GeoEconomics Center and Rhodium Group
China is a global economic powerhouse, but its system remains opaque. With distress in the property sector, Beijing’s crackdown on technology companies, and the draconian zero-Covid policy being perpetuated through 2022, questions are mounting about Beijing’s economic trajectory. Both policymakers and businesses around the world are assessing how to respond and position themselves. Leaders need a shared language to describe China’s economic system that can be trusted by all sides for its accuracy and objectivity. This is the goal of the China Pathfinder Project.
Building on the framework they launched in 2021, over the past year teams from the Atlantic Council and Rhodium Group have taken a dive into China’s economy to address a fundamental question: Is China becoming more or less like other open-market economies?
To conduct this cross-country comparison, the China Pathfinder report looks at six components of the market model: financial system development, competition, innovation system, trade openness, direct investment openness, and portfolio investment openness. Our annual scorecard places China in relation to ten leading OECD economies to establish a data-centered benchmark for discussion and analysis. It finds China’s progress toward market economy norms slowed in most areas from 2020 to 2021, though not enough to undermine the market opening efforts that took place since 2010.
China only showed considerable improvement in innovation and trade compared to 2010; the gap was further narrowed as scores for several OECD economies sagged. In other economic areas, the report finds that China is not the only country pulling back from market economy norms. Compared to 2010, we find that backsliding occurred in Australia, Italy and Spain in the areas of financial system development and market competition, while quite a few market economies turned less open to foreign direct investment.
These trends unfold as the world looks to Beijing for its twice-a-decade Party congress. While a third term could free Xi Jinping’s hand to take bolder action in the face of China’s formidable economic challenges, doing so will mean accepting greater economic disruption in the short to medium-term and some loss of control for the Communist Party. Xi’s most urgent domestic task will be to reform the financial system and promote greater market competition. On the external side, greater openness to foreign portfolio and direct investment will be critical. If China’s leadership fails to tackle the structural problems in the economy, growth could languish in the zero to two percent range for a prolonged period.
No comments:
Post a Comment