After repeatedly churning out disappointing economic data, banks are slashing China’s growth outlook for 2023. Many economists now say the modest 5% growth target China set in March is now at risk, with JPMorgan Chase cutting its estimate to 4.8% and Barclays going down to 4.5%.
The world’s second-largest economy cut two key policy rates during the week of Aug. 13 after broad misses across the economy. Nomura analysts characterized the Chinese economy as facing “an imminent downward spiral with the worst yet to come.”
China has experienced tremendous growth over several decades, dipping below the 5% GDP mark only twice since 1976: while under international sanctions following Tiananmen Square and since the COVID-19 onset. Today’s sputtering economy, serving lackluster recovery from the pandemic, has some questioning if the growth slowdown is here to stay.
“I absolutely don’t think this is the beginning of the end,” Doug Guthrie said. “I have been somebody who has studied China’s economy from the perspective of being very bullish on the gradual institutional transformation that’s been happening.”
Guthrie is a professor and director of China Initiatives at Arizona State University’s Thunderbird School of Global Management. Before taking the post, he worked for Apple in Shanghai, advising executives on business in China. Guthrie, as he notes, continues to be bullish on China, and still believes the country will hit its modest growth target this year.
“There’s a lot of hand-wringing and doom and gloom,” he said, noting the many challenges China does face, from pandemic recovery and a property crisis to trade wars and companies de-risking from China. “There’s certainly concern here, but here’s the reason it’s not the beginning of the end. For the last 43 years, the Chinese government has been striking what I like to call a gradual and institutional approach to the economy, in which the party is very involved in what’s actually going on.”
Guthrie pointed out that in August, China’s leaders are partaking in the Beidaihe meeting, an annual summer retreat.
“They don’t go and sit on beaches and hang out,” he said. “They go and get together and have casual conversations about, ‘What are we going to do for the second half of the year?’ I guarantee you those conversations are happening right now. And I’m just not that concerned. I think it’s a very, very robust economic system.”
Watch the video above for the full interview on China’s growth and challenges. Below is a shortened transcript, edited for length and clarity.
Simone Del Rosario: From the outside looking in, it doesn’t seem like fiscal policy has caught up to what is happening on the ground. There is some criticism out there that Beijing isn’t doing enough to help its troubled sectors. What do you say?
Doug Guthrie: Certainly housing is a big concern. A lot of my collaborators on the ground immediately mentioned that when I took this question to them. People are worried about a couple of different sectors. There’s housing. There’s also the question about manufacturing in a couple of different sectors, electronics, for example, going abroad. The automobile industry is doing great in China. Ford is suffering a little bit but BYD is doing great and I think Tesla’s position in China is very strong.
So there are sectors to worry about. But this is a very complex economy. A lot of people, I think, mistakenly think of the Chinese economy as just being built on the floating population and the 500 million people of cheap laborers that float around the country and provide cheap labor for organizations like Walmart. That is not what China is. China is far and away the most sophisticated manufacturing system in the world, hands down. And that can’t simply be reproduced in places like India and Malaysia. I mean, it could be, but it would take 40 years. And so I think it’s quite robust.
Simone Del Rosario: We’re looking at the second-largest economy in the world, accounting for a very large percentage of the world’s GDP. How does what’s happening in China impact the U.S. economy and why are U.S. politicians concerned about it?
Doug Guthrie: If you look back at the early days of the economic reforms when 800 million people lived in abject poverty, nobody would have predicted that by 2035, China was going to be the largest economy in the world, hands down. And I and my collaborators, we believe that number.
Right now, China is the No. 2 economy in the world and is soon to be the largest economy in the world. And this is not just a matter of us putting tariffs on goods. This is a matter of China having developed the most sophisticated manufacturing supply chain in the world. And you can’t just say, ”We’re going to have Apple stop producing iPhones in China and move them to India.” This doesn’t work that way.
So there’s a big threat here. China will become the largest economy in the world and there’s not much that a single politician, whether they’re named Trump or Biden, can do about it.
We could do something about it if we decided to invest in restructuring and rebuilding the manufacturing sector and doing all of the kinds of things that would help us, but there’s nothing we can do.
I think to a lot of politicians, and to a lot of people just in American society, they think that and hear that and it’s threatening, it’s scary. Wow, China, this formerly impoverished society that we could lambaste as a communist system that just didn’t win the battle between communism and capitalism, they’re gonna win, they’re gonna be the largest economy in the world. And there’s nothing we can do about it.
There’s an added piece here, though, which is that President Xi, his own ambitions have been not just that China return to its position as the most powerful economy in the world, but that China be respected as a geopolitical power. And so when you saw the deals happen with Saudi [Arabia] and Iran, and sort of the Middle East summit, I think that there’s a lot to be worried about, and the economics and politics get intertwined here. So it’s an interesting time.
Simone Del Rosario: I think that the reason that we continue to see repeated cycles of conversations about when China’s growth is going to slow down, especially seeing the last few years that they’ve had where it has significantly slowed down from decades past, is that it’s hard to imagine that this nation can keep up the level of growth they’ve seen.
As we saw in the United States, that level of growth starts to taper after a while. What does that tapering look like in China? I know that you believe that this current situation is temporary, but it’s hard to imagine the growth they’ve seen being sustained over continued decades.
Doug Guthrie: To be clear, as bullish as I am on the Chinese economy and how smartly it’s been rebuilt over the last 40 years, nobody expected double-digit growth to continue forever. It was inevitable that we would see a drop off from 14% to 10% to 5%. So my guess is that we’re gonna continue to see a leveling off and the growth. But if the United States comes in any year at 3% growth, we’re happy. And so my guess is that China’s eventually going to get to that position. And we’re going to continue to see innovation on both the U.S. side and the Chinese side, but we’re not going to return to double-digit growth. It’s never happening in an economy this size.
