In 2010 almost one in five Chinese people lived in poverty. By 2017 that figure had fallen to a little under one in 30, according to the World Bank. It’s an astonishing decline in poverty achieved with a mix of authoritarianism, competitive markets and a huge increase in corporate and state borrowing.

During his state of the union speech last week to Chinese communist party officials in Beijing’s Great Hall of the People, it was clear that Li Keqiang, the prime minister, was worried this situation might go into reverse.

He told the audience that GDP growth would be lower this year at between 6% and 6.5%, down from 6.6% in 2018 and the slowest rate in nearly 30 years.

The prIme minister emphasised that officials needed to be mindful of job losses in the industrial sector and put more money into retraining schemes. He instructed his officials to reduce their spending to avoid accusations of cronyism. And he countered the growing sense among private sector entrepreneurs that the Communist party no longer supported them.

Notably, though, he refrained from smoothing ruffled feathers with the promise of easier credit. With the country’s debts standing at 220% of GDP, he obviously felt any extra lending capacity should be kept in reserve to deal with the rocky times that almost certainly lie ahead.

The most immediate problem confronting Beijing is a battle it hopes will be resolved soon with US President Donald Trump over import tariffs.

Without a deal, the 20% plunge in exports during February that China reported last week is only likely to get worse. Trump has accused Beijing of subsidising its exports and artificially depressing its currency to aid that effort. In addition, the US wants Chinese companies to be banned from demanding technology transfers as the price of entering Chinese markets.

It is difficult to make a case for currency depreciation when the People’s Bank of China has sanctioned a huge expansion of credit, just as every central bank has done, not to devalue the currency but to bolster the economy.

However, subsidies in the Chinese industrial sector, both to state-owned and private companies, are rife, and technology transfers, which are a pernicious form of protectionism, are commonly demanded from foreign firms.

The White House set a deadline for talks of 1 March. However, that date passed without agreement and Trump said on Friday that he wouldn’t sign a “bad deal”, but compromise is in the air.

The most recent trade figures for the US showed the world’s largest economy suffered its worst trade deficit in 10 years. As if to emphasise the economic law that both sides lose in a protectionist war, the December data, which was delayed following the US government shutdown, revealed a 19% increase in the trade deficit for 2018 following a dip in exports and rocketing imports. The worsening data on both sides of the Pacific should bring both sides together and that is what the rest of the world should hope for.

An agreement would allow Beijing to concentrate on the bigger issue of achieving growth without an endless supply of young people and in a way that limits CO2 emissions. A meagre welfare state also needs to be given a boost, along with a health system that is undermined by corruption.

Households have the savings to pay higher tax rates in return for better services, but officials, as they do everywhere in the world, fear putting up taxes.

President Xi Jinping has proved to be more concerned with consolidating his own power than confronting these longer-term problems. Hopefully those around him will nudge him to take action.

Source: The Guardian

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