On the tropical island of Hainan off the southern coast of China this week, business leaders, bankers, politicians, academics and bureaucrats have been discussing everything from the potential of artificial intelligence to the rise of the Global South. But much of the focus at the Boao Forum for Asia has been on a single issue: the future of the Chinese economy.
Modelled on the World Economic Forum at Davos, the Boao Forum for Asia has drawn participants from all over Asia and beyond for almost a quarter of a century. This year, the interest from Europe and the United States was back to pre-pandemic levels as investors and analysts sought first-hand insights into what is going on in the world’s second-biggest economy.
Some delegates came directly from the China Development Forum in Beijing, a two-day event attended by the chief executives from some of the world’s biggest companies, led by Apple’s Tim Cook. Some of the American chief executives had a 90-minute meeting with Xi Jinping on Wednesday, during which he told them that the Chinese economy had not peaked and its growth prospects remained bright.
“China’s reforms will not stall, and our opening up will not stop,” he said.
“In the past, it did not collapse because of talk that it would collapse, and now, it will not peak out, just because of talk that it has peaked.”
The sense of despair and loss of confidence is highly palpable no matter who you speak with. And I’ve seen that in a whole variety of different ways in hearing voices from the Chinese private sector, from scholars, from others
— Scott Kennedy - senior adviser at the CSIS
The meeting was part of a charm offensive by Beijing aimed at reassuring foreign companies that they are welcome in China and have a future there. Last year saw a collapse in foreign direct investment into China as foreign investors complained that Xi’s focus on national security has chilled the business environment and introduced a new air of uncertainty.
Investors are also anxious about a deep property market slump that has shown no sign of ending, weak consumer demand and deflationary pressures. The Chinese government has set an economic growth target for 2024 of “around 5 per cent”, a figure many see as ambitious.
Among the American guests at the China Development Forum was Scott Kennedy, a senior adviser at the Centre for Strategic and International Studies (CSIS) in Washington. An expert on Chinese economic policy who has been visiting the country for more than 30 years; he described the feeling of gloom that followed the disappointing post-pandemic recovery.
“The sense of despair and loss of confidence is highly palpable no matter who you speak with. And I’ve seen that in a whole variety of different ways in hearing voices from the Chinese private sector, from scholars, from others,” he said.
“These people don’t have a sense of what the future will be. So given the fact the difficulties of the pandemic and the exit from the pandemic, the crackdown on private sector, the tensions with the United States, the fall of the housing market, that has all combined to lead to this loss of confidence that you sense domestically.”
Kennedy said he was at a loss to understand why the Chinese leadership was continuing to pursue a policy path that was producing such negative effects. He said that many US institutional investors had pulled their money out of China, partly because of low interest rates but also because Beijing had become unpredictable on policy.
Foreign companies have been unnerved by raids on firms that conduct due diligence in China and by changes to an anti-espionage law that have made it broader and vaguer. On Thursday, Beijing’s Ministry of State Security warned on social media that foreign entities were using consulting as a cover for stealing commercial and state secrets.
Some outside analysts have concluded that the authorities are no longer pursuing the reform and opening up that enabled China’s remarkable economic development for 40 years. For Kennedy, this change of course is one reason for the deterioration of Beijing’s relations with the US and other western countries.
“It is not approaching the management of its economy society through a lens of trying to restrict the intervention of Government and the Party in markets and people’s daily lives, but actually increasing. It’s not focused on expanding opportunities for foreign businesses and society in China. It is primarily pursuing expanding Chinese opportunities abroad. It is not focused primarily on adapting to the rules of the international system, but changing those rules or not following those rules,” he said.
“If China returned to the course of reform and opening that were consistent with those guideposts, I think the US relationship and China’s relationship with many others would improve from that. China has figured out how to worsen its relationship with just about everybody at the same time. That’s not something that is a product of some conspiracy in Washington. That’s a product of Chinese actions.”
[ Xi Jinping meets US business leaders seeking to mend China tiesOpens in new window ]
China has recorded some good economic numbers in recent days with industrial profits rising by 10.2 per cent during the first two months of the year, compared to a 2.3 per cent decline during 2023. Manufacturing sector profits grew by 17.4 per cent in January and February, with equipment manufacturing recording a rise of 28.9 per cent compared to a year ago.
The authorities have taken steps towards fiscal and monetary easing but China’s rivals complain that the focus has been on supporting manufacturing rather than giving money to consumers. They fear that by supporting sectors such as green energy and electric vehicles without boosting domestic demand, Beijing is preparing to flood the global market with such goods.
Jens Eskelund, president of the European Union Chamber of Commerce in China, last week described the trade tensions as “the unfolding of a slow-motion train crash”. He called for urgent talks about the consequences of Chinese manufacturing overcapacity which he said was present in numerous sectors.
“There needs to be an honest conversation between the EU and China on what is this going to be because it is hard for me to imagine that Europe will just sit by quietly and witness the accelerated deindustrialisation of Europe,” he told reporters.
There is overcapacity, little investment, and few job opportunities created, which affects family income and confidence in the future
— Justin Yifu Lin - Former World Bank chief economist
Justin Yifu Lin, former chief economist at the World Bank, told the Boao forum that economic growth in developed countries had not recovered since the 2008 crash and this had affected the growth in trade. Lin, who is now dean of the Institute of New Structural Economics at Beijing University, said the weakness in global trade was at the root of China’s weak consumer confidence.
“There is overcapacity, little investment and few job opportunities created, which affects family income and confidence in the future. It is also difficult for consumption to grow. In the past few years, we have been talking about relying on consumption to drive the economy. Why can’t it do so? How can we dare to consume more if our income does not increase? Because export growth is slow, economic growth is slow,” he said.
“This requires the government to do a lot of things. It has invested in a lot of infrastructure in the past. Now that the downward pressure is so great, it also needs to adopt proactive fiscal policies and moderately flexible and loose monetary policies. Fortunately, China has relatively large policy space because the government’s debt is relatively low by global standards.”
The stakes are high, not only for China but for a global economy that has depended on Asia for much of its growth in recent years. The presence of so many chief executives from the world’s biggest companies in Beijing this week was a testament to the importance of China and its market.
The International Monetary Fund’s (IMF) managing director Kristalina Georgieva told the China Development Forum that Beijing faced a fork in the road. It could stick with the policies of the past or update its policies for a new era of high-quality growth.
“A key feature of high-quality growth will need to be higher reliance on domestic consumption. Doing so depends on boosting the spending power of individuals and families,” she said.
The younger generations, who have lived their whole lives in an environment of exceptionally high growth rates, are experiencing what many countries have experienced before as economies mature and growth moderates
— Kristalina Georgieva - IMF managing director
She said the housing market had to be moved on to a more sustainable footing and the associated local government debt risks reduced. And she called for an expansion of China’s social security system and more investment in education and healthcare to increase labour productivity and incomes.
“The transformation ahead is not easy. China’s remarkable development success has delivered tremendous benefits to hundreds of millions of people. The younger generations, who have lived their whole lives in an environment of exceptionally high growth rates, are experiencing what many countries have experienced before as economies mature and growth moderates,” she said.
Ireland and China’s trading relationship
Ireland’s trade relationship with China will come under the spotlight in mid-April when it is the Country of Honour at the China International Consumer Products Expo in Haikou, the provincial capital of Hainan, just 100km north of Boao. 27 Irish companies will be represented in a 500 square metre national pavilion showcasing products including food and drink, fashion, education, culture, tourism and life sciences.
It is the biggest consumer expo in South Asia with more than 320,000 visitors last year, and Bord Bia, Tourism Ireland, Enterprise Ireland and IDA Ireland hope to benefit from being the centre of attention. The Irish embassy in China will host an Irish culture night, a fashion show, a life sciences seminar, a new products launch and a procurement matchmaking event.
Two-way trade between Ireland and China was worth €45 billion in 2022 and a succession of Ministers have visited Beijing since the lifting of pandemic restrictions. Minister for Finance Michael McGrath was in Hong Kong, Shanghai and Beijing this month, meeting Irish and Chinese business figures and politicians.
The IDA has offices in Beijing, Shanghai and Shenzhen and Chinese companies employ about 5000 people in Ireland, while about 100 Enterprise Ireland firms in China employ a similar number. Chinese tech companies like TikTok, Temu and Shein have followed their American counterparts by making Dublin their European headquarters.
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