On July 10, 2023, the Hungarian Institute of International Affairs (HIIA) hosted a public event entitled „Coming to a halt or gathering strength? Chinese economy after lifting the zero-COVID policy”. The event’s participants were Ferenc Bánhidi, associate fellow of the PPKE BTK Modern East-Asia Research Group, and Csaba Moldicz, Head of the Center for Foreign Economics at Mathias Corvinus Collegium. The event was moderated by Gergely Salát, senior research fellow at the Hungarian Institute of International Affairs.
The discussion started off by outlining the main processes in the Chinese economy during the 2010s. Bánhidi Ferenc argued that even though focusing on the slowdown of Chinese economic growth and the stalling of pro-market reforms is common, this proves to be a one-sided narrative. While the goal of market dominance, as envisaged in the 60-point reform-plan of November 2013, has not been fully achieved, China has made significant progress in many areas, such as creating an efficient financial and capital market, accelerating technological development and innovation. However, there is still room for improvement in economic development, particularly in terms of GDP per capita.
Csaba Moldicz also referred to the dominant narrative that China has fallen into the middle-income trap, which can be misleading, as he said that China still has room for extensive growth. He also highlighted that the Chinese economy is special in the sense that it can focus on both extensive and intensive growth at the same time.
The next question concerned how the events of the late 2010s – such as the COVID-19 outbreak, the US’ trade war and a generally more hostile international climate – impacted China’s economy. In response, Ferenc Bánhidi spoke of the concept of dual circulation, one of China’s key economic policies to adapt to the tensions created by the trade war and the processes of globalisation. He said that while China wants to remain open to the world, it has recognised the countervailing trends – the trade war and the proliferation of sanctions – and is placing greater emphasis on internal markets and building complete value chains. Csaba Moldicz confirmed that the focus in China has shifted to internal markets in response to the changing international situation. He cited historical examples to show that when China’s access to a certain technology is restricted, it can respond by developing that technology. Therefore, the Western sanctions strategy cannot stop Chinese technological development: it can slow it down at most. Both experts stressed that the dual circulation strategy does not equal a process of decoupling between the Chinese and Western economies: even if international companies find themselves in a less favourable environment in China due to short-term political motivations, in the long run, economic interests still prevail.
The economic bounce-back in China seen after lifting the COVID lockdown seems to be slowing down. Reflecting on this, Csaba Moldicz noted that while external factors are difficult to change, there is still room for economic growth in China through internal reforms, such as easing restrictions on internal migration. In agreement, Ferenc Bánhidi also highlighted the economic potential of abolishing the hukou system, i.e. the household registration system, which could improve the huge oversupply in the real estate market. However, he added, this would mean additional expenditure for cities, for which there are currently not enough resources. As for the real estate bubble, Csaba Moldicz was of the opinion that it will not burst, as mostly state-owned enterprises are indebted to the state, resulting in internal debt, which in China is more a tool of economic policy than debt in the classical economic sense.
According to Ferenc Bánhidi, the Chinese economy’s growth trajectory will continue until 2035, considering how several technological breakthroughs have already been achieved while their widespread use and hence positive macroeconomic impact is yet to materialise. Reforms to the population registration system and the improving the private sector’s situation could further stimulate growth. Csaba Moldicz also considered the 4-5% growth rate to be sustainable in the future, and stressed the role of China’s traditional reserves, in addition to innovations, which could support extensive growth.
After the discussion, the participants also answered several questions from the audience.
Photos by Hungarian Institute of International Affairs (HIIA)