{"id":59634,"date":"2023-09-11T13:33:46","date_gmt":"2023-09-11T17:33:46","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/is-chinas-economy-in-decline-it-comes-down-to-property-rights\/"},"modified":"2023-09-11T13:33:49","modified_gmt":"2023-09-11T17:33:49","slug":"is-chinas-economy-in-decline-it-comes-down-to-property-rights","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=59634","title":{"rendered":"Is China’s Economy in Decline? It Comes Down to Property Rights."},"content":{"rendered":"

About the author:\u00a0Larry Hatheway<\/strong>\u00a0is a co-founder of\u00a0Jackson Hole Economics, which originally published this commentary,\u00a0and the former chief economist of UBS.<\/em><\/p>\n

In nature, males go to great lengths to capture the attention of potential mates. Bull elephants enter musth, stags grow resplendent antlers, and backyard birds engage in full-throated song. All project exaggerated versions of power and virility, designed to win over the audience of potential partners. Humans differ in one respect: Excessive sexual display is not solely the prerogative of males.<\/p>\n

\n

Being complex social creatures, humans also use exaggeration to impress about other things, including their supposed intellectual prowess. In a world of social media, where it is possible to instantly access large audiences, but where many voices compete for attention, exaggeration is the route to recognition.<\/p>\n

These days, intense competition has arisen over who can trash China\u2019s economy the most. From Wall Street to the White House, among think tanks, academics and journalists across the political spectrum, China bashing is on full display. China is described variously as a ticking time bomb, \u201cJapanified,\u201d ensnared in a middle-income trap, drowning in debt, and other vivid images portending its downfall.<\/p>\n

Hyperbole shapes perceptions, but it does not change truths. So, at the risk of losing audiences egged on by exaggeration, the truth about China is almost certainly more nuanced, complex, and uncertain than the purveyors of hype would have us believe.<\/p>\n

I don\u2019t make this point to deny that China faces enormous challenges. Nor to argue that China\u2019s is in good shape (it is not) or to suggest that Chinese economic policy is without flaws. Rather, it is an assertion that today\u2019s fashionable pessimism about China ignores or underestimates intrinsic strengths of the Chinese economy. China\u2019s future is neither clear nor foreordained.<\/p>\n

China\u2019s Challenges<\/strong><\/p>\n

Although widely reported, it is nevertheless helpful to begin with a recap of the major challenges China\u2019s economy faces.<\/p>\n

China\u2019s largest imbalance resides in its two-decade long story of excessive debt-financed urbanization. Estimates suggest that the cumulative impact of unwinding property malinvestment could amount to as much as 10% of Chinese GDP, or roughly $2 trillion at prevailing exchange rates. And while comparisons to the U.S. or European housing crises that precipitated the global financial crisis are probably wide of the mark (given much lower risk of bank runs in China), an oversupply of Chinese housing and rising bad debts will impose long-lasting impacts on household wealth, resulting in a persistent drag on consumer demand.<\/p>\n

China\u2019s second major challenge is an aging population. China\u2019s labor-force growth has slowed to a standstill, and its population will shrink for a generation or more. A declining supply of labor means that productivity must accelerate if strong economic growth is to be maintained. The good news is that after a quarter-century of significant capital misallocation, better investment outcomes may now ensue. Yet it is by no means assured that productivity will grow rapidly in the years to come\u2014in China or anywhere else.<\/p>\n

In short, China\u2019s trend economic growth rate has slowed and will slow further in the years to come. Even with some allowance for catch up into higher value-added sectors, China\u2019s long-term sustainable real GDP growth rate has probably decelerated to about 3% per annum, only marginally higher than that of the U.S. It is therefore little surprise that many economists have postponed the date when China\u2019s economy will overtake that of the U.S. until the middle of this century or later.<\/p>\n

But it seems hyperbolic to suggest that slowing trend growth in China is tantamount to a ticking time bomb. One might, of course, question whether China\u2019s political and social institutions can cope with weaker growth, sector dislocations and higher unemployment during its inevitable transition. But those are questions pertaining to China\u2019s political system and not its economy, per se.<\/p>\n

Equally, any analysis of China\u2019s medium-term growth prospects is incomplete without noting China\u2019s intrinsic economic strengths. Specifically, they include an enormous domestic market, access to global markets via supply chains for trade and finance, China\u2019s human capital potential, and China\u2019s market-based economic dynamism.<\/p>\n

Having the world\u2019s second-largest national economy as well as access to global trade and finance makes China an exceedingly attractive place for investment and innovation. China also offers a well-diversified economy. It is not overly reliant on a single product, market, or industry.<\/p>\n

A vast pool of existing human capital\u2014Chinese universities produce more engineers annually than any other country\u2014is also a key strength. Moreover, China is poised to make massive education gains. Today, over 70% of Chinese workers have not completed secondary education, but the histories of other successful middle- and high-income countries suggests that increasing average education levels will provide China with legions of skilled workers increasingly tooled for the challenges of modernity.<\/p>\n

Still, the most underestimated factor by pessimists is their failure to account for market forces in China\u2019s development. According to the World Bank, state-owned enterprises represent about one quarter of China\u2019s output, with the private sector dominating production. China\u2019s economy is \u201cCommunist\u201d in name only. It is not the old Soviet model of centralized planning. Rather, China\u2019s economy is flexible and dynamic, as its successful sectors including alternative energy, electric vehicles, data analysis, and high tech underscore.<\/p>\n

Herein lies the crucial issue when considering China\u2019s prospects, the one Adam Posen of the Peterson Institute for International Economics has recently and eloquently raised. To paraphrase, whether secular pessimism or guarded optimism is warranted for China depends crucially on whether President Xi Jinping\u2019s authoritarian government is compromising those same foundations of free enterprise in China. If so, pessimism is warranted, otherwise probably not.<\/p>\n

Free markets are nothing more than the freedom to exchange property rights. For a market-based economy to thrive, therefore, property rights must be respected. As Posen notes, Xi\u2019s crackdowns on corruption and tech tycoons, as well as his government\u2019s harsh implementation of zero-Covid policies during the pandemic, risk shattering the confidence of ordinary Chinese households and businesses in their ability to make basic economic decisions free from government intrusion.<\/p>\n

If Xi\u2019s authoritarianism erodes trust in property rights, it will mark a historic reversal of the policies unleashed by former Chinese leader Deng Xiaopeng and his successors in the four decades after 1980. A Xi U-turn would pose the single biggest threat in a half century to China\u2019s emergence as a growing economic power and would validate the pessimist\u2019s fears.<\/p>\n

Simply put, there is no evidence of a successful economic development without the protection of property rights.<\/p>\n

In this most crucial respect, conjecture is possible but firm conclusions are not. We simply do not know how Xi\u2019s authoritarian tendencies will play out, whether they will clash or co-exist with a market economy. That question, rather than breathless claims of pessimistic certainty, should be our focus.<\/p>\n

Unfortunately, how we think about and analyze issues, how competition for attention interferes with clarity of communication, works against those who are cautious about drawing premature conclusions. But sometimes the search for truth requires us to ward off hype, exaggeration and bias.<\/p>\n

Guest commentaries like this one are written by authors outside the Barron\u2019s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to\u00a0<\/em>ideas@barrons.com<\/em>.\u00a0 \u00a0<\/em><\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

About the author:\u00a0Larry Hatheway\u00a0is a co-founder of\u00a0Jackson Hole Economics, which originally published this commentary,\u00a0and the former chief economist of UBS. In nature, males go to great lengths to capture the attention of potential mates. Bull elephants enter musth, stags grow resplendent antlers, and backyard birds engage in full-throated song. All project exaggerated versions of power […]<\/p>\n","protected":false},"author":1,"featured_media":59635,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-59634","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nIs China's Economy in Decline? 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