LONDON – This month, international media are understandably focused on the Chinese Communist Party’s 19th National Congress, a carefully choreographed event that will reveal who’s “in” and who’s “out” with Chinese President Xi Jinping.
But while it is important to know who Xi’s favorites are, I do not find the theater and intrigue of the event to be as interesting as it is made out to be. Far more important is whether China’s leadership is acting in accordance with what the CCP has promised the country’s 1.3 billion people.
Just before the last congress, in 2012, Xi’s two-week absence from public view raised concerns. In the unlikely event that the same thing happened again this year, alarm bells would have rung. Moreover, if the agenda that Xi presents for the next five years suggests that he and the rest of the CCP leadership are losing credibility and struggling to maintain the party’s economic and social contract with the people, the 19th Congress will be very relevant. But I doubt we should worry too much.
More pertinent questions come to mind – two in particular. First, will the modest rise of the Chinese consumer continue to fuel 6-7% annual growth? And, second, will the somewhat undefined Belt and Road Initiative (BRI) – continue to be a major priority for China’s leadership?
As for the first question, despite the slower growth trend this year, China will still add around $1 trillion or more to its nominal GDP, giving it a $12 trillion economy by the end of this year – nearly double the economy’s size in 2010. To be sure, $12 trillion is just two-thirds the size of the US economy; but the $1 trillion added this year is more than all but the top 15 economies in the world. It is larger than the entire GDP of Indonesia or Turkey, and almost as large as the Mexican economy.
According to official data, private consumption in China accounts for just 39.2% of GDP. This is very low by the standards of most high-income economies, but it has increased from 35.5% of GDP in 2010. When that increase is translated into hard numbers, it amounts to an additional $2.58 trillion since 2010 – an increment that is larger than the entire Indian economy. The growth of Chinese consumption is easily the most important factor in global consumption growth today.
If Chinese consumption growth were to continue on its modest upward trajectory until 2020, it would account for just over 41.5% of GDP, which is to say, almost another $2 trillion. And yet there is some anecdotal evidence to suggest that Chinese consumption growth might actually be accelerating faster.
So, the real question for China watchers around the world is whether anything that happens at the 19th Congress will affect this trend. If the trend continues or accelerates, Chinese consumption could start to approach half that of the United States, which would be an extremely encouraging sign that the world economy is undergoing a badly needed rebalancing.
As for the second question, I suspect that China will stay the course on the BRI, especially given the growing concerns about trade elsewhere in the world. While we don’t yet know the precise dynamics of this grand project, it is safe to assume that linking China, Europe, and everywhere in between through better infrastructure will have a significant positive impact on world trade.
To be clear, I do not think that the BRI is as important as the Chinese consumer to the world economy. But in terms of trade, specifically, its impact could be enormous. The BRI stands to have a direct effect on as many as 65 countries, including Russia and India, which along with China constitute three of the four BRIC countries (the other one is Brazil). And nine of the 11 most populous emerging countries after China lie within the BRI’s broad geographical scope.
Most of these countries have not yet matched China’s success in unlocking their economic potential. Many of them devote more resources to domestic infighting or conflict with one another than to participating in international trade. But with BRI, cross-border trade could increase, and some of the feuds could be laid to rest, benefiting the region’s citizens.
Indeed, far more interesting than the BRI’s infrastructure projects are its geopolitical implications. The BRI could subtly but significantly improve relationships between China and its neighbors, and between the neighbors themselves.
China’s relationship with India and other countries on the Indian subcontinent is of particular importance. When Xi held a regional conference to promote the BRI in May, Indian Prime Minister Narendra Modi did not attend, much to Chinese leaders’ chagrin. But then, at a BRICS summit in September, China and India seemed to achieve a significant diplomatic breakthrough over a territorial dispute. If this turns out to be the beginning of a limited Sino-Indian rapprochement, and if other rivals in the region follow suit, then the BRI could end up being a landmark policy indeed.
So, when you are reading your favorite newspaper’s analysis of the CCP’s 19th National Congress, don’t be too distracted by the court intrigue. The two questions that really matter are whether China’s consumer-led growth will stall; and whether the BRI will be abandoned. Neither would be good for the global economy. But, fortunately, neither seems likely.
Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK Treasury Minister, is Honorary Professor of Economics at Manchester University and former Chairman of the British government’s Review on Antimicrobial Resistance.
By Jim O’Neill