China Economy: Since Hu Jintao´s harmony to Xi Jinping´s dilemma

3rd October, 2014 – Article previously published in

XiJinping ascended to the General Secretariat of the Central Committee of the Chinese Communist Party (March 2013) promised a program of reforms, to continue to grow the economy. Not that his electoral promise and had to be accountable to the voters. His commitment was to the two pillars that guarantee stability in a country of 1500 million people, the Communist Party and the Army. However, a wide divergence between these two bastions in the system and society is based, could cause a schism with unpredictable social consequences. Hence the economy into the equation as an essential factor of stability. Student riots in Hong Kong are a joke-rather a gnat to the Chinese government, which could kill them more quickly and effectively than with the Revolt of Tiananmen Square.

Chinese state capitalism has generated double-digit economic growth for three decades. 400 million have been lifted out of poverty. -Still an emerging middle class, with annual net income located 25% of Americans or Europeans that groups on the coast, and a million people with more than a million dollars-hence called them millionaires have changed the reality of China to the outside world knows. Shanghai is a “show room” with impressive financial district, towering skyscrapers, the scene of action movies and Western intelligence (Skyfall, Mission Impossible …), but Shanghai is not China, nor is Beijing. Nor the vast China is identified with the spectacular production sites in Guangdong and Chongqing, with 800,000 workers factories …

The first conclusion of China’s economic growth initiated by Deng Xiaoping in 1979 is the huge imbalances that which generated the rise: Chinese society is not the fake communist paradise -espejismo of reality that everyone has everything: a few have much, few, have something, just have an overwhelming majority. In this, China would not differ too much from the rest of the developed world, but for the size, dimensions.

The divergence between domestic and foreign demand: A social imbalances joins other conclusion. Until now, the great factory of the world that is China has been very cheap to export at low cost. Exports expoleado GDP, until now, when the world economy-said October 2, 2014 the IMF begins to slow down again, except in the United States. Xi Jinping pledged not harmonious growth – “harmonious society” – as his predecessor, Hu Jintao. Your challenge has been, since March 2013, increase the consumption capacity of Chinese to increase domestic consumption and offset the decline in exports. For that, it is necessary to grow the purchasing power of citizens. Which, in China, is opposed to a policy of high productivity factor based on much work to very low wage costs. In fact, in the last twelve months, the Chinese labor costs have increased, so that their factories are less productive. -Apple American giants, Wall-Mart- have used to “back to vaunted and popular (populist) made in America” ​​significant production and return to the United States, which explains partially-just really falling unemployment in America.

The reality is that Xi Jinping is having to choose between continuing with its reforms and spur economic growth. Can not do both at the same time, the Chinese vice innate system, which is not inclusive in their institutions, not to be democratic (“Why nations fail”, 2012, Harvard). The economic stimulus measures implemented by Xi have impacted only once, and the second largest economy in size, not be able to prevent a sharp decline in the housing market, and a greater decline in industrial production: last August , that fell 6.9% year-on -year, the lowest growth since the recession of 2008.

The government can not promote stimulus packages style of Barack Obama in the United States (787 billion in February 2009, an additional 400 billion in September 2011) is with high levels of debt among the major banks the world,-many companies estatales- and governments at all levels of management.

The Chinese PMI in September remained at the same level as August: 51.1. Anecdotal ¿? No, symptomatic: it is already a trend in 2014 The question is what to do now Xi Jinping. You have two options: take strong measures, much like cutting interest rates, like the United States and Europe, or accept (resigned) to the slowing economy with rising unemployment and lower growth. This second is not an option for a Secretary General of the Central Committee of the Chinese Communist Party. Today, the “purges” are not like those of Mao, they are more friendly, and … subtle, harmonious … but there are.

It would be the first time that China breached, in a hypothetical scenario, with its economic growth target of 7.5% for this year. In Europe, we would like manna that growth out of the blue, but for the Chinese economy is a level slightly above the recession: China needs to expand two digits, but these growths “are long forgotten,” have been forgotten. Bloomberg, Wall Street Journal, Barclays, The Economist Intelligence Unit, HSBC …, all agree that either Xi Jinping, helmsman big or small, we do not know, but it appears that pulling medium big- have to make decisions soon, and that will be drastic, to stimulate growth.

Students in Hong Kong appear with mobile phones, or do not qualify as “china (stone) in the shoe of China” …