Question

"After COVID-19, Can China Still Become 'Moderately Properous?', by Montijn Hulsman.

Summarise the macroeconomic indicators analysed by the author. Write your own conclusion for the question posted by the author. Explain your answer carefully, how much do you agree or disagree with the author.

Answer 1

THE ARTICLE IS MENTIONED BELOW

After COVID-19, Can China Still Become ‘Moderately Prosperous’?

By Montijn Huisman

June 09, 2020

2020 was supposed to be a triumphant year for China and the Chinese Communist Party (CCP). The country was set to finally transform into a xiaokang shehui – rendered in English as “moderately prosperous society.” Gross domestic product (GDP) and disposable income would be double what they were in 2010, and no Chinese citizens would be living under the national poverty line of 2,300 RMB per year at 2010 prices ($340). Before the Chinese Spring Festival, China’s prospects of achieving xiaokang — “moderate prosperity” — seemed good. To reach its GDP goal, the economy would have had to grow by around 6 percent this year. Poverty alleviation was similarly on track. By the end of 2019, there were still 5.5 million people living in poverty according to the National Bureau of Statistics (NBS). Since 11 million were lifted out of poverty in 2019, completely eliminating poverty this year would be an achievable, albeit still difficult, task.

Enter COVID-19. The epidemic-turned-pandemic paralyzed the Chinese economy for a three-month period and resulted in a historic contraction of GDP by 6.8 percent year-on-year in the first quarter of 2020. Nonetheless, in his annual report to the National People’s Congress (NPC) last Friday, Premier Li Keqiang projected confidence. While the premier announced that, for the first time in 30 years, China will not have an annual GDP target, he reiterated the leadership’s commitment to the long-held goal: “We will win the battle against poverty and achieve the goal of building a moderately prosperous society in all aspects.” However, faced with the pandemic, what kind of xiaokang will the government be able to deliver, and what will look like for China’s most vulnerable, who are hit hardest by the crisis?

To answer these questions, it is important to understand that xiaokang is not one specific target set by China’s current leadership. It was Deng Xiaoping who introduced the concept of “xiaokang shehui” into modern Chinese political discourse, apparently first mentioning it during a talk in October 1979 with Japanese Prime Minister Masayoshi Ohira. Deng later linked xiaokang to a crude policy goal: a quadrupling of GDP and GDP per capita in real terms from 1980 to 2000. Astonishingly, these goals were achieved well ahead of time, with GDP and GDP per capita having grown four-fold in 1995 and 1997, respectively. Xiaokang was frequently invoked by Presidents Jiang Zemin and Hu Jintao during their time in office and has assumed an important role under current President Xi Jinping. Xi has made “comprehensively building a moderately prosperous society” the first of his “Four Comprehensives,” a list of key political goals.

In a sea of propaganda and slogans, including the Chinese Dream, Eight Musts, Three Stricts and Three Honests, Community of Shared Future of Mankind, Two Centenaries, and Four Matters of Confidence, such concepts may appear to lose all meaning. Yet, discarding xiaokang as meaningless propaganda would miss the point. First, while xiaokang is a changeable concept, it is connected to real policy objectives. In the 13th Five-year Plan (2015-2020), the Chinese Communist Party (CCP) outlines that achieving a moderately prosperous society in all respects requires a doubling of GDP and disposable income from 2010 to 2020. Xiaokang has also explicitly been coupled to Xi’s anti-poverty campaign. As recent as March this year, Xi assured the Chinese people that despite the COVID-19 crisis, the government remained committed to “eradicating poverty […] as planned so as to build a moderately prosperous society in all respects.” Second, the CCP’s main source of legitimacy is without doubt economic development. For decades, as the Party oversaw rapid economic growth and a massive fall in poverty, the Chinese people have accepted severe restrictions of political freedom. Grandiose targets and campaigns such as achieving xiaokang have been precisely the way in which the CCP has communicated these developmental successes to the people.

Would it still be possible to accomplish xiaokang before 2021 according to its original formulation? In order to double 2010’s GDP, the economy would need to show strong recovery in the remainder of 2020. Surprisingly, recent signs are positive. China’s PMI expanded in the past two months and exports grew 3.5 percent in April year-on-year. Furthermore, the government announced fiscal measures that analysts say will equal to about 4.1 percent of China’s GDP.

However, these data belie a much less rosy long-term outlook. A closer look at export data reveals that its recovery stems mainly from increased global demand for medical supplies, which is unlikely to last. A fall in imports by 14.2 percent in April year-on-year underlined weak domestic demand. On top of that, the real extent of the economic damage will become visible only after industries around the world reopen. To double 2010’s GDP, the economy would have had to grow by around 6 percent this year. Given the 6.8 percent contraction in the first quarter and a collapse in demand internationally, that goal now seems impossible. Indeed, the IMF expects growth to fall as low as 1.2 percent this year. By dropping this year’s GDP target, the government has signaled it realizes that doubling GDP this year is unlikely.

Why, then, did Li Keqiang commit so strongly to achieving xiaokang? Everything indicates that the CCP is shifting its focus from quantitative economic growth to socioeconomic development. Liu Minquan, professor of economics at Peking University, says: “whether one has reached the target of xiaokang shehui should not just be about GDP statistics, but should reflect the real improvement in well-being by the people.” The new policy targets announced by the NPC indeed strongly emphasize employment creation and poverty reduction. Specifically, they aim to maintain an urban unemployment rate of 6 percent (its current level), protect living standards, and step up efforts to achieve the elimination of all rural poverty. In his speech, Li explicitly linked these targets to xiaokang. This begs the question, however, if the government will be better poised to stabilize employment and reduce poverty than it will be to promote GDP growth.

China’s official unemployment rate rose to 6 percent in April, from 5.9 percent in March. There has been much debate about the accuracy of these numbers. Some analysts suggest that unemployment could actually have reached 12 percent. Accurately measuring unemployment is always difficult, and the methodology used in China has two important flaws. First, it does not count rural unemployment. This is a legacy of China’s land tenure system, under which all rural residents were allocated state-owned land. Even if these rural residents do not work on their allocated plots, they officially remain rural land-holders and are therefore counted as employed. Second, enormous numbers of rural residents have moved to urban areas as migrant workers. Due to China’s hukou household registration system, migrants that move to urban areas to work officially remain rural citizens.

The question asked is -

Q. 1. Faced with the pandemic, what kind of xiaokang will the government be able to deliver, and what will look like for China’s most vulnerable, who are hit hardest by the crisis?

Ans. With the pandemic of covid19, I don't think the goal of achieving prosperity will be achieved as expected. They might be able to achieve some proportion of the goal but completely as IMF also mentioned it is impossible to double the GDP in 2020 than it was in 2010. China won't look most vulnerable, as almost all the countries in the world are hit by the pandemic and the growth rate has come to nothing. Thus they all are on the same page. The hardest who are hit by covid19 Is are the people who are already working their hardest to earn a living and eat and survive and now they are back to zero.

Q. 2. Would it still be possible to accomplish xiaokang before 2021 according to its original formulation?

Ans. In order to double 2010’s GDP, the economy would need to show strong recovery in the remainder of 2020. Surprisingly, recent signs are positive. China’s PMI expanded in the past two months and exports grew 3.5 percent in April year-on-year. Furthermore, the government announced fiscal measures that analysts say will equal to about 4.1 percent of China’s GDP.

However, these data belie a much less rosy long-term outlook. A closer look at export data reveals that its recovery stems mainly from increased global demand for medical supplies, which is unlikely to last. A fall in imports by 14.2 percent in April year-on-year underlined weak domestic demand. On top of that, the real extent of the economic damage will become visible only after industries around the world reopen. To double 2010’s GDP, the economy would have had to grow by around 6 percent this year. Given the 6.8 percent contraction in the first quarter and a collapse in demand internationally, that goal now seems impossible. Indeed, the IMF expects growth to fall as low as 1.2 percent this year. By dropping this year’s GDP target, the government has signaled it realizes that doubling GDP this year is unlikely.