BOFIT, the Bank of Finland’s Institute for Economies in Transition, will hold a wide-ranging discussion on Monday (December 17) to address two major issues facing China’s economy. First, can China shift fast enough away from its current investment-driven growth model to a more sustainable model? Second, how is the Chinese economy and society responding to the shifting balance of power in international trade and the current trade war?
The discussion will examine current trends in the Chinese economy. China’s slowing growth does not just signal that its earlier growth model has reached the end of the road, but that the share of fixed investment relative to GDP, which has remained well above 40 % in recent years, is increasingly hard to justify. Chinese firms of course still have many opportunities to increase their productivity, and thereby Chinese living standards, but this has not been a particular focus of economic policy in recent years. In any case, defending fixed investment becomes increasing difficult politically as the return on every yuan devoted to such investment diminishes. At some point, the need to shift gears becomes self-evident.
The second cornerstone of the Chinese economy – tight integration with the global economy – is under threat. China’s openness to foreign trade makes it increasingly vulnerable to disruptions in global trade. Moreover, threats to the international trade system can manifest rapidly in China, which, given the size of its economy, can have huge repercussions. Such situations can be further aggravated by foreign actors, for example, the current efforts of the US administration to undermine Chinese modes of operation it opposes. China’s integration with the global economy also has wider implications than trade alone. Chinese firms for several years now have been investing on every continent and in a vast range of industries. Because China itself restricts foreign investment in many branches, some governments have passed laws to limit foreign investment. Many countries today are considering even stricter measures on Chinese investors.
The event, “Crouching Grey Rhino, Hidden Black Swan,” will run for about three hours starting at 9 AM (UTC+2). It will be broadcast live on the Bank of Finland’s YouTube channel and posted for later viewing.