China’s lack of ‘policy pragmatism’ biggest threat to long-term growth, veteran economist says
- China watcher Andy Rothman says government must continue to take the serious steps the Chinese economy needs
- San Francisco-based strategist for investment fund Matthews Asia believes gross domestic product growth is ‘the least important’ indicator in measuring performance
The biggest threat to the future of China’s economy is not the trade war with the United States or its rapidly ageing population, but rather a loss of pragmatism in policymaking, a veteran China watcher said.
Andy Rothman, a San Francisco-based strategist for investment fund Matthews Asia, said that Beijing needed to overcome its vested interests and ideological restraints to move the world’s second-biggest economy forward.
“The biggest risk … is that they [the Chinese government] don’t continue to be pragmatic or embrace serious changes,” Rothman, who lived in China for more than 20 years as a US diplomat and later as an economist at a brokerage, said on Thursday.
His comments came as concerns have grown that China’s leadership, headed by President Xi Jinping, is shunning the pragmatism seen in the days of Deng Xiaoping for a more ideological approach in managing the economy.
While the government promised a long list of liberalisation and deregulation measures in 2013 to give the market “a decisive role” in resource allocation in the economy, progress has been slow, even backsliding at times, on fronts from capital controls to the shake-up of state-owned enterprises.
Rothman said China’s market-oriented changes had been “smaller and slower” since Xi became president in March 2013, partly because “the easy stuff was done in the early days”. But he said that China was moving towards a “market-based economy”.
“It won’t be an easy, straight path. But they’ll likely get there because they know this is what’s necessary … to stay in power,” he said.
“My view is grounded in a fundamental belief that the leadership of the Communist Party understands that one of the main reasons it’s still in power is [that] it has been pragmatic and not ideological in making economic policy.”
I don’t think we are looking at decoupling and disengagement today, but I am certainly worried about it in the future
Rothman said the risk of a decoupling of China and US was real but it would be unwise if that were to happen.
“I don’t think we are looking at decoupling and disengagement today, but I am certainly worried about it in the future,” he said.
China contributed more growth to the world economy than the United States, Europe and Japan combined, he said.
“It’s impossible to decouple from something like that … and it doesn’t make sense for the United States [to do so].”
Rothman said China needed to embrace the rule of law and transparency in regulation and strive for improvements in education, innovation, automation and services because the days of relying on cheap manufacturing were largely over.
“The key drivers that [China’s] growth has relied on for the last several decades have either disappeared or are waning now,” he said.
“A significant share of the growth came from just adding a lot more people to the workforce every year, and now that workforce is shrinking.”
China’s year-on-year gross domestic product (GDP) growth figure, released by the National Bureau of Statistics on a quarterly basis, was “the least important statistic in China”, Rothman said.
It just doesn’t matter very much and it’s also the one that is manipulated the most. Whether growth is 5.9 [per cent ] or 6.1, really, is it going to change anything
“It just doesn’t matter very much and it’s also the one that is manipulated the most. Whether growth is 5.9 [per cent ] or 6.1, really, is it going to change anything?”
The attention paid to a steady slowdown in China’s growth, measured by the headline figure, also obscured the fact that the absolute size of the increase in the Chinese economy each year was now much larger as a result of the larger base for the calculation, he said.
“The incremental expansion and consumer spending is much, much bigger this year at 6 per cent than it was 10 years ago at 12 per cent for GDP [growth],” he said.
“The reason everybody is so obsessed with [the growth rate] is that for many years the Chinese government was obsessed with it.”
