At the Start of its fifth Decade of (re-)Development, where is China Heading?
Then, what are the economic implications?
The state-owned economy will keep much of its advantages
Though up to 90% of new jobs and 60% of growth comes from the private sector, it is clear that the state-owned enterprises (SOEs) will retain their pre-eminence. They are the levers that the government uses to drive the economy. If the economy goes down, more infrastructure projects are launched and executed by the SOEs funded through loans issued by the state banks (SOEs too). Facing a gradual and probably unavoidable slowdown in growth, the leadership, supported by its strong belief in top-down management, will not reduce its own ability to influence the economy. However, the total level of China’s debt is such (estimated at 300% of GDP, higher than any other large economy except Japan) that further financing of the growth in its current way is limited. (The chart below shows a comparison with the US for the private sector debt only, in which China’s debt growth has been the fastest.) Under the circumstances, the private sector remains critical for China’s growth and the government regularly launches new initiative in its support. Besides, foreign investment (estimated at 9.7% of GDP in 2017 so around 18% of the private sector) is also much sought after, not only for its ability to generate growth but also for its quality. Industry zones have been constantly looking for foreign investors and offer land price discounts in Shanghai of up to 60% compared to 3 years ago.
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