China Is Slowing Down. And That Spells Trouble For The New Boys On The Block

Xi JinpingGu Suhua writes from Beijing: The latest data on Chinese economic growth reveal what everyone knows: China is slowing down. Officially the Gross Domestic Product, also known as GDP, expanded by 7.4 per cent in the third quarter compared to last year. No one takes these numbers seriously though. Statistics are collated by adding up numbers submitted by the provinces and self-governing municipalities. No one expects them to understate their performance. So what is the real number? Probably just over 6 per cent. Until recently the idea was that growth below 8 per cent would trigger social unrest in China. That myth has been laid to rest.

Take the steel industry, for example. The aggregate profit of the steel industry dropped 96 per cent to $379 billion in the first half of this year compared to last year. Almost every company has said results will be worse than forecast. A Chinese source declared that the steel industry was the ‘main disaster zone’ of the national downturn. Coal production now exceeds demand and trouble is looming.

The slowdown could not have come at a worse time for the Communist Party of China. The 18th Congress begins on November 8 and the once in a decade changing of the guard will take place. An estimated 70 per cent of the Politburo Standing Committee, the wider Politburo, government ministers and members of the Central Military Commission will be replaced. This massive change of officials appears to have been agreed at the top. However, there may be some surprises when all the new comrades are presented to the Chinese people in mid-November. Xi Jinping, the present Vice President, is expected to become President, Secretary General of the Party and Chair of the Central Military Commission. It remains to be seen if he assumes all these offices simultaneously. If he does, he would be the supreme leader.

Li KeqiangA slowing economy would be only one of Xi’s many problems. Political and economic reforms are urgently needed as well. So say the outgoing leaders, President Hu Jintao and Wen Jiabao, the Prime Minister. Hu is regarded as a very cautious leader who did not risk reform because of its uncertain consequences. The state sector of the economy – dominated by banking, energy and communications – is inefficient and needs to be opened up to competition. Private companies are excluded at present from these branches of the economy. Corruption is prevalent in these monopolies. There are huge social problems looming. Rapid economic growth has widened the gulf between the haves and have nots. There are an estimated 200 million migrant workers who have no permanent home. The hukou system requires workers to be registered for social benefits and the education of their children. Local authorities do not want to register them as they then become responsible for them.

The taxation system needs to be overhauled to respond to the increase in personal incomes. Local authorities need more revenue to cope with the ever expanding social demands of the citizens.

The greatest problem of all is to change the Chinese model of development. Traditionally economic growth has been investment driven. This has increased exports but their growth is slowing as the world economy encounters difficulties. The task now is to make economic growth consumer driven. In other words, the living standards of the Chinese should rise.

Another problem for Xi is that he is no Mao. He cannot do as he likes. He has to satisfy powerful vested interests groups to achieve change. It might prove too tough to handle. And then its downhill all the way.


China Is Slowing Down. And That Spells Trouble For The New Boys On The Block A post originally shared by Alexander first published over on Stirring Trouble Internationally. Stirring Trouble Internationally is a current affairs website with news about music, entertainment, politics and world news. Stirring Trouble Internationally - A humorous take on news and current affairs http://www.stirringtroubleinternationally.com http://feedproxy.google.com/~r/StirringTroubleInternationally/~3/3-ekrNQuiVg/ October 20, 2012 at 01:16AM

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