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Xi's China
BY ALAN KOHLER - 20/10/2017 | VIEW MORE ARTICLES BY ALAN KOHLER

Further on the synchronised global upswing that is underway: it is the second one this decade where the spark for the rise in global growth came out of China rather than the United States.

China’s fiscal and monetary stimulus after the GFC in 2009-10 was the most powerful in the world and lifted everyone out of the Great Recession.

Over the past few years, US growth has been steady but insipid, while Chinese economic growth, instead of imploding as expected by just about everyone, actually took off in 2016 on the back of another massive burst of state investment and a new real estate cycle.

That rebound in Chinese growth, boosted regional trade and other emerging markets and jump-started a global economic cycle that even Europe and Japan have now joined in.

In the early 2000s, Australia was the key beneficiary of China’s development post its entry into the World Trade Organisation in 2001. Now the whole world is getting pulled along in China’s slipstream.

This week its 3rd quarter GDP growth was reported at 6.8%, down a little from the previous quarter, but ahead of the five-year plan target of 6.5%.

At the same time, the Communist Party held its congress and President Xi Jinping addressed the stupefied audience for three and a half hours! Now if there’s one indicator of the degree of democracy in a country, it’s the length of the leader’s speeches: the longer they are, the more of a dictatorship it is.

Xi was declaring to the world that he is in charge; what he said didn’t matter – never mind the quality, feel the width. It wasn’t the full Fidel Castro, but close.

What did he say? Well, it was all about China’s power. As the New York Times reported, he referred to China as a “great” or “strong” power 26 times, a departure from the days when leaders in Beijing depicted their country as a poor, modest player abroad.

China is now flexing its muscles globally in a way it has never done before, and the US under Donald Trump is neither inclined, or able, to do anything about.

Xi said China’s economy was shifting from a high growth regime to a “high quality” one. The aim is to be innovative country by 2035 and a modernised one by 2050 (I’m not sure how he’s defining those terms, but there you go).

Raymond Yeung, the Beijing-based economist for ANZ, wrote after the speech that:

"To be an ‘innovative economy’ like South Korea by 2035, China’s gross domestic income per capita needs to rise by an average of 6.6% in real USD terms or 4.5% in PPP terms, from 2017 onwards. To be a modernised economy by 2050, such as a high income country by the World Bank’s standard, the required average growth rates should be 4.9% and 3.3% per year over the next 35 years, respectively”.

I don’t know where Raymond got those numbers from, but let’s assume they’re right. Basically Xi Jinping is signalling that he intends to have NO recessions for 30 or 40 years – maybe forever.

That’s what all politicians say (except for Paul Keating in 1990) but China’s politicians aren’t actually engaged in normal politics. As discussed, it’s a communist dictatorship, and history suggests that, like bull markets, they die of exhaustion, not old age, and until then they do what they say.

In other words, Australia and the capitalist world, can rely upon the commies to drive economic growth for a long time to come.

It’s got to be the greatest irony since Chinese doctors invented gunpowder in the 9th century while looking for the elixir of life.

To see more of Alan Kohler visit The Constant Investor for his Weekly Overview, exclusive stock tips, investment ideas, podcasts and much more. Click here to learn more.



View More Articles By Alan Kolher

The Constant Investor is the new home of Alan Kohler, founder of Eureka Report and the ABC's finance presenter. Join to receive - Kohler's Weekly Overview, exclusive stock tips, investment ideas, podcasts and much more. Click here to learn more.



 

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