International media are understandably focused on the Chinese Communist
Party’s 19th National Congress, a carefully choreographed event that
will reveal who’s “in” and who’s “out” with Chinese President Xi
Jinping.
But while it is important to know who Xi’s favourites are, I do not find
the theatre and intrigue of the event to be as interesting as it is
made out to be. Far more important is whether China’s leadership is
acting in accordance with what the CCP has promised the country’s 1.3bn
people.
Just before the last congress, in 2012, Xi’s two-week absence from
public view raised concerns. In the unlikely event that the same thing
happened again this year, alarm bells would have rung. Moreover, if the
agenda that Xi presents for the next five years suggests that he and the
rest of the CCP leadership are losing credibility and struggling to
maintain the party’s economic and social contract with the people, the
19th Congress will be very relevant. But I doubt we should worry too
much.
More pertinent questions come to mind – two in particular. First, will
the modest rise of the Chinese consumer continue to fuel 6-7% annual
growth? And, second, will the somewhat undefined Belt and Road
Initiative (BRI) – continue to be a major priority for China’s
leadership?
As for the first question, despite the slower growth trend this year,
China will still add around $1tn or more to its nominal GDP, giving it a
$12tn economy by the end of this year – nearly double the economy’s
size in 2010. To be sure, $12tn is just two-thirds the size of the US
economy; but the $1tn added this year is more than all but the top 15
economies in the world. It is larger than the entire GDP of Indonesia or
Turkey, and almost as large as the Mexican economy.
According to official data, private consumption in China accounts for
just 39.2% of GDP. This is very low by the standards of most high-income
economies, but it has increased from 35.5% of GDP in 2010. When that
increase is translated into hard numbers, it amounts to an additional
$2.58tn since 2010 – an increment that is larger than the entire Indian
economy. The growth of Chinese consumption is easily the most important
factor in global consumption growth today.
If Chinese consumption growth were to continue on its modest upward
trajectory until 2020, it would account for just over 41.5% of GDP,
which is to say, almost another $2tn. And yet there is some anecdotal
evidence to suggest that Chinese consumption growth might actually be
accelerating faster.
So, the real question for China watchers around the world is whether
anything that happens at the 19th Congress will affect this trend. If
the trend continues or accelerates, Chinese consumption could start to
approach half that of the United States, which would be an extremely
encouraging sign that the world economy is undergoing a badly needed
rebalancing.
As for the second question, I suspect that China will stay the course on
the BRI, especially given the growing concerns about trade elsewhere in
the world. While we don’t yet know the precise dynamics of this grand
project, it is safe to assume that linking China, Europe, and everywhere
in between through better infrastructure will have a significant
positive impact on world trade.
To be clear, I do not think that the BRI is as important as the Chinese
consumer to the world economy. But in terms of trade, specifically, its
impact could be enormous. The BRI stands to have a direct effect on as
many as 65 countries, including Russia and India, which along with China
constitute three of the four Bric countries (the other one is Brazil).
And nine of the 11 most populous emerging countries after China lie
within the BRI’s broad geographical scope.
Most of these countries have not yet matched China’s success in
unlocking their economic potential. Many of them devote more resources
to domestic infighting or conflict with one another than to
participating in international trade. But with BRI, cross-border trade
could increase, and some of the feuds could be laid to rest, benefiting
the region’s citizens.
Indeed, far more interesting than the BRI’s infrastructure projects are
its geopolitical implications. The BRI could subtly but significantly
improve relationships between China and its neighbours, and between the
neighbours themselves.
China’s relationship with India and other countries on the Indian
subcontinent is of particular importance. When Xi held a regional
conference to promote the BRI in May, Indian Prime Minister Narendra
Modi did not attend, much to Chinese leaders’ chagrin. But then, at a
Brics summit in September, China and India seemed to achieve a
significant diplomatic breakthrough over a territorial dispute. If this
turns out to be the beginning of a limited Sino-Indian rapprochement,
and if other rivals in the region follow suit, then the BRI could end up
being a landmark policy indeed.
So, when you are reading your favourite newspaper’s analysis of the
CCP’s 19th National Congress, don’t be too distracted by the court
intrigue. The two questions that really matter are whether China’s
consumer-led growth will stall; and whether the BRI will be abandoned.
Neither would be good for the global economy. But, fortunately, neither
seems likely. – Project Syndicate
* Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a
former UK Treasury Minister, is Honorary Professor of Economics at
Manchester University and former Chairman of the British government’s
Review on Antimicrobial Resistance.
A general view shows delegates attending the opening of the 19th Communist Party Congress at the Great Hall of the People in Beijing yesterday. The Chinese Communist Party opens its week-long, twice-a-decade congress in the Great Hall of the People.