economic and social development and long-term goals for 2035.

These two meetings established a new model of the Chinese economy, which had been focused on the overseas market for decades. The domestic market gained importance in this new paradigm and domestic circulation became the main support of the country, not neglecting international trade. They both started to strengthen each other.

The high growth of the Chinese economy in the last four decades is supported by two milestones. In 1978, reform and opening took place and the country began to participate in the world economy. In 2001, China joined the World Trade Organization (WTO).

During this period, until 2020, China’s economic development was directed towards international markets with the comparative advantage of low production costs (labor, material, taxes, land, less restrictions, etc.).

Currently, this model faces bottlenecks such as environmental protection, rising costs, technological capacity and domestic demand. There have also been changes in China’s global and domestic scenario, with changes in international competitiveness, in production chains and fabrics, in the size of the domestic consumer market and in the investment environment.

Facing this new context, the strategic decision to change the economic model was made in April 2021 based on the changes in China’s stage, circumstances and conditions of development.

The comprehensive, systematic, multidimensional and deep reform is also a response to the change in the international situation that has not been seen in a century, which also includes the Covid-19 pandemic. China’s new economic scheme was designed to achieve a major revitalization of the Chinese nation.

China has an annual turnover of over RMB 100 billion (US$14.35 billion). In the world, it is the 2nd economy, the 1st production force and the 2nd pole of consumption.

The country has the most complete production matrix on the planet, which includes 525 industrial sub-sectors. The purchasing power, for GDP per capita, is above 10,000 US dollars. The country’s middle class is estimated at between half a million and 700 million people. It has made significant progress in the digital economy, e-commerce and logistics.

On the other hand, the country faces the risks of deglobalization with the impacts of the Covid-19 pandemic, reindustrialization of developed economies, a new round of global technological competition, protectionism and nationalism, geopolitical tensions and trade conflicts with the USA. There has been a global decline in dependence on foreign trade: from 64% in 2006 to 31.5% in 2020.

The new Chinese economic model lists market, production and industrial systems of income distribution and consumption as priorities.

For the market system, the state has set modernization, unification, openness, competitiveness and regulation as goals. For full competition on equal terms, it will promote access to resources, competition and protection of rights by law. State enterprises will also be reformed in order to be market-oriented and improve the business environment.

Another point for the market system is industrial and competition policies, which include changes in grants, subsidies, incentives, monopolies and unfair competition.

There is also a commitment to openness to market access, intellectual property rights, cohesion with international standards and practices, multilateral trade and investment agreements, business environment and China’s global market projection.

There will also be efforts towards a single market and fluid logistics with greater efficiency in the circulation of resources, goods, services, information, technology and capital.

For the industrial production system, the new model aims to correct the imbalance between the manufacturing and financial sectors. For example, in the first quarter of 2020, Chinese indices indicated GDP of -6.8%, industrial profit of -36.7% and banking profit of +5%.

The list of changes in the industrial production system also includes addressing technological and innovation weaknesses: fundamental sciences, key technologies, business continuity, security of supply. In addition to greater investments in education, research and development (universities, laboratories, companies).

The innovation ecosystem will be fostered by government initiatives, industrial alliances, articulation of academia and industry, talent, international cooperation, appreciation of small and medium enterprises. Financial services will be repositioned in the service of the development of the real economy and technological innovations. There will also be strong investments in smart, digital and ecological transformation into new infrastructure (5G, Internet of Things, cloud computing, blockchain, data centers).

In terms of income distribution, the old economic model of industrialization based on low human costs and tax expenditures aimed at development and production conditioned the increase in purchasing power. This created wage mismatches and differences between different regions and social sectors.

To correct these disparities, the Chinese government will use strategies such as investing in quality growth and employment, investment opportunities and social security, and reducing taxes and housing prices.

In terms of the consumption system, China’s new economic model, given the transformations in consumption and the impacts of the Covid pandemic, will increase spending on leisure services such as tourism, arts and sports, accompanied by the rise of e-commerce. At the national level, they will invest in purchases, investments and public services, new infrastructure (for the digital economy), social security, real estate and market regulation.

The lecture was led by Xu Sihai, associate professor at Beijing University of Foreign Studies. He teaches several courses such as China-Latin America Economic Relations and Sino-Spanish Translation and Interpretation in Economic and Commercial Matters. Among the areas of academic interest, economic and trade cooperation between China and Latin American countries and the image of China in the Spanish-language media stand out.

See you tomorrow