The party congress and Chinese productivity

The party congress and Chinese productivity

Geminello Alvi | Columnist and writer
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China's economic investments go in one direction: the ‘New Silk Road', technology, and the goal of supporting national champions in the aerospace industry, robotics and electric vehicles

The nineteenth congress of the Chinese Communist Party, which opened today will mark the fact that economic growth rate estimates are achieving the difficult target of 6.5% and are even managing to surpass it. The growth rate of the first quarter of 2017 was 6.9%, the highest it has been since the third quarter of 2015- Premier Li Keqiang was congratulated for this in June at the Dalian World Economic Forum. However, the picture could be less reassuring, taking into account the recent history of productivity. The total productivity in the manufacturing industry has grown to an average of 2.6% in the decade up to 2007, but then dropped to almost zero, according to estimates by Loren Brandt of the University of Toronto.

The direction of the economic policy

The divide between product growth and the clear decline in productivity is explained by the policy of massive state support to the economy, undertaken in 2008 with a whopping $586 billion, to aid state-owned enterprises with more than the value of their total output. And President Xi Jingping's policy is now heading in the same way with both investment in the ”New Silk Road’ and in supporting national champions in the aerospace industry, robotics and in electric vehicles which relies on a policy of subsidies, easy credit and less taxes. Brandt's analysis and that of Western economists are the opposite. China’s impressive increase in productivity up to 2008 is explained in their analysis with the then closure of thousands of state-owned enterprises, and the lowering of duties. Their point of view highlights the growing inefficiency of the Chinese economy since 2008. The Party Congress' point of view will however be quite different. It will argue in terms of power, with respect to geopolitical objectives abroad and internal stability. State planning and investment remain the true constant of the party's economic policy, which is, not by coincidence, still communist and approves five-year plans. And in times of geopolitical instability, the statist's reasons, of course, are aimed at reinforcement.

 

(In the picture, front row, left to right, Chairman of the Standing Committee of the National People's Congress (NPC) Zhang Dejiang, former Chinese President Hu Jintao, Chinese President Xi Jinping, former President Jiang Zemin, and Chinese Premier Li Keqiang, are seen during the opening of the 19th National Congress of the Communist Party of China at the Great Hall of the People in Beijing, China)